FEBRUARY 1994 Edition
NAFTA
We have included a NAFTA Supplement with this Digest
issue. Since NAFTA came into effect, readers may have noticed articles and
advertisements in the business press which offer, at a high cost, software
featuring the text of NAFTA including details on the new Regional Value
Content, Certificate of Origin and unfamiliar terms such as "De
Minimis" and "Accumulation." The majority of this information is
freely available from A & A Contract Customs Brokers and other sources.
TEAM CANADA
The federal government needs a cohesive "Team
Canada" style of export policy to sustain the economic recovery, says the
Canadian Exporters Association in a recently released report. Canada risks
falling behind other major trading nations unless scarce trade support and
promotion efforts are focused on Canada's strengths, the report warns. Among
the 80 recommendations:
* Draft a national export
strategy.
* Eliminate duplication
between provinces and Ottawa and federal ministries.
* Close more provincial
trade offices and move the work to consulates and embassies.
* Let business decide on
trade promotion and support needed.
* Create a new vision for
Export Development Corp.; maintain EDC's equity base and encourage co-operation
among private sector lenders.
* Increase the money
available through Canada Account financing.
* Offer export tax
incentives similar to those provided by U.S. Foreign Sales Corp and harmonize
the GST with provincial sales taxes.
* Consult exporters
before applying trade sanctions and establish a compensation plan for firms
affected.
* Simplify transportation
and customs regulations.
WAL-MART IS COMING
The recent announcement that Wal-Mart was to enter Canada
by buying 120 Woolco stores sent a ripple through the stock market causing Hudson's
Bay and Canadian Tire Corp. stock to drop by 10 per cent. This retail giant is
expecting sales of $67 billion (U.S.) for the year ending January 31.
Founded in 1962, Wal-Mart is the world's largest
retailer. A non-union operation, it boasts nearly 2,400 stores employing
520,000 people full and part time. What separates Wal-Mart from the rest of the
pack is alleged to be rock-bottom prices and a single-minded emphasis on
service.
A factor behind the company's breakneck growth has been
cutting-edge distribution methods that drive down costs, thereby reducing
prices to the customer. That allows Wal-Mart to increase market share, which in
turn gives it more clout with suppliers, which leads to even lower prices.
The way the company replenishes inventory is the
centrepiece of its competitive strategy. It is known as
"cross-docking," a largely invisible logistic technique. Goods are
continuously delivered to Wal-Mart's warehouses, where they are selected,
repacked, and then dispatched to stores, often without ever sitting in
inventory. Instead of spending valuable time in the warehouse, goods just cross
from one loading dock to another in 48 hours or less.
EDUCATION
The piece of paper earned at an educational institution
is not a guarantee of a job, but it certainly helps. This is the employment
record for 1993 when the total number of jobs went up. There were 153,000 more
jobs (up 8 per cent from 1992) for those with a university degree; 144,000 more
jobs (up 4 per cent) for those with a college diploma or trade certificate;
28,000 more jobs (up 1 per cent) for those with a high school diploma but
182,000 fewer jobs for those who failed to graduate from high school.
The figures are even more dramatic for the three-year
period from 1990 to 1993 when total employment fell by 189,000 from the peak
before the recession. 308,000 more jobs (up 17 per cent from 1990) for the
university graduates; 170,000 more jobs (up 5 per cent) for those who completed
other forms of post-secondary education or training; 16,000 fewer jobs (down
0.4 per cent) for high school graduates and a staggering 651,000 fewer jobs
(down 19 per cent) for those who dropped out before finishing high school.
TECHNOLOGY
McKesson Corp. has become the world's largest
pharmaceutical distributor. One reason: it connects U.S. and Canadian drug
stores to its Econolink-Pharmaserv data base ordering system.
As soon as a pharmacist sends an order from an in-store
terminal, a blue plastic shipping box slips onto a conveyor system in one of
their three warehouses. Bar-code scanners route it through an automatic
order-picker. Prompted by the computer, the machine tosses drug packages from
the racks into the blue box. Rarely ordered items are taken from bar-coded
shelves by people wearing computerized gloves with infrared scanners, which
help identify the correct products.
A computer printer spits an itemized invoice into the
shipping box and robots label, seal it and convey it onto a waiting truck.
Orders are filled every five seconds, with 100 per cent accuracy, and delivered
overnight.
Union Pacific constantly has more than 1,000 trains in
transit, which it monitors by sensors connected to fibre-optic cables along the
tracks. The rail network has become an information network, boosting on-time
delivery to 94 per cent from 48 per cent. To avoid "losing" cars in
sidings or rail yards, the company is applying bar-codes. Trackside scanners,
like those at supermarket checkouts, identify the cars as they pass.
FORESTRY
Lumber supply is already being constrained by factors
such as changing forest practices and more wilderness areas being protected by
government. The B.C. timber supply has peaked and pressures on wood supplies
will increase in 1994 as the B.C. government begins planned reductions of up to
20 per cent in the annual harvest. B.C. sawmills are now importing wood from
Alberta and Saskatchewan and will continue to do so as long as supplies hold
up. Total North American production of softwood lumber is 58.1 billion board
feet annually, 24.6 billion in Canada and 33.5 in the U.S. Western Canada
accounts for 16.7 billion board feet with B.C producing 14.4 billion feet of
this amount.
