With the government proposing new national security restrictions on foreign takeovers, an extensive Statistics Canada study on the issue suggests foreign multinationals make the best Canadian corporate citizens.
The 50-page report found that foreign-controlled firms make large investments in innovation, advanced technology and skilled labour and these translate into superior market outcomes, and higher rates of productivity.
The findings come at a time of increasingly loud calls for controls to prevent what has been called the "hollowing out of corporate Canada,'' after a series of high-profile takeovers. The most recent came Monday with IBM's proposed $4.9-billion takeover of Canada's largest software company, Cognos Inc.
Meanwhile, Ottawa is expected to table changes to the Investment Canada Act next month to create a national security test on foreign takeovers as well as set new limits on state-owned enterprises.
Finance Minister Jim Flaherty said the Statistics Canada report has not pulled the rug from the under the feet of the government's blue ribbon panel on competitiveness due to report in June, noting that the panel will examine a wide range of issues.
But he suggested the study does undermine many of the arguments of economic nationalists.
"There's certainly some factual dissonance on that,'' he said.
"Look at the investments by Canadian banks in the U.S. recently. One can make the argument that there's a hollowing out of Alabama and New Jersey by some of the large Canadian banks.''
Walid Hejazi, professor of international business at the Rotman School of Management, said one key area that the blue-ribbon panel should investigate is how to establish the conditions to help Canadian firms become global leaders.
"The worst thing government can do is restrict foreign investment,'' Hejazi said. "The right thing to do is to ask what are those underlying competitive factors that are limiting Canadian companies from going to the next level, and remedy those.''
Tuesday's report debunks many of the arguments against foreign takeovers, including that they lead to the gutting of head-office employment here.
"The impact of foreign takeovers between 1999 and 2005 has not been to reduce the number of head offices in Canada or head-office employment,'' it found.
"As a result of foreign takeovers, more new head offices were created than lost from 1999 to 2005, and employment in head offices was as high after the takeovers as it was before.''
The agency said labour productivity at foreign-controlled plants in the manufacturing sector has increased considerably relative to domestic plants over the last three decades.
"Their plants not only have higher productivity, they tend to be more capital intensive, pay higher wages, and hire more white-collar workers than their domestic competitors,'' the report said.
That doesn't mean, however, that multinationals are "simply better'' than their Canadian-owned competitors.
Shirley-Anne George of the Canadian Chamber of Commerce said one of the key findings is that Canadian firms that develop an external orientation often stack up well against foreign multinationals.
"It's not about whether a company is a foreign or domestic multinational,'' she said.
"It's the fact that they have an international orientation that drives them to behaviours that result in higher wages, more white collar workers, higher use of technology, more investment, and are more likely to come out with the first product as opposed to an imitation product.''
But NDP leader Jack Layton said he still supports stiffer regulations on foreign takeovers, noting that Canada remains open to takeovers in sectors such as natural resources from countries that would be hostile to Canadian firms attempting the same thing.
Even here, however, the statistics suggest that Canadians have no difficulty investing abroad. Hejazi said while Canada was once at a huge imbalance in terms of direct foreign investment, today that imbalance has reversed.
In 1970, there were four times as much foreign investment in Canada than the reverse, he said. Today, for every foreign dollar invested in Canada, there is $1.25 Canadian dollars invested elsewhere.
"The hollowing out of Canada is a myth,'' he said "The pace at which Canadians are investing abroad far outweighs the pace in which foreign companies are investing in Canada, and that's been true for the last 35 years.''
