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Are Canadians innately uncompetitive?

23 Feb

Amidst all this usage-based billing and Wind Mobile nonsense that’s been going on for the past few weeks, there’s been a lot of talk about the Canadian government finally doing something about the restrictive limits on foreign ownership of Canadian telecom companies. I’ve been whining about it for years, so hearing others support it is of course music to my ears.

But, while removing the restrictions is the right thing to do to bring Canada economically in line with the rest of the world, I’ve long wondered whether we need to make the move for an entirely different reason: do we need foreigners to come in and teach us how to compete?

I’ve touched on this before, but I don’t think I’ve ever outright pondered whether there’s just something about Canadians that makes us innately less competitive with each other and the rest of the world. And if so, is that a bad thing? As the stereotype goes, Canadians are considered peaceful and polite folk who live above their brash and boisterous neighbours. If that view is actually true, do we also apply it to how we do business?

The example I always bring up to friends is the corner of Queen and John streets here in Toronto. For as long as I can remember, there has been a (Canadian-owned) Second Cup coffee shop on the southwest corner, across the street from MuchMusic. At some point years back, I can’t remember when, a (U.S.-owned) Starbucks opened up directly across from it, on the northeast corner. That always struck me as a very American thing to do – open up right next to your competitor and try to drive them out of business. The Canadian thing to do, I think, would be to find a different location a few blocks away and open up there. That way everyone can get a share of the pie, rather than fight it out tooth and nail for the same customers.

It’s an isolated anecdote, but we see it in telecom. The other day, I mused on Twitter why B.C.-based Telus doesn’t sell residential internet access in Ontario and Quebec, either as a reseller using Bell’s or Rogers’ pipes or by building its own, to compete head on with those companies. I was reminded privately by an acquaintance who knows something of the situation that it indeed nearly came to pass – Telus was looking to do exactly that a few years ago, but ended up chickening out because it was afraid that Bell would retaliate by selling internet service on its own turf out west.

In some ways, that’s understandable – no one really wants to start a turf war. But in other ways, it’s inexcusable and anti-capitalist – if your mission isn’t to put the other guy out of business, you shouldn’t be in the game. In other words, it seems to be the Canadian way of doing business versus the American way. Which is better? I’m not sure. But one certainly is more purely capitalist than the other.

Another good example is the “gentlemen’s agreement” between Shaw and Rogers, which has apparently existed in secret for years. How this one escaped the attention of our Competition Bureau is a mystery… or maybe it’s not – maybe the bureau was just being thoroughly Canadian by letting it slide. When Shaw tried to buy Ontario-based Mountain Cable a few years ago, Rogers sued, claiming the deal violated an agreement the two big cable companies had to not compete on each other’s turf. Shaw countered, saying no such agreement existed because if it did, it would have been illegal. Really? You don’t say.

There are occasions where the big telecom companies do sell services on each other’s turf – wireless is, of course, an example, while Shaw does sell satellite TV outside of its western base. But in all cases, no one really goes for anyone else’s throat on enemy territory because – like the Telus internet situation – they’re afraid of retaliation back home.

If we open the doors to foreign companies, they will harbour no such fears. AT&T, Verizon, Vodafone and the whole lot have absolutely zero to be afraid of when it comes to Bell, Rogers, Shaw and Telus – it’s not like any of our domestic companies are in any position to encroach on the invaders’ home turf. That’s really why I’ve always been a proponent of lifting the restrictions; doing so may not solve all our problems, but it certainly will lift the veil of coziness (or fear-induced inertia, whichever way you prefer to look at it).

Doubtlessly, that Second Cup on Queen and John was forced to up its game when Starbucks came in. The fact that it has survived is perhaps proof that Canadians can compete against larger, better-funded rivals. This could apply in telecom too. Then again, coffee is one game while tech and telecom are another.

