NORTH AMERICA

REGIONAL STRATEGIES

INTRODUCTION
This chapter focuses on
institutional factors in the
North American market that
must be considered when
looking at the Canadian and
Mexican markets. NAFTA has
not abolished all trade
barriers between the United
States, Canada, and Mexico.
There are still major
impediments to trade and
investment. Furthermore,
each of the partners retains
its own trade laws

CANADA

Canada is second in size only to

Russia. Divided into 10 provinces
and three territories (see
accompanying map), Canada is so
large that it encompasses four time
zones.
Canadas economy;
Canadas 33 million people enjoy
one of the highest standards of living
in the world. Consumer tastes and
disposable wealth are very similar to
those in the United States. Gross
domestic product (GDP) in 2010 was
about $1.564 trillion (2010 est.) and
at current exchange rates. Over the
last 16 years, the rate of economic
growth has been in the 2 to 4
percent range.

Differences in the business environment

Despite many similarities between the business environments of the United
States and
Canada, there are also some important differences.
Canadas industrial climate;
The Canadian economy is characterized by private enterprise. However, some
industries, such as broadcasting and public utilities, are government owned or
subject to substantial government regulation.4 Over the past decade the trend
has been toward privatization and deregulation. In fact, a federal government
minister oversees privatization and has been responsible for selling companies
that the government feels are no longer essential to meet public policy
goals.Firms that have been privatized include Canadair, the deHavilland
Aircraft Company, Canadian National Railways trucking division, Fisheries
Products International, and Air Canada.

Canadas Regulatory Environment

Commerce and industry in Canada are regulated at every level of
government: federal, provincial, and municipal. Many of these regulations
are similar to those in the United States.
Competition Regulation of competition is under the jurisdiction of the
federal Parliament. Legislation in this area was revised in the late 1980s to
eliminate restrictive trade policies, stimulate production, and promote the
international competitiveness of Canadian business.
Although there are no price controls in Canada, there is regulation to review
monopolies, acquisitions, and mergers. The regulation of anti-competitive
practices is handled under the Competition Act, which prohibits
individuals and companies from practices that will substantially lessen or
prevent competition in the marketplace.
Competition Act
A Canadian federal law that regulates anticompetitive practices and
prohibits actions that will substantially lessen or prevent competition; it is
similar to US antitrust laws

Exports and imports

Export permits are required for the shipment of goods having
strategic value, such as uranium. They are also required to
implement the provisions of various international agreements
into which Canada has entered. Import documentation is also
required, as well as payment of a goods and sales tax (GST)
or the federal part of the harmonized sales tax (HST) except
for items specified as non-taxable importations.

Francisation in Quebec
The Canadian federal government has a bilingual policy.7 But in the province of
Quebec, French is the official language for business and education. All firms
employing 50 or more people in Quebec must use French at all levels of the
organization. Other regulations related to the use of French in Quebec are that:
(1) All product labels must be in
French, and translations cannot be given greater prominence than the French portion;
(2) Company names and signs must be in French, but a version of the firms name in
another language may accompany the French version for use outside Quebec; and
(3) All signs on the outside of stores must be in French only.8 Moreover, all education,
health
services, and other services under provincial jurisdiction are delivered in French.
Some exceptions to the French language and sign law policies accommodate the onefifth of the Quebec population that speaks English.

Banking and finance

Banks in Canada offer a full range of fi nancial services. There are six
large Canadian chartered banks with extensive national branch
networks that account for 90 percent of the nations banking
industry assets. There are also many smaller (often foreign-owned)
banks.10 All these banks respond to the actions of the central bank,
the Bank of Canada, a federal government institution directly
responsible for the nations monetary policy, including
(1) regulating credit and currency,
(2) controlling and protecting the external value of the Canadian
dollar, and
(3) regulating the general level of production, trade, prices, and
employment, within the scope of monetary policy

Labor relations
Labor relations are governed by both federal and provincial labor
legislation. The Canada Labor Code is the federal law that covers such
matters as wages, employment practices, work safety, and conciliation in
the event of a labor dispute. Provincial governments have similar laws to
cover employeremployee relations at the local level.
Unions With the exception of farmers, domestic help, and white-collar
workers, the workforce is heavily unionized. Approximately 30 percent of
the total labor force is in unions, compared to approximately 13.5 percent
in the United States. Average paid employment (employees) during the
first half of 2010 was 14.3 million.

