M u n k S c h o o l o f G l o b a l A f f a i r s , U n i v e r s i t y o f T o r o n t o

“Trends in Canadian services business locations in Asia”

MGA 15

Capstone Client: Leah Littlepage Canadian Services Coalition (CSC) Supervisor: Deanna Horton (Deanna.horton@utoronto.ca) Becah Sihan Wen: sihan.wen@mail.utoronto.ca Jinyi Liu: jinyi.liu@mail.utoronto.ca Tannuva Akbar: tannuva.akbar@mail.utoronto.ca Yuan Fang: jessy.fang@mail.utoronto.ca March 31, 2015.

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Executive Summary

Based on the research that has been conducted for the Munk School (“Mapping Canada’s Footprint in Asia”) last year, there is no doubt that Canada’s services sector is taking advantage of opportunities in Asia. However, official services trade and investment statistics do not reflect the level of activities by Canadian services companies.

To investigate further, this Munk Capstone project report focuses on the professional services sector in 16 countries in Asia, encompassing:

Financial sector

ICT sector

Legal, management consulting, accounting, customs, and other back office services

Engineering, architecture, urban planning and environment/geology sector

For each of the services companies identified, this project has used publicly available information to examine factors such as the size of the company in Canada and its Asia affiliate, markets/cities of greatest concentration, and how companies are established in Asia. In each of these sectors we will analyze the market entry barriers, driving forces behind the trends and their policy implications.

Below are some key findings for these sectors:

Financial sector: This sector thrives in mature local markets such as Hong Kong and Singapore. The Canadian financial sector’s presence in Asia is long-standing. Financial services, especially the insurance companies, have done well in Asia because the companies pursue a long-term risk management approach, focused on Canadian brand, good customer services, corporate governance and overall protection of their institutional reputation. Another key finding is that the boom in Canadian financial services in Asia is caused by massive demographic and urbanization shifts in places such as Japan, India, Indonesia and China. Due to the push towards more consumption, countries are moving away from an investment driven model to a consumption driven model, resulting in a growth for more professional financial advisory services.

ICT sector: In this report, we define ICT services in three categories: software and computer services, ICT wholesaling, and telecommunications. Most of the Canadian ICT businesses are software and computer services, which provide business process management and enterprise content management. Ontario is the leading province in the Asian market in terms of ICT. Canadian ICT locations are almost evenly distributed in China, India, Hong Kong, Singapore, Japan, South Korea, and Taiwan. A successful collaboration of software and computer services companies requires data protection and data proximity. While large multinational enterprises (MNEs) have their own value chain patterns, SMEs are focusing on niche markets where they can offer innovative solutions. MNEs have their customer service and support centers in capital cities and major first-tier cities. Another interesting finding is that promising software and computer services companies are expanding their R & D centers outside Canada, in places like India and China.

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Legal, management consulting, accounting, customs, and other back office services: Companies in this sector mostly exist in the form of small sized offices due to their business nature. Legal firms face barriers such as licensing restrictions due to different legal jurisdictions and procedures. Some legal service companies expand their business by cooperating with local law firms or setting up local subsidiaries, which hire local lawyers. Others have local representative offices to create a ‘referral network’ to provide their own specialties to local customers. Supplier services companies including logistics, transportation and shipping companies have representative offices, which play an important role in supporting their customer service. Consulting firms account for a relatively small part of this sector, providing services in a variety of areas such as immigration consulting, business consulting, patent consulting etc.

Engineering, architecture, urban planning, and environment/geology sector: This sector offers a competitive advantage to Canadian firms because the Asian markets suffer from poor quality control in infrastructure management. Therefore, foreign firms have an opportunity to bring higher and improved international standards and professional management expertise into Asian markets. Furthermore, most Canadian construction companies tend to have strong partnerships with local government or with local firms to directly undertake construction projects. Another interesting finding is that, as a subsector, cleantech companies have a strong presence in Asia due to favourable local policies and their comparative advantage in technology. Most of the Canadian cleantech firms are SMEs and exist in the form of local offices providing customer services and/or promoting their products.

This report then analyses policy implications of ongoing Trans-Pacific Partnership (TPP) and Trade in Services Agreement (TiSA) negotiations for Asia.

Overall this report analyzed over 900 services company locations in 16 Asian countries. Some parts of the data and policy analysis section of this report were gathered from primary research with Canadian Services Coalition members. By addressing the information gap in the Canadian services sector’s involvement in Asia, we hope that this report will be of interest not only to CSC and its members, but will also be a useful reference tool for governments and academic institutions.

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Table of Contents

Executive Summary ............................................................................................................................ 2

Introduction ............................................................................................................................................ 5

Emerging Markets and Canada ...................................................................................................... 5

Financial Services Sector ................................................................................................................. 7

Business Nature ................................................................................................................................................. 7

Size ......................................................................................................................................................................... 7

Market Concentration ....................................................................................................................................... 7

ICT Services Sector ............................................................................................................................. 9

Province of Origin .............................................................................................................................................. 9

Market Concentration ....................................................................................................................................... 9

Major Asian Markets ...................................................................................................................................... 10

Business Nature .............................................................................................................................................. 12

Legal, Management Consulting, Accounting, Customs, and Back Office Services

................................................................................................................................................................... 13

Market Concentration .................................................................................................................................... 13

Province of Origin ........................................................................................................................................... 14

Business Nature .............................................................................................................................................. 15

