Analysis in Brief
Multinational enterprises in Canada

by Claire Schaffter and Alexandre Fortier-Labonte

Release date: April 1, 2019

Introduction

Globalization refers to the economic integration between countries as a result of increasing cross-border trade and capital movements.

Multinational enterprises (MNEs) have been drivers of globalization. These enterprises have taken advantage of innovations in logistics and communications technology over the past four decades to diversify their supply chains and expand into new markets.

MNEs are also an important source of investment in innovation, technology and skilled labour in Canada. The involvement of MNEs in these aspects of the Canadian economy was discussed in a prior Statistics Canada studyNote .

This analytical study describes the characteristics of MNEsNote  in Canada and abroad, and how their activities in Canada differ from those of Canadian domestic enterprises that do not control businesses outside the country.

The data for the study come from various sources, including Statistics Canada’s 2016Note  Annual Financial and Taxation Statistics (AFTS) program. The AFTS collects and aggregates data from the financial statements of all enterprises in Canada.

An indicatorNote  that distinguishes MNEs from domestic enterprises in the AFTS data is used in this study to compare size, industry involvement and financial performance for both groups. Data collected by the Canada Revenue Agency (CRA) also provide details about subsidiaries of Canadian enterprises abroad.

MNEs in Canada

At the end of 2016 (see Chart 1), 99.2% of enterprises in Canada were domestic.Note  Of these, 0.8% were part of an enterprise group, while 98.5% were Canadian non-group enterprises. Only 0.8% of all enterprises operating in Canada were MNEs. Half of MNEs were Canadian majority-owned, with foreign affiliates (MOFAs) and half were foreign majority- owned, with Canadian affiliates (FMOCAs).  

Altough less than 1% of all enterprises were MNEs, they held 67% of all assets in the Canadian economy. MOFAs owned more assets than FMOCAs, with 49% of the total.

Chart 1 Percentage of total enterprises count, by type, 2016

Data table for Chart 1 
Data table for Chart 1-1
Percentage of total enterprises count, by type, 2016
Table summary
This table displays the results of Percentage of total enterprises count. The information is grouped by Type (appearing as row headers), Enterprise count , calculated using percent units of measure (appearing as column headers).
Type Enterprise count
percent
Canadian enterprises in groups 0.80
Canadian non-group enterprises 98.50
FMOCA 0.40
MOFA 0.40

Data table for Chart 1-2
Share of total assets by enterprise type, 2016
Table summary
This table displays the results of Share of total assets by enterprise type. The information is grouped by Type (appearing as row headers), Assets share, calculated using percent units of measure (appearing as column headers).
Type Assets share
percent
Domestic 33
Canadian enterprises in groups 21
Canadian non-group enterprises 13
MNEs 67
Foreign majority- owned, with Canadian affiliates 18
Canadian majority-owned, with foreign affiliates 49

Charts 2 and 3 show the distribution of assets for MNEs and domestic enterprises across industries included in the AFTSNote  for 2016.

Most MNE's assets in non-financial industries (Chart 2) were held in manufacturing, distributive trades and extraction, while a higher share of domestic enterprise’s assets were held in real estate and construction. Overall, domestic enterprises owned 83.6% of all assets in construction and 70.7% in real estate. The local knowledge required to operate in both industries could account for high share of assets held by domestic enterprises.

Chart 2 Share of asset holdings, non financial industries

Data table for Chart 2 
Data table for Chart 2
Table summary
This table displays the results of Data table for Chart 2. The information is grouped by Industry (appearing as row headers), Domestic and MNE, calculated using percent units of measure (appearing as column headers).
Industry Domestic MNE
percent
Utilities 8.3 9.5
Transportation and warehousing 5.9 10.1
Real estate and rental leasing 20.8 10.3
Other 27.9 18.4
Manufacturing 6.1 39.3
Extraction 5.8 33.4
Distributive trades 12.8 20.0
Construction 12.4 2.8

Chart 3 shows the distribution of assets across financial industries. MNEs held more assets in depository credit intermediation than domestic enterprises. Generally, large banks have operations abroad while local credit unions do not.

In general, the financial industries were dominated by MNEs, which held 72.1% of total assets (Table 1). The only financial industry with more assets owned by domestic enterprises than MNEs was securities, commodity contracts and other financial Investment and related activities, where domestic enterprises owned 57% of total assets. 

