Modern industrial organizations in Canada are synonymous with the branch plant economy phenomenon. In general, "the term branch plant economy refers to a convenient shorthand term to describe a regional economy where a large proportion of the employees are in establishments owned by firms whose head office lies outside the region" (Watts 1). In Canada, branch plant economies are subsidiaries of companies based abroad, mostly in the U.S.
A branch plant economy is a strategic tool used by transnational corporations to maximize profits, avoid tariff fees and encourage exports. "Branch plant economies have been established in Canada for two essential purposes; the first is to gain access to the domestic Canadian market and the second is to gain access to Canada's primary products" (Laxer 127). Specifically, this paper will discuss the evolution of the branch plant economy and its negative and positive effects on the Canadian auto industry and its implications on regional development.
Branch plant economies exist where investment and business strategy decisions are made by an international head office of a company and not by the company itself. These economies have the traditional hierarchical model of corporate organization with strong centralized co-ordination of individual plants and subsidiaries.
The private capital from international investors, mainly the United Kingdom, has always played an important part in the development of industrial countries, especially Canada. These investments not only brought money, supplies and equipment to Canada but also mass migration from the investing countries. Canada was and still remains an excellent source of primary products for many migrants and their home countries. Canada served as a primary product producing country connected to an external controller, originally the United Kingdom, but now mainly the United States. This condition has remained unchanged to this day. This philosophy has also remained imbedded in Canadian business...