Engineering, Architecture, Urban Planning, Environment/Geology Sector ............. 15

Market Concentration .................................................................................................................................... 15

Province of Origin ........................................................................................................................................... 16

Business Nature .............................................................................................................................................. 17

Barriers in Asia ................................................................................................................................... 17

Commitments and Progress ......................................................................................................... 18

Policy Implications ............................................................................................................................ 19

Appendix 1- Methodology .............................................................................................................. 21

Appendix 2- Size Data ...................................................................................................................... 22

Appendix 3 –Barriers in Asia ........................................................................................................ 23

Appendix 4- Services Sector in Major Countries Data ....................................................... 24

Bibliograhphy ...................................................................................................................................... 27

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Introduction

The need to fully understand the importance of the services sector is paramount, and how it can drive growth and economic prosperity in this era of globalization is an essential study to conduct. The Canadian services sector in Asia has drawn a lot of attention recently and many organizations have published surveys and publications of where Canada stands with the services sector engagement with Asia. This capstone project will be analyzing professional services sectors in 16 Asian countries, derive conclusions on trends and examine policy implications. To keep the scope of the project focused and manageable, this project will highlight a few countries to demonstrate the Canadian footprint in Asia. There are gaps in the literature and the statistics that are available. Nonetheless, given all the resources and database we have, this project aims to fill in the void and truly assess the Canadian services footprint in Asia.

Emerging Markets and Canada

2015 will be a very important year for the Association of Southeast Asian Nations (ASEAN) countries because of the emergence of the ASEAN Economic Community (AEC). The AEC aims to transform ASEAN into a region with free movement of goods, services, investment, skilled labour, and freer flow of capital.1 The services sector has contributed to nearly half of world exports when the inputs are accounted properly. For Canadian service companies to take advantage of the Asian markets, a comprehensive data that provides a good understanding of the opportunities and barriers is highly required. In order to penetrate in the Asian markets and remain competitive, data on small and medium-sized enterprises (SMEs) is necessary. The so-called “servicification” of the economy provides an enormous number of untapped opportunities for SMEs that trade in services across the developing world. With the rise of technology and outsourcing activities, even geographically isolated countries can also play an important role in services sector and contribute to the global GDP.2

In light of this, why is it necessary for Canada to pursue commercial interests in Asia? Foreign Affairs, Trade and Development Canada identified places such as China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Thailand and Vietnam as places with significant emerging potential for services sector.3 The Canadian government affirms that these countries demonstrate high potential for economic growth, foreign direct investment, technology and diverse labour force where Canadian businesses have the best potential for success and have the ability to exert the greatest impact.

1 “ASEAN Economic Community” ASEAN. http://www.asean.org/communities/asean-economic-community 2 Arancha González, “Trade in services” International Trade Forum Magazine, last accessed April 15, 2014. http://www.tradeforum.org/article/Trade-in-services/ 3 “Global Markets Action Plan” Foreign Affairs, Trade and Development Canada, Last modified September 12, 2014. http://international.gc.ca/global-markets-marches-mondiaux/plan.aspx?lang=eng#1a

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Data Analysis:

This capstone project began with data analysis to determine overall general presence and specific sectorial trends of Canadian services sector in Asia. As for market concentration, India and China have the most Canadian company locations. Hong Kong and Singapore

Others1%

Thailand2%

Taiwan3%

Vietnam3%

Indonesia3%

Philippines4%

Malaysia4%

South Korea5%

Japan9%

Singapore13%Hong Kong

16%

China17%

India20%

Services Sector Presence in Asia

Other2%

AB3%

PQ24%

BC32%

ON39%

Province of Origin

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rank 3rd and 4th, surpassing Japan, South Korea and Malaysia. In terms of province of origin, Ontario, British Columbia and Quebec account for more than 90% of the total presence. Below are the descriptions of each sector with key findings:

Financial Services Sector

Business Nature

Canadian financial services have a strong presence in Asia. Major Canadian banks and insurance companies, such as TD, RBC, BMO, Sunlife, Manulife and Scotiabank have been able to establish successful businesses in most ASEAN countries. Insurance companies such as Manulife and Sun life have a long institutional history in Asia and therefore, they have more wholly and partly owned subsidiaries in places like Hong Kong and Singapore.

Insurance products and services in Asia include not just life insurance but also pension plans, third party asset management, retirement planning and long-term investments for other groups. With demographic changes and urbanization in Asia, demand for insurance is going up in countries like Indonesia, Philippines and Malaysia. Whereas Japan and Taiwan have very saturated markets for asset management due to accumulated wealth and domestic competition.

Companies like TD, RBC, Scotiabank and CIBC have a large number of representative offices in China and India. While Canadian banks have not penetrated in the Philippines, it serves as a location for back office operations and data processing centres for other jurisdictions for insurance companies such as Manulife.

Size

In terms of company size for financial services, there are three major categories: wholly owned subsidiaries, joint ventures and representative office. Similar to headquarters and subsidiaries, joint ventures have more employees and advisors and most joint ventures exist in places like India, China, Malaysia, Philippines, Vietnam and Indonesia. Appendix 2 exemplifies the company size for joint ventures offices.