Chart 3 Share of asset holdings, financial industries

Data table for Chart 3 
Data table for Chart 3
Table summary
This table displays the results of Data table for Chart 3. The information is grouped by Industry (appearing as row headers), Domestic and MNEs, calculated using percent units of measure (appearing as column headers).
Industry Domestic MNEs
percent
Management of Companies and Enterprises 17.0 14.8
Securities, Commodity Contracts, and Other Financial Investment and Related Activities 23.1 5.9
Non-depository Credit Intermediation 9.2 4.3
Insurance Carriers and Related Activities 23.9 13.1
Depository Credit Intermediation 25.1 60.8
Activities Related to Credit Intermediation 1.7 1.0

There was also a large discrepancy between the size of MNEs and domestic enterprises in capital intensive industries such as extraction and utilities. In the extraction industry, the medianNote  value of assets held by MNEs was $14.4 million, versus $0.16 million for domestic enterprises. In the utilities industry, the median value of assets held by MNEs was $17.34 million, versus $0.29 million for domestic enterprises. Earlier work also showed that MNEs were more likely to operate in large-firm industries with significant economies of scale and capital intensityNote .

Table 1
Enterprise size in 2016, by type, for selected industries
Table summary
This table displays the results of Enterprise size in 2016. The information is grouped by Industry (appearing as row headers), MNEs’ share of assets, Type and Assets (median), calculated using % and $ millions units of measure (appearing as column headers).
Industry MNEs’ share of assets Type Assets (median)
% $ millions
Construction 18.6 MNEs 3.80
domestic enterprises 0.13
Distributive trade 60.8 MNEs 6.90
domestic enterprises 0.22
Extraction 85.2 MNEs 14.40
domestic enterprises 0.16
Finance 72.8 MNEs 3.41
domestic enterprises 0.57
Manufacturing 86.5 MNEs 19.52
domestic enterprises 0.24
Real estate 33.0 MNEs 3.27
domestic enterprises 0.54
Transportation and warehousing 62.3 MNEs 6.43
domestic enterprises 0.05
Utilities 53.2 MNEs 17.34
domestic enterprises 0.29

MNEs had higher operating revenues for the industries where they owned more assets. Chart 4 displays the proportion of operating revenue generated by MNEs in selected industries.

MNEs in the extraction and manufacturing industries had the highest share of operating revenue of all industries (80.8% and 75.4%, respectively). MNEs in construction and real estate had the lowest share of operating revenue (17.3% and 27.8%, respectively).

Chart 4 MNEs’ share of operating revenue for selected industries, 2016

Data table for Chart 4 
Data table for Chart 4
Table summary
This table displays the results of Data table for Chart 4. The information is grouped by Industry (appearing as row headers), MNEs market share, calculated using percent units of measure (appearing as column headers).
Industry MNEs market share
percent
Extraction 81.2
Manufacturing 76.1
Finance 66.9
Utilities 53.4
Transportation and warehousing 50.2
Distributive 48.8
Real estate 27.8
Construction 17.3

Overall, one in four employees in the Canadian economyNote  worked for MNEs in 2016. The employment share of MNEs was the largest for the extraction industry (65.5%) and lowest for construction (12.3%) (Chart 5).

Chart 5 MNE employment share for selected industries, 2016

Data table for Chart 5 
Data table for Chart 5
Table summary
This table displays the results of Data table for Chart 5. The information is grouped by Industry (appearing as row headers), MNEs employment share , calculated using percent units of measure (appearing as column headers).
Industry MNEs employment share
percent
Extraction 65.5
Finance 62.6
Manufacturing 50.8
Transportation and warehousing 41.4
Distributive 37.1
Utilities 34.4
Real estate 21.0
Construction 12.3

MNE affiliates abroad

The United States had the most corporate ownership connections with Canada in 2016.

The United States had more parent enterprises for FMOCAs than any other country (58.3%), followed by the United Kingdom and Germany (Chart 6).

Chart 6 Countries where foreign majority-owned Canadian affiliates have the most parent enterprises, 2016

Data table for Chart 6 
Data table for Chart 6
Table summary
This table displays the results of Data table for Chart 6. The information is grouped by Country (appearing as row headers), Share of foreign parents, calculated using percent units of measure (appearing as column headers).
Country Share of foreign parents
percent
USA 58.3
United Kingdom 5.9
Germany 5.2
France 4.4
Japan 4.0
All other countries 22.2

MOFAsNote  reported that most of their subsidiaries (49.9%) were located in the United States. The number of subsidiaries located in the United States was nearly seven times higher than the number of subsidiaries located in the United Kingdom, which had the second highest number of subsidiaries (Chart 7).

