TheFutureEconomy.ca: How do you assess Canada’s economic relationship to Asia in today’s global context?
Stewart Beck: I think the opportunity for Canada today is as great as it has always been. Our challenge is really the fact that we are located next door to the United States, and so from a Canadian perspective, it is always easier to do business there than it is to travel thousands of miles to go into more difficult markets. If you look at our penetration of Asian markets today, it is really no different today than it was at the turn of the century. So even though you’re seeing all this remarkable growth in Asia, whether it’s China or India, countries that are growing at 6.5% and 7% respectively per year, we really haven’t turned the dial in terms of our impact. As a comparison, Australia has done a much better job at engaging Asian markets than we have. If you look at the Foundation’s polling, people are beginning to realize that Canada is going to need a better strategic approach to Asia; we need to become more engaged and more involved. If you compare 2016 to 2014, Canada sees itself more as an Asia Pacific nation, with our polling showing a 12-point increase from 24 to 36% of respondents. That is all good but I do not think it has translated into the economic results that one would assume. China is our second largest market but we are still only about 1.3% of their import market so it has not really had that big of an impact.
“Even though you’re seeing all this remarkable growth in Asia, whether it’s China or India, countries that are growing at 6.5% and 7% respectively per year, we really haven’t turned the dial in terms of our impact.”
What are the risks and rewards in Canada’s trade and investment relations with Asia?
The risks are associated with the investment that you have to make and for which there is no guarantee of a reward. So the risk of doing business in Asia includes costs, which are higher than doing business in the US where the culture and the legal system are similar. The legal systems are somewhat similar between Canada and India but completely different with China. So those are some of the risks businesses need to consider.
On the rewards side, I just like to use the example of the Province of British Columbia that 10 or 12 years ago made a decision to develop an Asia engagement strategy. A lot of that was driven by the first softwood lumber negotiations with the United States and the realization that this market was going to be impacted dramatically, and the government decided that they should diversify their reliance on the US market. If you take a look at BC relative to other provinces, the province now has over 25% of its exports going to Asia compared to other provinces, where it’s less than 10%, and the economy is doing very well because of that relationship. Of course, BC is located on the Pacific, which gives it an advantage but the province made a strategic decision to engage and diversify, and it has paid off from an economic perspective.
“As the middle class grows, their requirement for energy will grow, whether it is renewable or traditional, we can bring technologies to energy, we can bring the actual energy products itself, we can bring a governance structure also, which I think is one that will be quite attractive to people in Asia.”
Again, it is important to have that type of connectivity. I was recently one of the keynote speakers at the YVR Airport Asia-Latin America Summit and the point behind that summit was to position YVR as that global hub to move people between Canada, Asia and Latin America. To do that, you need to put in the necessary physical but also regulatory infrastructure. Part of our job at the Foundation is to convince people that it makes sense to talk about transit without visa. If you are coming from China, they have transit without visa from 10 cities already and we need to expand that. There are all sorts of things that you can do from a regulatory perspective to really position Vancouver as that hub on the West Coast of North America into Latin America, and that is an opportunity that we have to gain. With the movement of people, that is what is going to create more trade and more political and social engagement between Canada and the Asia Pacific region, so you have to have that type of infrastructure in place.
What are the skills and what are the competencies that you think Canadians need to have to be successful in Asia and what should be done now to prepare Canadians and Canadian companies for the future?
We have had this conversation a lot at the Foundation and the board itself has been very supportive of helping build Asia competence in Canada. We are a relatively small piece of that pie in the sense of being able to help fund something like that but from our perspective, there are two issues around building skills and competence. For one, Canada is very much Europe-facing as a country, and when you take a look at our social studies programmes and history programmes, it is all about ancient Rome, ancient Greece and the UK, as well as the US of course. We have just announced a partnership between the Foundation and the BC Ministry of Education, whereby the Ministry is providing $250,000 in matching funds to help us develop new resources for teachers and students. These resources include teaching materials and professional development workshops, empowering B.C. teachers to learn and teach contemporary Asian studies and history. Canadians need to understand Asian history if we want to understand the culture so it is about getting it into people’s thinking at a much younger age and that will help build that skillset which is so important.
“The (BC) province made a strategic decision to engage (Asia) and diversify, and it has paid off from an economic perspective.”
The other thing that we are doing is we are providing bursaries for post-secondary students to go and work and live in Asia for four to six months. This is outside of academic exchange programmes because typically students end up in a university environment where they do not get themselves exposed to what it is like to live and work in that environment. Within the research that we have done and when we had the national conversation on Asia, it became very clear that Canadian students do not choose to go to Asia for exchange programmes or to travel. In terms of exchange programmes, only 3% of Canadian students do exchange programmes, and only 1% of those go to Asia. So what we are trying to do is encourage and entice students to go there because once you have that experience, and once you live and work in a place like Delhi or Hong Kong or Shanghai, your perception and how you approach those relationships could change completely.
You also have to remember when you are in economies that have a billion people plus, how do people exist in those places? It is all about building relationships and trust. You build trust through the relationships that you have with people. You just do not walk into a place and expect they are going to treat you like you were a friend for years. A lot of it is based on that trust and it takes time to build that trust, whether they use Guanxi in the Chinese context, but it is the same sort of thing in India. You cannot go in, expect to sell a product and establish yourself in the same way that you would as a company in the United States, it is just not done that way, so to be able to understand that you need to be there and to see how people form those friendships and relationships. I will not say it is complicated, it is not that complicated. Once you get there and understand it, it evolves relatively quickly but it is building that trust and friendship and understanding, and it takes time to do that. So if you are not willing to make that type of investment it is going to be very difficult for you to be successful in Asia.
