OCTOBER 1993 Economic Digest - Importing and Exporting

OCTOBER 1993 Edition

SMALL BUSINESS

            While big companies are still shedding employees, 48,000 in the first six months of 1993, small companies are taking the lead in hiring new people, 30,000 more than a year earlier.

            In 1991 and 1992, during the worst of the recession, establishments with 200 or more workers shed almost 200,000 employees gaining most of the headlines. But their smaller counterparts with fewer that 200 on the payroll unloaded almost 650,000 people.

            Small companies outdistanced their larger counterparts as job creators in five of the seven boom years between 1983 and 1990. Over the whole span, they added 1.13 million workers, compared with 850,000 by the bigger companies.

            According to a recent poll, executives of large companies said they have a conservative or reluctant approach to change and the majority said that small businesses are generally best equipped to manage change. According to the survey, the fastest growing areas are cost, pressures, information technology, government regulations, customer demand, quality programs, quality and advancement of workers and automation.

WORLD ECONOMIES

            Until recently, economies were measured by the International Monetary Fund (IMF) in terms of the value of the output of goods and services in U.S.dollars. This made the GNP of a country change every time there was a shift of currency in relation to the U.S. dollar.

            The IMF has now adopted a new and more realistic gauge which measures the "purchasing-power parity." Rather than GNP being measured in dollars, a national basket of goods and services encompassing the likes of transport, food, clothing and shelter is tallied in local currency and compared with the purchasing power of similar goods and services in other parts of the world. This method provides a more accurate assessment of the value of what each person can buy and when multiplied by the population gives an estimate of national output.

            Using this standard, the IMF pegs China's output at $1.7 trillion last year, far above the $400 million used in earlier estimates. China's per capita income rises from $370 to $1,600 per annum and makes it the third largest in the world after the U.S. and Japan. India now becomes the 6th largest economy, displacing Italy and Britain. Canada moves from 7th to 11th, behind Mexico. This exercise has expanded the developing world's share of global output from 18 per cent to 34 per cent.

FUNDING

            A Toronto management consultant has put together a database of the myriad government departments and agencies that provide funding to small business.

            David Hearn focuses on outright grants, not tax incentives, to fund training, research and development and export marketing, generally for high-technology businesses with 10 to 500 employees. His FundFinder database summarizes each program and includes information such as the program's mandate, award levels, eligibility criteria, restrictions and expected life.

            Businesses pay an hourly fee that works out to about 10 to 15 per cent of the grant amount. Hearn will, if requested, handle all the necessary documents. He can be reached at (416) 763-0091

THE BUREAUCRACY

            The number of federal bureaucrats rose by almost 14,000 last fiscal year, a 5.6 per cent growth. And despite salary freezes, the federal payroll grew by more than $100 million, from $18.9 billion in 1991-92 to a provisional $19 billion for 1992-93. Between January 1991 and February 1992, the number of government employees at all levels increased by 72,000.

U.S. JOB CREATION

            European companies with U.S. plants provide more jobs to American workers than those of all other countries combined. A recent European-American Chamber of Commerce report shows that 2.9 million Americans were working in 1990 for the U.S. affiliates of European companies, many in high-paying manufacturing jobs. A companion Price Waterhouse study shows 4.7 million additional jobs created indirectly by purchases of materials, supplies and services from U.S. firms by European companies.

IMPORTS

            More than 85 per cent of Canada's imports come from the U.S., Japan and the European Community but imports from the rest of the world have climbed by 38% since 1988.     During the first half of this year, Canadian purchases from everybody else in the world was running at an annual rate of more than $23-billion, up 10% over the previous year. Significantly, almost half of those imports--$10.3-billion, came from just eight Asian countries. Taiwan, China, South Korea and Hong Kong led the pack with about $8- billion in sales to Canada. Only China has made big gains in recent years with sales to Canada in 1992 of $2.5 billion, a rise of 157% since 1988. Hong Kong and South Korea have lost ground while Taiwan's exports have grown slowly. Others have made solid gains. Singapore, up 38%, Malaysia, up 85%, Thailand, up 68% and Indonesia, up 120%.