Chart 7 Countries where majority-owned foreign affiliates have the most subsidiaries, 2016

Data table for Chart 7 
Data table for Chart 7
Table summary
This table displays the results of Data table for Chart 7. The information is grouped by Country (appearing as row headers), Share of subsidiaries, calculated using percent units of measure (appearing as column headers).
Country Share of subsidiaries
percent
USA 49.9
United Kingdom 5.0
China 4.9
Australia 4.7
Mexico 3.0
All other countries 32.6

On average, MOFAs directly controlled subsidiaries in only one other country. However, about 10% of MOFAs controlled subsidiaries in more than four countries in 2016 (Chart 8).

Chart 8 Number of countries where MOFAs operated, 2016

Data table for Chart 8 
Data table for Chart 8
Table summary
This table displays the results of Data table for Chart 8. The information is grouped by Number of countries (appearing as row headers), Share of countries , calculated using percent units of measure (appearing as column headers).
Number of countries Share of countries
percent
2 79.7
3 11.2
4 4.3
5 or more 4.7

MOFAs had a higher proportion of foreign subsidiaries than Canadian subsidiaries (Chart 9). However, it was most common for a Canadian enterprise without Canadian subsidiaries to control one foreign subsidiary. Over 50% of MOFAs had this simple structure.

Chart 9 Share of foreign subsidiaries within a majority-owned foreign affiliate, 2016

Data table for Chart 9 
Data table for Chart 9
Table summary
This table displays the results of Data table for Chart 9. The information is grouped by Percentage of foreign affiliates (appearing as row headers), Proportion, calculated using percent units of measure (appearing as column headers).
Percentage of foreign affiliates Proportion
percent
Less than 50% 0.5
50% to 60% 60.1
60% to 70% 15.7
70% to 80% 7.0
80% to 90% 10.7
Greater than 90% 4.1

Most MOFAs operated in more than one industry,Note  either in Canada or abroad (Chart 10).

Among enterprises that operated in two industries, the most common pairing was Securities, commodity contracts, and other financial Investment and related activities with Real Estate and Rental and Leasing (7.3%). Oil producers were also involved in mining activities (6.5%), and manufacturers were involved in wholesale trade (5.3%). No other pairings comprised over 5% of the total.

Chart 10 Number of industries where MOFAs operated, 2016

Data table for Chart 10 
Data table for Chart 10
Table summary
This table displays the results of Data table for Chart 10. The information is grouped by Number of industries (appearing as row headers), Share of enterprises, calculated using percent units of measure (appearing as column headers).
Number of industries Share of enterprises
percent
1 28.5
2 57.7
3 9.1
4 2.3
5 1.0
More than 5 1.5

Financial performance

This section compares the profitability, efficiency and leverage of MNEs and domestic enterprises in 2016.Note 

The analysis includes only non-financial industries because the selected ratios are better suited for those industries. All ratios have been controlled for enterprise size.

Chart 11 Difference in profitability and efficiency ratios between multinational enterprises and domestic firms, in percentage, for selected industries, 2016

Data table for Chart 11 [an error occurred while processing this directive]

Chart 11 represents the percentage difference in profit margin and asset turnover ratios between MNEs and domestic firms. A positive difference represents an advantage for MNEs over domestic firms.

Profit margin is an indicator of profitability and measures the before-tax profit on each dollar of sales. Asset turnover is an indicator of efficiency and measures the sales generated per dollar of investment in assets.

In the distributive trade and manufacturing industries, MNEs had a slightly higher profit margin than domestic enterprises (3.7% and 9.2%, respectively). These two industries contain a large number of firms that make up a competitive market. This could explain why MNEs could not attain a high profit margin, as competition puts a downward pressure on their profit margin. However, it seems that MNEs were more profitable in terms of their asset turnover in these industries, since MNEs were able to generate more sales than their domestic enterprise counterparts with the same level of assets.

