MONTREAL — Canada must urgently develop a strategy to support development of global business champions instead of just local subsidiaries, says Robert Brown, the outgoing chief executive of aerospace simulator and training company CAE Inc. (TSX:CAE).
The well-respected business executive and former government bureaucrat said the right mechanisms must be in place to allow businesses to compete, penetrate markets and maintain head offices in Canada.
“In order to maintain our own sovereignty, it’s important that we have some entities of that kind that can compete on the global stage,” he said in an interview.
Brown is stepping down Sept. 30 after five years at CAE’s helm. He guided the company to diversify its position as a global leader in flight simulators by strengthening its pilot training business and expanding its military presence.
While the military side of the business is doing well, he said it’s probably going to take a couple of years before the commercial business recovers.
CAE, with about 5,500 employees, has operations in two dozen countries and is one of Canada’s most international companies. There are others as well who are based in Canada but thrive globally — companies such as the world’s biggest gold producer, Toronto-based Barrick Gold Corp. (TSX:ABX) and Vancouver zinc, coal and copper miner Teck Resources. Other successfull globally focused companies are insurance giant Manulife (TSX:MFC) and oil producers Talisman Energy and Nexen as well as BlackBerry maker Research in Motion (TSX:RIM).
After a brief career with the Canadian Armed Forces, Brown entered the Canadian Public Service in 1971, working at Atomic Energy Canada, the Public Service Commission, Treasury Board and later as a senior official with the Department of Regional Industrial Expansion.
He later became CEO of aircraft maker Bombardier Inc. and was chairman of the board of Air Canada (TSX:AC.A) at a time when Canada’s largest airline successfully restructured and exited from bankruptcy protection under the federal Companies Creditor Arrangement Act, at the time the largest corporate restructuring in Canadian history.
Brown recently headed a panel of experts appointed by the Council of Canadian Academies on innovation of Canadian businesses. The group of 18 business, labour and academic experts reported in April that a shortfall in business innovation was the root of Canada’s lagging productivity.
Stopping short of suggesting an industrial strategy, he said innovation must be promoted, especially among Canadian sectors that have a comparative advantage.
The main impetus must come from the private sector. But government can assist through a range of tools, including sectoral analysis, direct support, tax changes, regulations and indirect procurement assistance.
“I don’t really believe in just selecting winners, but there are clearly sectors in can where we do have comparative advantage.”
That includes natural resources, energy, commodities, pharmaceuticals, aerospace and automotive parts.
Brown said Canada can’t let things just unfold since other countries have very determined strategies to support success.
“It may mean doing something, it may mean doing nothing but at least there should be a debate.”
Unlike other countries that have been shocked into action, Canada has been slow to act because it leads a comfortable existence based on its reliance on the huge American market.
However, the situation is changing as Canada’s two economies grow further out of synch. As oil and gas and commodities become stronger, the dollar appreciates making it more difficult for manufacturing companies in central Canada to compete.
Brown also said Canada’s tax credits to support research and development need to be changed and modernized since some eligible companies, like Nortel, couldn’t get access to the cash.
He said the strategy must adapt quickly to what’s happening in the world, especially in the United States where the government has become more activist.
“It may be ambitious but I strongly believe it’s absolutely essential if we’re going to continue to maintain our quality of life and evolve with the changing global circumstances.”