Market Concentration

If there is a strong hub for financial services in Asia, that would be Hong Kong. Hong Kong has a strong domestic market and is an important corridor to the Chinese market. Therefore, their relationship benefits Canada as “Hong Kong importers often take Canadian products into China. Sales in Hong Kong can also be used to showcase Canadian products and technologies to buyers in China. Hong Kong is a logical starting point for Canadian firms interested in getting a foothold in Asia.”4 In terms of the services sector, Hong Kong has relatively low costs for starting a business and highly efficient import and export services. As Robert Cook, Senior Executive Vice President and General Manager, Asia Manulife (international) Limited stated, “Hong Kong is the only truly international city in Asia and one of the greatest business centres of the world. It has a peerless infrastructure and

4 “Trade Commissioner Service - Hong Kong, SAR” The Canadian Trade Commissioner Service. http://www.tradecommissioner.gc.ca/eng/office.jsp?oid=117

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has a uniquely business-friendly environment. Hong Kong is for these reasons the first choice to locate a regional office for multinationals.”5

Hong Kong offers excellent commercial opportunities for Canadian firms that require a high-level hospitable business environment. In 2013, Canada exported C$4.9 billion in goods to Hong Kong, ranking as its 6th largest export destination for goods. Hong Kong companies have cumulative investments in Canada of $7.1 billion.6

In a study done by Bloomberg, where it collected data from 11 sources, and 161 nations were ranked on six broad criteria that included the cost of starting a business, the cost of labor and materials and the cost of moving goods, Hong Kong tops the list for the most enabling environment for operating financial services. The study also considered each country's level of global economic integration in terms of the "readiness" of its consumer base to participate in economic activity and "less tangible" costs such as inflation and accounting adaptability.7

5 “Success Stories” Hong Kong Economic and Trade Office (Canada), http://www.hketo.ca/canadian-business-in-hong-kong/success-stories/index.php 6 “Trade Commissioner Service - Hong Kong, SAR” The Canadian Trade Commissioner Service. http://www.tradecommissioner.gc.ca/eng/office.jsp?oid=117 7 “Best Countries for Business 2013” Bloomberg, Last modified January 22, 2013. http://www.bloomberg.com/slideshow/2013-01-18/best-countries-for-business-2013.html

Other7%

Taiwan3% Indonesia

4%

Thailand4%

Japan7%

India10%

Malaysia11%Singapore

14%

China17%

Hong Kong22%

FINANCIAL SECTOR

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ICT Services Sector

Based on the Industry Canada definition, for the purposes of this report, we define ICT as the following three categories: software and computer services, ICT wholesaling, and telecommunications. For Canadian ICT companies who are doing business in Asia, software and computer services deal with business process management and enterprise resource planning solutions. ICT wholesaling refers to businesses involved in distributing computer hardware, software and computer-related electronics. The last category includes telecommunication services such as cellphone, internet, TV, and network services8.

Province of Origin

Given its role as the technology hub of Canada, it is not surprising that Ontario is leading with 44% of all the ICT locations in Asia. The second largest proportion for the ICT sector originates from Quebec with 34% and then British Columbia, which has 14% of all the company locations in Asia.

Market Concentration

Canadian ICT locations are almost evenly distributed in Asia. China and India each has 18%, Hong Kong and Singapore each takes 17% of the Canadian ICT locations, Japan accounts1 for 14%, and the rest goes to South Korea and Taiwan. We can observe that market demand and infrastructure conditions are the two factors that determine Canadian ICT companies locations in Asia.

8 "Archived — Defining the Information and Communications Technologies Sector." Government of Canada, Industry Canada, Information Technologies and Telecommunications, Technologies Branch. Accessed March, 2015. http://www.ic.gc.ca/eic/site/ict-tic.nsf/eng/h_it05097.html.

ON44%

PQ34%

BC14%

AB4%

N/A4%

PROVINCE OF ORIGIN

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Major Asian Markets

According to the database, ICT has the largest proportion, with 255 locations, accounting for 42.1% of all the Canadian service locations in Asia. When we look at specific countries, ICT locations still account for the largest proportions in major countries such as Japan (62%), Singapore (50%), China (38%), Hong Kong (37%), and India (36%). See appendix 4.

Countries in Asia have diversified stages of development for both individuals and corporations. While India and China both have well-established ICT infrastructure, countries such as Myanmar are still laying out their basic telecommunications infrastructure. China and India have rising middle classes that are huge consumer bases for Canadian companies. As the middle class is expanding rapidly, consumers within the younger generation are demanding more affordable, innovative apps and computer services. Meanwhile, as the impact of social media is achieving deeper penetration, there is a growing market for Canadian ICT services, especially software and computer services companies.

Hong Kong and Singapore are traditionally mature markets with strong ICT infrastructure and policies, and consumers are interested in the latest software and applications9. Japan is home to many ICT multinational companies (MNEs). As Japanese ICT MNEs are

9 "Export, Innovate, Invest - The Canadian Trade Commissioner Service." Site of the Canadian Trade Commissioner Service to Help Companies Do Business Abroad: Market Studies, Contacts Abroad, Services of Our Offices Abroad. Accessed March 25, 2015. http://www.tradecommissioner.gc.ca/eng/document.jsp?did=145532.

China18%

India18%

HK17%

Singapore17%

Japan14%

South Korea, Taiwan and

others 16%

Market Concentration

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expanding worldwide, its domestic market is increasingly requiring technologies in accordance with world standards10.

Looking at the nature of the ICT sector, there are fewer political barriers to entry compared to other sectors such as financial and legal services. The “Internet of things” and cloud computing are the mainstream trends of the technology era. Moreover, the third platform, which includes mobility, analytics and big data, and the social media business, are revolutionizing the technology industry.