BARLEY

            Until August of this year, all sales of barley to the U.S or other provinces had to go through the Canadian Wheat Board, a federal Crown agency. In addition, all imports had to be approved by the Wheat Board. In an attempt to open the Canadian-U.S. border to the free flow of barley, a Cabinet Order in Council was passed allowing Prairie farmers and grain dealers to bypass the Board and sign their own deals.  On behalf of three Prairie wheat pools, a Federal Court judge has now overturned the Order saying that the government exceeded its authority and that changes to the Wheat Board Act must be approved by Parliament. Thus the battle lines are drawn between advocates of a free continental market and those who believe in co-operative marketing through the wheat board. The Government is appealing the ruling but time is short as the crop will shortly be harvested and, in good faith, thousands of contracts have already been entered into and millions of tonnes of barley have been presold.

U.S. JOB TRAINING

            A new study shows the number of U.S. workers receiving formal training this year from their employers surged to a record 44 million, up 15 per cent. This raise is being funded by a 7 per cent jump in training dollars to $48 billion from $44 billion last year. The survey polled 2,500 of 131,000 companies with more than 100 employees. A possible reason is all the talk about job training in the 1992 election. The training includes formal classroom instruction and well as computer and video-based training, not casual on-the-job training.

EMPLOYERS

            With a 1992 payroll of $7.9-billion, says the Canadian Bankers Association, the country's banks are a major private-sector employer. The top five are: hospitals, 566,803 employees; construction industry, 357,659; banking, 172,776; printing and publishing, 131,166; mines, quarries and oil wells, 118,341. 

WHATCOM COUNTY

            According to a new study prepared for the Washington Tourism Commission, Whatcom County ranks seventh among Washington's 39 counties in tourist spending having earned $177 million in 1991 on local attractions, services and accommodations. The new study includes impacts such as spending by day-visitors. Tourism accounts for 2,200 jobs in Whatcom County, generating a payroll of nearly $30 million and producing $2.2 million in local tax receipts.

CRISIS-MANAGEMENT

            In August, Molson Brewery, Canada's largest brewery withdrew and inspected 80 million bottles of beer from Quebec bars and store shelves after a consumer discovered an alkaline cleaning fluid in a bottle. Only ten tainted bottles turned up, six found by consumers and four by Molson staff.

            Molson, which has about 57 per cent of the Quebec market, says it is too early to estimate the cost of the operation but early indications are that the effect on sales has been minimal. Less than an hour after the news broke, senior executives were fielding reporters' phone calls and by the next morning an 800 number was operating to answer calls from consumers and officials made themselves available to all newscasts in the province. (Only 200 consumers called and half were in the first two days.) For the next week, daily progress reports were issued and the company took out newspaper ads to apologize for the incident. (Faulty equipment allowed cleaning fluid to get in one of the production lines.) 

            The whole operation was directed by two crisis management teams, one in Montreal and the other in Toronto. Obviously, the key to success was the fact that Molson already had a crisis management team in place which had gone through simulations many times and was ready for a problem of this magnitude.

U.S. EXPORTERS

            The U.S. Commerce Department estimates that 300,000 small U.S. businesses have exportable products yet only 40,000 currently export. A survey of small businesses reports that one reason, given by 11 per cent for failing to begin or expand exports is "lack of information or know-how." Other reasons are: "lack of time," 8 per cent and "financing difficulties" and "cost competitiveness," both 5 per cent. The top reason was given by 34 per cent was "no desire to export." Customs Brokers and Freight Forwarders have been identified as a key source of support in assisting new exporters.

