Continuing counterpoint

ADI is a great New Brunswick company and one of the few services-based firms that actually has markets outside New Brunswick. The vast majority of architecture, engineering and other professional services firms in the province only do work in the province. 

But I was disheartened by the CEO’s comments in this commentary.   Particularly this comment:

 

In the engineering and architecture industry, a country-wide consolidation is taking place. Atlantic-based firms are becoming part of companies with head offices in larger centers with profits being invested outside our region.

He is talking about the firms that have moved in here and bought up smaller players in the province and they are now part of national or international firms.  On its face this comment is pretty benign.  In fact it is true that national and international firms are likely to ‘invest’ profits elsewhere (although I suspect that much of ADI’s profits are invested elsewhere too – if the owners have any RRSPs or pensions or hold any shares of stock).

But the underlying message is that same old theme that I have been hearing for years.  That is – we don’t want foreign investment here.  Don’t come in here and gobble up our little firms or steal our workers, etc. etc. etc.

We need to have a healthy mix of local, national and international firms.  If we only had a few local engineering firms, that would stunt competition and innovation.  As my CEO friend said the other day, having a big international competitor here would force him and other SMEs to get more innovative and competitive. 

Finally, I’d like to say that this swipe at Stantec is a bit disappointing.  Local companie selling to national firms unlocks economic value that would otherwise stay locked inside the firm.  We need to have some turnover of businesses to generate the kind of wealth that gets reinvested locally.  Think Speilo, Whitehill, etc.  When a local company sells to a national firm, they receive a return on the investment of their life’s work.  Cashing out is an one important facet of the succession process.  Hopefully the new owners remain committed to New Brunswick.

But we must not bury our heads in the sand here.

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12 Responses to Continuing counterpoint

  1. mikel says:

    I think that’s reading too much into his comments, I read the article and didn’t come to nearly the same conclusion. In fact, I couldn’t figure out whether he was saying that this was a positive or negative thing.

    However, the article itself is very endemic of the media control in New Brunswick. The ‘rah rah’ nonsense that is constantly repeated. While its important not to see things too badly, ADI is a successful company, partly thanks to government subsidy, and he is CEO. If Jim Irving were writing a commentary dont’ you think he’d be saying the same thing? If the government were throwing money your way, and you were filthy stinking rich then by all means everything looks absolutetly fantastic. Government is throwing money at you, and the educational system is set up to feed you lots of workers.

    However, again, when you have a government that is looking out for business interests, and certain types of business interests, then of course those people are going to be happy. In Fredericton Charles Leblanc had a story about how the city is refusing to give ANY funding to the local emergency shelter.

    This blog, of course, has done an excellent job of showing just how mediocre the province has sailed through some of the richest days our country has faced, and isn’t likely to face again for some time. So while 1% of the population can claim that these are the days of wine and roses, people should remember this is the same ‘class’ of people that in the 1800’s were proclaiming the exact same thing. For the rest of the population however, the situation is FAR different.

  2. Anonymous says:

    Funny I was confused by the commentary as it was somewhat bitter and deafeatist.

    Somehow it is sad to see homegrown successes gobbled up by multinationals. On the other hand, with more mega projects requiring contractor financing, it is likely the new reality. Consultants will need access to major financial resources else they will not be able to play in the game.

    His tone is tough; similar to Jacques Whitford just before they gave in to Stantec. Is this the precurser to ADI giving in to AMEC?

  3. That’s an interesting point. Don’t get me wrong I too have mixed feelings about local successful firms being gobbled up by multinationals. I am just saying that it is part of business life and part of a healthy business ecosystem for some of this turnover to take place.

  4. mikel says:

    That MAY be true generically, but just because something ‘happens all the time’ doesn’t make it a good thing. Again, using history as a judge, prior to 1880 most of the NB companies were mid sized exporters, CONNECTED, but not OWNED internationally. There is the morality question there as well since of course early business in the province was created by stealing land, but that’s not the issue here.

    During the 1880’s came a massive influx of foreign investment, mostly aimed at ‘buying up’ New Brunswick companies. Larger companies are by nature more ‘efficient’, which means more centralized, which means lost jobs. That’s exactly what happened when the 1890’s hit, and entire industries disappeared from the province.

    In this case I think you have to read A LOT into this commentary to find it ‘bitter and defeatist’. What exactly was said could be characterized that way? He said you live in a province that is absolutely fantastic, which has a government that is ‘on the right track’, and that he runs a company that is spectacularly successful. Whether that is a lead in to the company being sold is another issue, it could be true, but it could just be set up to defend the companies obvious practise of ‘spending profits elsewhere’. That would be a defense mechanism since its a pretty obvious criticism that IF a company were ‘home grown’ and got a significant percentage of its business (especially initially) from the province, then people SHOULD expect them to invest locally. That’s ‘only fair’.