Facing growing potential markets and massive opportunities, Canadian ICT companies are providing professional services to vertically integrated markets in areas of patent intelligence, enterprise resource planning solutions, supply chain management, video games and animations, and social media.11 For instance, Surecomp is a Toronto based software company that provides global trade solutions for banks and corporations. The company partnered with a Chinese software company “Brilliance Technology Co., Ltd.” in Beijing.12 These services infuse Canada’s traditional advantage industry with latest software technologies to expand into the emerging Asian markets.

Another emerging niche area is the application of digital media software. The growing demand for social media development in Asia also provides great opportunities for Canadian ICT companies. Marketwired, a Toronto based software company, does social communications, and social media analytics in first-tier cities in China including Beijing (research center), Shanghai (representative office), and Hong Kong (Joint Venture company), and also in Manila, Philippines (representative office) 13 . These examples illustrate how Canadian ICT companies can tap into the Asian markets by utilizing Canadian technological strengths and at the same time grasping new opportunities. Taking into consideration all the emerging niche areas that need updated software applications, the demand from the Asian market is growing rapidly.

Favourable policies of the governments: ASEAN has its ICT Master Plan 2015 which emphasizes ICT infrastructure building, such as information security and intellectual property right improvement. ASEAN also promotes the use of ICT in education and government14. This shows the governments’ dedication to improving ICT infrastructure in order to attract FDI, as well as to enhance government efficiency. According to global consulting firm Accenture, Canada has led the world in E-government15. In China, the 12th Five-Year Plan designates the ICT industry, or "next-generation information technology (IT)," as one of China's strategic emerging industries (SEIs). Government’s top-down funding and pilot projects are implemented in areas such as the Yangzi River and Pearl

10 "Export, Innovate, Invest - The Canadian Trade Commissioner Service." Site of the Canadian Trade Commissioner Service to Help Companies Do Business Abroad: Market Studies, Contacts Abroad, Services of Our Offices Abroad. Accessed March 26, 2015. http://www.tradecommissioner.gc.ca/eng/trade-missions/document.jsp?did=143398. 11 David and Allison, “Growing the ICT industry in Canada: A knowledge Synthesis Paper”, University of Toronto, Accessed March 2015 http://sites.utoronto.ca/progris/presentations/pdfdoc/2010/Growing%20the%20ICT%20Industry%20in%20Canada_synthesis%20paper_edited%2014DE10.pdf 12 "Value-Added Alliances." Global Trade Finance Software Solution Partners. Accessed March 29, 2015. http://www.surecomp.com/value-added.html.

13 Summarize from the company website. Accessed March 2015. http://www.marketwired.com/Contact-Us 14 “ASEAN ICT opportunities”, The Canadian Trade Commissioner Service, May 2013. Accessed March, 2015.

http://www.albertacanada.com/asean_ict_opportunitiesstudy.pdf 15 “Mississauga: a leading canadian ICT cluster” Economic Development Office, city of Mississauga

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River Delta Region. Favourable policies indicate Asian ICT markets are hospitable and more prepared to attract foreign investments.

Business Nature

In terms of forms of establishment, ICT companies are set up in two major ways, representative offices and Partnership Enterprises (PEs). Many Canadian ICT companies choose to have PEs in Asian markets, mainly because PE offers greater flexibility for Canadian companies to partner with both individuals and local companies.16 PE requires fewer government approval processes than joint ventures or wholly owned foreign enterprises, however, as it is a relatively new structure, companies may face uncertainties regarding business licensing and local governments’ regulation.17

Another major type is the representative office, as it allows software and computer services companies to assess the local market’s openness to their products with minimal capital requirement and less vulnerability18. Representative offices can be the most flexible form of establishment in Asian markets, and also serve as a first step when entering a new market. Meanwhile, companies can hire local consultants or sales professionals to assist in developing their business.19

SMEs are focusing on niche markets where they can offer innovative solutions. Canadian multinational enterprises (MNEs) have their own value chain patterns. MNEs have their customer service and support centers in capital cities and major first-tier cities. Another interesting phenomenon is that some large companies try to tap into the Asian markets by offering local companies chances to participate in the value chain. For example, Blackberry announced its five-year strategic partnership with Foxconn in Dec 2013, giving Foxconn in Indonesia a chance to move up the value chain by offering them the opportunity to design the hardware for future low-end devices20. The first new BlackBerry device coming out of the Foxconn partnership will be a low-cost smartphone targeting Indonesia and other fast-growing markets.21

Furthermore, promising software and computer services companies are expanding their research and development centers outside Canada, even in emerging countries such as India and China. For example, OpenText announced the expansion of its Hyderabad research and development center to address the company's significant market

16 Munk School Data Information 17 "Partnership Enterprise (PE)." Understand China Partnership Enterprise PE Comments. August 25, 2010. Accessed March 23, 2015. http://understand-china.com/partnership-enterprise-pe/ 18 "Representative Office." Understand China Representative Office Comments. August 25, 2010. Accessed March, 2015. http://understand-china.com/representative-office/. 19 "Representative Office." Understand China Representative Office Comments. August 25, 2010. Accessed March, 2015. http://understand-china.com/representative-office/. 20 Cochrane, Joe, and Ian Austen. "BlackBerry’s Partnership With Foxconn Signals Shifting Priorities." The New York Times. May 18, 2014. Accessed March 23, 2015. http://www.nytimes.com/2014/05/19/technology/blackberrys-partnership-with-foxconn-signals-a-shift.html. 21 "BlackBerry Announces Five-Year Strategic Partnership With Foxconn." CrackBerry.com. December 20, 2013. Accessed March, 2015. http://crackberry.com/blackberry-announces-five-year-strategic-partnership-foxconn.

