Our head office is in Canada, but our business is beyond our borders. We help Canadian companies operate in the global market by providing financing and insurance products and services.

 

And because we work around the world, we understand that globalization has tremendous implications for Canadian businesses who want to operate internationally. We see it every day in our work.

 

That’s why it distresses me to read the pundits who talk about a retreat from globalization.

 

Look, we know the concept of trade actually dates back to the very roots of human civilization.  It was the ability to trade with one another that allowed humans to begin to specialize in agriculture rather than spending all day wandering in search of their next meal. That process of increased specialization eventually gave rise to international trade, and the phenomenon of globalization was born. In our time, trade liberalization and the explosion of technology has taken the process of globalization to a whole new level.  Today it’s an essential part of raising the quality of life for people everywhere.

 

The point is that globalization has been on a continuous forward march since the beginning of civilization. It is a force of nature.

 

Today a globalized company uses the world not just as a marketplace but as a source of supply. Thousands of specialized companies are part of fragmented supply chains. They focus on the tasks they perform best and outsource the others.

 

Let’s look at an example we all know well: RIM. RIM created an efficient, fragmented supply chain to manufacture the Blackberry. Low-productivity jobs are carried out cheaply in emerging markets while more specialized jobs stay in Canada.  The creation of jobs in emerging markets in turn creates a market for wireless technologies, including smart phones. Guess what? Your supplier may someday be your best customer.

 

The fact is Canadian businesses don’t just use trade to sell their products anymore – what we call “export trade”. Today, they use trade to connect the stages of their production process, which today can be positioned in various places around the world to save production costs. This dimension of trade we call “production trade.” This means Canadian companies own and use facilities abroad, then engage in traditional trade to sell products and services around the world. At EDC we call this multidimensional picture “Integrative Trade.”

 

I’ll come back to this idea in a moment.

 

These days the global economy is showing signs of recovery in the aftermath of the global financial crisis. Many wonder whether the forces of globalization will also recover.  It reminds me of the words of Mark Twain:  news of its death has been greatly exaggerated.

 

Some say that high oil prices will spell the end of global trade. Transport costs will become unmanageable.  Well, oil prices may have an effect on the way we do business, but globalization won’t be held back by this alone.  More likely we’ll see an increase in Canadian investment abroad as a way to access emerging markets with lower transportation costs.  In other words, globalization continues, but it may look different.

 

Other thinkers predict an outright retreat from globalization. They seem to think that it was trade liberalization led to policies that in turn led to the spread of the financial crisis. And that strong growth in Asia today is coming at the expense of jobs elsewhere. 

 

But protectionism is a straw man. History shows trade barriers hurt recovery.  Remember what happened during the 1930s when protectionist measures simply prolonged the Great Depression? Well, I don’t remember it that clearly either! But we do know from history, the effects those measures had.

 

Today’s supply chains are more global than ever before. For example, a supply chain for a specific product could touch several countries. Business in one country is tightly linked to business in another. If you attempt to put up trade barriers in such a world, who benefits? The simple answer is no one. 

 

Globalization is a force of nature and will continue in any case. By opting out, we would only set ourselves back.

 

Even so, capitalizing on the forces of globalization is not easy - we still face some conditions that are not conducive to increased trade. 

 

We face a ‘new normal.’ It emerged in the wake of the credit crisis. Growth is more subdued overall and is unbalanced. Emerging markets far outpace the developed world.  Yet, unemployment persists, and political risks make headlines every day. The ‘new normal’ appears to be particularly prone to ‘black swan’ events.  In short, we must continue to expect the unexpected.

 

So what does this mean for Canadian business? It means it is tough out there, and we are going to have to work hard to build on what we have.

 

The good news is Canadian companies are responding. We can see this in two major trends. 

 

First, they are moving steadily into emerging markets.  Exports and investments in China, Brazil and India top the list.  Actually, one-third of EDC’s business is in emerging markets.  We want that number to keep rising because it makes sense for Canadian companies to diversify -- to capitalize on strong growth in these markets. 

 

But that doesn’t mean trade with the U.S. isn’t a good strategy. After all, the U.S. is home to a large number of global corporations. In fact, their growth will outpace U.S. economic growth over the next few years. U.S. exports have been growing at a double-digit pace for the past two years. Canadian companies that are part of their supply chains will share that growth and benefit from connections to other global suppliers.

 

That applies to the supply chains elsewhere as well. Look at Samco Machinery in Scarborough. Samco manufactures factory equipment for automotive and construction companies. 

