1. 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. 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. 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. 4 A Globally Integrated Value Chain Company HQ R&D Lawyers Intermediate Inputs Assembly Call-Centre & IT

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

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

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

8. 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. 9 Some measures to capture GVC’s  Over the period of 1982-2005: 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. 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. 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. 12 Canada’s Trade with Developed World  Canada – U.S. 1990-200: Increased two-way trade. After 2000: Stagnated two-way trade.  Canada – Western Europe Significant increase in middle-point two- way trade.

13. 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. 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. 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. 16 Geographic Distribution Alberta Firms’ Sales

17. 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. 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. 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. 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. 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$73.3951%$19.45 Display Module Toshiba- MatsushitaJapan $20.3914%$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. 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. 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. 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.