We all know the story with Nortel. Canada’s big international success story one day, all but erased from existence the next. Many people are now wondering if BlackBerry maker Research In Motion is basically Nortel 2.0. RIM did well when its only smartphone competition was Nokia, but it hasn’t been looking too good since Apple and Google – American companies – entered the picture.

If Canadians do have some sort of competitive deficiency, it’s probably been ingrained in our identity over the course of decades. Over that time we’ve been told that Canadian culture – whether it’s books, music or television – needs to be propped up and protected to keep us from simply being absorbed into Americanism. Combined with protectionist laws like our telecom ownership restrictions, this has ironically insulated us from the rest of the world. Canadians like to think we’re more worldly than Americans, but are we really? Their culture goes out and conquers the world while we sit and jealously guard ours.

It’s disappointing to see this insularity encouraged by our government. I was quite peeved to see Conservative attack ads mock Liberal leader Michael Ignatieff for the fact that he left Canada to find success abroad, that doing so somehow made him less Canadian. I don’t care what Ignatieff’s political stripes are, I say good for him for going out into the world and competing against everyone else. That’s something we should all be striving for. (And please don’t construe this as support for Ignatieff or the Liberals… I’d support any member of any party for doing the same.)

I know it’s provocative and possibly offensive to impugn on our ability to compete, and there are countless examples of Canadians being world beaters in all walks of life, but as far as business goes what do you think, realistically: are we competitive? Or do we need a good foreign ass-whooping to get us going?

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10 Comments

Posted by on February 23, 2011 in government, telecommunications

 

10 responses to “Are Canadians innately uncompetitive?

  1. Torontoworker

    February 23, 2011 at 9:52 am

    It has been a Canadian practice in business for years that if you cannot make a 100% mark up on a product then you won’t retail it or if you do – let this product sit on your shelf until it does move – no matter how much dust settles on top of it. No 50% off sales – no way mode.

    Enter the Asian thinking of reduced expenses (cheaper construction) of each product so that it can be sold for half the price then the Canadian product.

    The American model is to buy in volume and sell in volume so that unit price is lower then the Canadian product. Holding cost’s suck profits so therefore discount the item so that it does fly off the shelf at half the cost of the Canadian retailer up the street but sell twice or three times the units to make back your profits.

    It’s the Home Hardware model (dust on high priced $50 dollar hammers) against the Asian flea market $10 hammers x’s the Lowes/Home Depot model of $35 hammers but seel more of them. Which is best? Depends on if you want the head of the hammer flying off and hurting someone or supporting the local Home Hardware people to stay in your small home town so you don’t have to drive an hour to a larger center to get to the Home Depot locations or a fair price for better quality.

    I think Canadians CAN do better then we have and one of the retail models I like is the Canadian Tire operation of going straight to the source of the products and bypassing American based suppliers with their mark up’s. For many years Canadian retailers have been lazy and it was just too easy to deal with a US importer and end up passing their profit margins on to Canadians with a marked up price.

    Same with exporters: Don’t find new markets in Asia and Europe – just ship the product to a US based group who end up doing exactly what the Canadian company should have been doing.

    We are learning but it is taking time.

    But however you slice it – we have allowed the Government to create oligopolies in many key industries which way bank in the branch plant economy of the post war ear might have been a good idea…. but now it simply does not work in the 21st century with Asia involved.

    Canadians have been told for the last 10 or so years that we really shouldn’t be a society that manufactures things anymore, as Asia can do it far cheaper with their way lower labour rates. We were told we would be serviced based and knowledge based. How did that work out for everyone? Not very well. You can’t put walls around knowledge and you can’t contain service based business in the internet age. Now what?

    Perhaps Canada’s future (other then oil/minerals) is providing the food and medical instruction that the Asia Pacific rim is going to need as their population explodes in numbers as well as ages. The Pacific Rim Governments are going to experience unprecedented challenges in health care for it’s billions of citizens and for feeding these people as well as solving polution issues.

