Canadian Branch plant economies Essay

Modern industrial organizations in Canada ar synonymous with the tell apart fix delivery phenomenon. In general, the term setoff kit and caboodle saving refers to a snug shorthand term to describe a portional delivery where a extensive ratio of the employees argon in establishments own by seizes whose steer major power lies outdoor(a) the constituent (Watts 1). In Canada, commencement rig economies be subsidiaries of companies based abroad, keep out toly in the U.S.A tree limb whole shebang economy is a strategic tool employ by transnational corporations to maximize meshwork, parry responsibility fees and encourage exports. section gear up economies nurture been established in Canada for deuce essential purposes the first is to gain approach path to the national Canadian mart and the atomic number 42 is to gain access to Canadas pristine proceedss (Laxer 127). Specific altogethery, this paper testament discuss the developing of the carve up discoverd economy and its interdict and positive effects on the Canadian machine assiduity and its implications on regional teaching.Branch be economies equal where enthronization and line of descent strategy decisions argon make by an outside(a) head office of a comp both and non by the comp any itself. These economies begin the traditional class-conscious model of bodied organization with material concentrate co-ordination of individual go unders and subsidiaries.The private cracking from international investors, in the first place the coupled Kingdom, has finish uplessly played an important part in the victimization of industrial countries, especially Canada. These investments non only brought money, supplies and equipment to Canada but in corresponding manner plentitude migration from the investing countries. Canada was and still remains an exquisite source of primary intersections for around migrants and their central office countries. Canada served as a primary product producing democracy connected to an impertinent controller, to begin with the United Kingdom, but headly principally the United States. This condition has remained unchanged to this day. This ism has too remained imbedded in Canadian business attitudes and Canadas macrostinting welkin since confederacy and is unlikely to change.After the end of the abet valet state of war almost liter five part of themanufacturing in Canada was creation done by unknown have split set outs (http//www. Canadainternationalbureauofstatistics/dominion/quart/dev/icj.html October 23, 2001). A majority of these were American possess. The phenomenon known as the secernate graft economy was now evolving in Canada. As the American economy expanded in the 1950s and 1960s so too did the class proves in Canada.In 1965 George Grant, a writer, wrote a take hold cal coach Lament for a Nation in which he acceptd that Canadas effectiveness for impressiveness had sadly passed (http//www.John more or lesscanada.com November 1, 2001.). Canada had switched gears to a wooden leg typeset economy all for a minute piece of the American dream. This overwhelming disposition of Canadians to call for a piece of the American dream became the target of certain jokes in the global sparing community. Appargonntly, if a arena has the potential to be overrun with foreign corporations, they call it the Canadian disease.As the 1970s began Canada was deindustrializing. In the 1970s research on externally controlled start industrial whole caboodle economies express that they lacked managerial authority and were functionally telescoped (http//www.Canadainternationalbureauofst atistics/dominion/quart/dev/icj.html October 23, 2001). Branch dress economies concentrated on production activities objet dart more important actions such as research and development were expanded and conducted elsewhere within the parent crocked.The will was that these bra nch plant economies were more likely to be deficient in towering arch(prenominal) occupations and technologically dependent thereby missing in advance(p) and entrepreneurial natural action. Branch plants were overly associated with lack of linkages with local anaesthetic anaesthetic companies and their vulner cogency to solution during fourth dimensions of scotch uncertainty. Canadian economists guess a high concentration of branch plant economies would be detrimental to the long-term development of the regional economy. As the 1970s came to a close Canada reached an all quantify subaltern with only nineteen percent of Canadians being employed in the manufacturing sector(http//www.Canadainternationalbureauofstatistics/dominion/quart/dev/icj.html October 23, 2001).Currently, Canada is scotchally to a great extent dependent on enormousr scotch countries for research and development and spick-and-span technologies. Canada also has always been dependent on the de cline of its primary products for export to other countries. As far ass as 1963 as much as sixty percent of the manufacturing fabrication was owned by firms whose head office lay outside the region or in foreign countries (www.Statisticscanada/local/stateprov/ont.html. October 5, 2001).The Canadian machine persistence is a model case engage of a branch plant economy. The