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opportunity 22 . Blackberry also has a research and development center in the Beijing University of Aeronautics and Astronautics.

In terms of telecommunication markets, Asian countries differ significantly. In mature and more open markets such as Japan and Singapore, Canadian companies are providing IP address management and DNS/ DHCP solutions (BlueCat Networks Inc.), as well as broadband services (Sandvine). However, in China, the telecommunications market is monopolized by the three giants: China Mobile, China Unicom and China Telecom. From the database, we can observe that there is only one Canadian telecommunications company in China, DragonWave Inc., that does wireless carriers manufacturing.23

For successful software and computer services companies, one of their strategies is to collaborate with local companies to mitigate data sovereignty and IP issues. OpenText, for example, successfully adopted a compliance strategy and achieved smooth adaptation to local markets. Following the expansion in Asia Pacific and establishment of Japan headquarters, it opened a data center for locally hosted OpenText Cloud Services. It allows local customers to access a variety of high-performance applications from a locally hosted OpenText Cloud environment, lowering latency times. For public sector organizations and highly regulated industries it allows data to remain in country. The desire to keep their data on the continent is paramount, as it's key to their compliance strategy24.

Legal, Management Consulting, Accounting, Customs, and Back Office Services

Market Concentration

This sector has a strong concentration in China and Hong Kong, accounting for more than half of the total number. Both Vietnam and Hong Kong have 7 offices. All the other countries host no more than 5 Canadian offices in the legal, management consulting and other back office sector. Altogether 8 companies entered Chinese markets, among which, 4 companies have multiple offices in different cities in China. For instance, Delmar, a Montreal based Canadian Customs broker, has offices in ten major cities in China.

22 "OpenText Expands in India: Growing Customer Base, Expanded R&D Capacity." OpenText Expands in India: Growing Customer Base, Expanded R&D Capacity. Accessed March 23, 2015. http://www.opentext.com/who-we-are/press-releases?id=D33A82A96C09496CB87141ED97A4B1BD. 23 Munk School Data Information, DrangonWave company websites. 24 "OpenText Opens First Australian Data Centre for Locally Hosted OpenText Cloud Services." OpenText Opens First Australian Data Centre for Locally Hosted OpenText Cloud Services. Accessed March, 2015

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Province of Origin

Unlike many other sectors, legal, consulting and other back office sector companies in Asia originate primarily from Quebec. Harvey Law Group and Delmar Worldwide have more than ten offices around Asia. Harvey Law Group’s core business is to facilitate Asian investment immigration to Canada, and Delmar Worldwide is specialized in providing diversified freight and supply chain solutions.25

25 Munk School Data Information

China40%

Hong Kong13%

Vietnam13%

Philippines5%

Singapore5%

Taiwan5%

South Korea4%

Japan4%

Indonesia4%

Other 7%

Market Concentration

PQ53%ON

36%

NB7%

BC4%

Province of Origin

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Business Nature

Companies in this sector mostly exist in the form of small sized offices and often have strong partnership with local firms and/or governments. Legal firms try to expand in Asia by cooperating with local law firms, setting up subsidiaries, and hiring local lawyers. For instance, Dentons, a combination of top 10 global law firms, is strengthening its partnership with the Chinese law firm Dacheng.26 Dentons and Dacheng believe that the cooperation ‘brings meaningful, established, local know-how reinforced by global reach and quality, helping clients navigate the most complex legal and business environments anywhere in the world’. 27 Meanwhile, other smaller sized legal service companies tend to have local representative offices to create a ‘referral network’ to provide their own specialties to local customers.

Supplier services based companies including logistics, transportation and shipping companies usually have representative offices in order to support their customer service and facilitate their shipping/airlines services. Companies like Air Canada and Canada Steamship Lines serve as important facilitators of the trade between Canada and major Asian cities.

Consulting firms account for a relatively small part of this sector, providing services in a variety of areas such as immigration consulting, business consulting and patent consulting. Similar to other consumer-based companies, most of the consulting firms establish small sized offices, which is adequate for their daily operations. Due to the relatively low cost of the offices, the consulting firms can allocate their capital resource and human resources towards many different locations in order to spread their presence around Asia.

Engineering, Architecture, Urban Planning, Environment/Geology Sector

Asia offers a competitive advantage to Canadian firms in this area because many countries in the emerging markets suffer from poor quality control in infrastructure management. Therefore, foreign firms have a considerable opportunity to bring higher and improved international standards and professional management expertise into Asian markets.

Market Concentration

Here the market is highly concentrated in China, Hong Kong, India and Singapore, with emerging growth in Indonesia and Thailand. Currently, 1/3 of the Canadian architecture and urban planning companies are in China. Evidence shows that many companies are taking advantage of Hong Kong’s unique location as a launching pad to access the Chinese market.28

26 Munk School Data Information 27 Munk School Data Information 28 Munk School Database

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Province of Origin

Companies in this sector are largely from Quebec (36%), Ontario (28%) and British Columbia (25%), followed by Alberta (8%). Different sub-sectors are dominated by major global companies such as SNC-Lavalin Group (an engineering company from Quebec) and B+H Architects (HK) Ltd (an architecture company headquartered in Toronto) in terms of number of offices located in Asia.