RETAIL

            Vancouver is now one of the most vibrant retail markets in the country. Tiffany's has just opened a downtown store, the only other one is in Toronto, and is hoping to attract the Asian market. At the other end of the scale, Dollar Empire (almost-everything-for-a-dollar)            has opened in mid-town Kerrisdale. Retail sales across the province are running, on average, about 10 per cent ahead of last year, which also posted a healthy increase. Elsewhere in the West, Vancouver-based A & B Sound is opening stores in Calgary and Edmonton. The healthy market is also attracting a stream of new U.S. retailers, such as Talbot's which markets high-end women's fashions, and the giant Home Depot and Eagle Hardware.

SIGN OF THE TIMES

            A recent Gallup Poll showed that 41 per cent of Canadians holding full- or part-time jobs believe there is a chance they will become unemployed. An insurance company has now unveiled a plan which provides that people in Ontario laid off while buying a house will have their monthly mortgage payments and taxes--up to a monthly maximum of $2500--covered for twelve months. The cost of the protection is $4.85 for each $100 of monthly mortgage payments. According to Statistics Canada data, the average job loss period as a result of layoff is seven months.

DISCOUNTS

            Money-saving coupons for cereals, detergents and soft drinks are not unusual, but whisky and cognac? It is all part of a scheme by Quebec's liquor board. Beer and wine are selling well, but sales of hard liquor have been slowing for the last five years. Recently, the board put a sheet of discount coupons in Montreal's newspapers offering bargains on 24 of its most popular, and profitable, brands. The coupons provide a $5.00 discount on Hennessy Cognac and $1.00 off Schenley whisky.

HIGH-TECH

            China wishes to speed up postal delivery and, to this end, imported $12 million worth of automatic mail sorting equipment from Europe capable of handling 30,000 letters each hour. However, the machines are choking on sub-standard Chinese envelopes with more than 60 per cent of letters being rejected by the machines and many letters having been shredded by mistake. The ministry of posts and telecommunications has ordered that all envelopes must be standardized by next April.

SEPTEMBER 1993 Economic Digest - Importing and Exporting

SEPTEMBER 1993 Edition

ASSETS

            Privatization is a policy that in 1980 seemed adventurous to some and unworkable to everybody else. In 1993 it is economic orthodoxy worldwide. Last year alone, governments sold $69 billion-worth of state-owned enterprises. The amount raised since the mid 1980s is $300 billion. If big privatizations being planned in France and Italy go ahead, the total will surge again over the next few years. Many other governments--in rich countries, poor countries, capitalist countries and ex-communist countries, even still-communist countries--are selling off the state.       

            By any measure, a transfer of ownership on this scale is a global economic revolution. The evidence so far is that privatization works. Done well, it frees companies from the paralysing grip of public control, stimulates competition and unleashes enterprise. Like any revolution however, it may cause pain: and it may be followed by counter-revolution, though in the developed countries with a socialist opposition, it seems to be accepted that most privatizations are irreversible. In the developing and ex-communist countries, privatization's victory is not assured unless popular opinion judges it to be a success.

CRUISING

            The Port of Seattle calculates that the Alaska cruise ship industry generates $118 million annually in economic benefits to Vancouver, while Seattle gets only around $3.5 million. That translates into 236 cruise ship calls and 449,299 passengers for Vancouver compared with seven ships and 2,722 passengers for Seattle. More than half of the passengers taking Alaska cruises fly into SeaTac airport and then take a bus to Vancouver.

            Holland-America expects to transport 111,000 passengers this summer between Vancouver and Alaska on 74 sailings with four ships which will increase to 94 next summer with the addition of a fifth ship.

            Ironically, the cause of this is the Passenger Services Act of 1886, a protectionist law that makes it illegal for foreign-flag vessels to transport passengers between U.S. ports. (The U.S. purchased Alaska from Russia in 1867). Today there are only two U.S.-flag cruise ships in service which do inter-island cruises in Hawaii.

            It is expected that before long, a bill will be introduced to change this Act to allow foreign passenger vessels to operate between U.S. ports provided they take a serious interest in investing in the cruise-ship building industry.

