Current Developments in Canadas Economic Business Environment - Essay Example

Canada’s Political, Economic and Cultural Environment: Impact on Audi Canada is one of the largest economies in the world, the 11th largest to be precise. This degree of economic stability makes it a prime location for all types of businesses. Canada also has a very large market that is supportive of various investments. In recent times, automakers have identified the country as an ideal investment location; a location that encourages foreign investment as much as possible. German luxury automakers have not been left behind by this development. Audi, the firm selected for this paper, considers the Canadian market to be as important as the United States consumer market. This paper will explore current developments in Canada’s cultural, political and economic business environment and how they affect Audi’s investment objectives. Introduction With its stable democracy, economy, and culture, Canada ranks high on the list of ideal investment locations in the world. The economy has been thriving since the end of World War Two, and the country has been in the good books of major international organisations for as long as it has existed. The country’s middle class has been growing steadily over the years, and there are no signs that it will shrink anytime soon. The number of wealthy citizens has also increased significantly in the past two decades, creating more spending power and expanding the market for luxury goods (Anastakis, 2013:21). Like all manufacturers of luxury products, Audi seeks to move as many of its goods as possible in the cheapest and most effective way possible. Audi has had operations in Canada since 1971, and it was one of the first automakers to venture into a market that was relatively unexploited at the time. As at January 2015 Canada had made almost 15% of the automobiles assembled in North America. The Economist has also rated the country’s business scene as the most conducive among G7 countries that produce vehicles. Analysis Political and Economic Business Environments Canada has recognised its automobile industry as a key sector in its current and future growth plans. As such, it has put in place measures to support manufacturers in the country. Although Audi does not have an assembly plant in Canada, it still exports a significant amount of vehicles to the country, and operates dealerships that cater to the needs of its Canadian customers (Peters, 2013:26). A core aspect of supporting automakers is guaranteeing a global market for their goods. Using the Global Markets Action Plan, the Canadian government has signed 7 different free trade agreements with thirty-eight nations. In addition, it has signed or adopted foreign investment support and protection pacts with twenty-two nations and continues to strengthen trade relations with the largest and fastest-growing markets in the world. These actions have enabled Audi to develop long-term investment plans for its Canadian operations. In fact, the company seeks to build a manufacturing plant in one of the major cities (Vancouver, Ontario, or Montreal) within the next 3 years to meet the rising demand for its products (Anastakis & Smith, 2014:17). 20 years ago, such a plan would have been frowned upon because Canadian car buyers were not as receptive to German automobiles as they are now. The change in perception has been enabled by a two-pronged initiative supported by foreign automakers and the Canadian government. While Canadian leaders have ensured that the country’s political and economic system is as stable as it can be, foreign automakers have intensified and refine their marketing strategies to rope in as many Canadian customers as possible. The country’s stable economy has resulted in a rapid expansion of the middle class and an increase in the average spending power of Canadian consumers (Ryser, 2012:52). Considering that Audi makes luxury cars, this development has created the perfect conditions to aid its expansionist plans in the country. Canada’s latest trade pacts, the Canada-Korea Free Trade Agreement (CKFTA) and the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), could potentially inject about $14 billion annually into the country’s economy. This equates to creating over 90,000 new employment opportunities. The CETA creates new market opportunities for Audi and other luxury automakers to exploit. These opportunities will facilitate major growth in Canada’s exports to Europe and vice-versa. Better trade relations with Europe make it easier for Audi to export and invest more capital in its Canadian division. The government’s decision to ban tariffs, coupled with versatile rules of origin is set to benefit both car and auto parts manufacturers (Rozental & Bugailiskis, 2012:27). The country’s Automotive Innovation Fund promotes advanced, purpose-driven research and development (R&D) programs by its automotive firms to introduce more innovative and fuel-efficient cars to the market. This move has been lauded by Audi because it intends to improve its technology and produce greener cars that support its objective of leading in all dimensions of automobile manufacture (Baum, 2013:41). Canada has developed economic policies that promote and enhance foreign direct investment (FDI) and encourage investors such as Audi to set up camp in the country. Friendly and progressive economic policies are the backbone of the country’s economic and cultural stability. This is, in turn, connected to its increasing appeal among German luxury automakers like Audi. The Automotive Innovation Fund has collaborated with Audi on a number of projects to facilitate the production of luxury, affordable, and more fuel-efficient vehicles. The two entities have developed blueprints that ensure that Audi can expand its Canadian operations and create more jobs for locals while benefitting from the government’s favourable regulatory, economic, political climate. The Automotive Innovation Fund will upscale the country’s automotive R&D capacity, catalysing made-in-Canada growth, enhancing Canada’s ability to rival other countries, creating long-term benefits for the industry (Asefeso, 2012:46). Encouraged by these initiatives, Audi has vowed to continue investing in Canada, and to increase its investment in all aspects of automobile manufacturing in the country. Along with Audi, other automakers like Linamar, Ford, Chrysler, Toyota, and General Motors have made major investments in the country