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History Table of Contents
1997 Summer Conference
Summer Conference 1997
Canada and the Asia-Pacific Promise: Hope, Hype and Reality
Canada's National Interest in the Asia Pacific:
Trade and Investment, Political Change and International Security

Ian Shortreed, Mercury Software, Tokyo

Some of the ideas I'm going to say to you today are more Asian than Canadian. To begin with I'd like to get a perspective on Asia over the last few decades, how we've looked at it.

I'd like to break that down into three areas:

The economic area, which for Canada is extremely important. We did $25 billion of trade last year with Canada and it's escalating at somewhere around 10 to 15 per cent per year. So, Japan is like key for us as a country economically.

Then, I'd like to move on and look at some of the political areas that we've covered in 20 years. And, then, look at social.

Since I don't have a slide projector, I was trying to think of some way I could give you the image I want to work with. I looked at the Couchiching logo and thought, perfect, this is the image I want to work with.

[The speaker described the solid line of the Couchiching logo, which is not quite a complete circle, as what has happened in the past 20 years, and the gap in the circle as that which suggests the unknown future.]

In those 20 years, we have gone in the economic sphere, and excuse me for using this term, but there really have been racial slurs against the Japanese and Asians when they started acquiring companies in North America. It was just rank racism in the big press, New York Times, Wall Street — significant newspapers.

To give you some idea of the companies they grabbed: Sony grabbed Columbia Pictures in 1988, one of the largest acquisitions at that time, followed by MGM being acquired by Matsushita, followed by Firestone being acquired by Bridgestone, followed by Pebble Beach Golf Course in Monterey, which is sort of a national landmark in the United States for golf, being acquired by a company which no longer exists, and so on.

A lot of American companies were acquired by mergers and acquisitions from 1985 through to 1990.

Of course, in 1990, boom, the Japanese bubble burst. Lending was cut. The Central Bank of Japan basically said unless we stop lending money the economy's going to implode, very much like what's happening in Thailand right now.

So from 1990 to 1997, the press said Japan's dead, it will never come back. Every time you picked up a newspaper, Japan's gone. It's never going to come back. So, we've gone to the other extreme now.

In the last year, there has been a significant change in investment; really the last two years. The merger and acquisitions in Japan are going crazy.

For example, Ford has taken over Mazda. This is an incredible acquisition. It's the first it's ever happened in recent history in Japan.

So, the Japanese are now in the Japanese press doing exactly what we did; they're going, oh, my God, the black ships are coming. And they're using [their own term] to refer to what's happening in Japan right now. They have the same impression.

You'll also note that Singapore companies, Korean companies and other Asian companies are acquiring. That's a first. That has never happened before.

So, there is a big economic change happening in Japan and the reaction from the Japanese has been — needless to say not just the Japanese, other Asian countries, similar to our own.

Two examples come to mind immediately.

Prime Minister Mahathir's comments last week accusing George Soros of driving all Asian currencies into the ground because, basically, he a racist. He didn't say that formally, but he basically said that in the press.

George Soros responded by saying, I don't like trading accusations in the press, maybe we could meet and talk about that.

The second one was Mr. Hashimoto in to New York last week and commenting (in front of the Japan Club, which is high profile stuff) that if Japan pulled all its assets from the United States, the entire U.S. and Canadian economies would sink. He was going for getting kudos at home, get tough with America, talk the currency down — get it down, America's talking it up; get it down; we want it at 120, the White House is trying to talk it up to 100. So, he was basically trying to shut that down.

The problem with Mr. Hashimoto's comment is, who are going to sell that doggie to in the window, Mr. Hashimoto, if you remove the assets, because that is what is funding the market for the Japanese exports.

He was kind of just trading accusations, if you want.
So, we've gone full circle here in the economic sphere.

In the social sphere, we started out in Vancouver in 1985, when a small Canadian publisher published a book called, The Asian Landlords. I don't think it got to the East, it was a small publisher.

The book's whole thesis was British Columbians were going to be held ransomed by Chinese landlords and we'd have no more land and we'd all have to move to the island, because Vancouver would be taken over. That was the theory.

Well, in 1997 — and I've got lots of Chinese and Japanese friends who have gone back to Hong Kong — because, guess what? It's a lot easier to make a lot more in Asia than it is in Canada.

So, if you want a holiday, this is a great country. If you want to make money, Asia's a lot easier to make money in. That's the bottom line.

In my market where I work, between Osaka and Tokyo, I have a market of 25 million people right there. So, I can deliver product to that market very quickly and, boom, the money's there very quickly.

So, our paranoia about being taken over by Asian immigrants, I think, can be snuffed. It's not going to happen. We should worry now if we're going to become a retirement home for the rest of the world more than that.

