Chapter 3: International Competitiveness, Productivity and Quality
3.4 CANADA’S GLOBAL CHALLENGE
Pg 90-98
By Hufflepuff House
When one business from a certain country does well internationally, it means higher
competition levels for all countries competing in international trade.
In Canada, about one-third of our domestic product and about 40% of our jobs depend
on international trade. This is likely in increase in the future.
Another challenge that Canada faces is maintaining our standard of living. The main
economic indicators of standard of living include average family income and
expenditures, household ownership of durable goods (such as the number of
telephones and personal computers), number of physicians per 1000 people, and the
literacy rate of the country.
Canada has scored high on standard of living assessments. By maintaining a good
standard of living, it will help retain and attract talented people who will help Canada
increase productivity. Canada mostly wants people who work in what is called the
“knowledge economy”.
The Knowledge Economy
The term knowledge economy refers to the increased reliance of business, labor, and
government on knowledge, information, and ideas-and information technology to put
them to practical use. This economy adheres to the saying “brain over brawn”.
The beginning was the industrial revolution. It transformed the economy from
agricultural to industry. Then the scientific revolution moved us from industry to research
and laboratories, this meant potential for development and inventions.
Improvements and changes are welcomed in most industries. The greatest changes
taking place in industries today is in the technology industry.
There are three categories of industries as categorized by Canadian author Nuala Beck:
1. High-knowledge: more than forty percent of these industries’ employees are
knowledge workers. Examples include: information technology, education,
government, microelectronics, biotechnology, telecommunications and
computers.
2. Moderate-knowledge industries: between twenty percent and forty percent of
these industries’ employees are knowledge workers. Examples include: jobtraining services and real-estate sales, customer service, sales representatives
and finical services.
3. Low-knowledge services: Less than twenty percent of these industries’
employees are knowledge workers. Examples include: retail sales, meat
processing, truck driving, and any type of manual labor.
Intellectual Capital
Intellectual capital is the sum of knowledge, information, intellectual property, talent, and
experience within a country or an organization. Intellectual capital includes ideas, is
part of a company’s human capital, and is a factor in company’s or country’s
competitiveness and its ability to create wealth. Some people believe that intellectual
capital is more important then human resources when it comes to a source of wealth.
An example of intellectual capital can be found in the medical field. Medical discoveries
have recently occurred in the field of biotechnology, where most of the workers are
considered knowledgeable. It may take many years for the treatment to become a
product, but when it reaches the consumer, the producer usually profits.
Today’s world requires us to be innovative and creative. Companies that are built on
intellectual capital have become powerful and important components of the world’s
economy.
For example, when Netscape decided to go public they had 17 million USD in sales with
50 employees. After the first day of trading, the stock market in the United States
valued Netscape at 3 billion. Individuals had invested in the value of Netscape’s people
and their knowledge.
A company’s intellectual property, trade secrets, and collective knowledge of its
employees all define its competitive advantage today.
Thriving in the Knowledge Economy
Not all ideas happen on purpose, 3M Corporation’s discovery of Post-it notes was, “the
result of a scientist creating a glue that didn’t stick well.” You have to be able to see
beyond your mistakes and see something else that may work in the economy.
Knowledge is the prime source of competitive advantage in the global economy.
Managers must learn to develop, share, use, and measure knowledge to create more
value for customers, employees, and shareholders. One key idea in the knowledge
economy is that knowledge is developed when people work with one another.
Knowledge must be connected to existing information.
The knowledge economy requires members of organizations to share information
openly. This sharing within a company, known as transparency, helps ensure
productivity by avoiding duplication of effort or reinventing a successful solution that
already exists. Organizational knowledge is all the knowledge stored within the
boundaries of a company. For a global company, the development of a worldwide
network is important. For Canadian businesses the challenge is to foster a sense of
teamwork throughout the entire organization.
Innovation and Quality
Innovation is not only technological and scientific breakthroughs but it is also constant
improvements the way businesses adopt new processes and adapt to new markets.
Canadians must seek improvement wherever it is available. No country can develop all
the technology it needs.
There are major ways to ensure international competitiveness: by price and by the
uniqueness of the product or service.