due to the highly encouraging political, economic, cultural, and regulatory environments nurtured by the Canadian government. It is worth noting that all the investments promised by foreign automakers in the current fiscal year are not less than $250 million. This shows that the Canadian government has given them sufficient reason to invest in its automotive industry, and part of this reason involves a stable political and economic environment. In the last year, the Canadian government has intensified efforts to provide a supportive environment for automakers so that it can optimise its positive overflow to other economic sectors (Anastakis & Smith, 2014:59). In order to acquire credibility in the industry, stakeholders must be well educated and experienced in the necessary aspects. Current regulation in Canada’s domestic market, which is summed up in The Certified Management Consultant (CMC) is becoming increasingly necessary and its objectives is to promote the profile and practice of all stakeholders in the sector. The government ensures that certifications, training, advancement of ethical standards and professional knowledge, and promotion of the sector in public, private and government settings is done on a regular basis. These measures have encouraged firms like Audi to see long-term opportunities in the country and to trust the government with its investments (Smyth, Soberman, Easson, & McGill, 2012:46). The government also oversees the sector to ensure that all entities operate with a strict code of conduct. Due to the difference in economic and legal regulations between the European Union and North America, the Canadian government has cooperated with European car manufacturers to harmonise the various regulations so as to reduce the number of bureaucratic and regulatory obstacles that slow down investments in the sector. Through its diplomatic arm, the Canadian government has also negotiated favourable trade agreements with Germany so that Audi and other German luxury automakers can have a seamless go at its automotive industry. This has created confidence in the whole sector and given Audi executives hope and encouragement to continue operating in the country. In fact, the company plans to maintain its presence in Canada indefinitely (Rozental & Bugailiskis, 2012:46). Through its political arm, the government encourages all stakeholders in the industry to form professional associations that oversee the proper management of its affairs. The Canadian parliament has amended Bill 198, making it more powerful and relevant to the current situation in the sector. Bill 198 is the country’s version of the United States’ Sarbanes-Oxley Act, which protects all investors by enhancing the credibility and accuracy of corporate publications. Bill 198 is currently up to speed with all aspects of the automotive industry in Canada, and has been cited as a major confidence booster for firms like Audi, which considers it to be a cushion against the aftershocks of the often volatile global automotive industry. The bill was important to the cushioning and recovery of Canada’s automotive sector during and after the 2008 global financial crisis because the government had incorporated bailouts and recovery plans in its latest version (Castro-Rea, 2013:51). Canada is currently facing a talent shortage and, besides Mexico, has the most challenges for employers looking for the right staff for the right jobs. Several factors aggregate to cause this talent deficit. These include demographic changes like declining birth rates and an increasingly aging population, social evolution, limited education initiatives, entrepreneurial practices (e.g., offshoring and outsourcing), and globalisation. The government has implemented labour reforms to boost the growth of labour productivity. This has allowed automakers like Audi to source skilled local labour and employees who can perform to their standards. In fact, the growth of labour productivity in Canada is faster in the automotive sector than in the whole Canadian economy (Rozental & Bugailiskis, 2012:62). Compliance with health and safety policies, environmental standards, and many other related issues poses a serious challenge for automakers. These challenges are more difficult for multinational firms like Audi, which operate in countries with various legislations and practices. Canada’s automotive sector offers vehicles, parts, and related products, and utilities like servicing, advice, training, and intermediation. Some companies even go as far as helping clients comprehend and associate with the cultures and markets and the customers and stakeholders they deal with. Some examples include public relations, marketing, and market research (Castro-Rea, 2013:74). This is compounded by the growing diversification of customer demand and the variety of goods, which have led to an increase in demand for automotive products and services. The Canadian government considers social concern over the environment and environmental policing to be vital issues for governments and firms in modern society. Canada has a fragmented federal system and autonomous legislative powers for regional governments. These have created conflict between the federal government and the provinces. For example, in 2011 the state and the province of British Columbia engaged in a spat over the shutting down of Insite, the medically managed injection site of Vancouver. Conflict between the state and the provinces have adverse effects on foreign investment because some provinces create laws that go against federal rules, thus creating unnecessary investment obstacles (Smyth, Soberman, Easson, & McGill, 2012:38). These differences also lead to confusion among investors because they are not sure which laws to follow and which authorities to work with in order to set up and maximise their investments. This situation is so serious that Audi has complained to the Canadian government over the frustrations it has endured in trying to expand in other provinces and establish an assembly plant. Social and Cultural Environment Like the United States, Canada has a very diverse culture that is dominated by British and French influences. Canada is usually classified as highly progressive, multicultural, and diverse. These three dimensions may seem trivial on the surface, but a deeper examination shows that they affect business more than one can imagine. Progressiveness is a very important aspect of business, and the fact that Canadian society