[Recorded by Electronic Apparatus]
Thursday, November 9, 1995
.0904 
[English]
The Vice-Chairman (Mr. Volpe): Good morning, colleagues. Pursuant to Standing Order 108(2), a study of small and medium-sized businesses in the globalized economy, the Canadian experience, we have with us today, from the Canadian Chamber of Commerce, Mr. Tim Page, who is a senior vice-president of international affairs. He is our first witness, our first guest.
.0905
We'll turn the microphone over to him right away, but I want to remind some colleagues around the table before we begin that the steering committee agreed the other day that what we would do
[Translation]
for the questions, Mr. Paré, would be to give the floor to the Official Opposition for five minutes, and then to the other opposition members for five minutes, then to government members, and, for the second turn, Official Opposition members will have five minutes each, and government members as well.
[English]
Mr. Page, welcome. Our usual procedure is to go about 10 or 15 minutes, and then into question and answer. The floor is yours.
Mr. Tim Page (Senior Vice-President, International Affairs, Canadian Chamber of Commerce): Thank you, Mr. Chairman, and thank you for putting the number 13 in front of me. This is a good omen. It's my favourite number.
The Vice-Chairman (Mr. Volpe): In circles other than North American Anglo-Saxon culture, that's actually a very lucky number.
Mr. Page: Except if you're in elevators.
The Vice-Chairman (Mr. Volpe): But if you're in the international world, you would appreciate that 13 is the number we would accord to very special guests.
Mr. Page: Thank you very much, Mr. Chairman. It's a great pleasure to be back in this building and in this room. I've spent a few afternoons and mornings in here in a previous incarnation.
I'm pleased to appear before you today representing the views of the Canadian Chamber of Commerce on the issue of your committee's attention, that of small business and international trade.
As a grassroots organization whose mandate is driven by business volunteers, we hope our presentation can add to the wealth of information this committee has already collected. As one of your last witnesses, however, our testimony may be somewhat repetitive but it attempts nonetheless to set the context for what our various small business initiatives have been.
Many of you know the chamber's role as a policy- and issues-focused organization, but over the last dozen years or so we have also developed and manage a series of programs and services for our membership. You also probably know of us best as part of a domestic network of some 500 local chambers of commerce and boards of trade across the country. But we are also part of an international network of chambers of commerce around the world. This makes the chamber one of the more recognized names associated with business, we believe.
Today we want to explain how and why the Canadian Chamber of Commerce is spending a great deal of its time with the small and medium-sized business community. We don't have any specific message or any particular brief in our presentation, but we're pleased to have been invited by the committee to share our experience with you today.
First of all, why are we involved in assisting small and medium-sized enterprises, or the SMEs, internationally? Thirty percent of Canada's economy is dependent upon trade outside of our own borders, and a great deal of our international business is conducted by a relatively small number of companies. These are now well-worn phrases.
In attempting to address these realities, we have come to the conclusion that the Canadian business community looks somewhat like an hourglass, with a lot of large companies at the top of the hourglass, many of them foreign controlled or outright owned, a much greater number of smaller companies at the bottom of the hourglass, and a very fine line of mid-sized companies in between.
We believe an important goal of our national economy should be to increase the number of small companies that are growing to become mid-sized and to increase the number of mid-sized that are becoming large companies.
The most direct route to achieve that objective is to increase the number of Canadian small and medium-sized enterprises that are competing effectively at the international level, thereby increasing their potential to grow and to provide jobs for Canadians.
Secondly, what are we doing about this particular challenge? The policy and program priorities we attach to addressing these challenges are drawn from within our membership through past chamber initiatives like our Focus 2000 project, our Aim for a Million project, the deficit diet plan, our joint survey with the Canadian Labour Market and Productivity Centre, and more recently in our work related to interprovincial trade barriers. In each of these endeavours, we have learned of the importance of stimulating the ability of small and medium-sized businesses to grow and have identified a number of barriers to their growth potential.
What I'd like to do briefly is give you a four-stage approach to how we see the small and medium-sized businesses becoming active and competitive in the international arena.
.0910
For instance, as the first stage, before a company can become interested in a foreign market, it must first know there are attractive business opportunities out there for them. Only after the opportunities have been found will a company then try to understand what has to open to take advantage of that opportunity.
The chamber has identified the timely company-specific flow of reliable trade leads and market intelligence as central to the objective of increasing the number of competitive Canadian small and medium-sized enterprises in the international arena.
