Export Supply Chains in Alberta Western Economic Diversification Canada International Trade Internship Report Hande Tanerguclu Western Centre for Economic Research University of Alberta April 8 th, 2008

2 The aim of the project is to:  Analyze how global and regional supply chains evolved over time.  See where Canada and Alberta fits into global supply chains.  Measure the growing importance of imported inputs in exports.

3 What is a Global Supply Chain?  The fragmentation of the full range of activities that are required to bring a good or service from its beginning to its end use.  Within a supply chain, each producer purchases inputs and then adds value, which then becomes part of the next stage of production.

4 A Globally Integrated Value Chain Company HQ R&D Lawyers Intermediate Inputs Assembly Call-Centre & IT

5 Outsourcing Firm A Call-Centre Firm B Call-Centre

6 Offshoring Firm A Call-Centre Firm A / Firm B Call-Centre

7 Offshore Outsourcing Firm A Call-Centre Firm B Call-Centre

8 What we will see/miss:  We will see: Exports of inputs from Europe to China. Chinese exports to other countries. Payments from headquarter to other companies. Outward investment flows.  We will miss: Profits earned in other countries and then returned to Canada. Foreign affiliate sales. Foreign direct investment.

9 Some measures to capture GVC’s  Over the period of : World-wide GDP increased by 310% Global exports of commercial services increased by 552% Global imports of commercial services increased by 779%  From 1990 to 2000, the number of Multinational Enterprises (MNEs) nearly doubled from 37,000 to 70,000.

10 Concerns on offshoring:  160 million jobs world-wide are offshorable (McKinsey Global Inst.)  For U.S.: 41 million jobs are offshorable (Blinder, 2006) 15 million service jobs, 11.7% of total employment, are potentially affected (Bardhan and Kroll, 2003) 3.9% of mass lay-offs, 33,200 jobs, are due to offshoring (U.S. Bureau of Labour Statistics) Total jobs lost: 7.4 million Total jobs created: 8 million

11 On the other hand,  From 1995 to 2002, U.S. companies were able to lower their prices by 30% and boost GDP by $230 billion (Mann, 2003).  From 1997 to 2004 employment at U.S. foreign affiliates outside of the U.S. increased over 2 million while employment at their U.S. parents increased by 1.5 million (Sydor, 2007).

12 Canada’s Trade with Developed World  Canada – U.S : Increased two-way trade. After 2000: Stagnated two-way trade.  Canada – Western Europe Significant increase in middle-point two- way trade.

13 Canada’s Trade with Developing World  Canada-China Grew significantly over the last 15 years More in the direction of Canada importing from China  Canada mostly exports pulp, paper, cereals while importing electronic goods, auto machinery parts.

14 Canada’s Trade with Developing World  Canada-Mexico: Significant increase in two-way trade after NAFTA (1994). Canadian exports of materials were in sync with Mexico’s exports of final goods.  Canada-India and Eastern Europe Increased middle-point trade across imports and exports.

15 Overall,  Canada’s imports are still final products.  For most part of its trade, Canada has very limited involvement in global supply chains.  Reliance on global value chains improved Canadian productivity.  The use of both imported inputs and services had no effect on net employment in Canadian industries.

16 Geographic Distribution Alberta Firms’ Sales

17 Exporter and Non-Exporter Firms  Exporter firms: Their products are used by their consumers who are also exporters as an input in what they export. They are indirect players in global supply chains.  Non-Exporter firms: Their products are not used by their consumers as an input. They do not link to global supply chains.

18 Differences Between Exporter Firms and Non-Exporter Firms Exporter Firms Non-Exporter Firms Firms that Have ISO Certificate7 (7%)3 (2%) Participate in Professional/Scientific and Technological Industry42 (40%)66 (49%) Participate in Manufacturing Industry55 (52%)55 (41%) Involve in Research and Development activities73 (70%)70 (52%) Hold patents19 (18%)13 (10%) Have more than 1 principal owner82 (78%)78 (58%) Managers who Have marketing training47 (45%)46 (34%) Have experience in a large enterprise80 (76%)87 (65%) Are university graduates43 (41%)68 (51%) Total Firms105134

19 TAK International  Acts as an intermediary that enables Alberta-based firms to market their products in China.  TAK connects local pulp and paper producers to new Chinese paper mills.  Alberta producers obtain information on the most current specifications, adjust their products and sharpen their competitive skills with corresponding spillover effects for their domestic customers.

20 Well Supply Canada Ltd.  Mainly import power tongs manufactured in China and sell them to Canadian companies like McCoy Brothers.  The supply chain is characterized by a close relationship and technical information sharing.

21 Where is the value created? – iPod:  When a US $300 iPod is imported, half of its value, US $150, is recorded as a U.S. import from China.  But, only 1% of iPod’s value is created in China. ComponentSupplier Company Headquarters Location Manufacturing Location Estimated Factory Price Cost as % of all iPod Parts Estimated Value Capture Hard DriveToshibaJapanChina$ %$19.45 Display Module Toshiba- MatsushitaJapan $ %$5.85 Video / multimedia processor BroadcomU.S. Taiwan or Singapore $8.366%$4.39 Portal Player CPUPortalPlayerU.S.U.S. or Taiwan$4.943%$2.21

22 What kind of data do we need?  Services Trade Statistics Canada collects data for only 28 services categories.  Foreign Affiliate Sales Statistics Canada surveys 900 companies every year and another 900 every three year. No data on foreign affiliate sales in Canada.

23 What can we do?  Instead of the total value, the value added to the product since the last border crossing can be recorded.  Canada’s trade with Asia should be examined as a whole rather than Canada’s trade with each Asian country.

24 Further Research Areas:  Services trade and foreign affiliate sales.  Multiple country supply chains since global supply chains often involve the use of parts and assembly in more than two countries.  How the patterns in supply chain formation have changed and how they will change over the next few years.