Doing business in B.C.: strife or the good life?
From strikes to taxes to laid-back living, this province gives foreign employers a mixed bag. Find out how we rate on the global scene as a place to do business.
BY SHARON BOGLARI
Three years ago, eBay chose Burnaby, B.C. for the site of its second customer support centre outside of the United States. Last year, film and television production in British Columbia more than doubled over the previous year. Meanwhile, the province’s high-tech industry still remains hot, with multinational companies such as IBM, Eastman Kodak, and Disney expanding their operations or starting new ventures here.
Yet for many foreign businesses, B.C. is synonymous with labour unrest, high taxes, and high property prices. We lag behind Ontario and Alberta in attracting head offices and large companies, and many of our municipalities are notorious for stalling big-box development. Therefore, with such a dual business image — success and opportunity vs. high-priced living, strikes and bureaucracy — which face of British Columbia do most global outsiders believe?
After all, in today’s world economy, competition is no longer just the business down the street. It could be the province or state next door or Shanghai or Melbourne. “If we want to attract large international companies, we have to put ourselves on the same competitive basis as places like Hong Kong,” says Darcy Rezac, chair of the Vancouver Board of Trade. His counterpart across the border agrees. “[Business jurisdictions] need to recalibrate their competitive advantages all the time,” says Steve Leahy, president and CEO of the Greater Seattle Chamber of Commerce. “They can’t stay frozen while the rest of the world moves on.” Both men agree that British Columbia has what it takes to attract foreign business, but that we need to sharpen our pencils to gain the competitive edge.
Even in the rain, B.C. makes a great place to do business
When eZ systems, a small Norwegian software company, was looking for a new head office in North America, Silicon Valley and Boston were touted as the obvious choices. Instead, this creator of a specialized content management system and platform, with customers like the Massachusetts Institute of Technology and the U.S. Navy, chose Vancouver, BC for its new location. “Vancouver is a great city to grow a technology business in,” says Zak Greant, eZ systems’ managing director in North America, “and it provides an excellent fit for our Scandinavian corporate culture.”
British Columbia’s value-driven corporate culture appealed to eZ systems, says Greant. In the IT industry, having the right people working for you can make or break your fortunes. Companies must invest in locations that offer good social networks for staff. “B.C. culture is similar to Scandinavian culture,” says Greant, “from state health care to the outdoors lifestyle to human rights and attitudes towards same-sex marriage. We felt very comfortable setting up business here. B.C. is an invigorating place to do business.”
Lifestyle remains an important consideration for employees looking to relocate and, consequently, for businesses wanting to attract and retain top people. With its mild climate, Vancouver consistently boasts a spot among the top three in the list of the world’s most livable cities compiled by the Mercer Quality of Living Survey; this reputation extends to the rest of the province.
Shock of housing costs makes it difficult to attract talent
However, lifestyle sometimes is not enough. Many businesses looking to set up shop in B.C. find that high house prices make it difficult for them to attract employees to move here. House prices have effectively doubled in the last few years, says Peggy Prill, a market analyst for the Canada Mortgage and Housing Corporation (CMHC). Vancouver and Victoria are the highest and second-highest-priced markets in Canada. In Victoria, housing prices increased 20 per cent in 2005, following on the heels of double-digit increases in the two previous years. This means that to purchase an average house in the $500,000 range, people need an income of about $130,000, depending on interest rates and their down payment.
Don’t expect much relief if your employees are renters. According to Prill, B.C. has some of the lowest rental vacancy rates in Canada. For example, Nanaimo hovers around two per cent while the apartment vacancy rate in Kelowna stands at 0.5 per cent. “It’s not the cost of rent that is pricing people out of the market,” says Prill, “but the slim availability.” Compared to major markets in the rest of the world, B.C.’s housing prices are actually considered fairly affordable. The kicker, though, is that most international companies seeking to expand to B.C. want to hire people from within Canada or from smaller U.S. centres where house prices are considerably more affordable.
B.C. health care offers attractive benefits
For many companies, health-care costs are rapidly becoming a huge employee expense. In the United States, for example, health insurance premiums have gone up 73 per cent since 2000. Consequently, the percentage of U.S. businesses that offer health insurance to their workers has declined steadily over the last five years. The cost of providing coverage continues to outpace inflation and wage growth, according to a 2005 Annual Employer Health Benefits Survey. This can make it difficult for employers to attract talent. B.C.’s advantage is the provincial Medical Services Plan, which covers routine medical treatment, emergency care, hospitalization, and ambulance services.
At eZ systems, the company strives to offer the same benefits to all staff in their offices worldwide. Yet Greant notes that managing people in B.C. requires some differences. “Scandinavian companies aren’t as light on their feet as B.C. companies [regarding short-term hiring],” he says, adding that his Norwegian team was surprised at how quickly people can be hired and fired here. “Three months’ notice either way is usually the norm. We expect a more permanent relationship with employees.”