Once the company has identified an opportunity, they must then know how to capitalize on it - enter stage two. Many small and medium-sized businesses don't know where to start. We have done something tangible about that by launching several years ago the Forum for International Trade Training, in association with other business groups and with the Canadian Federation of Labour. The FITT program teaches the nuts and bolts of the international business game, and I understand FITT and my good friend Dieter Hollweck were to have made a presentation to you sometime last week on the work they're doing.
We also know that business people are more inclined to learn from the experiences of other business people as they approach a new market for the first time. The Canadian Chamber of Commerce has established bilateral relationships with the principal business organizations in Mexico, the United States, the markets of southeast Asia, Korea, India, Taiwan and the Middle East. We also have a direct relationship with the Canadian Chambers of Commerce in Korea, Japan and Hong Kong.
Through these chamber-to-chamber networks, which, if you like, are people-to-people networks, we are able to provide a bridge to help newer players to make contact and understand the risks and opportunities attendant to their entry into a new market. We're offering a meeting ground for the more seasoned to share their experience with emerging players under the umbrella of a well-known organization. These meetings, held regularly throughout the year in Canada and in our priority markets, offer an opportunity to develop new business and new business contacts. Parenthetically, they also allow us to identify issues of a policy nature that may be seen as impediments to greater business-to-business relations.
Next is stage three. Once they've identified an opportunity and once they've understood how to take advantage of it, many small businesses are forced to give up the ghost because they are simply too small to stay the course in many offshore markets.
We're conscious of the problem, and this year we have played a leading role in the development of an initiative that is designed to build greater capacity within the small and medium-sized business community. The project is called SME networking and is being led by the private sector through the Canadian Business Networks Coalition. The project's purpose is to demonstrate to SMEs that companies that work together in networks or virtual corporations toward a common goal, if you will, can achieve more as a network than any one company could by acting on its own.
The practice of networks is in operation in Europe, the United States, and Australia. There are a number of efforts under way in Canada, particularly in Quebec, to bring the concept and the practice of networks to the attention of Canadian small and medium-sized businesses. We are therefore joined in this initiative by a broad-based coalition of over 20 other business associations, including the Canadian Exporters' Association, the Economic Developers Association of Canada, SET Synergie Inc., the Aerospace Industries Association of Canada, the Tourism Industry Association of Canada, the Association of Consulting Engineers of Canada, the Canadian Bankers Association, and the list goes on and continues to grow.
Then comes stage four. You've identified the opportunity, you've learned how to take advantage of it, and you've developed the capacity to be effective in the marketplace. But you still run into a final hurdle that has to do with access problems of either a tariff or a non-tariff nature you might experience while trying to get into a particular market. So the fourth plank in our SME platform, if you will, is in the area of public policy advocacy.
We continue to play a strong role in favouring greater transparency and predictability in trade relations, and greater trade and investment liberalization in those areas that affect the ability of Canadians to do business overseas. To that end, we have recently formed an alliance with the Canadian Council for International Business that we believe strengthens Canada's ability to provide Canadian business views into the World Trade Organization and into the OECD through BIAC and the International Chamber of Commerce.
.0915
We continue to meet as an organization and enjoy a strong and productive working relationship with the United States Chamber of Commerce in managing a broad range of bilateral business issues, including matters relating to customs administration in North America. Sometimes we even act on our own, as we did recently in support of changes to Bill C-102, which is currently before the House.
We are able to complement these efforts through the chamber president's role as the Prime Minister's representative to the Pacific business forum of APEC. This year's report to be presented to APEC leaders next week in Osaka includes a number of recommendations and action items focused on SMEs that we have helped to get up and running here in Canada.
By way of conclusion, this summarizes the work of the Canadian Chamber in support of Canadian SMEs in the international arena. Our work is based on an innate faith in the entrepreneurial spirit of Canadians and in their drive and appetite to take advantage of the opportunities opening to Canadian SMEs in an increasingly competitive international arena.
On that note, I will end my presentation.
The Vice-Chairman (Mr. Volpe): Merci, Mr. Page.
[Translation]
Mr. Paré, are you ready?
Mr. Paré (Louis-Hébert): Mr. Page, in your presentation, you mentioned that small businesses are having trouble positioning themselves in international markets. You referred to networking. Could we, in a systematic way, attempt to help small businesses that want a foothold on the international market to do so by being suppliers for large businesses that are already trading on international markets? Would you see a future for that kind of orientation?
Mr. Page: I think that, in concrete terms, that sort of thing is being done increasingly by various industries.