    Canada should be in the forefront in food production given it’s overwhelming percentage of arable land (get rid of food marketing boards) over the rest of the world and begin to start organizing health care solutions for the third world be it drug research or massive investment in teaching hospitals to fill the world wide demand for medical staff in these nations. That’s my view anyway.

     
  2. bwalzer

    February 23, 2011 at 12:10 pm

    American companies that are dominant in their particular area are actually famous for insuring that their competitors *do not* go out of business. That is because the USA has effective anti-trust law. Once you catch the attention of the US Justice Department you are in some real trouble.

    Here in Canada we have no real law of the anti-trust variety at all. The Competition Bureau tends to only show interest in a particular situation if that situation is a current irritant to either the general public or the government. The popular Nortel for example was allowed to apply various anti-competitive practices to the less popular Mitel with great impunity at one point in time.

    There then is one answer to the question of why Canadians are uncompetitive. There is no real point unless you are already dominant in that business. Then you get to apply all the traditional tools of the monopolist to maintain that dominance. If you do attract the attention of the Competition Bureau you can just wait till they lose interest again. If that isn’t fast enough then you can explain that your market dominance is worth supporting as your company is a national champion in international markets. That sort of nationalism pretty much always works.

    I have no idea if Canada’s strange aversion to fair competition law has much to do with the current situation in the heavily regulated Canadian telcom industry. I am reasonably sure that it would be an important factor in what will happen after the Canadian ownership rules are relaxed.

     
  3. Russell McOrmond

    February 23, 2011 at 2:13 pm

    I wonder if there is a government handout culture in more than just activist groups in Canada. This has been said for a while that with private donations and foundations, political action groups in other countries are far more effective than Canadian groups who rely far too much on public money.

    The telecom sector exists as government granted oligopolies: spectrum allocations on wireless, and right-of-way property rights exceptions on wireline. With these government limits on competition, the companies in this sector have never been forced to offer consumers what they want.

    I’m looking forward to the day when I can cancel my cable as I find Rogers disgusting, but don’t have legal alternatives to get the content I want. Since I’m actively involved in Copyright reform I’m not going to accept what I’m otherwise forced to do. This is an ugly situation to be in, and switching from Rogers to Shaw or Bell for satellite (who are equally disgusting in business practices) isn’t a solution.

    It isn’t like the competition bureau can step in and solve this problem as the problem isn’t in the private sector with the companies, but in the public sector with an entirely backwards regulatory structure.

    Re: Smart phones. It is Beta1 (iOS), Beta2 (QNX/RIM), Beta3 (Windows) vs VHS (Android) all over again, and we know how that turned out. It isn’t really Google vs Apple vs RIM vs Nokia given Google isn’t a handset brand, and is in a different market entirely. Just like Sony eventually made VHS VCR’s, RIM could make some great Android handsets and business Android apps to go with it. Given Android is FLOSS, there is already quite a bit of Canadian Content in it 🙂

     
  4. Hub

    February 23, 2011 at 3:48 pm

    I wanted to get the Internet access my small local company in Vancouver was offering me through the agreements they have with their corporate owner, a real estate developer….

    The offer an interesting bandwidth with an interesting price. But they put a data cap on it. When I asked why, the told me “everybody else does it”. Yet their slogan is “defining digital lifestyle”. So I went with small bandwidth from a company that actually try to compete, using DSL.

    Later I had another issue with cable TV. They are the cheapest option, yet I still pay more for less than I was in Quebec. They told me “but we are a small company”. So I asked “what’s the point if you can’t do better than the other”. The CSR reply “oh but you don’t have to wait to speak to a CSR, and we have people locally for that”. My thinking was that they compete on who is gonna be the less mediocre.

    And if you wonder why the data cap for UBB on Bell are different between QC and ON, it is because of the main competitor: Videotron has higher caps than Rogers, even though in both case they have been lowered over the years. That said, instead of competing harder, Bell just decide to offer the similar one in each jurisdiction.
    Similarly Bell TV offer “a la carte” in Quebec, not in Ontario. Because Videotron offers it, not Rogers (on their Cable TV service).