Tax incentives improve B.C.’s business atmosphere
Canadian taxes on income and profits are the highest of the G7 nations, according to the Organization for Economic Cooperation and Development. That makes it difficult for us to compete. However, in B.C., Minister of Economic Development Colin Hansen says that his current government has sweetened the deal provincially with a 20-per-cent cut in the corporate income tax rate. It also eliminated the general capital tax and provincial sales tax on machinery and equipment, and cut personal income taxes by 25 per cent. Yet we still fall behind our primary provincial competitor, Alberta. It has eliminated the PST altogether and has the lowest personal income tax rate for incomes above $80,000. Adjusted for population size, Alberta has more head offices than any other Canadian province.
Mike Farnworth, a New Democrat MLA and Opposition Critic for Economic Development, suggests that B.C. should take a niche marketing approach to attracting foreign businesses. “We have to realize that companies go where other [similar companies] are. For example, the major financial sector is in Toronto and the oil industry is in Alberta. We need to target certain sectors with incentives if we want B.C. to grow.”
Over the last few years, we have done just that. For example, the call centre industry in British Columbia enjoys an inbound, toll-free service exempt from PST. Many industries such as software development, manufacturing, mining, oil and gas, film and TV production, new media, and international financial activities enjoy enhanced tax credits and exemptions. The result: In 2004, B.C.’s economic growth of 3.9 per cent stood well above the national average of 2.8 per cent, and for the first time in almost two decades, we led the Canadian provinces in this area.
Hansen points out that British Columbia’s deregulation initiative now makes it easier and more cost-efficient to do business in this province. “Regulatory requirements were tying up companies and adding to the cost of doing business,” he says. More than 37 per cent of all provincial regulations have been eliminated since 2001.
Farnworth, however, cautions against too much deregulation if strict enforcement does not accompany it. “In certain sectors, we actually need more enforcement of regulations to ensure the health and safety of employees.” Farnworth advocates balancing regulations that attract foreign investment by allowing resource development with those that protect the environment. “We have a strong environmental tradition in B.C. that relates to our quality of life. For that reason, forestry and mining regulations might need to be more stringent in order to ensure we protect the environment.” Farnworth’s comments highlight the difficulty of appealing to foreign employers while also maintaining the liveability of a province.
Municipalities need proactive stance to woo investors
Provincial initiatives lay the groundwork for success, but they must be enhanced by municipal support. Doug Alley, vice-president of human resources with the Business Council of B.C. (and BC HRMA past president), says that having different taxation or approval authorities within a province can cause problems for businesses. Navigating the different bylaws in each municipality can prove time-consuming and off-putting for foreign businesses. Hansen says that forward-looking municipalities recognize how bylaws and municipal tax rates can impact their ability to attract companies and investors. His ministry is in the process of outlining what local governments can do to make sure that the province is more competitive.
One international company that is no stranger to dealing with municipalities is Wal-Mart. Spokesperson Christi Davis Gallagher says that the support of the local community helped them open their new store in Prince George four years ago. “While there were a few people that did not want us to come to town, the local mayor was very supportive of Wal-Mart and very pro-business in general. He, along with the council and some other major retailers, welcomed us to Prince George. For Wal-Mart, B.C. is a very desirable place to do business.” Whether you love or hate the megastore, Wal-Mart’s 28 stores in B.C. provide jobs for approximately 5,500 residents. In addition, the five to 10 new stores planned for the future will create roughly 200 trade and construction jobs and 200 associate positions, most of which are full-time.
Cultural diversity offsets small labour pool
Meanwhile, no matter what country, province, or town in which you do business, you can’t succeed without the right people in place. Does British Columbia have the right ones to help foreign businesses succeed here? Rezac thinks we do, but adds that the province’s small population is its biggest shortfall. “The only thing that’s missing in B.C. is two million more people. Big companies don’t move here because we don’t have enough people.” While British Columbia’s labour market might be small, our workforce has many features that make it attractive to business. Our world-class educational institutions produce highly skilled workers, and B.C. has the highest percentage of university graduates in any Canadian province.
Still, according to CMHC, this province is reaching capacity for the number of people it can employ effectively. This means that employers will need to look beyond our provincial and national borders to recruit. But can we accommodate more people? Prill says that there is definitely room for higher density in B.C.’s major centres — if people have the appetite for it. On the flip side, British Columbia makes a prime attraction for industries that are not labour intensive, such as IT and biotech, where success depends on the specialized skill of just a handful of people.
Alley suggests that onerous accreditation procedures for foreign workers are one reason for the labour shortage. “We aren’t doing a good enough job of recognizing foreign skills and training.” For example, the United States allows workers to come in on temporary visas to fill certain jobs, without having to go through a lengthy advertising process.
Hansen hopes that the new Alberta-B.C. Trade, Investment, and Labour Mobility Agreement, which took effect on April 3, will break down some barriers to hiring foreign workers, make B.C. more attractive to businesses, and help us develop our labour force. Under the agreement, all occupations will be able to move freely between B.C. and Alberta; if a worker is accredited in one jurisdiction, he or she will be considered accredited in the other. The Conference Board estimates that this agreement will contribute to 78,000 additional jobs in British Columbia.
