changing competitiveness in the changing global … · 2017-05-17 · changing competitiveness in...

CHANGING COMPETITIVENESS IN THE CHANGING GLOBAL REALITY

Calgary, January 15, 2013

The Honourable Kevin G. LynchVice-Chair, BMO Financial Groupand

Former Clerk of the Privy Council and Secretary to the Cabinet, Government of Canadato

Canadian Energy Pipeline Association (CEPA) Conference

1January 15, 2013CEPA, Calgary

1. The “status quo” is not a viable option … The world is changing, profoundly. Structural trends are reshaping economies, societies, politics, expectations … and these are redefining the “drivers of success” for companies, for countries.

Pervasive globalization: re-

emergence of Asia, soon 50% of global GDP ---are we really ready?

Demographics: we’re aging in the West; shortage

of skilled workers will constrain growth --- talent

is a scarce resource!

Information Revolution: from the Internet to Facebook to

Twitter --- where next?

Global financial crisis: an endless hangover of low rates, low growth, high volatility --- it’s

structural not cyclical!

New Competitiveness: either continual innovation in products or standardized goods at huge scale/low

cost --- need to choose!


2. We need to diversify (a) --- the world’s economic centre of gravity is shifting back to Asia, and the “demographic dividend” and urbanization are powering growth in emerging markets. To quote the Great One: “skate to where the puck is going to be, not where it has been.”

The world’s economic centre of gravity is shifting back to Asia --- a

2000-year journey

Source McKinsey & Company

(Locations weighted by GDP in 3D space, projected to nearest point on Earth’s surface)

Shifting growth --- nearly 50% of global growth is coming from 440 cities, all in

emerging markets

Other emerging cities and rural areas

Emerging 440

Developed countries

Global GDP 2010Percent contribution

Global GDP growth2010 - 25Percent contribution

Source McKinsey & Company


Country Proportion of Canadian exports

1. United States 74.92. United Kingdom 4.13. China 3.34. Japan 2.35. Mexico 1.36. Germany 1.07. South Korea 0.98. Netherlands 0.89. Brazil 0.610. Norway 0.6Total-OECD 90

Export Markets

2. We need to diversify (b) … in a new global reality of a “two-speed world”, the OECD economies --- our traditional markets --- are now in the “slow lane” whereas the dynamic emerging economy occupies the “fast lane” … simple math: to grow faster than the “1-2% world”, need to do more business in the “5-8% world”.

1-2%world

Global Growth Prospects (IMF, Oct 2012)

5-8%world

2012 2013

U.S. 2.2 2.1

Japan 2.2 1.2

Germany 0.9 0.9

France 0.1 0.4

U.K. -0.4 1.1

Italy -2.3 -0.7

Canada 1.9 2.0

China 7.8 8.2

India 4.9 6.0

Brazil 1.5 4.0

Russia 3.7 3.8

Canada’s Energy Exports to U.S. (% by value)

2009 2010

Coal 3.20% 5.20%

Crude oil (including Oil Sands)

99.20% 99.50%

Uranium 21.70% 25.50%

Hydro 99.90% 99.20%Natural Gas

100.00% 100.00%

Total 91.90% 91.90%

Canada’s Top Export Markets

Source: Industry Canada, 2010

Source: Statistics Canada


3. In today’s hyper-connected world, your risk is my risk. Consider the 2013 “macro drivers of risk” that the World Economic Forum thinks we should most worry about, and risk manage for, in this more uncertain and volatile world.

Unsustainable European sovereign fiscal imbalances: What next for the Eurozone and the EU?

Unsustainable U.S. political and fiscal imbalances: after the “fiscal cliff” still looms a “debt wall”.

Income disparities: is it the 1% vs. 99%, or a struggling middle class?

Climate change: time passes, environment changes, but policy pauses.

Water supply: who has it? who needs it? who wants it?

Demographics of aging: who will fill the jobs of tomorrow?

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3

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4. The competitiveness model is changing and so must we --- it is now a choice between continually innovating new products at premium prices or selling standardized products at low cost and large scale … Competitiveness in high wage economies is about productivity and innovation --- and this means new ways of thinking, doing things, more creativity.

“… Productivity is not everything, but in the long run it is almost everything.”- Paul Krugman (Nobel Prize Winner)

“… Competitiveness with rising wages and improving living standards hinges on continually increasing productivity. And, for high income economies, a prime driver of productivity growth over the long run is innovation.”

- Michael Porter (HBS)

… The mantra of the hyper-connected global company is increasingly “invented here, designed there, manufactured elsewhere, sold everywhere”. - Tom Friedman (New York Times)

“The first step in winning the future is encouraging American innovation.”- President Obama (State of the Union, 2011)


PROJECTION OF OECD AND NON-OECD COUNTRIES ENERGY CONSUMPTION 1990-2035

5. The new global reality of energy demand --- look to the “fast lane” economies. The International Energy Agency (IEA) projects that world energy demand will increase 30%+ between 2010 and 2035, and 90+% of the growth in demand comes from non-OECD countries and none from the U.S. … for a net energy exporter like Canada, a game-changer!


