Global Production Arrangements in Canada – Initial Evidence from the Survey of Innovation and Business Strategy

Introduction

The increased pace of globalization has brought about many structural changes in both the Canadian and world economies. There are now fewer barriers to international trade and increased financial investment across borders than ever before. One important change has been the increased prevalence of global value chains which sees production processes spread out around the globe, across vertically integrated multinationals or conducted via arm’s length agreements. The search for cost reduction and profit maximization by firms has made it increasingly common for manufacturers to outsource parts or even all of their production process to different companies which can be located in any number of different countries. It is important for economic policy analysis and research that the increased flow of goods across international borders be properly measured.^Note 1

This paper takes an initial look at the incidence of global production arrangements in the Canadian economy. It focuses on two types of these arrangements:

Merchanting: When a company purchases and subsequently sells a good abroad without it ever entering the company’s resident economy; and

Goods sent abroad for processing: When a company outsources part of their production process to another country, as well as the extreme case of factoryless good production (FGP) when a company owns the intellectual property of a product but outsources the entire production process.

This study makes use of the 2009 and 2012 Survey of Innovation and Business Strategy (SIBS)^Note 2 from Statistics Canada, and examines the degree and nature of such activities among Canadian firms.

Notes