Profile on Global Value Chains — Key findings from the Survey of Innovation and Business Strategy 2009

The views and opinions expressed in the research paper are those of the authors alone and do not represent, in any way, the views or opinions of the Department of Industry or of the Government of Canada.

This profile presents a short summary of how enterprises operating in Canada were involved in global value chains (GVCs) between 2007 and 2009, using the data from the Survey of Innovation and Business Strategy 2009 (SIBS).

The international commerce profile of enterprises in Canada that emerges from the SIBS questions on global value chains is clearly more sophisticated than a simple export story. Enterprises operating in Canada, and manufacturing enterprises in particular, are active in other countries through a range of business activities and for a variety of reasons. Furthermore, their international operations display considerable fluidity with activities moving outside and back within Canadian borders during the period in question.

Description of the SIBS

The SIBS is a joint project undertaken by Industry Canada, Foreign Affairs and International Trade Canada and Statistics Canada. It was initiated in 2007–2008 to better understand the market and policy factors that encourage or discourage the adoption of entrepreneurial and innovation-oriented business strategies. In addition to detailed information about GVCs, the SIBS provides information about the various business strategies, innovation activities, competitive environments and marketplaces of enterprises in Canada. A more detailed analysis of these topics, including GVCs, will be available in the upcoming Industry Canada report on the SIBS, targeted for Spring 2011.

A sample of 6,233 enterprises in Canada, each with more than 20 employees, and spanning 67 industries were surveyed. As a result, SIBS results are representative of all enterprises in Canada with more than 20 employees and revenues of at least $250,000 in the selected industries. The overall survey response rate was 70%. A more detailed description of the SIBS is available on the websites of Industry Canada and Statistics Canada.

How did enterprises operate outside of Canada?

Building on a number of free trade agreements that facilitate the exchange of goods between countries, Canada has become an open economy with high trade intensity in several industries, especially in the manufacturing sector. Figure 1 shows that 53.7% of manufacturing enterprises indicate they exported or attempted to export goods or services between 2007 and 2009.

The SIBS also includes questions about the location and changes in the location where enterprises conducted their business activities between 2007 and 2009. Figure 1 shows that enterprises undertake a wide range of business activities outside of Canada. Over that period, 47.5% of manufacturing enterprises report that they conducted business activities outside of Canada. Figure 1 also includes relocation and outsourcing of business activities. Relocation refers to displacing business activities outside of Canada, but within the enterprise, while outsourcing refers to contracting these activities outside the enterprise. Over 2007–2009, 5.2% of manufacturing enterprises relocated business activities and 10.1% outsourced them.

While globalization is often associated with the displacement of business activities from Canada to other countries, the SIBS data shows that some business activities were returned to Canada. As shown in Figure 1, 5.0% of manufacturing enterprises relocated business activities from another country into Canada between 2007 and 2009.

Figure 1: Degree of International Involvement of Enterprises Operating in Canada — Canada, Manufacturing Enterprises, 2007–2009

Graph of degree of International Involvement of Enterprises Operating in Canada — Canada, Manufacturing Enterprises, 2007–2009 (the long description is located below the image)
Description of Figure 1
Degree of International Involvement of Enterprises Operating in Canada — Canada, Manufacturing Enterprises, 2007–2009
Degree of involvement All Enterprises Large Enterprises Medium Enterprises Small Enterprises
Exported or attempted to export goods outside of Canada 53.7 69.8 71.3 48.8
Had business activities outside of Canada 47.5 69.7 60.0 42.9
Relocated business activities to another country 5.2 17.6 9.4 3.1
Outsourced business activities to another country 10.1 19.1 15.5 8.2
Relocated business activities from another country into Canada 5.0 12.1 9.1 3.5

Evidence from Figure 1 suggests that large manufacturing enterprises (those with at least 250 employees) were more likely to be active abroad than small (20 to 99 employees) or medium size manufacturing enterprises (100 to 249 employees) over 2007–2009. The one exception is the higher percentage of medium-size enterprises (71.3%) that exported goods compared to large enterprises (69.8%).

Which business activities were most likely to be outsourced or relocated?

