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Does business need to adjust its agenda?

Does business need to adjust its agenda?

What is the business agenda for the 1990s in Canada and the United States? We know it will be a busy agenda in both countries, complete with the ticking time bomb of growing national debts. And we don't need a clear crystal ball to see a wide range of other issues.

My experience during the past year strengthens my belief that business must act in terms of both a continental and a world agenda. That experience was gained as chairman of the federally appointed committee studying the implications of Canada's Free Trade Agreement with the U.S.

If we move quickly, the Free Trade Agreement (FTA) can become a giant step toward global liberalization of trade. Economic realities are driving political decisions toward a more open international market structure. As financial executives, you must be part of that outward push. Your advice and counsel is needed near that cutting edge that separates profit from loss. This is not the time to shy away from the competitive challenge.

What are some of the major problems business will have to tackle?

* The first item on the agenda is globalization. Globalization may be a buzzword, but it describes what is happening in the marketplace.

The international economy now demands global standards for quality, for pricing, for service, for design, and for on-time delivery. It also demands leaders who think in global terms.

Where do North American firms with technological, organizational, and marketing strengths fit in this one-world marketplace? The FTA between Canada and the U.S. provides one opportunity. If companies on both sides of the Canada-U.S. border act swiftly, they can benefit from the positive effects of the FTA. But companies in both our countries can - indeed, must - also become powerful competitors in Europe and Asia.

The FTA more than opens the continental market - it is the stepping stone to the world market. It will require the courage of entrepreneurial risk-taking on both sides of the border, of course, to compete internationally. But corporate size now has to be measured in a global rather than a national context. And there isn't any time to waste.

Why the hurry? Because other trading blocks are forming. A born-again western Europe has invented Project 1992. It is creating a market within the community larger than Japan and the U.S. And Communist Europe has produced "perestroika." The two markets of Europe appear destined to meet in an economic tug of peace.

Are we ready for this globalization of the marketplace? * Second among the problems is that of education - the education of our most valuable resource, our young people, the workforce.

What problem, you say? Don't we live on a continent where education is universally available? Yes, we do. But despite our accessible education system in both countries, about one of every four young adults over 18 years of age is functionally illiterate.

One in four of our young people across this rich land is held back by the inability to read, to write, or to compute well enough to perform the basic tasks required on most jobs. Skilled jobs are going begging in some 300 occupations due to the lack of trained people to fill them, and yet we have 16 or 18 percent unemployment in some pockets in both countries. * Finally, the agenda for the 1990s includes concern over the population growth rate and the integration of immigrants into the community and the workforce.

Why is population growth a major issue? For starters, the United Nations forecasts that the world's population is likely to triple within a century. Yet, the growth rate throughout the most highly industrial areas is on the decline.

Canada, for example, has too few people for its size. Some demographic forecasts indicate Canada's population will decline in the next century to as low as 23 million. Those forecasts are based on the assumption that immigration will continue at its current low rate and the already low birth rate will drop further.

Those are the statistics. Of paramount concern will be the need for immigration policies to be constantly reviewed in the light of economic and social developments. Newcomers must be welcomed and helped to find their niche in the workplace.

Whatever the politics or the pressures, a simple fact stands clear. There is a lot of room in Canada. A study at McGill assumed that only 10 percent of Canada's land mass was habitable. It is also assumed that this 10 percent had the same population density as Holland. On that basis, Canada would have 400 million people.

Globalization: compete on equal terms

What is the role of North American companies in the world economy? This is a pivotal economic concern for the 1990s.

While the national debt remains a preoccupation in both countries, the private sector is gaining in strength. With strength comes confidence to tackle the world's best. In fact, Canadians are acquiring that self-confidence that Americans always had. As Marshall Cohen, president of Molson's, put it recently: "The so-called Canadian market is a thing of the past. In this new world, size matters."

The restructuring of industry and the mergers underway must be seen in the context of a worldwide phenomenon. The forces driving this development have much more to do with economics than politics. And these economic factors are forcing changes equally in North America, Europe, and Japan.

The process of globalization is being speeded by many factors, but three in particular: * The financing of major mergers by financial institutions operating on a world scale. Japan sets the pace in strong financial firms. The overseas operations of Japan's financial companies are worth more than twice those of its car makers and consumer electronic firms combined. * The emergence of easily recognizable brand products is also accelerating global business. * Large-scale and rapidly changing technologies are having a major impact on competition in the international marketplace.

Any company competing globally must have financial, organizational, and marketing strengths. It must have the capacity to invest large sums of money over long periods in high-risk, new technology development.

These elements are found in the mergers, joint ventures, and other restructuring steps underway in Europe. The same strengths are needed in Canada, and the U.S./Canadian firms and industries that aspire to be part of the new marketplace must be prepared to restructure and to reorganize. That is the essential requirement to meet the powerful competition from Europe 1992 and other world trading blocks.

But restructuring should not mean the breakup of companies. In North America, some buyouts are leading to dismantling. Too often, the leveraged buyout specialists acquire companies not as permanent holdings but as quick investments to be sold, piece by piece.

Note that the competition will not be between countries. It will be among firms. Companies already in the international marketplace now understand this. The role of government should therefore be clear. Government must put forward policies that allow firms to compete on equal terms in the global marketplace.

Education: a crisis situation

Such global competition calls for a highly trained and skilled workforce. Education is the master key that will open the door. We made this point in strong terms to the federal government in our recent report of the Advisory Council on Adjustment. We said that a skilled workforce is the key to competitiveness and growth. However, the hard truth is that we haven't got enough people who are sufficiently equipped to compete in the high-tech global economy.

