Why Mexicans Don't Drink Molson. Andrea Mandel-Campbell

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СКАЧАТЬ son out of Toronto’s prestigious Upper Canada College so that he could be home-schooled in Mandarin. Yet, despite Husky’s international reach and its reputation as the Cadillac of its class, the company’s revenue plunged 15 per cent in 2004.³¹ Schad admits that Husky will be able to maintain its technological leadership “only for so long.”

      With the company’s carefully tended garden ruffled by the rumble of competition half a world away, the salad days of after-work massages, a company fitness facility and a daycare centre are numbered, warned Schad. “There’s a certain entitlement attitude here. We’re going to close some things down, make it tougher,” he said of plans to introduce rigorous performance evaluations. “We can’t afford to live in an oasis here and let things go by. We have to compete.”

      What Schad is up against is a daunting combination of technology, transportation and hundreds of millions of hard-driven people willing to work twelve hours a day, six days a week, assembling everything from toys to televisions for pennies an hour. The promise of low-cost production and global reach has lured the world’s leading multinationals to China’s shores while awakening the Middle Kingdom to its own global aspirations.

      The one-time sleeping giant is now flexing its muscle, building homegrown multinationals like Huawei Technologies, an electronics equipment maker, which can afford to employ thirteen thousand highly educated Chinese engineers, roughly equivalent to Nortel Corp.’s own r&d staff, but paid one third the salary. The company, which didn’t exist before 1988, is scooping up multi-million-dollar supply contracts from Oman to Brazil and has quintupled in size since posting sales of us$1.8 billion in 2000. In 2005, Huawei racked up revenues of us$8.2 billion, including us$4.8 billion in exports, and at its current rate of growth is on track to surpass the once mighty Nortel in a matter of years.*

      This new template, being forged by the likes of Huawei, Gerdau and Mittal, turns on its head the groundings of much of the world’s economic compass. It redefines the concept of what is a commodity, reconfigures global trade patterns, blows away comparative advantage and defies the idea that proximity to market, a long-cherished Canadian advantage, matters. “The world is small and the world is flat,” says Jack Gin, chief executive of Vancouver-based Extreme CCTV , which exports surveillance cameras around the world. “It’s scary. It’s scary if you’ve got kids.”

      The future, many believe, is looking decidedly grim for Canada, still sleepily ensconced in its makeshift domestic haven. Branding itself as the world’s cheapest industrialized country,³² Canada has opted to compete as a low-wage alternative to the United States, instead of capitalizing on scale, scope or innovation. As a result, all its advantages — from its cherished car industry to its storied natural resources — are now in the direct line of fire from China and other ambitious upstarts such as Mexico, Brazil and India.

      Take the $100 billion automotive sector, the bread and butter of Canadian industry. The Big Three vehicle manufacturers, General Motors (GM), Ford, and DaimlerChrysler, on which the Canadian industry overwhelmingly depends, have been hemorrhaging money and jobs in recent years as they struggle to compete against more popular imports and more efficient rivals. But while massive plant closures and job cuts were announced in the United States and Canada in 2005 and 2006, China is attracting investment by the buckets— including from GM , which admitted that its Chinese unit was the only bright spot on the company balance sheet. China, a nation that once produced fewer cars than Australia, is expected to account for half of all new global vehicle-making capacity in the coming years. Already ahead of Canada, which since 1999 has slid from being the world’s fourth-largest vehicle producer to the eighth spot today, China is set to overtake Japan as the globe’s number two manufacturer by 2010.

      The vehicle makers, along with a host of upstart domestic manufacturers, are drawn not only by the hundreds of millions of carless Chinese but by the country’s potential as a global export base. In 2005, Honda delivered its first made-in-China cars to Germany. DaimlerChrysler quickly followed suit, inking a joint venture with China’s Chery Automobile Co. to export Chinese-made subcompact cars to Europe and the United States by 2008. In what the Financial Times described as “the start of an unstoppable shift in the global automotive sector,”³³ China’s Geely, which already ships cars to thirty-four countries in the Middle East, Africa and South America, will begin exporting hundreds of thousands of cheap compact cars to the United States sometime between 2009 and 2011. For Canada, which ships 92 per cent of its domestically manufactured cars and parts to the United States, the implications are huge.

      “China is a time bomb,” says Jim Stanford, economist with the Canadian Auto Workers union. “There is no way we will be able to compete once they get the infrastructure. They will be able to export vehicles and sell them for half the price.”

      While Chinese car manufacturers, still grappling with design and quality issues, have been forced to temper their export ambitions, not so for the auto parts industry. China is looking to become the world’s low-cost parts producer, with a stated goal of exporting us$100 billion in parts by 2010, up from us$5.6 billion in 2004.³⁴ The country’s largest manufacturer, the privately owned Wanxiang Group, which counts GM and Ford among its customers, has built up an international supply chain with stakes in more than one hundred companies, including dozens of overseas parts makers in the United States, United Kingdom, Germany and even Canada. At the same time, Germany’s Volkswagen announced plans in 2006 to increase its exports of Chinese-made car parts from just us$100 million to us$1 billion, while Ford announced that it was set to double the value of components it sourced from China to us$3 billion in 2006. “There will be a permanent shift of certain component manufactures,” says Felix Pilorusso, a Toronto-based auto industry consultant. “It’s already happening.”

      The inevitable tug towards lower-cost areas of production is even uprooting the natural-resource industries, supplanting Canadian salmon with Chilean sea bass and softwood lumber with Latvian spruce and Brazilian loblolly pine. Massive new pulp mills in South America, Eastern Europe and China are not only tapping into fast-growth forests and low-cost logging but are fundamentally changing traditional trading patterns, says Clark Binkley, a forestry industry expert and former dean of the University of British Columbia’s Faculty of Forestry.

      Until very recently the forestry industry was segregated into three regional trading blocs, which flowed north–south. Canada supplied the United States, Scandinavia sold to its more southerly European neighbours and Russia exported to Japan and Korea. But as production ramps up, particularly in the southern hemisphere, new “variegated” trade patterns are developing, says Binkley. New Zealand is now supplying the United States with wood, and Brazil is selling pulp to Europe and the United States. “Global trade is emerging,” he says, “and there’s a lot more opportunity for somebody else to be the lowest-cost producer.”

      Canadian softwood lumber producers learned that lesson the hard way when the U.S. government, under pressure from its domestic industry, slapped import quotas on Canadian wood. Both the Americans and the Canadians assumed the quota would constrict supply, pushing prices up to the benefit of both sides, says Binkley. Instead, it opened up a window of opportunity for a slew of imports from Brazil to Estonia. The newcomers managed to grab a chunk of the market, keeping prices down. And even though the original quota system is gone, the newcomers are not. European imports, virtually non-existent a decade earlier, reached record highs in 2005, accounting for nearly 5 per cent of U.S. sales,³⁵ while Canada’s share of the U.S. forest products market dropped from 69 per cent in 2000 to 62 per cent in 2004.

      “They’ve gotten in and they aren’t going to go away,” says Binkley. “We don’t have any exclusive access to the U.S. Wherever the wood is the cheapest, it’s going to come in. And it’s gotten more competitive.”

      In fact, Canadian industry is slowly waking up to the fact that what it thought was a lifetime warranty under NAFTA actually has an expiry date. Among the hardest hit has been the Canadian furniture sector, which СКАЧАТЬ