Figure 2 shows the four most displaced business activities by manufacturing enterprises in Canada between 2007 and 2009. Production of goods was the most displaced business activity, both into and out of Canada, by manufacturing enterprises. The next three most displaced business activities were provision of services, distribution and logistics, and marketing, sales and after sales services.

Displacement of high skill activities was also reported. For example, engineering and related technical services was reported as the sixth most relocated activity outside of Canada and the fifth most outsourced outside of Canada (not shown in Figure 2). It was also the fifth most relocated activity into Canada (not shown).

Figure 2 suggests that medium size manufacturing enterprises were more likely than large enterprises to displace production of goods between 2007 and 2009. In contrast, a higher percentage of small manufacturing enterprises displaced marketing, sales and after sales services.

Figure 2: Most Relocated or Outsourced Business Activties

Graph of Most Relocated or Outsourced Business Activtie (the long description is located below the image)
Description of Figure 2
Most Relocated or Outsourced Business Activties
activity A) Relocated outside of Canada B) Outsourced outside of Canada C) Relocated from another country into Canada
Canada, manufacturing enterprises with business activities outside of Canada that relocated business activities, 2007–2009 Canada, manufacturing enterprises with business activities outside of Canada that outsourced business activities, 2007–2009 Canada, manufacturing enterprises that relocated business activities from another country into Canada, 2007–2009
Large Enterprises Medium Enterprises Small Enterprises Large Enterprises Medium Enterprises Small Enterprises Large Enterprises Medium Enterprises Small Enterprises
Production of goods 80.5 87.4 75.3 70.3 87.5 80.7 77.7 92.8 84.8
Provision of services 33.3 15.4 11.8 21.1 17.3 23.6 27.7 19.5 32.8
Distribution and logistics 29.7 23.3 17.1 21.1 8.4 22.6 32.9 21 40.5
Marketing, sales & after sales services 17.6 18.1 23.4 9.7 12.9 18.9 11 9.4 32.7

What were the most important destination countries for relocating and outsourcing business activities?

Despite the common view that production of goods is massively outsourced to China and India, Figure 3A shows the most important country for outsourcing business activities in 2007–2009 was the United States, although China was close in second position. The United States was also the most important source country for business activities brought back into Canada (Figure 3B).

More specifically, when asked about their three most important countries for outsourcing business activities abroad over 2007–2009, 39.3% of manufacturing enterprises with business activities outside of Canada outsourced some activities to the United States, 31.4% to China and 12.2% to India. Similarly, 46.8% of manufacturing enterprises that relocated business activities into Canada between 2007 and 2009 did so from the United States.

Figure 3: Most Important Countries for Relocating or Outsourcing Business Activities

Graph of Most Important Countries for Relocating or Outsourcing Business Activities (the long description is located below the image)

Source: Survey of Innovation and Business Strategy, 2009.

Description of Figure 3

A) Outsourced outside of Canada

Canada, manufacturing enterprises with business activities outside of Canada that outsourced business activities, 2007–2009

Most Important Countries for Relocating or Outsourcing Business Activities
Country %
United States 39.3
China 31.4
India 12.2
Not specified 27.1
Note : The bars do not sum to 100% because the question asked respondents to list the three most important foreign countries. The Not specified category represents enterprises for which the list was left blank.

B) Relocated from another country into Canada

Canada, manufacturing enterprises that relocated business activities from another country into Canada, 2007–2009

Most Important Countries for Relocating or Outsourcing Business Activities
Country %
United States 46.8
China 4.6
United Kingdom 3.6
Not specified 28.7
Note : The bars do not sum to 100% because the question asked respondents to list the three most important foreign countries. The Not specified category represents enterprises for which the list was left blank.

How have enterprises integrated into the global market?

Two illustrations of how enterprises in Canada have integrated into the global economy in 2009 are their suppliers' location and how they exported their goods. Enterprises in Canada can benefit from sourcing abroad by buying more appropriate or less expensive inputs. Moreover, enterprises can take advantage of existing supply chains to export their products in new ways.