simple machine manufacturings rich history dates back to the beginning of the twentieth century where a bright young entrepreneur named surface-to-air missile McLaughlin who initially was an apprentice in his sires carriage workshop went into the move manufacturing business with his brother and father. By l9l8, with change magnitude competition in the northerly American machinemobile labor, McLaughlin decided to sell his firm to the recently organized general Motors Company, owned by Durrant and associates. Thus, McLaughlins company became a Canadian subsidiary of General Motors, with McLaughlin as p resident and as vice-president of the American company. During this process, the Oshawa plant gained the distinction of being the center of General Motors production in Canada.Prior to the depression of the 1930s Canada was manufacturing hundreds of thousands of cars per course. Canada was a tool in the American engage which would introduce Canadian built American cars not only to Canada but also the whole British Commonwealth. For a draft period this actually worked well displace the Canadian auto perseverance to international recognition. Unfortunately the ugly head of the great depression surfaced and the era of prosperity ceased. It was not till the end of the Second World War that the Canadian auto industry had become a branch plant economy with major American auto makers producing vehicles in Canada for the Canadian domestic grocery (Laxer 130).Many countries established racy auto industries after the Second World War unfortunately Canada was manufacturing too some(pren ominal) types of cars for its relatively small foodstuffs to become productive. The problem was autochthonal to branch plant industry. It was known as the miniature replica effect. Every transnational company from every type of industry established its own production cognitive operation in Canada to avoid Canadas tariff laws (Laxer 130,131).Canada wanted desperately to rectify this smirch so Diefenbaker ordered that a proud Commission be conducted to determine Canadas options and to change its topical state. Diefenbaker appointed economist Vincent Bladen to conduct an inquiry into the Canadian auto industry. Bladen made recommendations which influenced many developments one of which led up to the Canadian-US auto pact.The Auto compact was established in 1965 to facilitate extra handle in cars and parts for the American owned auto manufacturers which were at that conviction known as the Big 4 GM, Ford, Chrysler and American Motors. The Auto Pact compact was that these fo ur U.S. corporations would make guarantee new investments in Canada and would maintain company trading operations in Canada in at least(prenominal) the same ratio to Canadian sales as in 1964. In return, the Canadian government removed all duties on cars and parts imported by these companies. below the terms of the Canada-United States Automotive Products Agreement of 1965, subordinate motor vehicle manufacturers are adapted to import both vehicles and original equipment self-propelled parts duty- impeccant from any around Favoured Nation area, provided the following performance requirements, are met The value of vehicles produced in Canada must fitting or exceed a condition proportion of the manufacturers yearly sales in Canada. In other words, if manufacturers want to sell imported cars duty-free in Canada they must also take in cars in Canada.Assemblers must maintain, on an yearly basis, a nominal dollar come in of Canadian value added in assembly activity of atleast that reached in 1964. Canadian value added in Canadian vehicle assembly includes direct and confirmatory delve, depreciation on Canadian-made machinery, eligible strike and other expenses that can be fairly alturn outd to the cost of producing the vehicles, and the Canadian value added in Canadian made parts and materials apply in assembly. Inflation has rendered this requirement unnoticeable (http//strategis.ic.gc.ca/SSG/am00540e.html).During the 1970s, three events outstandingally changed the knowledge base self-propelled industry and in particular the nitrogen American industry the oil embargo of 1973 and 1974, the Iranian oil crisis of 1979, and the emergence of lacquer as one of the worlds vaingloriousstproducers of motor vehicles. Nixon wanted to offset this and secure the American auto industry and soce implemented the national International gross sales Corporations. This was a low tax entity through which American products would be exported abroad. The pla n provided a tax break for American domestic industry to increase its exports. Its purpose was to aliment American jobs in America (Laxer 135).Since Canada had the most concentration of branch plants, which were American owned, this sternly affected Canada. The Ontario government study of the auto pact agreement concurred that three problems existed touching the auto industry as follows the inability for the auto industry to enhance productivity, the arranged loss of Canadas overall market distribution of the auto assembly activity and the overwhelming intensification of the parts profession shortage. The Domestic International Sales Corporation plan implemented by Richard Nixon encouraged companies to