When I referred to networking in my presentation I was not only thinking of SMBs working with other SMBs, but also of the small and medium businesses that want to create links with large businesses. That works particularly well in the automobile and aeronautics sectors. All kinds of international and domestic examples lead us to think that this process contributes to the well-being of SMBs and to Canada's economic growth.
Mr. Paré: In another connection, you do have links with international trade through your members. We have already met with the Manufacturers' Association, various groups, and representatives of government organizations, and we are under the impression that there is a lot of duplication. Do you share that impression and what do you suggest to eliminate the duplication observed in that sector?
Mr. Page: We are well aware that many people from the municipal, provincial, and federal levels, as well as business associations, are active at the international level. The Canadian Chamber of Commerce, is trying, for its part, to include as many organizations and associations as possible among those who would like to work with us.
In my presentation, I referred to the FITT, the Forum for International Trade Training, where, we understand, there are a lot of people interested in working with others, and we've managed to revive a few other organizations, and not just business organizations; I'm thinking of the Canadian Federation of Labour.
We've just concluded an agreement, for instance, with the International Business Council of Canada. It is a big step for us toward greater cohesion and better cooperation among associations that exist for the well-being of their members, after all. Their members have asked us to adopt a more cohesive approach.
.0920
We haven't, of course, done everything there is to do yet. We still have some way to go, both in the public sector and in the private sector.
[English]
Mr. Penson (Peace River): Mr. Page, you've talked about having direct relationships with chambers of commerce in other countries. Does the Canadian Chamber of Commerce have a direct relationship with the German chambers of commerce that are responsible for trade promotion in Germany?
Mr. Page: No, we don't. We have a direct relationship with the International Chamber of Commerce, of which the Canadian and German chambers are formal members.
The German chamber system is somewhat different from our own in that they are public law chambers and every registered business in Germany must be a member of the German chamber of commerce. That provides them with quite a resource base with which they are able to work in ways that we can't even imagine. They do so in close conjunction with their federal government. It's something that both they, the French, and other public law chambers in Europe can benefit from.
Mr. Penson: In fact, the German model would be the equivalent of the trade promotion side of our Department of Foreign Affairs and International Trade. Isn't that the case?
Mr. Page: Yes. The German chamber system is working in close consultation with the German government. They are responsible for the trade promotion activities of Germany. They can only do so thanks to - if you like, if that's an approach that people are interested in - the fact that businesses must register and must be paying members of the chamber.
Canadians don't have that system. We're a volunteer organization. We earn our membership from our members who come to us from across the country and across all industrial sectors. Our members are represented through a federation of local chambers of commerce. It's a very different system.
Mr. Penson: Yes. One of the things that we've heard in our committee is that there seem to be quite a few organizations, and quite a bit of information out there, that small and medium-sized businesses sometimes are a little confused. There are almost too many organizations and they don't know where to turn.
One thing about the German model is that it is concentrated so that there is a German chamber of commerce for Canada, if you like. Have you looked at that as a possibility of where Canada could go in the future in terms of trade promotion so that it's more concentrated?
Mr. Page: My own personal view on this is that there are a number of players out there and our real challenge is to focus on the marketplace and understand what business people require in order to grow and in order to be more active at the international level.
It's less a function of a system, of one system versus another system, and it's more a function of being able to bring people together with people who want to do business together or who want to understand how to do business.
That's very much how we are targeting our response to the challenge that you pose.
Mr. Penson: I'll move on to a different area. In stage four -
Mr. Speller (Haldimand - Norfolk): I'll work on that point just for a second, because the German chamber is a good model to look at. That's what I just heard.
The Vice-Chairman (Mr. Volpe): Do you want to request first?
Mr. Speller: Yes, I want to request first.
The Vice-Chairman (Mr. Volpe): Do you mind, Mr. Penson?
Mr. Speller: Charlie's brought up a very good point. I don't think that the success of the German model is because membership is mandatory. I think the success is because the people who they have involved in the German organization are grassroots business people who have come up through it.
Do you think that model might be applied here in Canada?
Mr. Page: I could debate your assumption there, which I won't do.
Mr. Speller: Yes, that's right.
Mr. Page: I think there are a number of models that are worthy of this committee's examination. The German model is a very centralized one. The German model is probably no less of a bureaucracy than any other one. It just happens to be run by the German chamber of commerce.
.0925
My interest in responding to your question is to ensure that we not lose sight of the importance of the people-to-people contact rather than the systems-to-systems questions. Canada is a very different creature from Germany. It's much bigger. It's much more thinly populated, and I think we need a typically Canadian response to those challenges.