Figure 4 shows that nearly all manufacturing enterprises in Canada had suppliers in Canada in 2009. A majority of manufacturing enterprises also had suppliers located in the United States, with the proportion decreasing with firm size: 94.3% for large enterprises, 86.1% for medium-size enterprises, and 69.8% for small enterprises. Like the numbers in Figure 3, these percentages emphasize the importance of the United States as a trading partner for Canada.

Figure 4 also shows that the percentages of enterprises with suppliers in Europe and Asia Pacific are roughly equal. They are also about half of the percentages for the United States, irrespective of firm size.

Figure 4: Location of Suppliers, by Region — Canada, Manufacturing Enterprises, 2009

Graph of Location of Suppliers, by Region — Canada, Manufacturing Enterprises, 2009 (the long description is located below the image)

Source: Survey of Innovation and Business Strategy, 2009.

Description of Figure 4
Location of Suppliers, by Region, Canada, Manufacturing Enterprises, 2007–2009
Location Large Enterprises Medium Enterprises Small Enterprises
Canada 98.8 99.5 99
United States 94.3 86.1 69.8
Europe 48.1 36.5 21.2
Asia Pacific 51.2 40.5 24.8
Rest of the world 28.7 15.6 9.6

Figure 1 shows that a majority of manufacturing enterprises exported goods outside of Canada. However, not all enterprises exported goods in the traditional way, i.e. by selling the goods they produced directly to foreign customers.

The evidence presented in Figure 5 suggests that many enterprises exported goods indirectly in 2009. Around 20% of manufacturing enterprises sold their goods to another enterprise in Canada which, in turn, exported them as-is and 25% sold goods to another enterprise in Canada that used them as intermediate inputs in final goods that were then exported abroad. Small manufacturing enterprises were more likely than large enterprises to have their goods exported by another enterprise but less likely to produce intermediate inputs for goods that would subsequently be exported. It should be noted that these figures represent a conservative assessment of indirect exporting as more than a quarter of manufacturing enterprises reported that they did not know if their goods were exported by another enterprise as-is, or used as intermediate inputs in final goods which were then exported.

Enterprises in Canada can also act as intermediaries by buying and selling goods without having them entering Canada. Figure 5 shows that 14.6% of large manufacturing enterprises did so in 2009, a proportion higher than for than that of medium (10.6%) and small enterprises (5.4%).

Figure 5: Indirect Exports — Canada, Manufacturing Enterprises, 2009

Graph of Indirect Exports — Canada, Manufacturing Enterprises, 2009 (the long description is located below the image)

Source: Survey of Innovation and Business Strategy, 2009.

Description of Figure 5
Indirect Exports, Canada, Manufacturing Enterprises, 2009
  Large Enterprises Medium Enterprises Small Enterprises
Sold goods to another enterprise in Canada that exported them as is 17.3 24.2 20.6
Sold goods to another enterprise in Canada that used them as intermediate inputs in final goods that were then exported 30.2 26.5 25.5
Bought goods outside of Canada and sold them without having them entering Canada 14.6 10.6 5.4

What are the barriers and motivations for enterprises conducting business activities abroad?

The highlights of the SIBS published in Fall 2010 show that distance to producers, trade tariffs and the difficulty in identifying potential suppliers were the main barriers faced by manufacturing enterprises when entering into GVCs between 2007 and 2009. Figure 6 shows that, over the same period, the main reason for relocating or outsourcing business activities was to achieve cost reductions for a majority of manufacturing enterprises.

Figure 6: Most Important Reasons for Relocating or Outsourcing — Canada, Manufacturing EnterprisesFootnote 1, 2007–09

Graph of Most Important Reasons for Relocating or Outsourcing — Canada, Manufacturing Enterprises,  2007–09 (the long description is located below the image)

Source: Survey of Innovation and Business Strategy, 2009.

Description of Figure 6
Most Important Reasons for Relocating or Outsourcing — Canada, Manufacturing Enterprises,Footnote 1 2009
Reason Large Enterprises Medium Enterprises Small Enterprises
Reduction of labour costs 59.2 45.6 51.1
Reduction of costs other than labour costs 50.7 50.9 54.1
Access to new markets 19.6 28.6 31.1
Improved logistics 13.2 12.7 22.9
Reduced delivery times 16.2 16.3 21.7
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