The C.D. Howe Institute, a business-oriented think tank, concluded that "hollowing out" is largely a myth, and that foreigners control about 20 percent of Canadian corporations -- about the same proportion as 15 years ago.
"Is there something wrong with business in Canada? The answer is no," said Finn Poschmann, associate director of research at the institute. "There is some resistance to firms becoming big and powerful in part because Canada is a small country."
Problems at Bombardier, the Quebec-based aircraft and train manufacturer, trouble analysts concerned about Canada's "global footprint."
(Norm Betts -- Bloomberg News)
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For example, Canadians have been "very allergic" to allowing Canada's banks to merge with insurance companies, he said. While such mergers are acceptable in the United States, Canada has only five major banks, and consumers and regulators worry about mergers weakening competition.
In addition, he noted, combined personal and corporate tax rates are higher in Canada than in the United States, as are taxes on capital gains, helping to slow the accumulation of capital.
"It's a continuing struggle to convince governments to maintain open and outward policies that permit companies to grow and get large," Poschmann said.
Partly as a result, many of the biggest Canadian companies are subsidiaries of U.S. companies, such as International Business Machines Corp., Ford Motor Co. and General Motors Corp.
D'Cruz said worries that such subsidiaries are not Canadian enough are unfounded.
"When you think about Canada, you have to think very differently than in the U.S.," he said. "A lot of the large-scale business activity here is American companies operating in Canada. But that's not bad. What we have is a whole range of large-scale American enterprises operating with deeply local roots.
"The best example of that is IBM. IBM Canada talks and acts like a local company," D'Cruz said. "It has positioned itself with the Canadian government as a company with deep roots in Canada." Such subsidiaries provide employment to Canadians, pay Canadian taxes, invest in research and development in Canada, and spend in local Canadian markets, he said.
And they are successful. The Canadian subsidiaries of U.S. automakers now produce more cars in Ontario than they do in Detroit, for example.
U.S. subsidiaries "may be a detriment to building up national pride. But they are not a deterrent to the economy," said Douglas Porter, senior economist at BMO Nesbitt Burns Inc. "I think over time we will see more large multinationals grow up from Canada. The overall environment has become more favorable. Corporate tax rates are coming down, and NAFTA is helping."
But D'Cruz said that for Canadian corporations to take on an international role, their leaders may need a different outlook.
"The unfortunate thing is too many Canadian businessmen define their opportunities as Canadians," he said. "Too few of them define the global stage as the one they want to play on. They are comfortable in Canada. But the world today makes that a very difficult strategy. Globalization has made it unviable."
