Paradigm

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For the exclusive use of Glen Hodgson, hodgson@conferenceboard.ca, The Conference Board of Canada. Canada’s New Trade and Technology <strong>Paradigm</strong> Finding the Right Policy Mix Digitization makes it easier to invest abroad. activities, as well as manufacturing itself. It could also be done by adding value to Canadian-made products or services, or by adding that value to U.S. or global value chains. Rise of Foreign Affiliates and Foreign Direct Investment A related trend is the rapid acceleration of direct investment abroad, boosted by the emergence of developing economies as key investment players. This represents a huge shift. Exports and FDI relative to GDP are now higher than ever before, and the global stock of FDI is now about $US 5 trillion more than exports. 20 According to the United Nations Conference on Trade and Development (UNCTAD), global FDI inflows grew by more than 10 per cent in 2015, and will continue to grow in 2017 and 2018. 21 Companies invest abroad to expand their access to local markets and consumers, secure resources and key inputs, and tap into manufacturing capabilities and technologies. Despite technological advances that make it possible to digitally sell services anywhere in the world, many companies see the importance of using foreign direct investment to set up a local presence elsewhere to sell into local and global markets. In fact, digitization makes it easier to invest abroad, coordinate operations, and share data globally. The reverse also holds true: global companies can more easily invest in Canada and coordinate with their headquarters elsewhere. Many Canadian companies are actively selling into global markets via their affiliated offices in global markets. Foreign affiliates are particularly important for longer-distance trade: Canadian companies sell more via their non-U.S. foreign affiliates than via U.S. affiliates. 22 Services, in particular, depend on face-to-face relationships, so it is not surprising that Canadian companies sell twice as many services via foreign affiliate sales—such as computer downloads—compared 20 Grant, Strengthening Symbiosis. 21 United Nations Conference on Trade and Development, World Investment Report 2015. 22 Koldyk, Quinn, and Evans, “Chasing the Chain.” Find Conference Board research at www.e-library.ca. 18
© The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada to direct services exports. Research by the Organisation for Economic Co-operation and Development (OECD) suggests this business model is true even for the most borderless of activities such as IT services. Selling services in person is better, and that requires a foreign presence. Explosion in Digital Globalization While global flows of goods as measured by traded products have flat-lined in recent years, flows of data have been accelerating at a phenomenal pace. We can translate all kinds of real-world information into strings of zeros and ones, and send the information anywhere in the world—instantly. Cross-border bandwidth has grown 45 times larger since 2005, and it is projected to grow ninefold in the next five years as digital flows of commerce, information, searches, video, communication, and intra-company traffic continue to surge. 23 These data flows are now central to traditional forms of trade in products, as well as trade in services, new technologies, and digital trade. While cross-border data flows were negligible just 15 years ago, today the combined effects of data flows on GDP now exceed the impact of global trade in goods. 24 Moreover, according to the McKinsey Global Institute, we have not seen anything yet; the Institute expects global data flows to explode. See Chart 3. Airbnb is one example of a new type of business that has emerged because of the ability to digitize information and send it globally instantly. Airbnb connects people who want to rent homes, including in another city or country, with those who want to rent their homes. Essentially, Airbnb is a technology company that is upending the hotel industry. Although the company does not own a single hotel room, it has a market capitalization similar to that of the Hilton Hotel chain. There are many similar examples. One Canadian example is Vancouverbased Global Relay, which specializes in software that archives data to comply with financial regulations in the U.S. and globally. With the 23 Manyika and others, Digital Globalization. 24 Ibid. Find Conference Board research at www.e-library.ca. 19
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Paradigm

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