The Canadian utilities industry can be described as an oligopoly, as there are relatively few enterprises in this industry. Furthermore, there are significant barriers to entry, with high fixed costs required to operate in this industry. This could explain why, of all the industries, the difference in profit margin percentage between MNEs and domestic enterprises in 2016 was at its highest (42.1%). MNEs seemed to use this oligopoly to increase their profit margin. Despite this, MNEs had no efficiency advantage, as there was no difference in asset turnover between MNEs and domestic enterprises.

Chart 12 Difference in debt-to-equity ratio between multinational enterprises and domestic firms, in percentage, for selected industries, 2016

Data table for Chart 12 
Data table for Chart 12
Table summary
This table displays the results of Data table for Chart 12. The information is grouped by Industry (appearing as row headers), Debt to equity, calculated using percent units of measure (appearing as column headers).
Industry Debt to equity
percent
Construction 0.0
Distributive -32.8
Extraction -39.0
Manufacturing -19.7
Utilities 0.0
Real estate -76.4
Transportation and warehousing 0.0

The debt-to-equity ratio measures an enterprise’s debt relative to the value of its shareholder equity. It describes the extent to which an enterprise has taken on debt. A high ratio is associated with a high risk, meaning that an enterprise has been aggressive in financing its growth or operations with debt.

The debt-to-equity ratio of MNEs in construction, utilities and transportation and warehousing was the same as domestic enterprises (Chart 12). However, the ratio was lower for MNEs than domestic enterprises in the remaining industries. Since MNEs are larger firms, they are more likely to have access to public equity. This could explain why MNEs financed their operations with less debt.

Conclusion

In 2016, less than one percent of enterprises in Canada were MNEs. Though they were a small share of total enterprises, MNEs had a significant impact on the Canadian economy. These enterprises employed one of four Canadians, and owned 67% of total assets in the financial and non-financial sectors. MNEs also earned more revenue and held more assets than domestic enterprises in nearly every Canadian industry, and, taking into account their size were generally more profitable than domestic enterprises.

The majority of Canadian MNEs affiliates are in the United States, where 58.3% of all parents and 49.9% of all subsidiaries are located.

Appendix A

Table A
Industry groupings for study's charts
Table summary
This table displays the results of Industry groupings for study's charts. The information is grouped by North American Industry Classification System (NAICs) codes for 24- level industry classification (appearing as row headers), Industry groups for Chart 9, Industry groups for Chart 2 (Financial industries) & Chart 3 (non-financial industries) and Selected industry groups for all other charts (appearing as column headers).
North American Industry Classification System (NAICs) codes for 24- level industry classification Industry groups for Chart 9 Industry groups for Chart 2 (Financial industries) & Chart 3 (non-financial industries) Selected industry groups for all other charts
212 Mining and Quarrying (except Oil and Gas) Extraction Extraction
21C Oil and Gas Extraction and Support Activities Extraction Extraction
22 Utilities Utilities Utilities
23 Construction Construction Construction
31-33 Manufacturing Manufacturing Manufacturing
41 Wholesale Trade Distributive trades Distributive trades
44-45 Retail Trade Distributive trades Distributive trades
48-49 Transportation and Warehousing Transportation and Warehousing Transportation and Warehousing
53 Real Estate and Rental and Leasing Real Estate and Rental and Leasing Real Estate and Rental and Leasing
5221 Depository Credit Intermediation Depository Credit Intermediation Financial industries
5222 Non-Depository Credit Intermediation Non-Depository Credit Intermediation Financial industries
5223 Activities Related to Credit Intermediation Activities Related to Credit Intermediation Financial industries
523 Securities, Commodity Contracts, and Other Financial Investment and Related Activities Securities, Commodity Contracts, and Other Financial Investment and Related Activities Financial industries
524 Insurance Carriers and Related Actvities Insurance Carriers and Related Actvities Financial industries
55 Management of Companies and Enterprises Management of Companies and Enterprises Financial industries
51 Information and Cultural Industries Other N/A
54 Professional, Scientific and Technical Services Other N/A
56 Administrative and Support, Waste Management and Remediation Services Other N/A
61-62 Educational, Health Care and Social Assistance Services Other N/A
71 Arts, Entertainment and Recreation Other N/A
72 Accommodation and Food Services Other N/A
81A Repair, Maintenance and Personal Services Other N/A
11 Agriculture, Forestry, Fishing and Hunting Other N/A
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