Branch Office Country Gets the Short End of the Stick Again
Merck turned out the lights in its high tech Montreal lab yesterday for the last time. A direct victim of corporate conglomeration and globalization, the lab had employed 180 scientists and staff. The lab closure, announced in July, seems to be yet another instance of Canada failing to be a force to be reckoned with in business internationally. It is also another case of a company headquartered outside of Canada handing us the short end of the stick when push comes to shove.
The Merck lab was one of the few significant research centres run by a pharmaceutical in Canada.
The jobs were axed as a part of a global re-shuffling of the decks, after the merger between Merck and Schering-Plough a year ago. In this multinational game, you have the option to discard when shuffling, and Merck has leaped at the chance to ditch its high-paid Canadian research component and its lab, as well as the entire former Canadian head office building, which will now be too large for the employees left over.
Interviewed in the La Presse story linked above, the President of Merck's Human Health division, Adam Schechter, said that the company will continue to support research in Quebec via partnerships with biotechs and/or university labs, or in other ways. And, according to the article, the company has committed to spend $100 million on research in Quebec over the next five years.
A few miles down the road from Montreal, in the idyllic ski resort town of Bromont, there is a factory built to employ 800 people, substantially with $120 million (in 1988 dollars) of federal and provincial subsidies, that stands as a monument to the worthlessness of multinational corporate promises and commitments.
The factory was built by Hyundai to build cars for the Canadian market and, after generous subsidies pocketed, promptly shut down by the Korean automaker when sales didn't live up to their expectations.
The fact is, that between the time the Hyundai plant was conceived and the time it was closed, the cars had acquired a well-deserved reputation for poor quality and being poorly designed for the Canadian climate. Now, 15 years after the plant closing, Hyundai is selling 95,000 cars in Canada. Obviously, Hyundai's commitment to sell cars in Canada could never be questioned - however, its commitment to corporate citizenship in Canada obviously varies according to which way the wind is blowing.
The minute the ride got a bit rough, Hyundai bailed faster than a bandit, even though they were entirely responsible for their design problems.
Now on the subject of potash, we are talking about a strategic resource of critical importance for the future of feeding the planet. Not much trumps food. And, when it comes to growing food, here is the list of what trumps fertilizer:
Water. (Canada does ok on this count)
Land. (the land grab is on, but Canada has quite a bit)
Seed. (already largely under the control of a small few corporations)
So Industry Minister Stephen Harper - er - Tony Clement did the right thing yesterday and rejected the BHP bid for Potash. Unfortunately, he also did the gutless thing and left the door open for BHP to "present something" that would change his mind in the next 30 days.
I guess they don't get it. No "promise" BHP or any other multinational corporation could make can be trusted, nor will it make Canada anything but a branch office of Potash.
When reviewing BHP's application, Ottawa might also want to consider comments made in 2008 by BHP's chairman at the time, Don Argus. Calling on his fellow Australians to continue investing in domestic mining assets, he cautioned that Australia's resource sector was at risk of becoming globally irrelevant - just like the mining sector of another former British colony. "If we fail to remain competitive," the BHP chairman warned, "Australia will incur a substantial opportunity cost and in the worst-case scenario, our resources will fall into overseas hands and we will also become a branch office - just like Canada."
So, Saskatchewan Premier Brad Walls has done the right thing and determined that the sale of Potash would not be of net benefit to the province and therefore his government is asking the federal government to disallow the sale to BHP of Australia.
Harper's statement is, of course, completely false - Potash is 49% Canadian-owned and 38% U.S. owned.
Aside from the sheer stupidity of selling out control over a strategic resource that is located in Canada, that we need in Canada, and that we already control in Canada, there are other problems with this deal that might be overlooked.
One of the more corrosive ones could be the specter of the federal government going directly against the expressed wishes of a province, over an issue that is so tightly woven into the provincial fabric. Potash is produced and consumed in Saskatchewan - not in Ottawa. Aside from the obvious negative consequences for the Conservatives in Saskatchewan, this issue could also be brought up as an example and used by anti-federalists in other provinces, particularly in Quebec.