Amongst other things, Canada is prioritizing innovation, sustainability and responsible resource development right now. Can you mention some specific opportunities you see for Canada in Asia as it pertains to innovation and sustainability?
Take a look at the challenges facing those emerging markets and again, understanding what we have to offer. So in terms of innovation and sustainability, one of the biggest challenges facing both China and India, which are the two largest from a population base, will be water and agriculture. Both those areas are something that Canada knows quite a bit about, not just because we have a lot of water, which is a great resource that we have and we understand, but also because of the technologies around that, for instance in terms of water purification and wastewater management; there is a whole variety of different technologies that we have been quite good at developing over the last few years. Then, of course, there are agriculture, agri-food and agri-food technologies.
Again, we are a very efficient food producer and these technologies and innovative ways of thinking could be taken to China and India for instance, two of the biggest places where these are enormous challenges. So when you are talking about clean-tech, not just in terms of water but also in terms of air and land, these are some of the things that we should be focusing on to help build capacity in making those connections.
Another challenge, from a Canadian perspective, is that we do not have companies that are viewed as globally big enough to go into those particular markets and provide end-to-end solutions. You have a lot of different small companies with capacity, how do we present those companies as being bigger than they actually are, that is something that we have to think about as one of our challenges. When facing the Canadian government or even the Provinces as they are trying to help SMEs compete in those particular markets, those are two particular areas.
“When we talk about innovation, we need to look at all the various sectors where there is mutual interest between Canada and Asia.”
When it comes to energy, there are a lot of technologies that are resident in Canada around shale gas extraction for instance. There is also a lot of expertise that we have in the governance of that particular space that would be of interest to countries in Asia beyond China and India; whether it is in renewable energy or in traditional oil and gas, these are areas of expertise that we can take into that market. There is a lot of opportunity in the context of infrastructure, and it is not just about building bridges and roads where we have expertise with globally recognized EPC’s like SNC Lavalin, but it is also in the smart grid area and other technologies which are creating efficiencies around infrastructure. Again, the companies tend to be smaller so we need to help them project a bigger presence in markets where people expect big companies to be there.
So these are some of the opportunities– healthcare is another one where we have had a national approach to healthcare provision. There are governance issues around that which are quite attractive, particularly when you look at a place like China with an aging population. How do you manage assisted healthcare of elderly people where that group is growing remarkably quickly and there is a real interest in how we manage that process here in Canada. It is no surprise that a Chinese company recently bought an assisted care facility here in Vancouver. Again, it is not just because they are looking at the opportunity from an investment perspective but they are also looking at it as a way to bring that type of expertise into China.
When we talk about innovation, we need to look at all the various sectors where there is mutual interest between Canada and Asia. We cannot be all things to all people but there are certain areas where it makes an awful lot of sense to collaborate.
How do you partner with Asian countries, broadly speaking? Are we talking joint ventures? What is the preferred mode to start doing business in the region?
Again, because of the nature of the markets it is very difficult to go into most markets in Asia. Japan may be different, Korea to a degree may be different, but in most developing markets or emerging markets you need to have a partner of some sort. Either somebody who is working with you who is from the diaspora here in Canada who knows and understand how to build relationships in the country where you want to go and do business, or you need to have the right type of local partner in the market. It would be very difficult to go into most places and have a wholly owned subsidiary and work on that basis, you need to be thinking about what type of partner you have going into that particular market.
What are your top four sector opportunities for Canada in Asia and why?
The first is agriculture because we are good at it and we have water. When you take a look at a market like India, where, depending on the year, 25-30% of the pulse market comes from Canada, essentially what we are exporting is water and protein. So agriculture across the board, whether it is agri-food products or actual commodities, is only going to get bigger as the middle class grows and creates more opportunities for us.
The second one would be healthcare because of our universal healthcare system and the efficiencies that we have to constantly think about; it creates technology opportunities that are remarkable and that we can promote, sell and collaborate on in Asia. So that is another big area.
“Whether it is around clean technologies and the services around that, in healthcare and healthcare services, or in financial services and fintech, these are all the things that will be forming a large part of our GDP mix going forward.”
Third is education. It is a huge revenue generator for the country to bring smart Asian students to Canada. But it is also a big opportunity for us to take our educational paradigms into Asia, particularly in the vocational training side, to markets like China, Indonesia, Vietnam where you have 50% of the population under the age of 25 or 30, depending which country you are talking about. Those are real challenges for those governments; how do you skill that population? Because if you do not skill them it becomes a security problem.
The fourth I would say is energy, and that is our problem. It could be such a great geostrategic advantage for us if we could get our energy to tidewater and again, Asia will be crying for energy. As the middle class grows, their requirement for energy will grow, whether it is renewable or traditional, we can bring technologies to energy, we can bring the actual energy products itself, we can bring a governance structure also, which I think is one that will be quite attractive to people in Asia.
What is your vision for Canada’s economy by 2050? Will it look very different than it looks today? Will the economic mix be very different or is it just a bit more of the same?
I think we will always be a resource-based economy. Where I think we will see a big difference will be on the services side and a lot of that will be driven by technology and innovation and what we do in that particular space. I think if we do manufacturing in Canada, productivity is going to go up because the labor count is going to go down, so it will be very sophisticated, very high-end, advanced manufacturing. I think that is the reality that is facing the country. So we need to understand that and that is going to be part of our mix but it is not going to be the large part. The large part will be on the services side and that I think is where we have to understand and capitalize on. That is also where, to the government’s credit, they are investing a lot of money right now in the innovation space and that is what is going to be driving a lot of our growth going forward. Particularly in Asia, whether it is around clean technologies and the services around that, in healthcare and healthcare services, or in financial services and fintech, these are all the things that will be forming a large part of our GDP mix going forward.