Multinationals In Canada

Foreign multinationals make valuable contributions to the Canadian economy. Their plants not only have higher productivity, they tend to be more capital intensive, pay higher wages, and hire more white-collar workers than their domestic competitors. The higher productivity of foreign-controlled plants stems from a variety of factors, such as size, industry membership, technology use, and research and development activity. When these factors are not taken into account, the performance gap between foreign multinationals and domestic companies is large. But even after differences in size and industry are accounted for, multinationals still enjoy performance advantages over many domestic companies. Little difference between foreign multinationals and domestic firms with an external outlook The report cautions against concluding that the plants of foreign multinationals are "simply better" than their Canadian-owned competitors. Canadian firms that develop an external orientation—those that are active in export markets or that have production activities outside Canada—often stack up well against foreign multinationals. New research described in the report found that there is little difference between foreign-controlled plants and Canadian-controlled plants whose parent has an international orientation. These two groups have very similar profiles when it comes to measures of value-added per worker, gross output per worker, wages, skilled workers and technology use. In terms of research and development and innovation, Canadian companies with an external orientation exhibit slightly better performance than foreign multinationals after differences in firm size, age and industry are taken into account. Foreign multinationals have long had a substantial presence in domestic markets Several of the studies described in this report show that multinational firms have long had a substantial presence in Canadian markets in terms of their share of corporate assets and revenues. The studies note that changes in the amount of multinational activity in Canada in recent decades have coincided with important transitions in the regulatory regime governing foreign direct investment. The share of non-financial assets under foreign control fell during the more restrictive era of the 1970s and the early 1980s, and rebounded with the subsequent introduction of a less restrictive regulatory environment. As a result, current levels of multinational activity are similar to historical levels. By 2005, the overall level of foreign control in non-financial industries was at almost the same level as it was during the mid-1960s. Foreign control is concentrated in the non-financial sector of the economy, especially when measured by operating revenue. This is due, in part, to stricter regulations on foreign control in the finance and insurance industries, especially in banking. Foreign companies often gravitate to sectors of the economy where their competitive advantages can be more fully exploited. These include the sectors where economies of returns to scale and capital intensity are large, and high-tech sectors, where competition is often based on new innovative technologies. Since 2000, the foreign-controlled share of operating revenue in non-financial industries has been fairly constant, hovering around 30%. In terms of assets, foreign-controlled corporations accounted for 27.2% of assets held in non-financial industries in 2005. This has changed little since 2001. However, these foreign companies are playing an increasingly important role in shaping Canada's economic performance, as the overall contribution that they make to aggregate productivity growth has increased over the last three decades. Foreign-controlled multinationals have contributed positively to productivity in three ways. First, productivity growth has been relatively high in foreign-controlled plants compared with domestic plants. Second, there are productivity spillovers from foreign-controlled plants to domestic producers. Third, mergers involving foreign producers more frequently lead to gains in productivity, wages, profitability or market share than do mergers between domestic firms. About two-thirds of labour productivity growth in manufacturing during the last two decades came from foreign-controlled firms, despite the fact that they accounted for less than 40% of employment. ... http://www.statcan.ca/Daily/English/071113/d071113b.htm [Proofreader’s note: this article was edited for spelling and typos on November 14, 2007]

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