After all, if the Conservative Premier of Saskatchewan, a province loaded with Conservative MPs, cannot trust the Conservative Prime Minister of Canada, then probably no one can. Oh yeah, we already knew that.
The incident last week where China threatened to, and perhaps did, cut off exports of rare earth metals to Japan has implications far beyond the obvious. The implications are fairly obvious too.
This is a story about the world's new stand-alone superpower flexing its muscle. China flexing hard in response to a relative triviality. And doing so with impunity.
The "Discovery" of Rare Earth Metals
For many, the discovery here is, "gee whiz, what a great opportunity rare earth metals look like - where can I get some?"
The vast forest of this issue, beyond the few trees in front of our eyes, is the action taken by China. Their willingness to wield a strategic commodity monopoly as a hammer in a relatively minor situation is a revelation.
It shows what a disadvantage western countries put themselves in, when our business decisions are based almost entirely on the amount of short-term cash generated for the individuals controlling the decisions. Whereas China makes business decisions based almost entirely on what what gives it the greatest long-term strategic advantage.
Over the past few years, we have watched control of aluminum, nickel and other strategic commodities fall out of Canadians' hands. For what?? So a couple of directors and a handful of shareholders could cash in their chips? It is beyond me how anyone could possibly decide that the sale of Inco or Alcan was of net benefit to Canada, which is supposed to be the determining factor in foreign investment review. In any rational analysis, when consumption is expanding exponentially, you would have to be nuts to give up control over a metal resource you already control.
To take that one step farther - you would have to be pretty much brain dead to give up control of a cornerstone resource that you already control in agriculture. We are on the brink of making that mistake now with potash. Canada controls potash. But Saskatchewan-based Potash Corp. is currently the subject of a hostile takeover attempt by Australian multinational BHP group.
alleging that BHP had provided ''false and misleading statements'' in relation to its $US130-a-share offer and its intentions regarding its potash business.
Although $130 is more than Potash Corp was trading for at the time of the original BHP offer in August, today's price on the NYSE is $145. In the summer of '08, Potash Corp was trading at over $230.
This scenario still has a long way to play out. Whether or not BHP's offer ever sees the light of day, an offer from China (or elsewhere?) could also be forthcoming. Either way, any purchase would have to pass foreign investment review. Which, if Potash Corp. were in China, would never happen. Will we allow it to happen in Canada?
Potash is not only a key strategic resource. It is also a commodity that is essential for the agricultural industry in Canada, especially in Saskatchewan, the same province that produces the potash. So, it would be a monumental error to allow this resource to be controlled elsewhere, by some foreign power that could conceivably wield it against us at the drop of a hat, as China did with rare earths against Japan last week.
Here's a cool little intuitive exercise I came up with - good for making tough decisions easy:
All it is, is we take a short list of recent news headlines, write them one after the other, and then derive the obvious conclusion. OK here goes...
* NFU Warns New Trade Agreement with EU Could Crush Canadian Farmers
* Commodity speculators push cocoa to 33-year high * Hedge funds accused of gambling with lives of the poorest as food prices soar * UN warned of major new food crisis at emergency meeting in Rome * 500 Citizens blockade prison farm cattle trucks * One quarter of US grain crops fed to cars - not people, new figures show
* UN to hold crisis talks on food prices as riots hit Mozambique
* Feeding the corporate coffers: why hybrid rice continues to fail Asia’s small farmers
* World Bank report decries global land grab while encouraging it
______________________________________________________
Conclusion: MAINTAIN CONTROL OF CANADIAN POTASH IN CANADA
***added later... a most telling factoid regarding apparent threats from China to cut off rare earth supplies to Japan over a territorial waters/islands dispute. Scary ...the joys of overconglomeration
