Measuring global production in Canada

The following section investigates the prevalence of merchanting and the goods sent abroad for processing arrangement, as well as the extreme case of factoryless goods production in Canada by examining Statistics Canada survey and administrative data. This will yield a better understanding of these production arrangements and their potential impact on Canadian economic statistics.

Data and methodology

Data collected through the Survey of Innovation and Business Strategy (SIBS) were used to help shed light on the prevalence of global production arrangements in Canada. This survey is conducted on an occasional basis, with data available for two reference years, 2009 and 2012. In 2012, the SIBS had a sample size of roughly 7,500 enterprises and a response rate of nearly 60%. A similar response rate and sample size were achieved in 2009. Moreover, the survey is designed to produce representative estimates of Canadian businesses with at least $250,000 in revenues and 20 employees in 14 main sectors of the economy, including wholesale trade and manufacturing. Its sample stratification also supports detailed analysis of industries and firm size classes.

The survey has three modules, with one being concerned with global value chains. It is this section of the SIBS that will allow for the analysis of the incidence of global production in Canada. The questions ask respondents whether they outsource their production process, where their head office is located, whether most of their business decisions are made within Canada or abroad and whether or not they engage in merchanting activities.

The SIBS data is collected in such a way as to facilitate linkages with other survey and administrative databases. For the purpose of this analysis, the SIBS data has been linked to various administrative tax databases, namely, corporate taxation statistics (T2) and corporate payroll files (PD7) datasets. This linkage allows for the analysis of the size of global production arrangements in terms of sales, profits, assets, and employment figures.

The data is also weighted using the SIBS final weights variable. This is done in order to make generalizations about the total Canadian economy. Doing this assumes that if an enterprise is engaged in these global production arrangements, then all units it represents in the sample would also be engaged in these activities. This assumption may not hold in practice, nonetheless, the figures using both weighted and un-weighted data yield nearly identical results.

Arrangement 1: Merchanting

The occurrence of merchanting in Canada can be obtained from the SIBS data using question 35 of the questionnaire. The responses to this question will produce both a percentage of firms engaged in merchanting activities as well as the size of their sales relative to the rest of the economy.

Arrangement 2: Goods for processing and factoryless goods production

As a first step, the SIBS dataset is limited to only those units that have head offices in Canada. The rationale behind this constraint is to eliminate entities which might be better suited being classified to the production processes of other countries. This is done using Question 10 of the SIBS questionnaire.

Responses to Question 14 in the SIBS survey were then used to conduct an analysis of the pervasiveness of goods sent abroad for processing and factoryless goods production in Canada. This provides a potential estimate of these arrangements by identifying those enterprises which have head offices in Canada and produce goods abroad. Goods sent abroad for processing consist of those enterprises that produce a unique good partly in Canada and partly abroad. The SIBS is able to identify the group of enterprises with production facilities both in and outside of Canada, but provides no additional information on whether goods are sent abroad for processing or whether different goods are produced in Canada and abroad. Goods sent abroad for processing would represent a subset of this group of enterprises, but without additional knowledge it is not possible to determine its size. This group of enterprises with the potential to engage in the goods sent for processing arrangement can be estimated by singling out companies who have production both inside and outside of Canada while FGPs can be further singled out by limiting the analysis to production only outside of Canada. Question 14 can further constrain the list of potential FGPs by limiting the analysis to those units which have research and development activity in Canada, which acts as a proxy for intellectual property products (IPP) ownership.

From Question 14 above, a company will be considered to potentially engage in the goods sent abroad for processing arrangement if it falls in both Area A and Area B. This should be seen as a potential “upper bound” estimate from the survey as it will include units that outsource all of their production both in Canada and abroad as well as companies that produce certain distinct products abroad and others within Canada. Moreover, the added constraint that the good must return back to the resident economy is not accounted for in the SIBS survey. Potential FGP units will fall in Area B but not in Area A. They will further be constrained by adding the condition that they must also fall in Area C.