Canadian Branch plant economies

Topics: Automotive industry, Multinational corporation, Economy Pages: 10 (2996 words) Published: February 5, 2003
Modern industrial organizations in Canada are synonymous with the branch plant economy phenomenon. In general, "the term branch plant economy refers to a convenient shorthand term to describe a regional economy where a large proportion of the employees are in establishments owned by firms whose head office lies outside the region" (Watts 1). In Canada, branch plant economies are subsidiaries of companies based abroad, mostly in the U.S.

A branch plant economy is a strategic tool used by transnational corporations to maximize profits, avoid tariff fees and encourage exports. "Branch plant economies have been established in Canada for two essential purposes; the first is to gain access to the domestic Canadian market and the second is to gain access to Canada's primary products" (Laxer 127). Specifically, this paper will discuss the evolution of the branch plant economy and its negative and positive effects on the Canadian auto industry and its implications on regional development.

Branch plant economies exist where investment and business strategy decisions are made by an international head office of a company and not by the company itself. These economies have the traditional hierarchical model of corporate organization with strong centralized co-ordination of individual plants and subsidiaries.

The private capital from international investors, mainly the United Kingdom, has always played an important part in the development of industrial countries, especially Canada. These investments not only brought money, supplies and equipment to Canada but also mass migration from the investing countries. Canada was and still remains an excellent source of primary products for many migrants and their home countries. Canada served as a primary product producing country connected to an external controller, originally the United Kingdom, but now mainly the United States. This condition has remained unchanged to this day. This philosophy has also remained imbedded in Canadian business attitudes and Canada's macroeconomic sector since Confederation and is unlikely to change.

"After the end of the Second World War almost fifty five percent of the manufacturing in Canada was being done by foreign owned branch plants" (http://www. Canadainternationalbureauofstatistics/dominion/quart/dev/icj.html October 23, 2001). A majority of these were American owned. The phenomenon known as the branch plant economy was now evolving in Canada. As the American economy expanded in the 1950's and 1960's so too did the branch plants in Canada.

"In 1965 George Grant, a writer, wrote a book called Lament for a Nation in which he believed that Canada's potential for greatness had sadly passed" (http://www.Johnaboutcanada.com November 1, 2001.). Canada had switched gears to a branch plant economy all for a small piece of the American dream. This overwhelming

desire of Canadians to acquire a piece of the American dream became the target of certain jokes in the global economic community. Apparently, if a country has the potential to be overrun with foreign corporations, they call it the Canadian disease.

"As the 1970's began Canada was deindustrializing. In the 1970's research on externally controlled branch plant economies stated that they lacked managerial authority and were functionally truncated" (http://www.Canadainternationalbureauofst atistics/dominion/quart/dev/icj.html October 23, 2001). Branch plant economies concentrated on production activities while more important actions such as research and development were expanded and conducted elsewhere within the parent firm. The result was that these branch plant economies were more likely to be deficient in high skilled occupations and technologically dependent thereby lacking innovative and entrepreneurial activity. Branch plants were also associated with lack of linkages with local companies and their vulnerability to closure during times of economic uncertainty. Canadian economists...
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