FDI in Canada Essay Example

Foreign direct investment, or FDI for short, has become essential for many corporations and nations across the world. By encouraging FDI, many governments have been able to promote economic growth in their respective countries and at the same time create numerous jobs. The Canadian governments have an openness to foreign investments and regulate large FDIs through the Investment Canada Act, a Canadian Federal Law (Fayerweather 26). This paper seeks to expound on the FDI in Canada by looking at; the recent trends, the industries and geographic composition of the FDI, economic impact and factors influencing FDI flow into the country.

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Santander Trade, a finance management entity, notes that "according to UNCTAD's 2018 World Investment Report, Canada was the 15th destination for FDI in the world in 2016" ("Foreign Investment In Canada - Santandertrade.Com"). It further notes that Canada attracted "USD 24.2 billion of FDI in 2017 a decrease of 35 % compared to the previous year" ("Foreign Investment In Canada - Santandertrade.Com"). Energy stood out among the affected sectors with the industry experiencing a divestment of foreign capital totaling CAD 15 billion. However, the stock of FDI rose by 11 % between 2016 and 2017 ("Foreign Investment In Canada - Santandertrade.Com"). FDI stock as a percentage of GDP stood at 49 % in 2015 and 62.5 percent in 2016. United States was the leading contributor of FDI in Canada at 47.5 % ("Foreign Investment In Canada - Santandertrade.Com").

Additionally, the negotiations around the "North American Free Trade Agreement" NAFTA have had a significant impact on the outflows and inflow of most investment taking place in Canada. Moreover, according to Fayerweather, Canada's investment inflows dropped due to the continuous reduction in loans between firms in key sectors such as mining and energy and also because of the crisis in the primary sector (89). Canadians foreign securities abroad increased by 15.2 % to USD 2042.7 billion at the end of 2017. Canadian holdings of securities in the US rose by 17.1 % to USD 1251.6 billion while the European securities were up by 11.5 % to USD 407.6 billion at the end of 2017 Canada (Cole et al. 465).

Main sectors that experienced a significant inflow of FDI include; manufacturing, mining and hydrocarbons, professional and scientific industries, finance and insurance and wholesale and retail sectors. Manufacturing was the leading sector and recorded a majority share of 26.6 %. Mining followed at 23.4 %, scientific industries at 18.1 %, finance at 13.3 % and wholesale and retail at 12.6 % (Buettner et al. 580). Many foreign investors corporations preferred private joint-stock companies identified by Ltd, Inc, Co. Public or Private. The leading foreign companies were; General Motors, Daimler Chrysler, Ford, Chevron Texaco, Bank of America and Exxon Mobil. Manufacturing is the most preferred because of Canada reliability in electricity and its promotion of research and development.

Canada has also invested in foreign counties. Buettner et al. note that most of Canada's foreign investment is with its neighbor that is the US representing about 42.7 of all foreign investment (570). This is attributed to the proximity and the integrative effects of the original Canada-US. The UK comes at number two when it comes to Canada's foreign investment and this heavily attributed to their historical ties (Buettner et al. 577). Following the US and the UK are Netherlands, Ireland, Denmark and France that share dispersed investments while countries like Brazil, India, and China account for a small percentage (Buettner et al. 577). Regarding sectoral composition, the investments concentrated in financial services at 44.1 %, energy, metallic and minerals at 23.2 % and services and retail at 13 % ("Foreign Investment In Canada - Santandertrade.Com"). The composition is reflective of traditional Canada sectoral strength (Cole et al. 465).

Harischandra et al. note that "foreign direct investment increases productivity transfers new technology and increases investment in the domestic economy." Foreign-controlled firms generally pay higher wages and employ a more significant number of non-production workers (Bishop 14). Bishop notes that foreign firms have had an impact on productivity in Canada by displacing unproductive firms, diffusing new technological capabilities to domestic firms and better restructuring of the local assets they have acquired. FDI in Canada have generated domestic employment and opened opportunities to Canadian suppliers.

Consumers also benefit from foreign investments cooperation agreements. For example, the Us- Canada Open Skies Agreement of 1995 allowed greater access of Canadian passengers to the US air traffics centers and outbound worldwide air travel (Harischandra et al.). Consequently, the total share of travelers preferring Canada's transporters according to Harischandra et al. increased from "40 % in 1993 to 44 % in 1997. The Canadian government has also accrued significant revenue from foreign investments invested in the country in the form of tax. More so, it has also recorded positive revenue from investments abroad- which also helped maintain a positive outlook on the Canadian dollar.