    However, I tend to think that it’s simply regular Irving policy. They frequently have regular editorials just reassuring people that no matter how bad it gets, things really are great-so long as business people are happy. In more honest days it was simply called propaganda, so long as things aren’t SO bad that people need to get involved, then they won’t. And that’s what media in Canada largely does.

  5. Vincerolly says:

    Ontario’s Institute for Competitiveness and Prosperity has recently (September 2008) published an excellent study on the economic impact of head offices in Canada. Their conclusion is that head offices are indeed important to local economies but there is little evidence that foreign-owned head offices contribute less than their Canadian-owned counterparts. Does this logic transfer when considering the acquisition of Maritime firms by Canadian firms with head offices outside of the region? There is evidence that smaller firms (Spielo, Whitehill, Neil & Gunter) contract after acquisition due to rationalization of resources, especially SG&A staff. How long it takes these organizations to rebound to the baseline is a good question as is whether the new organizations expend as much “strategic capital” in the region after consolidation.

  6. mikel says:

    I suspect it doesn’t transfer exactly. Due to federal taxation laws, the definition of ‘Toyota Canada’ means that Toyota Canada isn’t just a ‘branch office’ of Toyota. There are other examples, K Mart Canada used to have a completely different organizational structure than K Mart USA, however, it was still OWNED by them, and so when it wasn’t making enough profit, it was shut down (it was quite profitable at the time it was closed). Within the country is a different story, as there are no requirements as to how much staffing or control ‘regional’ offices need to supply. I’ll add here that that is very different than even the states, where different states have their own requirements, in fact even LOCAL governments often have legislative requirements on how much local investment and hiring a company needs to do.

  7. Vincerolly says:

    Some of this is a matter of business models. Let’s do some math on the back of an envelope — although xwave is now a “Division of Bell Aliant”, it is widely rumored that it could be sold to a sufficiently interested buyer. Admittedly not immediately likely given the current economic climate, especially since xwave’s market cap would be significantly depressed at time of writing. However, in a mild upturn, xwave could be sold to, say, CGI or EDS (now an HP company, and aggressively acquiring accounts everywhere), or even IBM, again on the march. That xwave may or may not have lived up to expectations from a market share, revenue or account contribution perspective will be less meaningful to these potential buyers than other forms of potential. The questions are these: Will the strategic HQ functions stay in Halifax? Will the preponderance of growth be such that the Maritimes figures prominently in terms of resources, R&D expenditures, solution development? Will the Maritimes benefit in some ways and what ways would they be? Key questions for economic development since xwave could still be made into a major global player, in healthcare, infrastructure management, government, and other verticals. Paul Kent took xwave to big league status, but with him gone from the helm, its future is in the air. It could be the next SHL Systemhouse, which dominated Canadian IT until its sale to MCI and its subsequent acquisition by EDS. One can argue that Canada lost a big and potentially global player when the principals sold out. In fact, SHL was almost sold to BT (to join with Syntegra, BT’s SI&C arm), but EDS scooped them at the last minute. So for xwave is it fight or flight? Maybe this is a cultural issue as much as an economic one. On January 12, I am speaking with 25 executives at a Balanced Viewpoint conference on outsourcing on exactly these issues. There is public debate on the economic development subjects of head offices, government investment, DFI, outsourcing and where Canada can still be a key development destination.

  8. david campbell says:

    That is the key point. Telus started as a small ILEC in Alberta and now is a huge national firm with the bulk of the best jobs still out west.

    This region needs to be really good at something besides natural resources.

  9. Vincerolly says:

    I’d put it slightly more broadly: this region needs to be good at some things (plural) in which natural resources may provide a competitive advantage. For example, this region already has a nascent capability in some industries: ADI and Jacques Whitford in environmental engineering (coupled with UNB, UPEI, Memorial University — all doing leading edge “green” work), and in conjunction with JDI and Irving Oil and there’s a potential cluster in “environmentals”. That’s simultaneously more broad and narrow than “energy” and there need to be far more supportive, outward-looking players — Forintek, CATA, a more active CME, the list goes on but requires that we look beyond our borders rather than navel-gaze within our own region.

    xwave could be the core for a SI&C cluster in the ICT industry; it has the critical mass, track record, expertise, lacking only the will to compete globally. It could compete with much larger firms on a boutique basis — think BC’s Sierra Systems that grew from a very modest base to be a global player in healthcare IT. But it had active support from industry, professional and trade associations to add virtual extension to the firm as it was growing. We have far fewer active associations here that do not simply occupy a cheerleader role.