Innovation forces competitors to struggle to catch up. A good example is the computer
software market. Microsoft Windows programs are constantly changing and improving
to help users become more efficient and adapt to an ever-changing hardware market.
Innovation is the key to finding new ways of increasing productivity and goes beyond
investment in research. Since there are always ways to improve, innovation requires
constant.
Taxation and Innovation
Taxation is the method used to generate the finances required to run the country. The
money collected by municipal, provincial, and federal governments from individuals and
businesses is spent on a variety or programs and projects, both domestically and
internationally.
Canadians have come to rely on the infrastructure provided by many of these programs,
such as healthcare, education, and a good transportation system. When compared to a
range of countries, Canada’s corporate tax rate is higher than many of its global
competitors. As a result Canada may have difficulty attracting foreign investment
compared to other countries.
Some people believe that lowering tax on individuals and companies can stimulate the
economy by encouraging business and consumer spending, foreign investment and
employment. When people have more money because less of it gets taken away, they
will spend more and buy things they could not have bought before. This starts a cycle of
increased consumption, increased productivity, and increased employment meaning
that more people are now getting a paycheck and paying taxes. The total amount of
taxes received may increase even though the taxation rate has decreased.
Rationalization
This is the process used by organization or company to change its organizational
structure, its product line, or its production process to become more efficient, productive
and competitive. This may cause changes such as combining departments or product
lines into new divisions, refocusing, changing business priorities, downsizing some
aspects of the business or closing down some product lines. This can cause large
changes such as new factories, developing new technology but also may close factories
or cause disregarding of outdated technology.
Causes and Effects of Rationalization
Companies may have to rationalize parts of their business due to changes in consumer
demand for its products. Some companies will merge with other companies to bring in
more profits for the parent company. It also can contribute to economies of scale. Less
productive factories are downsized while productive companies continue to produce.
When a company is downsized it can affect other companies that supply goods or
services to that business, causing them to downsize as well. In difficult economic times,
companies may rationalize their production facilities to try and regain the confidence of
the investors and the financial institutions that lend money to them.
Companies look at various factors in different countries when they are making decisions
about rationalizing their business internationally. Some of these factors are; consumer
demand, a country’s trade balance and business climate, and the situation that has
resulted from mergers and acquisitions. As the following examples show, the
interrelationship among these factors can be complex.
  The demand for the industry’s products in Canada: Although there maybe a
growth in some of the industries that market products to older Canadians, this
doesn’t necessarily mean that there will be more jobs for Canadians.
  The trade balance between Canada and other countries: Canada imports
more of certain types of products than it manufactures and exports. As an
example, According to Statistics Canada, Canada imported $28 194.4 million in
industrial and agricultural machinery in 2001 and exports were to increase the
economies of scale and increased automation in this industry might mean that
there would not be many more jobs for Canadians.
  Organizational change: In many countries ,companies that are developing
new technologies have had to make organizational changes to stay in business.
  Canadian business activities: The level of Canadian employment in an
industry depends on a number of factors, including the likelihood of future
earnings.
Privatization is a type of rationalization. Some people argue that privatizing electrical
power, prisons, health care, or highways will bring about more productive systems.
Those who support privatization believe that the private sector is more efficient and
effective than the public sector at running an organization. They believe that
government is wasteful or inefficient, and that taxpayers do not like to see their taxes
spend on poorly run services.
However, there are many instances when government should control the product or
services. A good example is airport security: tighter, more effective security is perhaps
best places with a government that ensures that high standards are set and enforced. In
the end, consumers and producers tend to look to markets for efficiency. However,
consumers also turn to government to ensure that producers maintain both quality and
accountability.
Developed Nations and Economies
Canada is referred to as a developed or industrialized nation. Developed nations tend to
have a high standard of living and produce a sophisticated range of products such as
computers and automobiles. Developed nations, also called newly industrialized
economies (NIE’s), such as Vietnam and China, have made the transition to more
sophisticated manufacturing. They have moved away from an economy based largely
on textiles, shoes and clothing, and agricultural products.
There are also countries that are known as less-developed nations. These largely
agricultural-based countries have a tendency to experience political and military
instability more often.