Today was a great day for the Canadian Loonie.

Today was the day that 1 Loonie was worth 1 greenback. In fact, briefly the Loonie was worth MORE than the greenback.

Let’s put this into perspective: in my lifetime the Loonie has never traded this high before so for me, this is a lifetime event.

Personally, this is going to make my grad school education just a little bit more palatable and I’m certainly glad I held off converting my loonies to greenbacks until now. But other than this small personal benefit, I thought I’d take a moment to assess what exactly all this means for the Great White North.

Canada on the Threshold

Already manufacturers from Ontario to BC are crying out in pain, and I’m sure we’ll be hearing that much more from the CDN news outlets in the future, I really have little sympathy for this nonsense. Instead I would urge them and the country as whole to take this historic opportunity to rethink who they are.

It’s absolutely clear now that Canadians and Canadian companies should no longer see themselves as a low cost outsourcers to the United States.  If Canadians really wanted the better life with the world class social program they have been screaming at their government to deliver, they better start trying to build a world class economy that can support it.

That’s what the Brits did in the 90’s with Blair’s Third Way economics. That’s what Canada needs to do now.

It’s not that we haven’t been trying but the whole 60 cent dollar gave Canadian businesses a crutch they could complacently lean on. Why try to improve the processes and product quality of your company when you this natural low cost advantage working for you?

And the results show. Canada’s productivity growth has perpetually ranked below that of the US since, no surprise, 1980 – just several years after the Loonie started tanking. By PPP, Canadians earn on average $8000 less per person. For a country that is better educated and blessed with more natural resources than its southern neighbour, this is atrocious.

Well back to the future, Loonie companies have a new reality they have to adjust to – a world in which they can’t rely anymore on being cheap. So here’s a quick list of suggestions:

  1. Invest in Information Technology. Did you know that the much of the US productivity growth in the 90’s was driven by massive IT investments? And yes I know Canadian companies couldn’t similarly invest at the time since the Loonie was in the crapper.  And yes, I know, IT has for a long time been really expensive and risky to do. But that’s no longer the case. with a $1+ Loonie, IT costs as much to you as well an US company does. Moreover, software manufactures from Microsoft, to Oracle to SAP are falling over themselves to go after smaller companies, companies more like what a typical Canadian company looks like.
  2. Labour productivity matters. This might be cultural, but yes, there are better ways of doing things sometimes. Maybe Canadians workers and middle managers are too nice or they aren’t thinking and like to keep their head down and do things the same way they were done 5, 10 even 20 years ago but this has to change. That’s not enough anymore. Execs needs to be pushing harder to work smarter. Your company’s survival depends on it.
  3. Invest in mangement talent. Having worked in both Canadian and US companies, I can tell you, Canadian companies could benefit from an upgrade in management talent. I can’t exactly put my finger on it but I can say that US managers seemed to have a more strategic view and make better quality decisions. This was a major motivation for my decision to go back to grad school. In Canada, the % of MBA’s in the workforce is significantly lower than than in the US. Maybe I’m biased but I think this makes a difference. With a $1+ loonie, now is a great time to invest in some human capital – maybe you can re-import some top flight US-educated expats back. (hint hint)
  4. Stop getting bought out. For all the PE funds and global companies that bought out Canadian HQ, congrats – you could not have timed your moves better. I guess it helped that there was this niggling loophole in the Canadian tax code to help you fund all these acquisitions. For the remaining Canadian companies out there -stop selling yourself short. You’re better than that and should be looking to be a player in the global economy instead of the wallflower waiting to get picked up by the player. Speak of which…
  5. Start looking at Foreign Acquisions. It’s sad to say but I’m not sure the whole $1+ dollar think will be a permanent fixture. As such, you could use this opportunity while costs are relatively low, to snap up promising foreign companies that could diversify your income, give you scale economies or get access to proprietary capabilities or resources to be the next engine of growth for your company. Carpe Diem!
  6. Start Innovating again. Hey guess what – one of the biggest IPO’s in the 2007 was Lululemon (NASDAQ: LULU) a little company from Vancouver! How did LULU do it? It created a whole new niche category in atheletic apparel, something totally unique from what was already in the marketplace. Today, LuLu is worth as much as Oakley and it’s offerings are taking the US market by storm. Canada as a whole needs more LULU’s and needs to spend more time innovating, thinking up new products, retail concepts or processes instead of building call centers to take US jobs. Speaking of innovating…
  7. Canadian Venture Capitalists – starting funding again! Your job is gamble (in an intelligent, calculated way) with other people’s money – not lock your funds in T-Bills. Go forth and fund the next RIM, Crystal Decisions and ATI’s! Your loonies go further now and setting up that critical SiliValley sales office is now a whole lot cheaper.

All through the 80’s, 90’s and 2000’s Canada has been content to be a economic colony and low cost nearshoring location for the US. Today, marks the opportunity, however fleeting, to step out from that role and become that world-class ‘North American’ tiger economy it has the potential to be.

Canada stands on the threshold. Whether it chooses to cross it or step away depends on how well it responds to the challenges and opportunities presented by $1 loonie.

Go Canucks.