has embraced progressiveness bodes well for its automotive sector (Castro-Rea, 2013:43). It could be said that in this context, Audi has found an attribute that fits its philosophy perfectly. Like most German companies, Audi prides itself on highly advanced technology, scientific research, well-defined social structures, and economic development. These qualities need the right environment to flourish, and when they find the right setting it becomes easy for all stakeholders to benefit from the rewards of progressiveness. Canadian society is modern and dynamic and, like most developed countries, it welcomes technology and advancement like most developed countries. Although the country’s population is aging rapidly, the percentage of the population between the ages of 15 and 60 who are conversant with technology is huge (Coulter, 2014:36). This has contributed towards the country’s progressivity and given firms like Audi the opportunity to sell the latest automobile technologies to this extremely conscious population. Progressivity is also linked to innovation. Canada is the home of many research and technological firms that thrive on innovation (e.g., Blackberry). As such, a highly innovative company like Audi feels right at home in Canada’s progressive society. It is confident that it can produce futuristic and advanced cars and sell them to Canadian consumers. Although the impacts of progressivity on Audi’s vision and mission for Canada are largely positive, there are some negative impacts that cannot be ignored. A high degree of progressivity creates a situation where businesses have to maintain high quality, technological, and scientific standards or else consumers will opt for other varieties (Papillon, Turgeon, Wallner, & White, 2014:39). Satisfying the needs of a society as progressive as Canada’s is very intensive in terms of labour and capital. The needs of Canadian consumers, especially the middle and upper classes, are highly dynamic and volatile. This has compelled Audi to invest large sums of money to stay abreast with their needs and remain “hip” and fancy enough to retain the luxury tag. Multiculturalism is both a positive and negative influence on Audi’s investment plans. French provinces are more conservative compared to the English and multi-diverse provinces. This conservatism means that Audi cannot employ blanket strategies to sell its products (Brander, 2013:47). For instance, aggressive and loud marketing would not go down well with French provinces, while the other provinces would be more receptive to such approaches. Diversity also has similar effects to multiculturalism, because companies cannot adopt one-fits-all approaches to product development and marketing. Like the United States, Canada does not have one culture or mindset, but all the different cultures have needs that must be met. An often-ignored aspect of Canada’s culture, which has a significant impact on business, is bilingualism. Due to large French and English-speaking populations, the Canadian government installed both dialects as the country’s official languages (Smyth, Soberman, Easson, & McGill, 2012:31). This has created a dilemma for businesses, especially when it comes to labelling and marketing. Audi, for example, has to incur extra expenses in installing English and French in its cars. It also has to hire employees who are bilingual so that it can satisfy the needs of the whole population. Hiring bilingual employees is not only expensive but also difficult. Extra training may be required for employees who are unilingual, while product marketing must incorporate both French and English to avoid looking partisan. Majority of Canadians have a strong devotion to their provinces. In some provinces, such as Quebec, people swear more allegiance to their regions than the country. This has had a negative impact on business because foreign investors struggle to adapt to this concept. Expansion is difficult and dominated by bureaucratic and cultural obstacles, most of which are intentionally erected to lock out some companies from some regions (Vannini & Budd, 2012:24). Canada’s provincial governments have been more of a stumbling block than a catalyst of foreign investment. For instance, if Audi wants to expand to other provinces, it must engage in lengthy negotiations with other provinces before it can obtain licenses and other permits. Quebec has been frequently cited as a difficult region to expand in from other regions. This is because of the people’s extremely independent and individualistic nature. Conclusion Audi plans to invest more capital in the development of automobile infrastructure in Canada. Based on current and recent developments, the firm has identified Canada as an ideal investment location that supports its short and long-term objectives. Since the 1980s, Canada’s political regimes have ensured that the country remains foreign investors’ preferred country to invest in outside of Europe. The country’s political leaders have used the legislature to enact favourable legislations that protect foreign investors from losses and challenges that they face in other countries. Canadian politicians have also demonstrated considerable goodwill to allow German automakers like Audi to set up operations both rapidly and effectively. Currently, it takes less than 6 months for major foreign investors to establish divisions in the country, a situation that is highly supportive of car manufacturing. Although Canada still faces some challenges when it comes to attracting and keeping foreign investments in the country, many other countries have greater obstacles and Canada is performing much better. References Anastakis, D. & Smith, A. (2014) Smart globalisation: the Canadian business and economic history experience, Toronto, University of Toronto Press. Anastakis, D. (2013) Toronto, University of Toronto Press. Asefeso, A. (2012) CEO guide to doing business in Canada, Montreal, AA Global Sourcing. Baum, M. (2013) Strategic management in a global context impact of the downturn, S.l., Grin Verlag. Brander, J. (2013) Government policy towards business (5th ed.), Indiana, Wiley. Castro-Rea, J. (2013) Our North America social and political issues beyond NAFTA (Revised ed.), Farnham, Surrey, Ashgate. Coulter, K. (2014) Revolutionising retail: workers, political action, and social change (Illustrated ed.), New York, Palgrave Macmillan. Papillon, M., Turgeon, L., Wallner, J. & White, S. 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