PROVINCES

            Ontario, British Columbia and Quebec continued to attract new residents in 1991-92 while Saskatchewan, Manitoba and Newfoundland saw continued erosion of their population bases. Ontario had the highest net gain: 94,561 more people moved in than out. B.C. showed the second highest, 66,183 and Quebec was third with 30,226. Immigrants flocked to the big cities. Nearly half of those who settled in Ontario went to Toronto. Two-thirds of those who settled in Quebec went to Montreal and 8 out of 10 who came to B.C. settled in Vancouver. However, Toronto and Montreal lost more people than they gained and Vancouver showed a net increase.

GATT

            The General Agreement on Tariffs and Trade (GATT) in Geneva has turned to the public to pressure governments to wrap up a long over-due trade liberalizing pact stating that government policies keep prices on products such as food, clothing and cars artificially high and increase taxes. For example, Canada's system of supply management for eggs, poultry and dairy farming restrict imports, as do those of the European Community, Norway, Mexico and Finland. It is estimated that resolution of the Uruguay Round would expand the world economy by $200 million annually, but would mean sacrificing the interests of protected domestic industries. Among the examples cited by the GATT:

            * Textiles and clothing: Import quotas and tariffs cost a four-person household in the U.S. up to $420 a year, in Canada $220 a year and in Britain $130 a year.

            * Electronics: VCR's, TV's and CD players, often subject to high import barriers, cost the European Community an estimated $1.3 billion a year.

            * Cars: American and European  restrictions against Japanese imports cut the choice of cars and increase the price. Japanese cars in Britain  are 70 per cent more expensive than in Japan.

            * Rice: Japan has banned imports to protect domestic farmers. Rice costing $45 to $50 per 100 pounds in the U.S. sells for $175 to $250 in Japan.

RESEARCH & DEVELOPMENT

            Statistics Canada projections indicate that despite an uncertain economic outlook, research spending is holding steady. Industry is expected to plow $5.6 billion into in-house R&D this year, an increase of 2.9 per cent over 1992.  

            The leading research industries are telecommunications equipment (14 per cent), engineering and scientific services (nine per cent), aircraft and parts (eight per cent), other electronic equipment (six per cent) and business machines (six per cent). Over the last five years, these sectors have accounted for more than half of all R&D expenditures.  The highest increase in in-house R&D from 1989 to 1993 was achieved by management consulting services (124 per cent) and pharmaceuticals and medicine (101 per cent).

            Canadian controlled companies accounted for 64 per cent of all R&D spending in 1991, the last year for which this statistic is available. 53,730 Canadians were employed in industrial R&D and there were 3,566 firms that performed R&D of which 446 were foreign controlled.

LONG-TERM UNEMPLOYMENT

            In 1990, there were 1.1 million Canadians without work, 62,000 of whom had been jobless for more than a year. By June of 1993, 1.55 million were unemployed--up 40 per cent-- but 207,000 had not worked in more than 12 months, an increase of 234 per cent. This represents about 13.4 per cent of all those unemployed compared to 5.6 per cent in 1990.

            Bad as these figures are, they pale in comparison with those of some countries. In 1992, France and Australia reported rates of about 35 per cent and for 1991, Belgium, Italy and Ireland, almost two-thirds of the unemployed had been out of work for at least a year.

            Ironically, the two countries that have been doing better than Canada come from opposite ends of the economic-policy spectrum. Last year, the rate in Sweden, the world's model "cradle to grave" country, was 8.1 per cent while the U.S., exemplifying the free market, had a rate of 11.2 per cent. The Paris based OECD feels the steady rise in long term unemployment over the last ten years is one of the most disturbing features of the way labour markets have been performing in the industrialized world.

            In Canada, the rates were highest in Quebec (16.3 per cent) and Ontario (15.1 per cent), the provinces hardest hit by the recession. Rates were lowest in B.C. (6.2 per cent) and Nova Scotia (6.9 per cent).