6. The world of energy is becoming “unconventional” … demand is shifting to emerging economies, supply is shifting to “unconventionals”, and the energysecurity of supply–security of demand balance is shifting between U.S. and Canada … and this is a game-changer for both Canada and the United States.

Energy demand

Energy supply

Energy exploration

Energy game-change (1)

+

+

=

in the “unconventionals” …non-OECD markets

in the “unconventionals” …shale gas, oil sands, alternatives

in “unconventional terrain” … the laboratory (e.g. fracking gas)

Shifting energy trade flows; shifting geopolitical risks

+Energy game–change(2) Security of U.S. energy supply rising;

Security of Cdn energy demand falling


7. We can compete provided we embrace change not the status quo … Relatively speaking, Canada has fared well due to a number of global strengths. But, to continue to do so, we need to adapt to the new global reality, with a particular focus on diversification, productivity and innovation, and talent.

Canada’s relative global strengths include:

Solid economic fundamentals, including low inflation, fiscal probity and low corporate taxes

• Lowest net debt (to GDP) in G7• Corporate tax rate 9 pp below U.S.

A diversified, sophisticated and resilient economy and strong human capital

• 1st in OECD for PSE education• Strong public university system• World class university research capacity

A sound financial system • WEF rates Canada 1st in world for soundness of banking system

Robust natural resources (energy, minerals, agriculture); and

• Third largest oil reserves in world; major producer in most natural resource categories

Strong institutions, rule of law, civic values. • Global Competitiveness Index ranks Canada 1st in G7 for quality of institutions


8. Competitiveness today is about productivity and innovation. We need Canadian firms that are globally-focussed, productivity-orientated, innovation-centric, and talent-obsessed … But, notwithstanding this new reality, there are some rather depressing competitiveness facts for Canada.

72.1%70

75

80

85

90

95

100

1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

US=100

2009

Today, Canadian business productivity levels are only 72% that of U.S. business

0

1

2

3

4

1947-1973

1973-2000

2000-2008

4.0

1.6

0.8

annual rate, %

CanadaUK

Ireland

Slovenia

Luxemborg

ChinaBelgium

Australia

FranceIceland

GermanyAustria

Denmark

USA

SwitzerlandJapanKorea

Sweden

Finland

Israel

Source: OECD, Main Science and Technology Indicators Database, June 2011.

Canadian business productivity growth has been slowing for years, and the last decade was the worst

Canadian business spending on R&D now ranks 20th among OECD countries


Labour Productivityper Worker

Value of the goods and services produced

Output per Hour

Volume of goods and services produced per

hour on average

Hours Worked

Hours worked on average

Price of Output

Price consumers are willing to pay for the goods and services

Innovation in services/markets

Innovation in processes

More competitive companies, countries

9. Canadian business needs an innovation and productivity focus, and now … Why? Because what they do is transform: the price point at which a good or service can be sold, and the cost point at which it can be produced, and the market segment in which it is sold --- they expand the “economic pie”.


10. We need a strong Canada brand --- in this shifting and uncertain world, for mid-sized firms, a corporate brand is often partially defined by the country brand. Canada has considerable unrealized brand potential.

Our potential global brand:

• Solid economic fundamentals, including lower debt and corporate taxes than the U.S.

• Robust resources; both natural resources and human resources

• A sound financial system, with strong financial institutions

• Strong universities, strong university research capacity

• Strong institutions, rule of law, transparency, stability

… or …?

Our actual global brand


Energy strategy: given scale and scope of energy potential, and change needed to realize it, suggests national interest not just private interest, and a comprehensive energy strategy.

Diversification: need to pivot to dynamic emerging economies, particularly Asia and Americas; Canada needs to increase its security of demand.

Infrastructure: Canada needs new energy infrastructure to West Coast and East Coast to diversify; consider a “public energy transportation corridor” to West/Asia.

Financing: huge project and infrastructure financing needs over next 25 years (500+ potential major projects; $500+ billion) requires security of demand, and market access.

Technology: be “clever hewers of wood and smart drawers of water” ---R&D/innovation key to making Canadian unconventional energy supplies more economic, more efficient, and more environmentally friendly.

Beach-head: energy can establish Canadian business beach-head in Asia, and open doors to non-energy exports.

11. Conclusion: A profoundly changing world offers new opportunities and new risks: to maximize Canada’s energy potential in this changing world requires strong leadership, clear frameworks, and different approaches --- 6 concluding thoughts:

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changing competitiveness in the changing global … · 2017-05-17 · changing competitiveness in...

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