China19%

India15%

Hong Kong15%

Singapore13%

Indonesia7%

Japan7%

South Korea6%

Thailand4%

Other14%

Market Concentration

ON36%

PQ28%

BC25%

AB8%

Other3%

Province of Origin

17

Business Nature

In terms of their organizational structure, companies in this sector can be divided into two categories. First, multiple company sites supporting a large local involvement (mostly construction companies), as these companies need to carry out their activities or provide their service at site they tend to set up operation offices or subsidiaries in Asia. Second, small operation scales such as representative office/sales office/distributors facilitating large market promotion. Another interesting finding is that, as a subsector, cleantech companies have a strong presence in Asia due to favourable local policies and their comparative advantage in the local markets. Most of the Canadian cleantech firms are SMEs and exist in the form of local offices providing customer services and/or promoting their products.

Companies in the architecture and construction industries are facing licensing limitations. For example, in China, they must obtain the prerequisite certificate from the provincial level of Ministry of Commerce before they can directly undertake any projects in China.29 Thus, most Canadian construction companies tend to have strong partnerships with local government or with local firms to directly undertake construction projects. They are for the most part larger sized in order to have the capacity to carry out massive construction projects. A notable case is that of SNC-Lavalin, which recently signed a formal Memorandum of Understanding (MOU) with the China National Nuclear Corporation (CNNC) to jointly develop and pursue power generation, mining and metallurgy and nuclear-related environmental protection projects.30

Most engineering or architecture consulting companies provide solutions/designs using their respective specialty to other firms or government as a third party. These companies face less restriction and entry barrier and they can contribute to the tech-transition from developed to developing countries.

Barriers in Asia

Market requirements may vary considerably in Asia and the Canadian services sector needs to approach each country according to those requirements. This report highlights a few countries to demonstrate how each country’s unique and diverse environment can serve Canadian services differently. The fact that the Asian countries under review have different legal and regulatory restrictions is in itself a major challenge to manage. Please refer to Appendix 3, which illustrates some common challenges in Asian markets.

In addition, the domestic political environment plays a significant role in impacting how well the Canadian services sector performs in Asia. For example, in China, government policies vary in regulating foreign investment and private investment in “strategic industries,” flagship Chinese state-owned enterprises (SOEs), especially in the fields of finance and

29 “Establish an Architecture Company in China”, NCO China, Making Business Possible report, accessed March 2015,http://www.handelskammaren.com/fileadmin/user_upload/Nätverk/Nyhetsbrev_CBC/Setting_Up_an_Architecture_Firm_in_China_-_DK.PDF 30 “SNC-Lavalin signs MOU with the CNNC to develop project opportunities in China and abroad” Press Releases-SNC-Lavalin, Last accessed July 24. 2014. http://www.snclavalin.com/en/snclavalin-signs-mou-with-the-cnnc-to-develop-project-opportunities-in-china-and-abroad

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telecommunications services.31 Moreover, the SOE leaders and political parties have strong bureaucratic ties in terms of agenda setting and policy making.32 Similarly in India, political pressure and interest groups are reshaping trade and investment policies. Institutional barriers, which are caused by multiple stakeholders such as suppliers, buyers, subcontractors, distributors, regulators and companies, have negative impacts on the services sector.33

Furthermore, different business practices, cultural norms and informal networks, language and social elements influence foreign services penetration in Asian markets. For example, in Japan, treating trade and investment as a zero-sum game is a common practice by the Japanese business community where “increased imports will harm Japanese producers and increased inward investment will displace Japanese companies.” 34 Also, corporate governance is practiced for the greater public and social benefit as opposed to the Anglo-American model, which gives importance to shareholder value, board independence and board diversity.35As Linda Seymour, HSBC Bank Canada executive vice president and head of commercial banking mentioned, “The biggest obstacles that Canadian companies typically face in doing business in Asia revolve around confidence and understanding. Many lack an understanding of international opportunities, they are unsure of how to position their product or service in other markets; they lack cultural understanding and are uncertain of how to navigate the regulatory environment.”36

Commitments and Progress

1. FIPAs

The government of Canada recognizes the importance of foreign investment promotion and protection agreements (FIPAs) in expanding opportunities for the services sector in Asia among many other trade priorities. Therefore, Canada has FIPAs in force with different ASEAN nations such as the Philippines, Thailand, Indonesia and Vietnam. Moreover, Canada is also participating in Trans-Pacific Partnership (TPP) negotiations with Brunei, Malaysia, Singapore, Vietnam and Japan.37 The impact of TPP will be discussed in more details in the later section of the report.38