    More broadly, we need to think about how our region may have become a good prospect for new kinds of business. For example, applied research performed at the University of Guelph has contributed to the success of growing cold-weather grapes and wine-making in Nova Scotia. Grand Pre and Gaspereau are both now making gold medal winning wines against all comers from the Niagara Peninsula, BC, California and France. Wines from the Kennebecasis or the Miramichi? Not as preposterous as it sounds. The soil, climate and infrastructure in those areas are very well suited to successful grape growing. Needless to say, Ontario’s wine industry is a very recent phenomenon. How may other genuine opportunities are ready for serious development?

  10. mikel says:

    Interesting points but they all come back to the same bottom line-the politics to make ANY of that happen. There are ‘realities’ available for virtually ANY industry virtually ANYWHERE. They don’t happen for a reason.
    Grapes can grow virtually anywhere, but forget wine, that’s only ONE market. Fruit wines and ice wines are the big thing now, and keep in mind one rule of business-local cheerleading. Virtually nowhere but in Canada are ontario wines ‘famous’. They win ‘awards’, but that’s because there are literally thousands of wine organizations set up almost specifically to give out awards so that wines can stick it on a label.

    But of course we aren’t elitists, its so long as people will buy the product. For these companies though they already exist at a certain level that legislation really has no effect-in other words the public is out of the loop.

    For energy, who cares about engineering firms, what is at issue is getting the government to even LOOK at environmentals. I just finished reading a book called “Cape Wind” all about how a New England entrepreneur tried to set up a billion dollar wind farm in Nantucket Sound, all to be thwarted (so far) by interestingly enough, Ted Kennedy and other ‘locals’ who claim that Nantucket Sound essentially is ‘the Kennedy’s pond’.

    Graham has grudgingly allowed a couple of wind farms, but the government could be far more proactive, numerous european and american firms have been getting stalled in the US for arguably the same reason they get stalled in New brunswick-oil interests.

    Those are political battles, but nobody in NB is really fighting them. David is the only guy who ever even mentions such things as animation in Miramichi, and again, we haven’t seen legislation to match Nova Scotia in cultural activities. Like I’ve said, it takes about $1000, if that, to produce a television show, less than that for a student to animate one. That takes almost NO initiative, no land, no up front costs. The only limit to genuine opportunities is the imagination-and that is where education really fails.

  11. Vincerolly says:

    In fact, Ontario wines are very well known outside of Canada and exports are increasing among all types. True, there are many wine organizations giving awards but the Canadian wines are consistently winning them from the premier organizations. To dismiss them all is akin to labeling a Grand Prix win meaningless because there are so many car races handing out awards.

    And in Nova Scotia, the Grand Pre and Gaspereau wineries have become successful largely without government support or involvement, apart from the usual infrastructure subsidy. These firms have gotten ahead by dint of their own investment risk, perseverance, consistent outward-looking marketing and hard work.

  12. mikel says:

    Well, that’s not really a pertinent issue, but I can still remember how when I lived in Fredericton they raved about how ‘world famous’ UNB was. But for example, go to Wine Spectator and they list their top 100 wines and there isn’t ONE canadian wine on the list. Keep in mind that air pollution is very heavy in southern ontario and wine connousseurs are well known for their noses.

    When I was visiting europe I couldn’t find a wine store that even SOLD canadian wines, granted, thats not to say they weren’t there. Interestingly enough, in Geneva at the underground mall they have a ‘beers of the world’ pub and store, and at least half of the beers were from Quebec. Quebec now has several very ‘famous’ breweries doing really interesting beers. But like I said, Pumphouse has absolutely amazing beers, they’ve won brewery of the year and I haven’t met a single person yet who doesn’t absolutely love their blueberry beer. Yet what does the provincial government do?-give tons of money to Molson to build a brewery. So so much for all the crap you read here about how the province is spending all its money on ‘start ups’ instead of Foreign Direct Investment.

    It also goes to show that growth can come from ANYWHERE, wine, beer, animation are just quick examples, but first you need to invest in people. Nobody can worry about growing a business when they are on welfare or eaking out a living on EI or struggling to learn to read or getting laughed out of the local bank. That’s not to dismiss David’s point, but NB is good proof that success in the province has typically been ‘home grown’, so people shouldn’t confuse what the government says (“we invest in small business”) and what it does (use tax credits as the only tool to grow small business).

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