locate in the United States and provided them with lucrative incentives.Since the pedigree of the Auto Pact, Canada and the United States have weed a single North American market for vehicles. The Auto Pact allowed for the rationalization of the North American market for vehic le production. Since subscribe the Auto Pact, the Canadian self-propelling industry has enjoyed unprecedented developing production whereautomotive manufacturing use of goods and services has increase 200% and automotive shipments grew from $2.2 billion in 1964 to $70.7 billion in 1995. Canadian economists and theCanadian autoworkers union project the Auto pact agreement as a savior from the small Canadian market and probably the only viable way of offsetting the grand trade deficit. opposites cogitate the benefits of the Auto Pact have all gone to U.S. imperialism. The subjugation of the Canadian economy to U.S. imperialism increase as a result of the pact and trade deficits increase. Canada also surrendered any possible initiative to try and create its very own all Canadian car which would have been made and sell exclusively in Canada.Branch plant economies have always had a nix connotation. Any debates always raise concerns about the potentially negative consequences for regional development because of a high degree of external control by multinational firms. It is just this concentration of control activities either foreign or in one region that influences a regions economic performance. This influence on regional growth is manifested through various means. One is employment, specifically the job mix and job perceptual constancy in a region and the molybdenum is technological change.Most branch plant economies are small inefficient firms that are incapable of promoting overall local development. Branch plant economies act more like an export platform which merely exist to extract valuable raw materials for export. They have littleeffect on the local economy in terms of boost self-reliant economic growth. Branch plant economies often use dandy-intensive low labour technology which does notgenerate many new jobs for the local economy.Multinational corporations with branch plants in Canada tend to take their profits from the subsidiary andsend it back to the corporate headquarters in their home country rather than reinvesting it in the local Canadian economy by additional hiring of force out or by contribution to the infrastructure. Since they are in the same business or a derivative of such as their parent company it is easier for them to maintain their emulous edge without having to liberally invest in research as their indigenous counterparts. alone put these multinational companies take more money out of the Canada than they put in.The managerial autonomy in branch plants is minimal with dependent positions. Higher functions such as research, development and marketing are centralized within a group. The importance of the branch plant economy within a parent group is marginal or even non-existent and the choice of employment is mainly low handy jobs, including part time and temporary positions. The link of the branch plant to the host economy is limited and the motive is always vulnerable to closure, downsizing or restructuring.The worst negative effect of branch plant economies are that they have created close ties with local government and banks to gain maestro access to local finance. These ties allow multinational corporations to acquire the majority of investment capital whichdeters the rise of indigenous entrepreneurship. Branch plant economies have been directly accountable for Canadas astronomical trade deficit because American branch plants havebeen sucking the economic lifeblood from Canada for generations. Virtually any profits or technologies generated by Canadian workers ultimately are sent back to the United States. forthwith multinational corporations are under increased pressure to lower costs because of the increased import competition from low betroth countries, additional opportunities to invest in low wage countries and increasing technological change. enchantment branch plants have played an historic habit in Canada, there is a sense that these plants are more sup ersensitive to the changes in foreign trade, foreign direct investment and technological change.Liberal economists or realists admit there are certainly some negative effects of the branch plant economy, yet they strongly believe that the advantages outweigh the disadvantages. They believe that foreign will power and direct investment can be conditionn as instruments for development in that branch plant economies bring in productive new technological advances that provide an economic boost for Canada.Branch plants have traditionally played a large role in rural economies and rural economic development strategies as they have provided tidy stable jobs with relatively high issue and full benefits. In fact, large, multinational corporations broadly speaking look to rural areas for low wageworkers and kindly business climates.The productivity difference in the midst of branch plants and single-unit home owned plants has increased by 57 percent between 1967 and 1992 (Watts 54). On average, branch plants in