Something that I always do when I play the Asia game, I always ask myself the question: If Canadians asked themselves questions they always ask of Asians, in other words, do we have the right skill set when we bring Asians into Canada, imagine the Hong Kong authorities saying, what if we let the British into Hong Kong; I wonder if they have the right skill set to let them in? For each British candidate who wants to come into Hong Kong.

My feeling on Asian immigration to Canada is nothing but plus, plus, plus, plus. They've given us a fabulous skill set and fabulous values when they've come to Canada and work here.

However, having said that, I'll give you an example. Last summer I was with my daughter in Sooke, which is a beautiful sort of hot springs off Victoria, and we were sitting out by the hot springs and beside us there is someone tattooed. Now tattoos are usually one thing; they're hit people, they do hits. They do hits in Japan if they're Yakuza and they do hits if they're Triad.

So, my daughter leans over to me and says, in Japanese, father, isn't that a gangster over there?

And the Japanese guy looks over at me and I looked at my daughter and said, I don't speak Japanese. She looked back at me and her eyes just say, I got it, sorry.

Having said that, last week there was an article in The Globe and Mail — there were two articles on the same page — the first was a story of a doctor at the Toronto children's hospital doing real time surgery in a Tokyo hospital via the Internet to save a child with open heart surgery.

Left column, Asia and Canada, are we linked? I think so.

It's happening.

Right beside it the head of the Macao triad is in Vancouver and has immigrated into Canada and is happily controlling 3,000 employees.

So, we may want to be careful. You might want to go back to Ottawa and say we need a little bit more careful, screening through the RCMP some of the candidates that are coming through.

So, the social thing has pretty much gone full circle.

Now, we'll turn to the political gambit.

We started off the 1980s with sort of this threat of Russian domination, then we went from there out to Japan's going to rearm. This lasted about a year or two. It didn't last long.

And then we're getting to this now: The Coming Conflict With China. I rushed down to pick this book up at Chapters in Toronto when I flew in; got to the bookstore at 7 a.m. [and] went to Starbucks and sat down for two hours to read it.

I missed Ross's talk, I didn't know. That was the only problem. I read the book.

Before I came here I was sort of thinking about structuring this speech and I subscribed and paid for Jane's analysis on military power in China. I thought I need weapons here; I've got to have some swords.

Here's the reports:

Last week in the Asian Wall Street Journal — two facts here — they reported that two K-class submarines delivered to the Chinese two years ago, only two years, have both been put out of commission, because of complete saline contamination in the engines.

In other words, they have destroyed the submarines. They're not useable any more. The Russians cannot repair them. So, they've taken two contemporary pieces of military technology and trashed them. These are the people who are going to come over and land on the beaches near Victoria and take us over.

The second thing is that Jane's sees that at the outside China could have military capacity for an aircraft carrier at the earliest by 10 years from now. That's the earliest time. It would take probably 15 years, according to their calculations, with present technological goods available to be able to deliver an aircraft carrier.

And that's what they need to take Taiwan and that's what they need to extend their power.

So, I think we can rest for a little bit; at least for 15 years. And, more important, in Asia generally and especially in China, you never pull your sword unless you can win: Rule one of business in Asia, rule one of military strategy in Asia. You never take your sword out. You can't put your sword back. You take it out, you go. So, the Chinese will not attack, unless they are sure they can win.

They knew they could win in Tiananmen, because they knew their power, they knew the military was with them. They went around and made sure all the PLA groups were with them before they made that attack.

So, they won't attack us unless they're very sure, or Taiwan, unless they're very sure they can win. So, I think we can rest easy on that one.

Solutions. I've sort of given you a perspective on the past.

I'd like to talk very briefly about the future and especially in economics regarding Canada regarding the future.

Last year, in British Columbia we sold $8.5 billion worth of lumber to many places, but a lot of it to Asia, and we employed 97,365 people to make that money.

Microsoft does that in one quarter with 24,000 people.

So, in one quarter Microsoft turns that same profit.

The question for us in British Columbia and in Canada, as well, is: How do we get manufactured industries to export to Asia, rather than the resources industry because you can see the writing on the wall. We're not going to have the resources even in 10 years in British Columbia for lumbering. So we have to make a change.

I'll leave you two examples of this, because we always talk about this as Canadians, then we never do anything about it. We always say, we've got to get out of resources into manufacturing. So, let me give you two concrete examples of places that were in the same situation we're in and have successfully done it.

The first example is from Ireland.

In 1984, the Irish government decided that they had to start new industries, because the economy was going nowhere. They got a study group together and they looked around at different new high tech industries and decided upon software.

What they then ended up doing is creating a think tank of professors, people in business to structure a plan for creating a software industry in Ireland. And what they did in three years is transfer Ireland into the world centre for software.

All the U.S. companies moved to Ireland. Claris, Microsoft, WordPerfect, everybody moved. Simple, they got 10 per cent flat tax any goods shipped out of Ireland. So everybody booked all their orders in Japan, if you order a software product as a dealer in Japan, it comes from Ireland. They book all their revenue to Ireland, because it's flat 10 per cent.