In tandem with developing a larger skilled workforce, we need an economic climate that is conducive to both business growth and the social needs of the country. Yet, as long as the national debt continues to grow, government will be unable to spend money - money it doesn't have - on economic and social programs.

Of course, there are those businesspeople who belong to the deficits-don't-matter school. They point to the buoyant economy of the past few years. Business is doing fine. Why worry?

Borrowing on the future, however, as governments are doing, gives a sense of false prosperity. That's the point made by Harvard economist Benjamin Friedman in his recent book, Day of Reckoning. Friedman says the reason that the average American has enjoyed such a high standard of living lately is that since January, 1981, the U.S. government has simply borrowed more than $20,000 on behalf of each family of four in the country.

Americans, however, might take some comfort in the following comparison: Canada spends, just to pay interest charges on the debt, more than twice as much as the U.S. In Canada, 31 cents of every tax dollar goes to debt payments. The U.S. spends 15 cents of every tax dollar for the same purpose.

Another factor, unrelated to education, that is creating a bad climate for business is the widespread fear of litigation. If the U.S. is the world's most litigious society, can Canada be far behind? The answer, of course, is "no." People in both our countries sue each other at the drop of a hat. The threat of litigation, or actual lawsuits, stops production, paralyzes corporate decision-making, and scares professionals, such as doctors, into inactivity.

A recent Conference Board survey of firms in the U.S. reported that threats, or actual product liability suits, caused 36 percent of the surveyed companies to discontinue some of their products. The threats, or actual suits, also led 15 percent of the companies surveyed to lay off workers and 8 percent to close plants.

Insurance rates are being pushed up, creating what amounts to a hidden tax that hurts international competitiveness. Peter Huber, a lawyer and author of the book, Liability, The Legal Revolution and its Consequences, says this hidden tax represents $80 billion in costs to businesses in the U.S. Costs to companies in Canada are in proportion. From our perspective, the litigious society is out of control. Until it is curbed, its excesses are bound to have a negative impact on business, especially in North America.

But let's return to the subject of education, the primary item on the agenda for the 1990s. Right now, a recent Southam survey found, five million Canadians cannot read, write, or count well enough to cope with the needs of a day-to-day job. And this unhappy situation, where one-quarter of our potential workforce is nonproductive, has its parallel in the U.S.

Lee Iacocca of Chrysler, for one, is well aware of the problems in the workplace. In fact, he's currently on a crusade to upgrade educational standards. He says American industry now spends more money teaching remedial math to employees than grade schools, high schools, and colleges spend on math education in the entire country.

In fact, many of the potentially best and brightest never finish high school. Some 30 to 40 percent of high school students do not graduate. This high dropout rate tends to obscure the fact that we have more university graduates than ever - and that the gulf between the trained and the untrained is widening.

Among the highly industrial countries, Canada is not a shining star in school attendance. According to an OECD survey, the percentage of 17-year-olds in Canada participating in formal education is less than the percentage in school in Sweden, in the U.S., in West Germany, and in Japan.

Many businesses already work closely with universities and colleges in successful programs and have for many years. For instance, fine results have been achieved by universities working with Bell-Northern Research.

But financial backing is only the simplest and most direct form of support. The business executive's ideas and active participation also are needed. As Ernest Rutherford, the Nobel laureate physicist who taught at McGill University in the early part of the century, once told his colleagues: "Gentlemen, since we don't have money, I guess we'll have to think."

The financial crisis in education persists. In the past decade, operating grants at Canadian universities have risen less than 3 percent in real terms, despite enrollment increasingly by 30 percent. In the 1990s, the quality of education, and its financing, will be as much an issue as it was in Ernest Rutherford's day.

The new agenda

The agenda for the 1990s will bring inevitable change. The seemingly unrelated topics of education, globalization, the integration of immigrants, and population growth are really all part of the same picture. And, as we head toward the new millenium, we must change with the times or, even better, ahead of the times.

The opportunities are there. They just have to be harnessed properly. Where do we start? I would start with education and retraining of the workforce. The rewards for more competitive firms will be great. The penalties for less-than-efficient ones will be severe. True competitiveness will be measured in global terms.

Think about Europe in 1992. Its aim is to have cohesive economic clout. If we are going to make any inroads into this market that has no frontiers but has 360 million people, we will have to adjust our sights. We will have to attain more cohesion in Canada, let alone in North America. Inter-provincial barriers will have to come tumbling down. If they don't fall, the entire country is the loser. Our Free Trade Advisory Council summed it up in a simple question: "How can we have free trade with the U.S. if we don't have free trade within Canada?"

Europe 1992, the Pacific Rim, the Free Trade Agreement - all present both opportunities and the need for business to adjust to the new markets.

The final item I single out on the 1990s agenda concerns people. The most important consideration may not be the number of people we admit from other countries. Rather, the overriding concern should be that newcomers to our countries have every opportunity to be totally integrated into the economy and into the community.

If this decade has been any indication, the next decade should be even more exciting and fast changing. That will mean constant adjusting in how we tackle this three-part agenda for the 1990s.

The title of the report of our advisory committee points the way. It was called Adjusting to Win. That will be our challenge: to adjust and to win.

PHOTO : The warship "Tornado," a pull toy of lithographed paper on wood, circa 1895

PHOTO : A wooden rowboat, circa 1900

PHOTO : Part of the "Soldiers of the Queen" series, lead cast, U.S.A., 1981

PHOTO : Part of the "Soldiers of the Queen" series, lead cast, U.S.A., 1981
COPYRIGHT 1989 Financial Executives International
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Copyright 1989, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Management Strategy; confronting business problems
Author:de Grandpre, A. Jean
Publication:Financial Executive
Date:Nov 1, 1989
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