Why Canadian businesses love Arizona
Born and based in Newfoundland, Barry Perry (below) hadn’t spent any time in Arizona before his work took him there a few years ago. The president and chief executive officer of Fortis Inc., which acquired a utility company in the state in 2014, says the purchase allowed the St. John’s-based Canadian utility to gain a stronger foothold in the United States after its initial foray there in New York two years earlier.
One of the first things that struck Mr. Perry upon subsequent business trips to the Sunbelt was a peculiar and popular expression among residents.
“They have a saying down there when it’s very, very hot, and they say it in a positive way: ‘The temperatures are dipping down to 100[F].’ That’s when its 110, 115 outside [above 40 C] and the forecast for the following day is 100 [about 38 C]. For a Newfoundlander that’s a pretty foreign concept.”
The state may be known for its blazing heat, but Arizona is also a hot spot for Canadian businesses.
According to a 2015 report by the Economic Development Committee of the Maricopa Association of Governments (MAG), which serves as the regional planning and policy agency for the metropolitan Phoenix area, nearly 200 Canadian companies were established in Arizona as of last fall. That’s nearly double the British companies, which make up the second largest number of foreign companies in Arizona. Those Canadian companies account for more than 22,300 jobs in the state, where the top Canadian parent companies include Alimentation Couche-Tard Inc., Fortis Inc., Kahala Brands Ltd., and Bombardier Inc.
One of the tallest buildings in downtown Phoenix, in fact, is the recently renamed BMO Tower at Central Arts Plaza. The Canadian-owned bank occupies 20,000 square feet in the former Viad Tower, an iconic high rise, while the company’s rooftop signage is among the biggest in the entire state.
It’s not just the warm weather that attracts Canadian businesses – although the climate certainly plays a role. Tourism has helped to fuel the growth of Canadian-owned companies setting up shop in the state.
R. Glenn Williamson, a Montreal native and chairman of the board of EPCOR Water (USA) Inc. (which is owned by Edmonton-based EPCOR Utilities), founded the Canada Arizona Business Council 11 years ago because he recognized the growing bilateral business connection between the two places. He explains that the increase in direct flights from Canada to the state has driven tourism over the past decade; there are more than 130 non-stop flights a week from every major city except Montreal.
Vacationing Canadians seeking an escape from harsh winters seized opportunities during the 2008-09 recession to purchase real estate. Ninety-four per cent of all internationally owned houses in Greater Phoenix is Canadian-owned, according to that MAG report.
“The minute those direct flights started ramping up from Toronto, you started to see unbelievable amounts of wealth pour into this region,” Mr. Williamson says. “So people moved from being tourists to homeowners. Then they started to question their companies based in Ontario and Quebec and their U.S. companies in upstate New York and went, ‘Wait a second: I’m in the snow and my U.S. company is in the snow?’ Some people started connecting the dots.
“What I think is interesting to watch is how Arizona has come on the scene in Eastern Canada, specifically Toronto, breaking the Western Canada-only paradigm,” he adds, “and how Scottsdale is now competing head to head with Naples, Fla., and Palm Springs, Calif., for the affluent Canadian U.S. visitor and winter home-buyer.”
Mr. Williamson says the number of Canadian businesses operating in Arizona is quite a bit more than the 80 or so that existed a decade ago.
“That’s in spite of the loonie,” he says. “And I don’t see it slowing down.”
Mr. Perry says that Fortis began looking at the United States several years ago, after the utility company – which started out in 1885 as St. John’s Electric Light Co. – expanded across Canada. It acquired Central Hudson Gas and Electric in 2012 as its “small, first entry” into the United States, before acquiring the UNS Energy Corp. Its Tucson Electric Power (TEP) employs about 2,000 people and supplies electricity to about one million people in that city and surrounding area.
“We’re very excited about Arizona,” Mr. Perry says. “We’ve had a great experience so far. The regulator was very practical, efficient, held us to task, and treated us fairly…. We’ve been very happy with the team there [at TEP]….All the people that were there when we bought it are the people that are running the business today.
“Arizona is a dynamic state with a lot of economic activity occurring and it’s picking up right now,” he adds. “They value Canadian investment. It’s very pro business. … They have a skilled work force. Our experience has been very positive.”
Fortis has since gone on to announce an agreement to acquire ITC Holdings Corp., the largest independent transmission utility in the United States with operations in seven states. However, Mr. Perry says he sees the possibility of expanding in Arizona because of the potential growth of renewable power and solar generation.
Given that the sun shines 350 days a year there, Arizona has the potential to be the “Saudi Arabia of solar power,” according to Export Development Canada.
Carl Gravel, director of international expansion for the Business Development Bank of Canada (BDC), which provides financial and advisory services to Canadian entrepreneurs, says that forest products such as lumber are among the top five Canadian exports to the state, along with machinery, electrical and electronic equipment, scientific instruments, and aircraft and aircraft parts. Aerospace and defence, meanwhile, are important sectors there.
Companies considering expanding to the United States should consider taking things one step at a time – or rather, one state or area at a time, Mr. Gravel says, with the BDC dividing the country up into 12 economic regions.
“The whole market is too big to tackle all at once,” Mr. Gravel says. “A lot of people think they’ll go to a couple of trade shows in Vegas and will come back with a couple of orders.
“It’s like doing business in several different countries,” he adds. “There are so many factors that vary from state to state, things like the business culture, foreign investment, who the big players are, regulations and taxes, and the incentives to invest there.”
Low wages and low cost of residential and commercial real estate are among Arizona’s appeals, Mr. Williamson says. And while California may be home to several Fortune 500 companies, he says that Arizona offers another advantage: proximity to the Golden State without the “regulatory and tax hassles” there.
“California is a very heavily regulated state,” he says. “If you’re a Canadian company, everything is going to cost more. But if you set up in Arizona and send stuff over there by truck, you’re serving that market without having the enormous amount of regulatory costs and taxes, and because of that Arizona is a logistics centre for California and Texas. … For Canadian companies that have operations in Mexico or Latin America, this becomes the halfway point.”
Arizona has proved to be a fruitful location for Silent-Aire, a privately held Canadian custom HVAC manufacturing company originally founded in Edmonton in the 1980s. In 2013, it expanded into the United States, establishing its U.S. headquarters in Gilbert.
“Arizona was familiar to the ownership group as a tourist destination initially,” says Brett Manning, Silent-Aire’s director of operations, noting that there was a desire for the company to operate in the western part of the U.S. and for its plant to be in close proximity to its customer base. “I am originally from Edmonton but enjoy dual citizenship. I see many similarities between Alberta and Arizona, and there’s a strong connection between the two.”
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