From that they also tied stipends to the companies for employing students from the University of Dublin, from all the Irish universities. In other words, they got a credit for each employee from the university that was hired.

They also gave five years flat tax free for all factories; no tax on land. So, obviously the U.S. companies said we're coming. And they went. Everybody went. A very successful policy.

Last year, I went to the British Columbia government in a panel and presented this. The response from the NDP government was very simple: We don't look kindly on giving tax breaks to companies. End of discussion.

So, the only way Canada's going to attract me as a businessman is by giving me those breaks. Otherwise, I'm not coming here. I'm going to stay south of the border, or I'm going to go somewhere else.

We have to do that. We have no choice, if we want to get out of this resource-based industry.

A second example. A friend of mine is a potter in Japan. He was building a new house and he had $100,000 to build it. He'd got bids from Japanese contractors and the bids were like $200,000. He couldn't afford it.

So, then he phoned me and said, you're from British Columbia, you know lots of people. I said, yes, I'll phone people. I phoned people. I got him a door guy; I got him a sash guy and I got him all these quotes. He got it all added up and it was around $120,000.

Steve's a potter. He's tight with his money. So, he went back and checked with the State of Washington. It turned out that the State of Washington has created a consortium that basically is a clearing house for 600 Washington companies in woodworking, anything to do with house building.

So a Japanese customer, a normal customer, can go to the State of Washington commercial section and get a list of all the Washington construction companies he can buy parts from and there's a flat 10 per cent profit margin built in, whereas in other companies in Japan you've got 100 per cent, 200 per cent profit margins. This is flat 10 per cent; so U.S. product, plus 10 per cent.

Steve went and did all his shopping there and came with $80,000 worth and his entire house complete. And he did it at one place.

We have to do the same thing with Canadian products. We have to be able to go in at the embassy, have in the embassy a Japanese national — not a Japanese company — an individual and the Canadian embassy clears that person through to Canadian companies directly; no distributors, no middle man and they purchase.

We have to set that type of structure up to do business in Asia.

Those are two concrete examples that are happening and that are real.

On the social level, this is a touchy point. I'm going to end on this point.

The human rights situation for me is a tough one. I do a lot of business in China and it turns out I work a lot with the PLA. Those are the people I do business with. The PLA is in China probably the most successful and well-organized business group to work with.

We do a lot of engineering and software projects with the PLA. And these are the same guys who have gulags and these are the same guys who we don't like.

Now, having said that, an analogy to finish this off.

Just before I came here I watched an interview with David Frost with the ex-Prime Minister of Singapore, Lee. He's been in the news lately, because he's been suing The New York Times, James Reston and anybody who criticizes him for libel. And he's won $300,000 from the New York Times and from James Reston $100,000 personally; $400,000 in libel.

And the libel suit admitted from articles which accused Singapore of denying civil liberties to people, the judicial system being totally out of skew.

David Frost is interviewing Lee on this and he says, well, you know you've been in the press. People see you as a 1984- type demagogue, who's taking rights away from people and so on.

Finally, Lee looks [at him] and says, okay, I'll discuss this with you, but you can't change the topic. You've got to stay on topic, you can't just use the interviewer-journalist lateral move to a new topic.

Frost said, okay, I will.

[Lee] said, let's begin. I'm going to interview you. Lee is going to interview David Frost; he turns it around.

[Frost] said, okay, let's go.

[Lee] said I just want you to answer in a dialectical way. Here we go. In your cities and in your schools in North America or England, do you consider those schools now safe

for children; safe in the sense that people are packing guns in the United States, in England people are packing coke and speed and in Canada they're packing heroin or whatever.

Frost agrees we got a problem in the lower schools, you're right.

[Lee] Do you agree that the family unit's broken up, basically 80 per cent of your marriages [end up in] divorce, you've got single homes everywhere. The family unit's broken and destroyed.

Frost agreed.

Finally. [Lee asked], do you agree that everybody within the business community is very ethical and they're all taking care of each other and there's no problems.

The conclusion comes [when Lee says], and you are asking us to take your values that lead to this society and you're asking us to emulate you. How would we emulate a society that is, in our opinion, not well, not healthy? And you come back and you criticize Asian societies for denying civil liberties, yet look at our societies.

Yes, they are not giving full human rights, but there's order. And for us as Asians, order is number one.

If you're sitting there as a human rights person, going "I want to kill him."

But, if you're also sitting there and having lived in Asia, as I have for the period of time I have, I value and understand his point of view. I may not aspire to his point of view; I don't like him canceling the Asian Wall Street for six months because they criticize him. No way.

But, his basic point being the values that we espouse in human rights may not fit in with the Asian world that order is a more important part of the Asian world view.

And I think we have to think about that as we move and discuss that.