The interests of the business community in Vancouver and the interests of the business communities in Halifax are quite different when it comes to markets, when it comes to sectors. I think we need to ensure that there is appropriate reflection of those distinctions across the country in however Canada decides to develop and promote its trade relations.
I think there is an opportunity here to ask ourselves how best do we want to present Canada as a body corporate internationally. I think that will inevitably bring you to raise questions about the most effective role for the federal government versus provincial government, versus municipal governments, versus trade associations.
We'd be delighted to be part of those discussions, but at this point we're working with what is and trying to do the best with the resources that we have, focused on the marketplace as we've identified it.
The Vice-Chairman (Mr. Volpe): Perhaps you'll want to elaborate on that a little later in a subsequent round, Mr. Speller.
Mr. Penson, you have two minutes left in your round.
Mr. Penson: I have two questions that I want to ask, and the first deals with what you've talked about in stage four of your presentation in regard to the platform you have of trade and investment liberalization and the areas where there are restrictions to Canadian business. Can you identify any of those areas for us that you feel need to be liberalized further?
Mr. Page: We played, we think, a fairly useful role in advising our members on the Canada-U.S. agreement, on the NAFTA agreement, on the GATT agreement, and now on APEC developments. We think in the process we've been able to feed some fairly useful information through to the government as they sat down to negotiate on these agreements.
We're paying attention these days to the discussions within the OECD and within the APEC on a multilateral agreement on investments. We believe that more and more goods trade and service trade is being preceded by investment, internationally. We are focused on intellectual property issues, because more and more we believe that not only is investment preceding trade but so too are transfers of technology and technology arrangements between firms.
The ability and willingness of Canadians to trade goods and services is increasingly a function of their confidence in the domestic investment laws of the countries with which they wish to trade, and the enforcement of those laws, as well as the confidence those companies have in the intellectual property protection rules and their enforcement in those same countries. So those are two issues that are of a bigger scale than the more micro level.
We've spent some time in looking at the customs procedures and administration between Canada and the United States. We've suggested that within the Asia-Pacific region there be greater harmonization of standards and regulations. We've suggested that there be greater ease in business travel within the Asia-Pacific region.
Why? They're not enormous nation-creating issues but they are practical issues that affect the cost of doing business. That's particularly relevant to a small or a medium-sized company that doesn't have the resources to have a person physically located in the country.
So those are a couple of examples that I would offer to you.
The Vice-Chairman (Mr. Volpe): Okay, we'll come back, Mr. Penson.
Mr. Flis.
.0930
Mr. Flis (Parkdale - High Park): Actually, some of my questions have already been exhausted.
You mentioned in your conclusion that your work is based on the innate faith in the entrepreneurial spirit of Canadians and on their drive and appetite to take advantage of the opportunities opening up to Canadian SMEs. That's exactly the group this committee is targeting also.
Where are these competitive entrepreneurial arenas and what are the obstacles specific to those regions? You already mentioned distance to some of the countries. What are some of the other obstacles the SMEs face? Is it just that we can't compete with others in Latin America and the U.S.? Is it financing? What are these obstacles that are blocking these companies from getting into the export market?
Mr. Page: As I understood your question, it's in two parts. The first part is where are the opportunities? The second part is what specific industries are going to be there and what are some of the obstacles they're facing?
Two and a half years ago the chamber reviewed its business in a strategic review, and we concluded that our international focus should be directed at the Americas, particularly Mexico and the United States, for obvious reasons, and the Asia-Pacific region. So that is where we ply our trade as a business organization.
The industries we are working with and those that are in the greatest demand are those involved in infrastructure development. If you look at Asia, it's a project in the making, from airports to harbours to highways to telecommunications to energy. Those sorts of infrastructure requirements are driving the domestic economies in the Asia region up by anywhere from 6% to 12% year over year.
We also believe there is strong opportunity for Canadians in the information technology arena. In that domain you see the successes of, among others, Corel and Newbridge from this city in particular, and the enormous success that Nortel, SR Telecom, Telesat and a number of other players are enjoying.
We also believe the environmental industries' products, services and technologies are real growth areas for Canadians. We've had a long tradition in the environment industry. I think it's now worth something close to $8 billion or $9 billion a year in Canada. We can now market our proven expertise into regions that are trying to answer some of those sorts of questions for themselves.