 

A few years ago it scored a major contract with Tata Motors in India. Tata manufactures the Nano – the so-called “peoples’ car” because it’s so inexpensive.  Samco set up a facility similar to their Scarborough operation to make these machines in India. Now, Samco is part of a global supply chain where Canadian ingenuity helps deliver the Nano to people all over India.

 

By the way, I have visited Samco’s operations in India but not in Canada. Now that I say that, I bet their CEO, Bob Repovs, who is here today, will be up here right after my speech to invite me to Scarborough.

 

This brings me to the second major trend we are seeing as Canadian companies respond to the forces of globalization. They are investing abroad. They are doing this either through a local presence to boost their export sales or to develop their supply chain. You see, traditional export sales aren’t the only way to tap into new markets. 

 

Integrative trade is increasingly the way the world works. Canadian exports totaled about $450 billion last year.  But what many people don’t know is that foreign affiliates of Canadian companies are already generating sales in that same range -- of more than $400 billion. The Canadian economy is spilling beyond our borders. There is another whole Canadian economy out there.
Some may argue that making these investments abroad takes jobs away from Canada. But what it does is to strengthen the company and help it grow. And that means more Canadian trade and more jobs here at home.

 

DBG Canada is a great example. DBG is an Ontario-based designer and manufacturer of stamped and unitized metal parts for the heavy truck industry. They have two plants in Mississauga and one in Woodstock. A few years ago DBG expanded its operations in Mexico. But that didn’t eliminate jobs from their Canadian operations. Instead, it created more than 400 jobs in two plants in Mexico, supplying clients such as Navistar, Train and Chrysler. And all the while DBG never stopped providing service to its

Canadian and US customers through its Canadian operations.

 

Canadian investment abroad creates opportunities.  You can’t sell goods out of a suitcase anymore. Your numbers aren’t going to explode that way.

 

A more efficient supply chain means a more competitive company in Canada. That means more global sales and a larger, more specialized workforce in Canada too.
This is the chapter of the globalization story that is often untold. Companies who engage in both production trade and export trade -- both sides of the supply and demand equation -- are more productive, and profitable and do more R&D. That sets them up for the next product cycle.

 

There are some other great examples of integrative trade here today.

 

The fact is, different approaches work for different companies.  Whether by opening a foreign affiliate, partnering with a foreign company or exporting goods or expertise, there are many ways to plug into global supply chains. For a large company, harnessing the forces of globalization may mean building a complex global supply chain and having foreign representatives scattered across the globe. For a small company, it may mean capturing a key link in the supply chain of a globalized company based in the U.S., and there are many models in between.

 

So, we think of globalization as a force of nature, to which Canadian companies must respond in some way and there are various possibilities within what we call - integrative trade. The remaining question is, how does EDC fit in?

 

Think for a moment about how complicated it is to be a global business these days:  Your head office is in Toronto. Your R&D facility is in Mexico. You have 11 parts suppliers in Asia and sales agents in 15 different countries. Imagine how many bankers and insurance companies around the world you have to deal with to roll that out smoothly.

 

Our role is to help Canadian companies take advantage of integrative trade. And our preference is to do so in partnership with the private sector – banks, insurance companies, sureties, brokers, you name it. We also partner regularly with other export credit agencies and BDC.

 

I call this our “partnership preferred philosophy.” I think it has obvious advantages. First, , it guarantees that we are charging commercial rates for everything we do. That means we are not distorting markets, just adding capacity. Second, I think it is just good policymaking. If EDC delivers its value in partnership with the private sector, we maximize the chances that, one day; the private sector will cover more of what EDC does today. That will allow us to focus more on opening new trade frontiers for Canadian companies.

 

Let me give you a practical illustration. Of our more than 900 financing transactions last year,  nearly 80 per cent were done with private sector partners, both Canadian and international.

 

Think of this like a trip to the Doctor’s office. If I have a problem, and the doctor suggests a remedy, I don’t expect to have to go back every week to have it fixed again, and the doctor doesn’t expect to see me back, either. The problem gets cured. So if certain elements of a company’s international business need facilitation from EDC today, maybe by sharing even a small part of the risk with a commercial bank we help encourage a private sector solution the next time around, and EDC can move on to a new challenge facing exporters.  

 

And there is no shortage of challenges. That’s for certain.  Globalization brings new ones every day. There are many examples here today.

 

And EDC’s plan is to be there to help. And I don’t mind flying to India or driving to Scarborough. Whatever it takes.

 

Thank you.