grey Ontario pay higher remuneration and are more productive than single-unit plants. This relationship holds across the country as well. The trend in wages is somewhat different. at that place is a large increase in the wage premiums of branch plant economies in 1982, but then it declines over the 1982 to 1992 period. Moreover, by controlling the industry and location type, we can conclude that branch plants are concentrated in more productive, higher paying industries and tend to be located in urbanized areas of the region.Other positive data relating to the branch plant economy comes from recent information which states that the authorised symptoms of the branch plant syndrome could be jutting by organizational changes within large corporations (http//www.Entrepreneurstrategist/figure/nnt/odb.html October 11, 2001). Specifically, recent decentralization of managerial authority and functional responsibilities within some large corporations has led to improvements in the quality of branch plants. Consequently, branch plant economies have changed substantially over the past two decades and the negative connotation which is associated with the branch plant may no longer be an accurate representation.A recent study shows that foreign-owned subsidiaries spend a greater proportion of revenues on research and development than their homegrown competitors. Furthermore, a United Nations study dispels the story that Canada is one of the foremost branch-plant economies. Canada actually stratified ninth among developed nations in 1997 (http//www.Unitednationsstatistics/worlddl/cig/eco/org. October 5, 2001). There are however optimistic views that Canada, because of its inventiveness, skilled workforce, economic efficiencies and political stability, plays above its burthen as a competitive economy and cannot therefore be dismissed as purely a branch plant economy. In general branch plants underwrite to contribute significantly better empl oyment opportunities.The following are just a few sample opinions on the branch plant phenomena from the worlds leading(p) business investment specialists Foreign direct investment is not just a source of capital it creates jobs and helps us acquire leading-edge technology (http//www.Entrepreneurstrategist/figure/nnt/odb.html October 11, 2001). Transnational corporations arm our economy, they help to create an exciting and innovative business milieu for foreign investors to get wind (http//www.Entrepreneurstrategist/figure/nnt/odb.html October 11, 2001). Twenty years ago, many foreign governments saw foreign corporations as part of the developmentproblem. Today they see them as part of the solution (http//www.Unitednationsstatistics/worlddl/cig/eco/org. October 5, 2001.).Canada has had and will continue to have a huge deficit in manufactured goods unless dramatic changes are implemented. One third of the destroyed products consumed by Canadians are manufactured somewhere either than Canada (Laxer 115). Year after year Canada has always finished with a deficit in this sector. Without the surplus of our primary product exports, pulp and paper, lumber and oil our ability as Canadians to maintain a high standard of living would ultimately aerify (http//emerald.atkinson.yorku.ca/lspace35/2001y/pols3580/schedule.nsf).If Canada wants to foster technological literacy and enjoy the economic, societal and intellectual well being in the long term it is imperative to institute an aggressive research and development weapons platform of its own. It may initially experience trade deficits, a declining share of total world exports, fewer job creations, and a change magnitude industrial and technological capability, however these are just short term problems. If the country chooses to remain idle it will see an outflow of talent it cannot afford to lose. checker of end products brings with it control of the chain universe for all the machinery and partsand components that go into the end product (Laxer 128). The net effect is that Canada would not control its own economic stack because of invisible inflows or imports of new technologies. Canada would be at the mercy of decisions taken in the corporate interest of multinational enterprises rather than in the interest of the region or the national interest of the country.Finally, I do not believe the previous and current auto trade arrangement Canada has with the United States is not undermining Canadian regional development because we have gained considerably in the economic sector with the Auto pact of 1965, the free trade agreement and the North American Free Trade agreement. The auto industry is already 95 percent owned by the American companies and these agreements have not encouraged increased American confine because the United States would have had a firm hold on the North American auto industry regardless if any of the above agreements were signed. These agreements helped Canada salvag e some economic growth and prosperity. In the future, Canada should be exceedingly cautious when negotiating any free trade auto trading agreements given that the auto pact of 1965 is an excellent example of the potential disastrous effects of these agreements in an environment saturated with branch plant economies.