    Can somebody spell the word “collusion” ?

    I think the motto today should be “Canada’s industry: excellence in mediocrity”. Very sad.

     
  5. mrG

    February 23, 2011 at 7:22 pm

    It’s not hard to understand, when you look at the history. Canadians are risk-averse to an extreme, descended as we are from either a predatory British mega-bureaucracy crown-appointed monopoly (HBC) or of Bay Street bankers and lawyers (just as bad), the great vast rest of us descended from immigrant farmers who were given vast tracks of rocks and snow because it actually took that much of this land to produce enough food to feed the family! 😉

    Brits, on the other hand, are descended from Basques, a peoples so tenacious in the face of all change and progress that the original Basques who still sit in the hills of central spain have done so uninterrupted since Cro Magnon times.

    The Yanks on the other hand, used to be just like us (cf The Scarlet Letter) and being banker types, they got heavily into the financials of WWII until they discovered, by complete surprise, they had acquired all of the world’s wealth through no fault or effort of their own, and they’ve been spending that wad like vegas windfall winners ever since.

    Their windfall, the papers tell me, is due to run out soon. It may already have run out, having been handed over to China, so it remains to be seen just how unlike us the Americans will be now that, for the first time in 60+ years, they will actually need to face some risk of losing 😉

     
  6. mrG

    February 23, 2011 at 7:26 pm

    oh, sorry, that should have read “bankers, lawyers and insurance companies“, the folks from whence we compute so much of our paranoid risk averseness 🙂 Much more accurate a portrayal, I’d say, and I’m allowed to say, having ‘arrived’ here with the HBC 😉

     
  7. Bill St. Arnaud

    February 23, 2011 at 9:40 pm

    Lack of telecom competition and restrictions on foreign ownership are the main reason why companies like Nortel and soon RIM are failing, and why Canada seems to lack a competitive instinct.

    Because Canadian telecom companies are so profitable from lack of competition and foreign ownership they have been overwhelming influential on research directions at Canadian universities and small business. As a result almost of Canadian IT development is telecom based. Nortel and RIM are good examples. Almost all Ottawa high tech startup are telecom based.

    RIM and Nortel are unfortunately joined at the hip with the telecom companies in Canada. Could you imagine RIM tweeking the nose of carriers they way that Apple or Google does?

    In contrast in the US and other countries most innovative startups are computer or Internet based. Innovative incubators like Stanford, MIT, UCSD, Silicon Valley etc are almost driven by VCs and companies who have their roots in the highly competitive world of computing and Internet.

    Peter Nicholson former president of Council of Canadian Academies did an excellent study in this regard about 2 years ago

    Bill

    Bill

     
  8. bwalzer

    February 24, 2011 at 12:27 pm

    Bill St. Arnaud :
    Lack of telecom competition and restrictions on foreign ownership are the main reason why companies like Nortel and soon RIM are failing, and why Canada seems to lack a competitive instinct.

    Equipment suppliers like Nortel and RIM are not particularly protected from foreign ownership or competition. If they are it is only indirectly from their relationship with telcom companies that are so protected.

     
  9. bwalzer

    February 24, 2011 at 5:25 pm

    Further to my previous post, here is an example of the sort of anti-competitive behavior that would not be tolerated in most other countries:

    Shaw Drops Pricing Bomb To Destroy Local Fiber ISP

    The article describes a case where Shaw dropped their prices to ridiculously low levels so as to drive a smaller ISP out of business. They didn’t even try to hide what they were up to. The only customers eligible for the super great deal were those who lived in the area where the competitor had equipment.

     
  10. Jason

    February 28, 2011 at 8:12 pm

    Please tell me you see how disturbing your illustration for this story is?
    I’m all for diversity but I don’t think the black guy was intended to be a leper?

     
 
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