Labor relations
Labor relations are governed by both federal and provincial labor
legislation. The Canada Labor Code is the federal law that covers
such matters as wages, employment practices, work safety, and
conciliation in the event of a labor dispute. Provincial governments
have similar laws to cover employeremployee relations at the local
level.
Unions With the exception of farmers, domestic help, and whitecollar workers, the workforce is heavily unionized. Approximately 30
percent of the total labor force is in unions, compared to
approximately 13.5 percent in the United States. Average paid
employment (employees) during the first half of 2010 was 14.3
million.

Working conditions
All provinces have legislated minimum wage rates that
are periodically adjusted. However, in most sectors wages
and salaries are similar to US levels. A national
compulsory contributory pension plan provides retirement
benefits to contributors, generally at the age of 65. This
age limit varies, however, and there is growing pressure
to relax mandatory retirement rules.

Investments
The Investment Canada Act (ICA) came
into effect on June 30, 1985, and is designed
to create a welcome climate for foreign
investment by significantly loosening
previous restrictions.
At the same time, however, some regulations
still remain in effect. As noted earlier,
investments in certain industries are
restricted.

Canadas multinationals
It is useful to identify Canadas major
companies against the background of
global competition and triad power.
Some larger Canadian firms like Magna
International and Bombardier are well
known in the United States.

Multilateral agreement on
investment (MAI)

Canada will benefit from any type of multilateral

agreement on investment. An attempt to negotiate
an MAI was made in Paris at the Organization for
Economic Cooperation and Development (OECD)
over the 1995 to 1998 period. The draft MAI was
based on the lines of NAFTA. United Nations,
UNCTAD Ministers may take up the need for an MAI.

Business opportunities in Canada

Although the Canadian economy began to slow

down during the early 1990s, the country still
offers excellent investment and trade
opportunities for foreign investors. This is
particularly true for US firms, thanks to the US
Canada FTA of 1989 and its extension, the North
American Free Trade Agreement (NAFTA),
which includes Mexico.

The United StatesCanada Free Trade Agreement

(FTA) was designed to eliminate tariffs and most other
trade barriers between the two countries.15 Some of its
specific provisions are:
1 All tariffs on US and Canadian goods were to be eliminated by 1998.
2 Most import and export quotas were to be eliminated by 1998.
3 Use of product standards as a trade barrier is prohibited and national
treatment of testing labs and certification bodies is established.
4 Many restrictions on agricultural products, wine and distilled spirits,
auto parts, and energy goods have been sharply reduced, if not totally
eliminated.
5 The size of the government procurement markets that will be open to
suppliers from the other country is slightly increased.
6 Travel by business visitors, investors, traders, professionals, and
executives transferred within a firm is facilitated.
7 The opportunity to invest in each others country is facilitated and
encouraged through the adoption of national treatment.
8 A binational commission to resolve disagreements that may arise
from the enforcement of the FTA has been established; it dealt with
some 20 cases in the first three years of the agreement.

Marketing in Canada
Companies doing business in Canada need to know the distribution
practices and advertising and promotion channels. In many cases
these are similar to those in other countries, but there are some
important differences.
Distribution practices
Despite the countrys vast size, sales to Canadian industries are
characterized by short marketing channels with direct producer-touser distribution. Many industries are dominated by a few largescale enterprises that are highly concentrated geographically. It is
not unusual for 90 percent of prospective customers of an
industrial product to be located in or near two or three cities.

Advertising and promotion

Media used for advertising in Canada include television, radio,
newspapers, and magazines. Television and radio advertising are
particularly popular because 97 percent of all Canadian households have
at least one television, and 99 percent have at least one radio. Hundreds
of private firms operate cable television and major broadcasting stations
in metropolitan areas, and the country has more than 1,300 television
stations and 550 cable television systems, with over 50 percent of the
population hooked into a cable system.

