AFTER NORANDA - HOW CANADIANS MAKE ACQUISITIONS IN THE GLOBAL MARKETPLACE

Jim de Wilde
jim_dewilde@yahoo.ca

In the past few months, there has been an extensive discussion of the future of major Canadian companies. The common denominator of their strategic challenges is the question of managing globalization under new circumstances.

Bombardier, Stelco, Molson's, and Noranda have all had their moments on the front page. Too often though, the discussion continues to take place in anachronistic language like "economic nationalism" and "is foreign investment good or bad?" This is an unhelpful and confusing framework, just as the U.S. presidential debate about "outsourcing" was misleading and unhelpful. The issue remains how Canadians manage globalization to meet the economic objectives we set for ourselves in our society.

Diversified foreign investment from Germany, Japan, China, the U.S., France and the U.K. is a sign of a dynamic Canadian economy, rewarding Canadian shareholders and entrepreneurs via access to global capital markets. This ensures a fair valuation and creates an attractive return on investment. It also creates the possibility of building global networks with the countries whose companies do the acquiring. It is only a possibility if Canada has the capacity and the political will to build these networks in a strategic way. The recent discussions of Canada-India and Canada-China economic relationships are a good start. However, we have to go beyond the categories of "selling Canadian goods" and ""permitting" foreign investment". What do we want to do with these new relationships? We need to be prepared to provide Canadian skills to facilitate the commercialization of Chinese technologies and help them expand into global markets. We need to be prepared to provide Canadian private equity and venture capital to back Indian entrepreneurs and build global networks for Canadian business. We need to design strategies that make Chinese foreign investment the basis of an economic partnership, not an auction of our natural resources. We are in the first inning of the game of playing the new global patterns of growth. We have to make sure we have a team ready to play the game.

The extensive discussion about the pros and cons of Canadian companies being sold to foreign investors is of continuing relevance. If major Canadian assets are sold off, there will be no head offices in Canada to galvanize managerial and investment talent. The professional services sectors in law, accounting and management consulting, will either be outsourced or start to serve primarily international markets, leaving our own Canadian economy as a maturing portfolio with limited long-term growth prospects. More worryingly, it will exacerbate our already-existing tendency to be a farm team economy, where Canadians graduate from the University of Waterloo and go to Seattle or Houston or Palo Alto and where Canadian managers are tested in their developmental skills before being headhunted to work in Amsterdam or New York.

Our goal should be to help create two Encana or RIM stories for every time a Canadian company is sold to foreign investors. To do that Canada needs 21st century policy instruments to create an environment in Canada which allows future global brands to grow to their maximum size as Canadian companies. We need to achieve globalization with a Canadian face, a world where Canadian head offices hire Canadian professionals and ensure excellence in management practices.

The answer requires a mix of financial services policy and strategy and a business culture which produces and rewards (and therefore retains) excellence and creates the kind of global networks which can be converted into deals and new growth prospects. One immediate solvable problem is to create instruments that assist Canadian companies in going global. Our export development assistance must be more than an insurance-derived strategy for encouraging riskier marketing strategies for Canadian companies.

Canadian entrepreneurs require the kind of investment banking expertise which enables them to identify acquisition opportunities in India or the Philippines to advance a global strategy. Today, many Canadian companies lack access to the relevant expertise to think about expanding globally through acquisitions. That is one of the reasons that the option of growing through acquisitions in new rapid-growth markets has not become a habit of Canadian business. The option of growing rather than being acquired needs to always be on the table for Canadian firms when they reach the point of take-off.

What needs to be done to encourage more Canadian companies capable of global leadership? The management of globalization requires that Canadian companies can expand as internationally competitive players in an opening global economy. We need an expanded investment banking skills-set and global mergers and acquisitions capability so that Canadian businesses can go global, backed by a strategy for accessing the Indian, Chinese and the next rapid-growth global market opportunities.

An expanded Export Development Corporation, in partnership with the investment banking arms of the six banks and institutional investors like the CDP in Quebec and the Ontario Teachers' Pension Plan in Ontario could explore whether there are some profitable vehicles for meeting this need. This is one way Canada can create a state-of-the-art investment banking capacity that accelerates entry into the global economy. This will also encourage the considerable business and financial talent in Canada to invest both capital and intellectual capital at home. It was also ensure that acquisitions of Canadian companies that are an inevitable part of our economic future are one direction on a two-way street as we develop the capacities required to be effective global players ourselves.