Canada has several advantages over other nations that make it attractive to FDI flows. These factors include; a qualified workforce, a large economy of 30 million consumers, a robust banking sector, and sophisticated infrastructure consisting of a modern transportation network. The air transport agreement it has signed with 115 countries ensure seamless connectivity in transport communication (Gonzalez et al. 14). Canada also hosts a large reserve of gas, oil, and ore (Gonzalez et al. 14). Moreover, Canada has rolled out strategies and measures to protect foreign investment. For example, it has signed 37 Foreign Investment Protection Agreements and is pursuing more of such agreements to net investors from all over the world. Additionally, it has concluded, "15 bilateral and multilateral Free Trade Agreements in a bid to establish a comprehensive regional agreement to liberalize trade and investment" (Gonzalez et al. 15).

Canada maintains sector-specific restriction on FDI. The high restrictions exist in the fields of telecoms, fisheries, air, radio, and TV broadcasting. Canada justifies these restrictions with a well-established rationale (Schwanen 10). For example, in the banking sector, the prevention of self-dealing would be beneficial to the public interest as it reduces the potential of destabilizing the financial system. Its strong link to the US, its biggest trading partner, makes its economy vulnerable. The nation is also sensitive to international commodity prices and to the government revenue that depends on oil. Recently, the country has been characterized by an aging population that has dramatically reduced its active population and consequently affecting the labor force.

The paper has illustrated the foreign investment outlook. Generally, the FDI flow trend into Canada is on a downtrend while the outward investment abroad is increasing. Canada has benefited immensely from FDI and needs to maintain the positive impact it has generated from foreign firms. The barriers outlined such as the restriction of foreign firms from investing in certain sectors should be reviewed to get more investors. Moreover, Canada should consider increasing its investments in the emerging economies as it stands now.

Outsourcing in the US

Outsourcing refers to obtain certain services or products from third party company - for example, sourcing engineering or accounting services of a specific input from another company. Outsourcing has been a subject of interest that has been brought by politicians and economists. Of importance is the foreign outsourcing of services from firm abroad. This paper seeks to expound on the subject outsourcing in the United States by looking at; trends, economic impact and factors that have contributed to the growth of outsourcing. The paper will also discuss the emergence of robots and how they seek to influence outsourcing in the US.

Outsourcing has been a global trend in recent years. A recent survey indicated that 80 % of companies in Europe and US classified offshoring to Asian specifically to India as their main goal (Frazzetto). According to the study, 56 % of the offshoring partnerships to India came from the US (Frazzetto). The sectors that had services outsourced included, health care, software developers and manufacturing. The largest companies that offshored to India include; Ford Motor, Cisco, American Express, General Electric, and Microsoft. Other companies that the US significantly outsources from include; China, Portugal, Ukraine, Russia, and Venezuela (Mezak). Steve Mezak notes that the US will strongly begin 2018 as one of the largest end user of international or the "global software development outsourcing" services. Frazzetto, on the other hand, disagrees with Mezak standpoint claiming that fear of being penalized by the US government has seen companies repatriating tech outsourcing as in the cases of Cognizant and Infosys(1). The report also points at the rise of referral power. This trend makes use of a client referral in outsourcing selection than any other procurement process.

Bassil, who has worked for Microsoft, discusses the changes that encompass the legal process outsourcing and asserts that the jurisdiction around outsourcing has matured. The process has grown to accommodate the complexities of patent space and the IP review space (Bassil). A large proportion of Americans believe outsourcing is not necessarily a good thing for the economy in the long run. This view is shared by as massive as 71 % of Americans (Bassil). An article in the Times of India, 2017, pointed out at the efforts by a Congressman, Gene Green, who sought to bring legislation titled," US Call Centre and Consumer Protection Act." ("Bill against outsourcing jobs reintroduced in US Congress - Times of India"). The bill would deter companies from shipping American jobs abroad.

There exist economic, political and social reasons as to why outsourcing has increased in the US. Most companies decide to offshore outsourcing for labor reduction. With minimum wage increases and labor union, many firms find it financially challenging to run their operations entirely in the U.S (Schniederjans et al. 120). The average wage of outsourcing someone from India is $11 versus $30 in the US. In 2003 for instance, Delta Airlines moved about 1000 jobs to India enabling it to slash the cost by about $25 million (Mezak). According to Frazzetto, outsourcing enables companies to concentrate on their core competencies. This gives a business a chance to concentration on its main business by enabling to function outside its capability handled by an outside specialist (Schniederjans et al. 102). Such operations include; accounting, SEO, customer support, content production, website design and development, and data entry and research among others. At the onset of GM outsourcing plans the company cited that they had sold more cars in Asia than in the US in the first quarter of 2009 (Ohnsman and Kitamura 2). With their sales in the US representing a quarter of the total sales. GM believed that by outsourcing to other parts of the world, they would attract new customers. From this argument, it is clear that outsourcing increases the market for which a company can sell its products. Some US companies outsource as a way of solving any crisis that affects them instead of carefully considering other alternatives (Pati et al. 11).

Outsourcing has had an impact on the economy of the US. The US effectively uses outsourcing which enables it to attains goods and services from other nations at a lower cost (White and James 96). This helps US consumers, and...