2. Global Markets Action Plan

31 Susan V. Lawrence and Michael F. Martin “Understanding China’s Political System”, Congressional Research Services, March 20, 2013, pg 35. 32 Susan V. Lawrence and Michael F. Martin “Understanding China’s Political System”, Congressional Research Services, March 20, 2013, pg 35. 33 Canada, China, and Rising Asia: A Strategic Proposal. Pg 22. 34 Glen S. Fukushima “Removing Japan’s barriers to trade and investment” East Asia Forum, November 17, 2012. http://www.eastasiaforum.org/2012/11/17/removing-japans-barriers-to-trade-and-investment/ 35 Glen S. Fukushima “Removing Japan’s barriers to trade and investment” East Asia Forum, November 17, 2012. http://www.eastasiaforum.org/2012/11/17/removing-japans-barriers-to-trade-and-investment/ 36 “Canadian businesses should do more to capitalize on growing ties with China, say experts” The Globe and Mail, last accessed November 7, 2014. http://exportwise.ca/wp-content/uploads/2014/11/AsiaPacificNov7.pdf 37 “Minister Fast Launches First Canada-ASEAN Business Forum” Government of Canada, Foreign Affairs, Trade and Development Canada, last modified October 9, 2013. http://www.international.gc.ca/media/comm/news-communiques/2013/10/09a.aspx?lang=eng 38 “Minister Fast Launches First Canada-ASEAN Business Forum” Government of Canada, Foreign Affairs, Trade and Development Canada, last modified October 9, 2013. http://www.international.gc.ca/media/comm/news-communiques/2013/10/09a.aspx?lang=eng

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“By sharpening our trade policy tools, putting boots on the ground, and promoting business-to-business links with partners globally—links that are so often precursors to new ideas, new commercial activity and new opportunities—the approach is designed to keep the plan squarely aligned to the needs of Canadian business”39- Global Markets Action Plan 2013.

Building on the 2007 Global Commerce and Strategy and the Economic Action Plan 2012, in 2013, the government of Canada released the blueprint for creating jobs and opportunities for Canadians through trade known as the Global Markets Action Plan. The main purpose of this plan is to serve the Canadian trade and services sectors’ interests by concentrating on priority markets in Asia.40 Under this plan, Canada prioritizes markets that have potential for success and went through rigorous assessment to qualify new opportunities. These steps included “economic modelling to identify markets with high-growth potential given Canadian industrial capabilities and competitive advantages; analysis of potential sources of capital, technology and talent; key regional trading blocs and Free Trade Agreement (FTA) partners for Canada; core hubs in global value chains; and guidance from key Canadian industry sectors.”41

Policy Implications

If we want to understand the policy implications in the services sector, we need to examine the TPP and TiSA. These agreements are still active negotiations and their implications will unfold with time. TPP is a trade negotiation, similar to NAFTA, which has been caught up in various controversies and complexities since 2008. Concerns with regards to income inequality, environment, access to affordable healthcare, and labour rights have been raised by various parties who are opposed to this deal. The business sector wants TPP to be implemented as trade liberalization often leads to economic and business growth. For Canada, the TPP has the potential to become a leading mechanism for regional economic integration in Asia and to produce significant benefits for exporters and investors in the Asia-Pacific region.42

The TPP's focus on services, investment and government procurement, among other trade issues, benefits Asian economies. For example, if the terms of TPP are finalized and if China decides to join the TPP, they will be aligned with China's current efforts to reform its economy. This includes managing local government debt while growing social services offered to a larger share of rural-urban migrants. Additionally, once the deal is finalized; China would gain immediate reputational benefits. Therefore, it is in China’s and other Asian nations’ interest to join the TPP and boost investment and services trade activity.43

39 “Global Markets Action Plan: The Blueprint for Creating Jobs and Opportunities for Canadians Through Trade” 2013. http://international.gc.ca/global-markets-marches-mondiaux/assets/pdfs/plan-eng.pdf 40 “Global Markets Action Plan: The Blueprint for Creating Jobs and Opportunities for Canadians Through Trade” 2013. http://international.gc.ca/global-markets-marches-mondiaux/assets/pdfs/plan-eng.pdf 41 “Global Markets Action Plan” Government of Canada, Foreign Affairs, Trade and Development Canada, last modified September 12, 2014. http://international.gc.ca/global-markets-marches-mondiaux/plan.aspx?lang=eng 42 Huff Post. “Trans-Pacific Partnership Getting Closer, Say Obama And Harper” 02:47, October 11, 2014. http://www.huffingtonpost.ca/2014/11/10/trans-pacific-partnership-closer_n_6131042.html 43 “TPP: What's at stake with the trade deal?” BBC, last accessed 22 April, 2014. http://www.bbc.com/news/business-27107349

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The services sector is growing rapidly in the Asia and TPP is one of the first FTAs, which paves the way for TiSA and the Transatlantic Trade and Investment Partnership (TTIP).44

TiSA is an attempt to further liberalize trade in services. The participants of TiSA are the “Really Good Friends of Services”, who are an ad-hoc group of WTO members, including Japan, Taiwan, Korea and Hong Kong.45 TiSA members represent an enormous services market with nearly 1.6 billion people and a combined GDP of more than $50 trillion in 2013—nearly two-thirds of the world’s economy. In 2013, these countries exported more than $3.6 trillion in services.46 TiSA has been an important agreement in terms of focusing on frameworks of rules and modalities of services trade. TiSA also aims to remove barriers such as unfair competition from state-owned enterprises, to improve transparency and enforce due diligence to avoid discrimination in obtaining business licenses and permits.47 Discussions in TiSA have been intensive over the last months regarding data flows, state-owned enterprises and negative vs. positive list approaches.48 Additionally, TiSA will include discussions over cyber policies, data and IP protection, dealing with SOEs, labour mobility and regulatory cooperation, all of which are conducive in strengthening the Canadian footprint of services sector in Asia.

