ADMS1010 Final exam Winter 2012
The article below describes the battle for control for CP Rail. a group of CP investors
believes that the company is underperforming. They want to fire the CEO and fire
former CN CEO Hunter Harrison. Harrison believes has can turn around his former
business competitor, Canadian Pacific railways.
In 1916, Prime Minister of Canada Robert Borden faced a similar situation. How was he
to deal with numerous underperforming railways in Canada?
a. Using the case The Creating of the CNR, describe what forces lead to the
railway crisis faced by Prime Minister Borden in 1916.
Three transcontinental railways with a population less than 7.5 million, which
leads to overcapacity, not economic sustainable.
1, heavily in debt
2, capital cost turnover: war time, sales goes down
3, inadequate rolling stock
4, government have already had an equity position of 40% in CNR and taken
over on of the subsidiary line from GT.
5, Britain ban the export of capital, where London is the main market of the
financial resource for the Canadian railways.
6, the creditworthiness of the nation and the capacity to go on the war has been
If let failed, would be devastating to the financial system and the
creditworthiness as a nation.
- provincial government have provide financial guarantee
-bank of commerce have invested heavily and was heavily indebted in it
b. What options did Borden have to resolve them?
There are three options: One is the minority report which suggest GT take over
CNR in the east, while CNR take over GT in the west. The government take over
all the uneconomic lines between Quebec and Manitoba
Second is Majority report, which asked the government to take over all the lines
except CPR and American lines.
Third, do nothing, let them fail.
c. Do you agree with the solution he came to? Why or why not?
Yes, It is the best solution under many undesirable choices in unfortunate
1, the government have already had an equity position in both of the railways. It
had invested heavily in the two corporations.
2, The failure of the two railways will lead to the devastating to the financial
system as well as the creditworthiness as a nation.
3, Pressure due to way is the contributing factor of the failure 4, It is the government who let build the third line which goes to the edge of
disaster, government have no choice but to fix the problem they previously
d. Using the Stern Diamond model of National Competitiveness and the CNR case,
describe the role that the railway industry played in the early years of Canada’s
At that time, the home plate is that Canada is a non-predatory country. Canada start
from the home plate and progressed to the first stage which have a modern financial
system. Before the crisis, the financial system has a good performance and
creditworthiness in the global financial market and foreign markets such as London
market provide capital for the investment in the railways. The country next progressed
to the second stage, which open access to entrepreneurs. There were a lots of
entrepreneurs such as the owner of GT and CNR at that time. However, the country
failed to progressed to the third stage where modern management are implemented.
The heavy indebtedness and capital cost turnover of GT and CNR that continuing asking
for bailout would harm the financial system /creditworthiness of the whole country (at
the time if fail) they are too big to fail, force the country to go back to the previous
The disadvantages of Crown Corporation:
Compete unfair with the market
Outlived their useful life.
Benefits of privatization:
To increase efficiency;
To gain political benefits;
To decline government involvement in decision making
To decrease the public sector borrowing requirement
What is Crown Corporation:
It is any enterprise that is substantially owned by the government.
It can function in many ways, like a private company.
It is more efficient than the government department because it is the arm’s length from
the government, it is allowed to act like a business.
It is an institution brought into existence by the government to serve a public function.
The characteristics of Crown Corprotaion:
A majority of the ownership must vested in the government.
The management of its affairs must be relatively independent from the government
The primary role of the corporation is to provide goods and services to the private
sectors, not to the government
The price it setup for the goods and services must reflect the costs of providing them.
The reasons for government to create Crown Corporation 1, As a nation building tool in promotion of the transportation, communication, and
natural resource development.
2, As a mean to promote regional development
3, Unwillingness or inability for private firms to provide important services.
4, Natural monopoly
5, the industry experience wide price fluctuation and income
6, undesirable elements in the industry
e. Read the article below, what are the similarities between the state of the
Canadian railroad industry in 1916 and the situation today? Please be specific.
The auto sector has played s significant role in the growth of Canada’s economy. It
means the largest Canadian manufacturing sector, employing over 153,000 Canadians
and having revenues of $96.7 billion in2007. Using the case The Canadian Automobile
Industry, answer the following question;
a. What role did the National Policy and Imperial Preference play in the
early development of the Canadian Automotive Sector?
The national Policy helped set up the manufacturing base for the Auto industry in
early days. At that time, the tariff for imported manufacturing goods increased to
35% in order to protect dumping of goods to the Canadian market. Canadian
manufacturers were able to compete with the higher priced US products in this
way. On the other hand, because imports is not profitable anymore, the US firms
started to license to the Canadian Manufacturers, which already have existing
long-term capital and equipment / factory to start.
Imperial Preference opened the British Empire market for the Canadian MfTErs.
Because (preferential treatment) there was barely any tariff for Canadian
products to the Britain and countries in the empire, they enjoyed great benefit
from the sale. On the other hand, Due to the geographic advantage with the US,
the us firms manufacture auto goods with their Canadian Branches and export
them through Canada to avoid high tariff, which increased the production in
Canada and strive the industry. Moreover, it also helped setup shares and land
local production in Australia, which benefited from the reversal of seasons. This
allow the Canadian to develop greater economies of scale.
b. What possible changes could there have been to the automotive sector if
the Reciprocity Agreement of 1911 had been ratified? If the agreement radified, there will be increasing competitions from the
increasing foreign producers in the domestic market. The decreased tariff for
imports will lead to more and more low price auto products to flow in, force the
domestic firms to lower their price or improve their services and product quality.
“to compete or to quite the market” are the only ways they can choose from. It
is sure that a lot of low efficient companies will be out of business due to the
fierce competition. However, for the companies that choose to fight, they will
improve their management, and corporation strategy. They will also be
encouraged to have higher technology as well as modernization and innovations.
In the employment market, there will be increased employment for
manufacturing workers and also skilled workers with high education, which
simulate the increased population to have higher education. In terms of the
consumers, they will have more quality goods with lower prices, more and better
choices and good customer services. Thus the entire economy will benefit.
c. Globalization has had a major impact on the auto industry. Using the
article below identify some of the trends impacting the auto sector due
to globalization and some of the challenges Canada will continue to face.
Mexico: lower labour costs and operating costs, lower enviromental requirement, simulated
and attract more foreign investment in there, posing a threat to Canada Auto industry.
Comparative Advantage and its economic benefits
Why where are foreign investment in Canada?123
Why Did not Canadians start their own companies?12345 1, US firms: Enormous advantages and much greater capital and experience and strong
established and valuable connections in the larger us market.
2, Canadians: catering in domestic market hard to compete the economies of scale of the us
firms they enjoyed
3, Canadians familiar with US products: publication AD, Travel
Negative aspects of Foreign investment.12
1, Higher level functions such as RND, financing, marketing are all done at the head office of
Parent company depriving the high skilled labour in Canada.
2, Profits from the business activities from Canada reside with the parent company, meaning
that the profits are leaving Canada.
Benefit of Foreign investment,12
1, foreign investment is better than no investment
2, Canadian benefit from it through increasing jobs, tax revenues and low priced products from
What is it?
1,Globalization describes the changes in society and world economy resulting from the
dramatically increased in international trade and cultural exchange.
2,Has put pressure on the” shrinkage of the state” and eliminating nation status.
3,Technologies especially in communication and transportation have increased the level of
4,GATT & WTO
What is it