View the most recent version.Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please "contact us" to request a format other than those available.
The Daily. Tuesday, June 27, 2000
Foreign-owned firms in Canada pursue research and development and innovation strategies more actively than Canadian-owned firms do, far from depending passively on their parent companies for results.
But these differences with domestic firms are greatest for small, purely domestically oriented firms, those with neither production facilities abroad nor with exports. There was little difference in the research and development orientation of foreign and domestic multinationals.
This study challenges past conventional wisdom that has sometimes taken a jaundiced view of multinationals' role in Canada. While foreign-owned firms operating in Canada have generally been seen as providing a conduit for introducing new technologies into Canada, some have seen multinationals as fostering a branch-plant mentality with an underdeveloped or truncated research and development capacity in Canada.
This study supports more recent views that multinationals decentralize activities from their home country to subsidiaries in Canada to exploit local competencies. It found that even though foreign subsidiaries have a privileged access to their parent company's research and development and technology, they perform research and development in Canada more often than do Canadian-owned firms that serve the local economy.
These differences are especially great in the "old" economy, that is, consumer goods industries such as food and beverages, wood and textiles. Multinational firms are also more often involved in collaboration projects for research and development both abroad and in Canada.
Not all Canadian-controlled firms lag multinationals operating in Canada. This study also compared foreign subsidiaries with Canadian corporations that have an international orientation, that is, those with production or research and development facilities abroad or which export part of their production. The analysis showed that the two groups are in fact quite similar - both are about equally likely to conduct some form of research and development and to introduce innovations.
Consequently, it is as much the degree of a company's international orientation, or globalization, rather than the nationality of its ownership, that affects the level of innovation in the firm.
|
In Canada, multinational corporations control plants that produce more than half of manufacturing output. Their performance is critical to the overall health of the manufacturing sector, since it greatly affects the productivity, the degree of innovation and the international competitiveness of Canadian manufacturing as a whole.
The study results show that foreign-owned firms are more likely to pursue a research and development strategy than domestically owned firms as a whole. Far from being passively dependent on research and development and technology from their parent companies, foreign-owned firms are more likely to perform research and development in Canada, especially compared with purely domestic firms (those without operations in foreign markets). Some 89% of foreign-owned firms reported doing some research and development in Canada, while only 67% of purely domestic oriented firms performed research and development.
Because Canadian-controlled firms are generally smaller than their foreign-owned counterparts, it is possible that the less-intensive involvement of domestic firms in research and development is the result of their smaller size. However, after correcting for size and industry differences, there is still a significant difference between purely domestic firms and foreign-owned ones.
There are, however, much smaller differences between foreign-owned and domestic firms that are internationally oriented, that is, those that have production or research and development facitilites abroad or that export. Some 86% of domestically owned firms that are internationally oriented reported doing some research and development, compared with 89% of foreign-controlled firms. This difference is not statistically significant.
Foreign firms exploited their superior innovation potential, and were more likely to introduce innovations than their domestic counterparts. The study found that 52% of foreign companies innovated, compared with just 27% of domestic firms with no foreign orientation, and 47% of domestic firms with a strong foreign orientation. This relationship among the three groups is found broadly across different size and industry classes.
Foreign firms innovated in all sectors more frequently than did their Canadian counterparts. This was true across most size categories. Foreign firms especially surpassed domestically owned firms in consumer goods industries that were recipients of innovations, such as chemicals, machinery and equipment, or electronics. In these consumer-goods industries, foreign-owned firms also performed research more frequently than did domestically owned firms.
In keeping with their more frequent involvement in research and development, foreign-owned firms surpassed Canadian firms in introducing the more original, world-first innovations. Domestically owned firms were more likely to introduce more imitative innovations, that is, those that were new to the firm but were neither new to the industry nor to Canada.
Foreign subsidiaries had the advantage of accessing technology from their parent and sister companies, and they were more closely tied into a network of related firms for innovative ideas than were domestically owned firms. Nevertheless, their local research and development unit was used more often as a source of information for innovation by multinationals than were these inter-firm links.
Moreover, multinationals were just as likely to develop links with local Canadian universities and other local innovation consortiums as were domestic firms. This indicates that foreign firms contributed significantly to technological progress in Canadian industry, and were not just truncated branch plants.
Multinationals and the Canadian innovation process (11F0019MPE; 11F0019MIE, no. 151) is now available. To obtain a copy, contact Louise Laurin (613-951-4676), or visit Statistics Canada's Web site (www.statcan.ca); see Downloadable publications (free).
For more information, or to enquire about the concepts, methods or data quality of this release, contact John Baldwin (613-951-8588), Micro Economic Analysis Division.