While TiSA has a lot of similarities with General Agreement on Trade in Services (GATS), there are some aspects that are unique. For example, deregulation of the financial services will impact commercial subsidiaries and cross-border services. Critics of TiSA imply that liberalization of the financial sectors is disadvantageous to the member countries and instead support strict regulation, especially in the aftermath of the financial crisis.49 The TiSA is also often characterized as being yet another unending multilateral trade negotiation.

To sum up, there is no doubt that the overall impact for TPP and TiSA will be beneficial for Canada and other Asian countries. Japan, Taiwan, Hong Kong and Republic of Korea are already involved in the ongoing negotiations. If the rest of the countries join these agreements, then it demonstrates the united commitment to foster economic growth by boosting the services sector.

44 “The Trans-Pacific Partnership (TPP)” The Coalition of Services Industries. https://servicescoalition.org/negotiations/the-trans-pacific-partnership-tpp 45 Pierre Sauvé, “A Plurilateral Agenda for Services? Assessing the case for a Trade in Services Agreement (TISA)” Working Paper No 2013/29, Swiss National Science Foundation under a grant to the National Centre of Competence in Research on Trade Regulation, 29 May 2013. http://www.wti.org/fileadmin/user_upload/nccr-trade.ch/wp2/publications/TISA_P_Sauve.pdf 46 “Trade in Services Agreement (TISA)” Government of Canada, Foreign Affairs, Trade and Development, last modified February 18, 2015. http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/services/tisa-acs.aspx?lang=eng 47 The Trade In Services Agreement (TISA), “The Coalition of Services Industries” https://servicescoalition.org/negotiations/trade-in-services-agreement 48 Juan A. Marchetti and Martin Roy “Staff Working Paper ERSD-2013-11”, World Trade Organization-Economic Research and Statistics Division. November 27, 2013. https://www.wto.org/english/res_e/reser_e/ersd201311_e.pdf 49 Fact Sheet, “Trade in Services Agreement (TiSA) and Financial Services” September 2014. http://ttip2014.eu/files/content/docs/Full%20documents/factsheet_tisa_and_financial_services.pdf

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Appendix 1- Methodology

Data Analysis:

The company dataset is the core part of our project. Our dataset, gathered from several open data sources, includes over 1000 data points and information such as the company names, their sectors, their provinces of origin and their locations in 16 countries around Asia. Based on this primary dataset, we updated it with new companies that we found; we researched each companies in the targeted sectors about their size and business nature using public available information such as their official website; we processed the data and categorized the companies by their market concentration, provinces of origin, size and business nature.

From the data analysis part, we identified the fundamental trends of Canadian business presence in Asia such as: which country in Asia attracted what sectors? Which provinces in Canada have strong presence in Asia? What business nature do Canadian companies have?

Literature review:

Based on the trends we identified from our dataset, we reviewed related literature in order to explain the facts. We took into account influencing factors from three different perspectives: political drivers, market drivers and legal issues. For political drivers, we analyzed policy regulations ranging from local level policy up to international agreement; for market drivers, we researched the business environment in terms of clients and competitors of Canadian companies. For legal issues, we examined what sectors have encountered more serious regulation or even ban when enter different markets in Asia.

Interview:

We interviewed several member companies of our clients and gathered primary insightful information from representatives of Canadian business that has expended to Asian market. Usually followed by a short presentation of our project, the interview consisted of three components: First, interviewees would provide an overview of the company and their business around Asia; second, interviewees would describe major barriers and challenge of their business different countries in Asia; finally, interviewees would offer us additional related resources and literature.

The interviews played an important role in our report because the interviewees have deep understanding of their own industry and they are able to provide us inside information, which might be difficult for us to find elsewhere. Their opinion and comments serve as good starting point for us to conduct further analysis on the trends explanation and drivers identification.

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Appendix 2- Size Data

Number of Employees in Joint Ventures

INDIA 8,525

CHINA 1,789

MALAYSIA 451

PHILIPPINES 433

VIETNAM 244

INDONESIA 82

Number of Employees in Total

PHILIPPINES 1,135

INDIA 920

HONG KONG 700

INDONESIA 375

JAPAN 30

SINGAPORE 25

CHINA 5

MALAYSIA 5

VIETNAM 5

Source: Sunlife Annual Report 2015.

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Appendix 3 –Barriers in Asia

Source: Canadian Businesses in ASEAN 2013

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Appendix 4- Services Sector in Major Countries Data

Legal service5%

Hospitality and Tourism

10%

Architecture and Urban Planning

12%

Environment and Geology

14%

Financial service21%

ICT38%

SERVICES SECTOR IN CHINA

Medical and Healthcare

4%

Legal service4%

Hospitality and Tourism

7%

Environment and Geology

8%

Architecture and Urban Planning

13%

Financial service27%

ICT37%

SERVICES SECTOR IN HONG KONG

25

ICT36%

Education29%

Financial Service12%

Environment and Geology

11%

Architecture and Urban Planning

10%

Hospitality2%

SERVICES SECTOR IN INDIA

Medical and Healthcare

6%

Environment and Geology

8%

Archetecture and Urban Planning

9%

Financial service15%

ICT62%

SERVICES SECTOR IN JAPAN

26

Legal Service3% Medical and

Healthcare3%

Environment and Geology

10%

Archetecture and Urban Planning

12%

Financial service

22%

ICT50%

SERVICES SECTOR IN SINGAPORE

27

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