STEEL
Things are looking up for Canadian steel makers because
of the U.S. auto industry's resurgence and the weaker dollar. North American
car makers are the biggest customers for Canadian steel. Almost two million
vehicles were made in Canada during 1993 with 85 per cent of the total shipped
to the U.S. Still awaited are a pickup in housing and appliances, which are also
major steel consumers, and a wider industrial demand for steel.
Stelco Inc of Hamilton has announced it will resume
paying dividends on preferred shares after a three year break. In October,
Stelco reported third quarter earnings of $2 million compared with a
year-earlier loss of $58 million. Shares in Dofasco, another large Canadian
steel maker, are expected to rise by 35 per cent by the end of the year.
Co-Steel, also of Ontario, is considering building a
mini-mill in the U.S. Midwest to tap new customers and a large supply of scrap
metal there. Co-Steel's New Jersey operation is the largest producer of wire
rod in the U.S. but sells nothing west of the Mississippi River and has even
had to turn away business east of the river recently. Last year, imports
represented about 30 per cent of the seven million ton U.S. market for steel
rod and bar which is used for such products as bolts and coat hangers.
CATCH-22
For a decade tobacco consumption in Canada has been on
the decline. For the first 11 months of 1993, legal sales of domestic
cigarettes dropped 14.6 per cent from a year earlier but exports increased more
than 80 per cent. Even the tobacco industry accepts that most cigarettes
exported to the U.S. return to Canada as
contraband. It is estimated that tobacco smuggling in Ontario alone is costing
the federal and provincial governments around $1 billion in lost revenue a year
and that 70,000 cartons enter the province illegally each day. A trailer load
of cigarettes purchased in the U.S. for $600,000 can be sold illegally in
Canada for $2 million. The reason for the smuggling is a revolt by consumers
against high tobacco taxes. The federal Department of Health now predicts that
cigarette consumption will actually rise by 5 per cent in 1994 because of the
easy availability of cheap cigarettes.
ECR
"Efficient Consumer Response" (ECR) is a new
U.S. grocery industry strategy that could save the industry $30 billion and
require 41 per cent less inventory. The ultimate goal of ECR, an Electronic
Data Interchange (EDI) application, is a responsive, consumer-driven system in
which distributors and suppliers work together as business allies to maximize
consumer satisfaction and minimize cost. Accurate information and high quality
products flow through a paperless system between manufacturing line and
check-out counter with minimum degradation or interruption both within and
between trading partners. By focusing on the efficiency of the total grocery
supply systems rather than the efficiency of individual components, they expect
to reduce total systems costs, inventories and physical assets while improving
the consumer's choice of high quality, fresh grocery products. Grocery supply
chain inventories will drop as products move more quickly from packaging line
to the check-out counter. In dry goods, it will cut the supply chain inventory
from 104 days of supply to 61 days.
TOURISM
Japanese tourists spent more money in Canada last year
than other overseas visitors. The British ranked first in trips to Canada but
Japanese tourists spent $434-million--an average of $174 a night. Japanese
tourists accounted for 13 per cent of trips to Canada compared with 18 per cent
for the British. In terms of total spending however, Japan accounted for 17 per
cent of the total compared to the U.K.'s 15 per cent. B.C., traditionally the
most popular province for Japanese visitors, strengthened its position during
the past ten years, accounting for 41 per cent of overnight provincial visitors
in 1992 compared with 38 per cent in 1982, Ontario gained slightly to stand at
30 per cent, Alberta slipped to 17 per cent from 20 per cent a decade earlier.
A total of 392,000 Japanese spent one or more nights in Canada last year.
USER PAYS
A British businessman took out his bank manager for lunch
and found that his account had been charged $220 for two hours and 40 minutes
of the man's time. The bank was unrepentant saying that the manager had to read
up on the file before lunch and do a lot of paperwork afterwards.
AD AGENCIES
The new president of the Association of Canadian
Advertisers has warned that agencies will have to change considerably over the
next few years to keep up with the shifting needs of tight-fisted clients.
Agencies can expect their fees to continue to dip because many advertisers are
no longer prepared to pay their agencies the traditional 15 per cent commission
rate. Already, many advertisers are negotiating flat fees with agencies, or
other special arrangements. Many advertisers are shopping around for the most
cost effective way to communicate their message, which may not necessarily be
with one ad agency.
One Toronto agency has created considerable interest by
offering a money-back guarantee for its work. The advertiser pays the agency
its overhead and staff expenses but provides its profit only if the
advertiser's targets are met. The first advertiser to try this offer was a
small brewery. The agency redesigned the brewer's packaging and launched a new
ad campaign in December of 1992. Sales soared 50 per cent in the following two
months after stagnant sales in 1992 and sales in 1993 were up 40 per cent. This
success earned the agency income that was about 60 per cent greater than if it
had charged the fee.
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