Canadian COMPETITION LAW

In advance of its upcoming “Canada in the Pacific Century” conference to be held in Ottawa this fall, the Canadian Council of Chief Executives (CCCE) has published another new paper discussing Canada’s role in a world where the role of the U.S. as a major trading partner is increasingly in doubt and the importance to Canadian businesses to understand Asia seems to grow exponentially with each passing day.

With two current resource plays by Asian state owned enterprises, a recent trade mission having just been completed by Canada’s Trade Minister to South-East Asia and a major China trade mission by Canada’s PM earlier this year, Canada/Asia relations are very much in the spotlight.

Introduction:

“For 250 years, Canada’s strong economic links with its neighbour to the south have been a cornerstone of its growth and prosperity. While the United States will continue to be a major economic partner and critical ally for Canada, it is vital that Canada build equally strong links with Asia.

During the period from 2010 to 2025, Asia is projected to generate 33 percent of global economic growth. China, the world’s second-largest economy, is urbanizing 100 times faster than the United Kingdom did in the 19th century, and is expected to rival the United States in economic terms by 2020-2030. India, too, is urbanizing rapidly. Seven new “smart” cities are planned for the Delhi-Mumbai corridor and more than 215 million people are expected to migrate from villages to cities by 2015.

Admittedly, both India and China have experienced a sharp drop in GDP growth this year. At the same time, China’s policymakers are accelerating approvals of infrastructure investments and, in India, direct foreign investment levels are at record highs.

Asia’s growth has huge implications for governments and companies around the world, and how they react will fundamentally shape their future prospects. On the following pages, we take a closer look at the opportunities and challenges for Canadian companies doing business in China, given that China is now Canada’s second-largest trading partner. And we outline actions that Canada’s governments and business leaders could take, both separately and together, to build closer ties with Asia.

Our recommendations are not intended to be prescriptive. Rather, they are options for consideration, drawn from McKinsey’s experience in Canada and globally, as well as from best practice examples in other geographies.

In sectors ranging from agriculture to retail to consumer electronics and aviation, China is fast becoming the competitive battleground on which global winners will be determined. If a 2011 survey by the American Chamber of Commerce in China is any indication, foreign companies active there are becoming increasingly successful: they have seen their revenue, margins, and profits improve markedly. They are raising their investment levels accordingly and view the future with increasing optimism.

Admittedly, the challenges related to entering the Chinese market and flourishing there are numerous. In addition to human rights issues, companies face the need to protect intellectual property, cut through regulatory red tape, attract and retain local executive talent, cope with increasing labour costs, manage joint ventures, and navigate the intricacies of government procurement.

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Considering the potential upside and the nature of the challenges, it is no longer possible for Canadian companies to succeed in China by treating it as an interesting side bet. They need to start treating China as a third home market, after Canada and the United States.

Despite the fact that Canada and Asia are linked by the Pacific Ocean, Canadian businesses lag their rivals from other OECD countries in making inroads into Asia: only half of Canada’s largest companies have operations there, whereas all of the top American companies do. Not surprisingly, many Asian business leaders see Canada primarily as a link to the United States. Canada has less brand visibility there than smaller countries such as Switzerland or the Netherlands.

Beyond China, we should not lose sight of other growth spots in Asia, specifically Southeast Asia and India. Canada and India share several fundamental            characteristics: our parliamentary democracies,           our Commonwealth relationship, the English language, and pluralistic societies. India is a young country too; while China’s working-age population will decrease over the coming years, India’s will increase. This presents a host of opportunities and plays to Canada’s strengths in the areas of education and infrastructure.”

For a copy of the CCCA’s most recent “Canada in the Pacific Century” paper, see:

CCCE – A Canadian National Economic Strategy for Asia

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