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Enduring Public Policy Lessons from Automotive Foreign Direct Investment in Canada
Submitted by Greig Mordue, McMaster University on 26 févr. 2016 - 14:53
Type de publication:Conference Paper
Source:Gerpisa colloquium, Mexico (2016)
Mots-clés:automotive, Canada, Failure, Foreign Direct Investment
During the 1980s the Canadian automotive manufacturing industry was transformed. It shifted from one where four American headquartered companies produced 98 percent of the vehicles built in Canada to one with a much more internationalist outlook. During the decade five new companies entered the Canadian automotive manufacturing landscape with new final assembly operations. Had these companies not entered the country, the industry that exists in Canada today would be dramatically different: smaller, less international in scope, less capable of supporting the cluster of automotive parts makers that has evolved. While existing literature effectively captures the preconditions for the changes that occurred during this period, the actual outcomes and the processes associated with those outcomes has received scant attention.
The relative success Canada enjoyed in winning automotive assembly Foreign Direct Investment (FDI) in the 1980s might cause one to assume that the process was guided by a clear and disciplined strategy, progressing from one success to another. However, the cases revealed here show that the process, the tools and the messages emerged mainly from circumstances and conditions to which policy makers and other actors responded in the moment, rather than through a well-defined and forward-thinking program. Even though there can be no question that significant success ensued, closer study reveals that dead ends were met and disappointment occurred.
This paper focuses on those disappointments. It will be shown that rejected overtures provide valuable context and rich insight as they better speak to the challenges and hurdles that actors confront in attracting FDI. Such cases provide the basis for improved understanding about the process of setting policy goals, interpreting the motivations of partners, how major decisions are sometimes made and the capacity of exogenous factors to affect the best laid plans.
The original intent of this research was to review the range of investments that occurred during the period under study. However, during the process of tracing the antecedents and policies incumbent in creating the conditions for the five new final assembly plant investment to proceed, new aspects emerged. They include these previously hidden stories of failure, of opportunities missed and of advances recoiled.
There are many reasons why business histories avoid the study of failure. For example, with the passage of time, a natural tendency exists to focus on what is – or was – tangible or real. A factory that never existed does not normally stimulate research about why it was never built. Second, many of the unfulfilled investments that were considered did not generate attention at the time. Investors then, as now, are much more comfortable announcing tangible plans than vague prospects. Third, investments that were considered but rejected can in many cases be considered failures and actors are reluctant to discuss those. Fourth, with the passage of time, awareness of these unanswered propositions becomes less visible. Finally, on a very practical level, the fact that these investments were never made means that access to informants is inherently more difficult.
Primary research for this came from two key sources: interviews with key actors and government archives. To that end, 17 direct participants from the era were interviewed. As well, the archives of the Government of Canada and the Province of Ontario revealed new information about the process, the actors and the tools.
The rebuffs started in the late 1970s and continued throughout the period when new entrants were announcing investments in the mid to late 1980s. They came from automakers headquartered in the United Kingdom, in the US, in Russia, in Italy and Japan. While it might be convenient to suggest that policy makers reflected upon the missteps, leveraged the rejections and adjusted their approach to prepare for subsequent opportunities, the reality would appear to be far less sanguine. From this, a range of policy implications arise. Some are specific to FDI attraction. Most have broader application.
First, we are reminded that the process of coalescing around policy goals and objectives can be disordered. For example, had this paper been fixed on charting positive stories only – the “wins” – we would have overlooked the messy process of developing goal congruence.
Second, it is suggest that policy makers should establish aspirational goals and they should do so at the outset. The second tier companies (in terms of size, scale and scope) require as much effort as aspirational ones. They also have many of the same options as larger ones.
Next, the cases described in this paper demonstrate that the motivations of potential partners are not always transparent and therefore, not necessarily aligned with those of policy makers. FDI targets – or any potential partners – may be balancing several objectives, not all of which are visible to policy makers.
As well, the cases highlighted in this paper demonstrate how chaotic investment attraction can be. Understandably, conditions change, prompting shifts in strategy. Planning horizons for projects of the magnitude of a final assembly automotive plant, for example, can extend beyond single business cycles. Even more interesting, this paper shows that big decisions – even ones in big, apparently sophisticated companies – are not always made with measured process and full information. They can be made in an impetuous manner, devoid of governance.
Finally, the cases of failure show that on occasion, efforts are rebuffed or policies fail, not because a strategy is weak, flawed or inadequate. Sometimes, exogenous factors crash in. Should officials be expected to anticipate all challenges? Should they be constantly at the ready to adjust course? The answer to both seems “unlikely.”