I've tried to identify some barriers. They must know the opportunities are there, they must know how to take care of them, they must have the capacity to do something and they must be able to access the market. That, in summary form, is what I argued in my presentation.
There are also cultural barriers. It's important that people know - and they do in increasing numbers - that doing business in Kuala Lumpur is not the same as doing business in Minneapolis. There is not only a language difference, but a cultural difference.
We have tried to work within our membership to explain that it's important to do your homework before you leave. In doing so, you improve the effectiveness of the hard-working trade commissioners located in our posts around the world. They're spending less of their time answering rudimentary questions from Canadian businesses that should have had those questions asked and answered before they left, and more of their time in the business we feel they should be in, and that's reaching out to the community they're living in to sell Canada and to collect market intelligence and company leads that can be useful to Canadians back home.
Mr. Flis: Everyone keeps mentioning Asia, Latin America, etc., but since the collapse of the communist system in eastern Europe, many groups in Canada are forming their own chambers of commerce - the Canadian-Bulgarian Chamber of Commerce, the Canada-Ukrainian Chamber of Commerce, etc. We had a presentation here from the Baltic Business Council. Are these part of your membership? Are you the umbrella organization for these also, or are they totally separate from your chamber?
.0935
Mr. Page: We have limited resources and great demand. Therefore, through our strategic review, we have channelled our limited resources to the Asia-Pacific and to the Americas, in particular the United States and Mexico. We do not have any direct relationship with chambers in the Baltics or in former Soviet republics.
We are being invited on a regular basis to meet with parties, both para-public and state, from the region, and we accommodate them as best we can. But we have had to target our resources to those areas where we believe there is the greatest immediate opportunity, so that's why we've picked the Asia-Pacific and the Americas.
[Translation]
Mr. Paré.
Mr. Paré: In the past, the Canadian Chamber of Commerce did identify the Canadian debt as a barrier to economic growth. Many people agree with you.
On the other hand, your members do benefit from the services of Crown corporations that are involved in the international trade arena. How do you feel about the user pay concept?
Mr. Page: May I respond in English?
Mr. Paré: Yes.
Mr. Page: The technical terms sometimes escape me in French. I don't want to make a mistake and mislead you.
[English]
In addressing the question of concessional financing, the work of EDC, the work of the Canadian Commercial Corporation, the PEMD and the ability of Canadian small companies to benefit from federal moneys to attend trade fairs and develop marketing plans, it would be wise to reflect on what other countries are doing and what our competitors are being offered.
While the Canadian chamber has drawn a hard line on subsidies to business, for instance, we also recognize - and I hope I'm not stepping outside of the family line on this - that if our competitors are benefiting from concessional financing packages and as a result we are losing contracts we otherwise would have won on merit, price, quality and service, then we have to be prepared to stand up and do something about that.
Our argument as an organization has always been that we should be seeking much greater international discipline in the use of concessional self-financing tools by domestic governments, for one very good reason, if I may be a little bit flip. We can't compete with the national treasuries of a lot of our major competitors, and we shouldn't have to if we have entrepreneurs and business people who have the skills, the products, the services and the wherewithal to win contracts.
I guess I'd like to answer your question in that way.
[Translation]
Mr. Paré: Weren't the Uruguay Round and the World Trade Organization set on eliminating tariffs and subsidies because there was a type of subsidy horse-race going on where no one was the winner? In spite of the WTO, everything continues merrily on. You say that to compete with the others, the Canadian government must do the same thing. What good are international rules if no one follows them?
Mr. Page: I tried to reply to your question in two ways. Firstly, I underlined the importance, for Canada, of keeping to a hard line where subsidies or concessional financing are concerned. But as long as they exist internationally, we are going to have to have them, too.
.0940
[English]
I didn't mean to suggest that we should turn our backs on seeking greater discipline on the use of subsidies, nor did I say we should be turning our backs within the international arena. In the Uruguay Round we were not as successful as many people would have liked on the issue of subsidies. There are a lot of very particular issues related to that, both within the international community and within the Canadian community.
Clearly, as an organization we are pushing for a more transparent and a purer environment, because that will help the small players. The big players know their way through government regulations and they can afford to go over the hurdles or around the hurdles. The small business guy runs smack right into the hurdle and it knocks him or her right out. To the extent that we can work within our organization to encourage greater discipline on the use of these trade remedy measures, I think small business will have a greater chance to grow.
