Original text signed by Isabelle Hudon, president and CEO of the Board of Trade of Metropolitan Montreal, published in Le Devoir.
April 7, 2006
Growth elsewhere means growth here as well
When you consider the importance that exports have assumed in our economy particularly in the metropolis, which accounts for 70% of Quebec exports it is somewhat surprising to remember that, twenty years ago, there was far from unanimous support for the negotiation of free trade agreements. With this in mind, it is interesting to examine another issue that is also controversial but no less important to our prosperity: foreign direct investments (FDI)
FDI made by local companies are often associated with the off-shoring of jobs and commonly thought to be one of the greatest threats to the health of our economy. Moreover, the media never miss an opportunity to spotlight striking examples of the erosion of our job base. After making the export of goods and services our strongest engine of economic growth, have our companies now become exporters of jobs?
There may be very few economic certainties, but we can be sure of one thing: when it comes to FDI, nothing is as simple as it looks. Indeed a careful analysis of the facts reveals that the establishment of overseas production activities by Canadian companies is actually good news! Of course, for anyone losing a job, a client, or a supplier, the process is no less painful. But, while it may seem counter-intuitive, this is a phenomenon that, from a broader perspective, is actually beneficial. This is why the Board of Trade is now urging governments to help SMEs establish their presence abroad by creating a Foreign Direct Investment Fund (FDIF).
Basically, it all comes down to a question of competitiveness and thus survival. In fact, companies today are facing more than just increased competition. Their rivals are becoming increasingly skilled at benefiting from the advantages of globalized supply and production chains. With FDI, they are able to reduce their costs, increase their productivity, and thus sharpen their competitive edge.
Competitive companies tend to last longer and often manage to grow and create wealth not just overseas but also locally. For the jobs that remain here are often the ones with the most added value those in the fields of design, creation, and research and development, for example. When companies are able to support their penetration of international markets through wise investments elsewhere in the world, these high value-added jobs are more easily kept here, and new ones can also be created.
Could this be an overly optimistic scenario? Absolutely not, according to the OECD, which claims that every dollar invested overseas results in two dollars of additional exports and a trade balance surplus of $1.70 for the company exporting the investment. In other words, targeted investments in other countries actually increase wealth at home something that almost every industrialized country has now understood. In fact, aside from one specific fund targeting Africa's development, Canada is currently the only G7 country not to have created a fund to support and promote FDI.
While recognizing the value of FDI has become crucial, providing the tools enabling Quebec companies of all sizes to make them is equally important. Just as we had to invest to support exports, the time has come to do the same for foreign direct investment. Because establishing a company overseas is just as difficult as selling products there, if not more so. It requires significant resources, which can be a major obstacle for SMEs, or 99% of all companies in the metropolitan area.
In this context, two things have become very clear: we must have the courage to acknowledge loudly and clearly the value of FDI for our economy; and we must act accordingly by creating a financing tool that will allow their numbers to increase.
Hyperlink to study:
http://www.ccmm.qc.ca/FDIF (PDF, 4 Mo) (in French only)