PUBLIC SERVICE

            In certain sectors of the U.K. public service, an incentive structure has been changed into a form of internal market system where semi-autonomous functioning groups, or "Agencies," are given fixed budgets and told to run their own shows. At the end of the year, if they spend less than their allotted budget, they retain half in bonuses and performance pay and the other half goes back to the Crown. After being implemented for one year in the British Passport Office (now Authority), the waiting list for passports went from two months to five days.

           

BEER

            The recent agreement ending the Canada-U.S. beer dispute is "un-Canadian" if Ottawa does not settle a trade fight between New Brunswick's Moosehead Brewery and Ontario, the New Brunswick government has said. Moosehead pay an extra $3.53 a case for a variety of charges which are not levied against Ontario brewed beers.

            Meanwhile, Big Rock Brewery Ltd of Alberta, brewer of such household names as Warthog, Buzzard Breath and Albino Rhino claims to be doing much better in California than they ever could in Toronto. They also sell well in Washington, Oregon and Arizona.

            Not only do Big Rock's beers carry unorthodox names, but in promoting its additive-free beers, the company eschews traditional marketing promotions such as sponsoring baseball teams, beach volleyball tournaments or running ads showing good times and parties. Instead they target theatre groups, folk festivals, ballet and opera while relying heavily on word of mouth. In the first three months of this year, sales have increased 24 per cent over last year and the company has now gone public on NASDAQ in the U.S.

HIGH-TECH

            In 1989, Hughes Aircraft of Canada Ltd was named the prime contractor to re-vamp Canada's air-traffic control system (CAATS), a $400 million contract to be completed by 1996. Much of the development work is done in Richmond and in return for receiving the CAATS contract, Hughes pledged to spread activity across Canada. They now have a workforce of 750 of which 91 per cent are Canadian. The largest subcontractor is Richmond-based MacDonald Dettwiler which, with partners, is doing work worth $60 million.

            The company has broken into the competitive European market with a sale to Switzerland and is going after major contracts in Australia, Brunei, Korea, Indonesia and China and hopes to crack the British-based ATC system which handles trans-Atlantic traffic.

POLITICS

            At a televised town hall meeting recently, Audrey McLaughlin unveiled a slick, five-minute, $40,000, pre-election video which slammed the Free Trade Agreement. Where was the video made? In the U.S. of course! From now on the NDP insist they will buy Canadian and their director of communications, responsible for the video, has resigned.

GREY MARKET

            Grey market or "parallel importation" is the term for importation by unauthorized middlemen who buy merchandise in foreign countries, sometimes very cheaply, and ship them to Canada where they are sold below the authorized price, thereby disrupting the normal retail channels, cutting profits and sometimes jobs. This market is estimated to be worth about $10 billion a year despite the efforts of major manufacturers to stop it.

            Goods include everything from electric batteries, toothpaste, ketchup and coffee to cameras, computers and stereo equipment. Even a line of rice-paddy tractors has been imported from the same factory in Japan producing John Deere tractors which are almost identical but are painted a different colour and cost less.      

            Some years ago, a large number of U.S. specification tractors came into Canada when middlemen found they could take advantage of a high Canadian dollar and sales incentive plans in the U.S. The tractors were shipped to Canada, duties paid and they still undercut the normal retail price.

METRIC

            The U.S. Federal Trade Commission has announced that consumer package labels will list metric measurements starting early next year as well as inches, pounds and gallons. A 1992 law requires metric labelling on consumer goods beginning next Feb 14th. 

TRIVIA

* Giving new meaning to the term user-pays, a hospital in Birmingham, England, has been criticized for hiring out a sophisticated $750,000 cancer scanner so farmers could check for fat and muscle content in pigs and sheep for breeding.

* Nissan, Japan's second largest automaker, has announced that it will start importing about 3,000 vehicles a month from Mexico because of rising domestic production costs and the higher yen. Last year, Honda imported 20,000 U.S.-made models of the Accord and this year began importing the Civic.