Exporting
One of the most popular ways of doing business in Canada is through exports. As noted earlier,
Canada is the United States largest foreign market. Every year Canadians buy as much US
goods as do all the member nations of the EU combined. In fact, over 20 percent of all US
exports go to Canada.
Franchising
Canada is the dominant foreign market for US franchisers. Currently more than 300 US
franchise firms operate approximately 10,000 franchise units in Canada. A recent report by
Entrepreneur magazine rated more than 1,100 US franchises, and of those in the top 10, 8
indicated they were seeking to establish franchises in Canada.

MEXICO

With a land area of approximately

760,000 square miles (1.9 million km2),
Mexico is equal in size to almost 25
percent of the contiguous United States.
It is the third-largest nation in Latin
America and has a population of over
112 million

Mexicos economy

Mexicos economy is currently in a state

of fl ux, brought on by new economic
relations
with the United States. Today Mexico has
the strongest economy in Latin America.
One
of the primary reasons has been the
economic policies of Carlos Salinas, who,
after becoming president in 1988,
introduced liberalization rules regarding
foreign investment and privatization.

MNE investment
The climate for foreign investment in Mexico has grown
increasingly favorable in recent years. Although there were
strict controls on foreign investment during the 1970s,
regulations introduced in 1989 reversed many of these
restrictions. As a result, an increasing number of MNEs are
investing in Mexico.
Labor
Labor is relatively plentiful and inexpensive. However, MNEs
report a serious shortage of skilled labor and managerial
personnel, particularly at the middle and upper levels of the
organization, and despite numerous engineers. Worker
absenteeism in recent years has declined, but turnover
remains a serious problem, even in the maquiladora sector.

Mexico and NAFTA

In conjunction with their privatization policies, Mexico
sought to motivate business through increased exposure
to international competitive forces and access to the
dynamic US market.28 To this end, the government
opened negotiations with the US and Canadian
governments in Toronto on June 12, 1991, to create NAFTA.
This marked the first time that a less developed country
had entered into an agreement with two wealthy countries
to create a free trade area. NAFTA went into effect on
January 1, 1994, and has had a major impact on Mexicos
trade and investment.

Regional trade
agreements
Other developments involving Mexico as a leader in the movement toward
free trade and privatization have included the efforts to create and sustain
regional trade agreements based on NAFTA. One of the major regional
integration efforts has been the creation of the Latin American
Integration Association (LAIA), a free trade group formed in 1980 to
reduce intra-regional trade barriers and promote regional economic
cooperation. Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico,
Paraguay, Peru, Uruguay, and Venezuela are all members.

Doing business in
Mexico
A number of strategic approaches are being used to
conduct business in Mexico. (See the case
International Business Strategy in Action:
Mexico and NAFTA.) Two primary reasons for the
success of these approaches are the high quality of
the workforce and the dramatic improvement in the
economy over the 1990s. MNEs operating in Mexico
report that the quality of the workforce is excellent.

Mexico and the double

diamond
To maintain its economic growth, Mexico must continue developing international
competitive strength.33 This is currently being done by linking to the US market.34
In particular,
MNEs must view this market not just as a source for export but also as part of the
home market. Specifically, this requires:
1 Developing innovative new products and services that simultaneously meet the
needs of US and Mexican customers, with the recognition that close relationships
with demanding US customers should set the pace and style of product
development.
2 Drawing on the support industries and infrastructure of both the US and Mexican
diamonds, realizing that the US diamond is more likely to possess deeper and more
efficient markets for such industries.
3 Making free and full use of the physical and human resources in both countries.

Petroleum cluster
Mexicos petroleum industry
accounted for about 8 percent
of all exports in 2004. The
country has the third-largest
proven oil reserves after
Venezuela and the United
States and
is the worlds fifth-largest
producer. The largest firm is
state-owned Petroleos
Mexicanos (Pemex), which is
the worlds largest crude oil
producer (does not include
refining) and the
worlds 65th-largest company.

Automotive cluster
The global auto industry is
currently undergoing worldwide
restructuring. In the process,
Mexico is emerging as a major
car and truck producer. Since
1986 the industry has grown
rapidly: total unit production in
2002 was 2 million units;
however, in 2009, the total unit
production was 1,561,052, a
drop of 28 percent compared to
2008 due to the world financial
crisis leading to fall in exports.