Meanwhile, for businesses accessing multinational markets, B.C.’s cultural diversity and multilingual language skills are key assets. The 2001 national census recorded 533,000 Asian language speakers, 274,000 Indo-Iranian language speakers, and 440,000 speakers of European languages other than English and French in B.C. Leahy in Seattle says that British Columbia’s cultural diversity creates a key business advantage in today’s global economy. With U.S. immigration and homeland security measures making it more difficult for foreign students to study in the United States, these students are looking northward for their education. “This trend will diminish U.S. competitiveness over time,” says Leahy. “We’re very concerned that the United States will miss some opportunities as a result of overreaction to homeland security needs.” Foreign students accounted for seven per cent of Canada’s university population in 2003/04, nearly double the proportion of four per cent a decade earlier. Ontario and British Columbia are by far the two most popular destinations for foreign students studying in Canada. In 2004, Ontario received 19,152 students while British Columbia recorded 18,350.
Foreign students are vital to a region’s business strength. If students have positive experiences in a city or country, they might decide to stay once they have completed their education. Therefore, their skills remain in the country for the benefit of commerce and the community. Even if they don’t stay, Leahy notes, those students will likely have a lifelong affinity for the country, which can foster international trade and business agreements far into the future.
We need to overcome tarnished labour image
In the view of many business observers, probably the biggest feature working against B.C. is our history of strikes, which has tarnished our reputation among foreign employers. For instance, Peter Legge, president and CEO of Canada Wide Magazines and Communications Inc., travels frequently and meets with businesspeople around the globe. He says that he still hears negative comments about B.C.’s labour “situation” every time he travels overseas. Leahy concurs: “The image that many of us [U.S. businesspeople] have of B.C. is coloured by the labour challenges in the public sector.”
About 30 per cent of B.C.’s workforce is organized, and of that, 80 per cent is in the public sector. Alley says that despite our poor reputation, there have been few high-profile strikes in the private sector, where the vast majority of workforces comprise five or fewer employees. Overall, strikes are in the headlines much less frequently than they were 20 years ago. “The reality is that in a global economy, employees have a far better appreciation of what customers are looking for and what employers need to do to be successful,” says Alley.
Alley points out one glaring disadvantage in B.C.’s employment legislation that might prevent some foreign businesses from investing in this province. Unlike most North American jurisdictions, British Columbia bans the use of replacement workers during strikes and lockouts. “Changing this legislation would put us on an equal footing with every other labour code,” says Alley. However, Hansen has no plans to change this. “As long as we can maintain a healthy labour relations environment in the province, changes are not required,” he says.
Hey, world, we’re open for business
Real or perceived, British Columbia’s image as a pro-labour province will take a while to overhaul if we want to attract large foreign employers, particularly with the ready availability of labour in Third-World countries. Rezac acknowledges that despite this recognition “lag,” he is confident that we’re gaining ground. “We’re probably two years shy of having the rest of the world recognize where we are.”
Legge, meanwhile, says that many of the people he meets still consider British Columbia a small hole-in-the-wall. Yet the July 2006 issue of Canada Wide’s flagship magazine, BC Business, had an unprecedented $600,000 worth of advertising with a circulation of 26,000. “That says to me that people want to do business here. It tells me that our economy is doing well and that businesses are doing well.” When mayors ask Legge for advice on attracting more business to their municipalities, he suggests they send their business managers to Wales for a week to see how they promote their business environment. “Cardiff is probably as far away from the minds [of international CEOs] as Vancouver is, yet Jaguar is there, as is the BBC, as are some other very large organizations. We need to find out what they are doing to attract business.”
From deregulation to tax cuts to settled collective agreements, Hansen thinks that British Columbia has a compelling story to tell foreign investors. “We’ve made a lot of changes over the last four years that were necessary for us to rebuild our international reputation,” he says. ”Now we need to make sure the world knows about the changes.” To do that, B.C. has representatives in Europe, Asia, and the United States who actively promote the province to business communities in those markets. For instance, at the Turino Olympics earlier this year, the B.C. government hosted a pavilion that promoted British Columbia. “Having the 2010 Olympics in our province differentiates us from other jurisdictions that are also trying to promote themselves,” says Hansen.
Leahy believes that commerce and property will go where smart people are creating livable communities. The evidence suggests that B.C. is on the right track. “We have to change the mental paradigm that we’re up in the left-hand, northwest corner, remote from the east-coast power centres,” says Leahy. “We must overcome the feeling that we’re a small-town branch office.” He’s talking about Seattle, of course, but the concept also rings true for B.C. To demonstrate his point, Leahy describes the map of the world on the dining room ceiling at the Seattle World Trade Center. It differs from maps found in geography text books: this one firmly places Seattle at the centre of the globe, with spokes radiating out to other major world centres.
Do we see British Columbia as a vital economic hub? If we can shift our own perception of B.C.’s place in the global business market, the eyes of the world will undoubtedly shift to the many advantages that this province has to offer.
Sharon Boglari is a communications specialist in North Vancouver. Contact: boglari@telus.net