Canada and the United States have been close neighbours for over two hundred years. Recently, with the NAFTA agreement and the auto pact, our relationship become intertwined and connected. American companies take advantage of the weak Canadian dollar and begin to expand in Canada. Although Canadian consumers benefit from the cheaper prices, one must also realize that American companies are stealing market shares from Canadian based businesses. Over the past fifty years, American companies such as Sears Roebuck, Wal-Mart, and the Gap have marched into Canada.
Within a five year span, these companies have grabbed a hold of Canada’s economy. Their rapid success is mainly due to their low prices and size of the company. Against these strong competitors, Canadian companies such as Eaton’s and Club Monaco are affected. In Canada, American companies can sell their products at a reasonably lower price than Canadian based companies. Firstly, with our dollar as low as $0. 65, it will cost less for Sears and Wal-Mart to export their goods. This will decrease their production cost.
Based on the supply and demand graph, lower production cost will also help lower the price of the product. For Wal-Mart, in their fiscal 1999, “the foreign currency translation adjustment increased by $36 million to $509 million primarily due to the exchange rates in Brazil and Canada. ” (Wal-Mart Report) Their revenue increased $ 73 million in 1998 “primarily due to exchange rate in Canada. ” (Wal-Mart Report) Also, American companies are bigger in size and their production is higher compare to their expenses. They can “attack the excessive margins while maintaining a wide selection. (Wellum, 8)
Therefore, they can afford to sell their products at a lower price unlike the Canadian companies. It is almost like a cycle for these American companies. With the low prices, they get more demand for their goods. High volumes in turn “[lead] to lower purchasing prices, which further enhanced the ability of the discounter to cut prices. ” (Wellum, 8) Sears Roebuck and Co is a Chicago based company. It came to Canada in 1953 and by mid 1970’s, it had become Eaton’s rival and “their annual revenues had grown to match Eaton’s, both were about 1. 5 billion. ” (McQueen. Last year, Sears topped “five billion dollars in sales while Eaton’s stayed at their 1. 5 billion levels. ” (McQueen)
All of Eaton’s stores are closed down since last November. At Old Navy, a part of Gap, most of their clothes are “under $25 US and this appeals to a lot of parents and teenagers. ” (White) In comparison, it took “Gap nearly eighteen years to reach one billion dollars in annual sales whereas it only took Old Navy four years. ” (White) Although profit is very important to a business, their future opportunities and expansions in the global market are also essential.
This depends on the size of the company. In the United States, the market is much bigger than Canada. They have approximately ten times our population. (Atlas) Therefore, it is not surprising they have larger corporations compare to ours. As the world becomes more globally connected, companies must expand in size in order to compete. Wal-Mart, Sears and the Gap have large outlets in accessible locations which “[leads] to higher sales volumes, higher inventory turnover rates and lower real estate costs. ” (Wellum, 8) Wal-Mart is expanding at a fast pace.
By the end of 1999, they have a total of 153 stores in Canada and they still plan to open 75 to 80 new retail units within three years. (Wal-Mart Report) Their total planned growth represents approximately 34 million square feet of net additional retail space” (Wal-Mart Report) Since price is the major factor for companies during competitions, Canadian companies do poorly. Club Monaco is a prime example. This Toronto based retail store is sold to an American designer, Ralph Lauren, for a value of approximately $122 million.
Despite their revenue of two billion dollars annually, the company believed that “this move will provide the financial and marketing muscle to leverage its brand into a truly global player. ” (Steven) This is surely a bad sign for Canadians when a huge retail store such as Club Monaco is switching over to the United States to become more competitive in the world. As American companies gain more market shares in Canada, they also gain more control of our economy. This eventually can lead to a problem if we rely too much on the United States.
If the United States’ economy collapses, Canada will definitely follow the fall. Even if just one company, Wal-Mart for an example, goes bankrupted, all of the Canadian employees will lose their jobs, thus raising our unemployment rate. Lastly, if most of the big Canadian companies are bought by American companies or go bankrupt, Canadian entrepreneurs will lose confidence in their business and be discouraged to think of new innovations. In order to prevent American takeover economically, the Canadian government should aid Canadian based companies financially.
Canada, a mixed economy, is entitled to giving partial support to companies in the need of help. The banks should give lower interest rates to Canadian entrepreneurs who are willing to start a business. By doing so, it will make it more lucrative and attractive for Canadians to start a business. This will boost up confidence of Canadians too. Lastly, we, as consumers, should support Canadian based companies and their products. Even though it proves to be marginally expensive, it will ensure that Canadian ventures will stay in business without the possibility of American intervention.