I might add, if I could, that the work we're trying to do with our counterpart organizations in Korea, the Federation of Korean Industries, in Taiwan, the Chinese National Association of Industry and Commerce, and in the U.S., the U.S. Chamber of Commerce, is all leading in that direction. We find that our most effective approach in dealing with the positions of foreign governments is to help the business people in those foreign countries understand how their own domestic legislation is affecting their ability to do business with us and be competitive internationally as well.
The Vice-Chairman (Mr. Volpe): Thank you, Mr. Page.
Mr. Lastewka.
Mr. Lastewka (St. Catharines): How long has the Aim for a Million program been going on now?
Mr. Page: Aim for a Million was a project that started about two years ago. It had its spotlight for a full year, and now from that Aim for a Million project we have been rolling out other initiatives.
Mr. Lastewka: What were the results of it? What goal did you meet?
Mr. Page: Our goal was to ensure that Canadians understood some of the challenges business people faced in creating jobs. Our job in that respect was to understand from our members where they felt changes needed to be made and then communicate those to the federal government.
Mr. Lastewka: Did you meet a million? Did you meet 500,000? Were there records kept?
Mr. Page: We didn't keep any records. Our job, which is our job in general, was to try to improve the operating environment across the country within which businesses are investing and hiring and growing.
Mr. Lastewka: A number of witnesses we've heard from, the SMEs and so forth, have talked about either duplication and overlap or clutter where they work from because of the chamber, the Manufacturers' Association in some areas, the Export Association and other associations.
What is your feeling on the duplication and overlap, maybe for the small and medium-sized business person who has limited time to be searching for assistance and so forth? I visit small businesses on a continuous basis. I'm finding out from them that there's just so much clutter there. Is there anything being done to remove the clutter, to assist the SMEs?
Mr. Page: In my presentation and then in the response I made to a question from Monsieur Paré, I said that we as an organization are trying to do something about that through the creation of our FITT program. We brought seven different organizations around the table. That's not an easy job, I might add.
For the small business networking initiative we have upwards of 25 organizations now working around the table with us and we're headed for 40, which is our objective. We are doing so because we believe being inclusive is much more productive than being a lone soldier in these things.
We also believe our priority is the business community. As a volunteer organization, we live and die by the strength of the value that our members believe they are getting from membership with us, and if we venture down paths they don't like, they'll quit. If they like what we're doing, they'll join and remain members.
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So we're doing our bit, I have to say, to the extent that we can and with the resources we have, to bring a greater commonality of interest and delivery to business people. We're making sure that what we're doing as an organization fits with the mindset and the needs of the business members we have.
Mr. Lastewka: What is the total membership of the businesses now in the Canadian Chamber of Commerce?
Mr. Page: We have 170,000 members, who are members of 500 local chambers of commerce and boards of trade. We have a separate corporate member category, which is not part of the 170,000. We also have, within our loose affiliations, some 90 business and trade associations.
On that point, I'm not arguing that they are members of and endorse everything we do. We have an informal working relationship with more than 90 different trade and business associations, like the Toy Manufacturers' Association, Tourism Industry Association, Mining Association and Retail Council.
Mr. Lastewka: How many of your members would be manufacturers of products? What service do you provide to the manufacturers of products?
Mr. Page: I don't know how many manufacturing members we have. Our service offerings to our membership on the international side, which is the area I'm responsible for, includes the certification of documents. It also includes the provision of the ATA Carnet system, which is a merchandise passport that allows a business person to bring a product into a foreign market for either demonstration purposes or for use, but not for sale. We find that's a very helpful service that we can offer to manufacturers and service providers alike.
Mr. Lastewka: I understand that from the marketing side; it assists them to do international marketing.
I want to take you back. What work does the chamber of commerce do in developing manufacturers in Canada, if any?
Mr. Page: I'm here to report on our initiatives on the trade development side internationally.
If I were to shift one seat sideways and comment on what we're doing domestically, our focus is principally on the public policy advocacy front, in which we are trying to improve the operating environment by reducing the debt/deficit challenge by focusing on the regulatory environment and labour issues in a manner that makes it easier for employers, be they manufacturers or service providers, to do business.
The Vice-Chairman (Mr. Volpe): That's really helpful for manufacturers or suppliers on the export side as well, is it not?
Mr. Page: We think that the Forum for International Trade Training is extremely useful. We hope that the small business networking initiative that I suggested to you today will be extremely useful for them as well. I'd be pleased if members are interested in spending another moment on that. All of these efforts are targeting what we believe to be some of the core impediments that smaller players face in trying to grow and do business internationally.
Mr. Penson: I just wanted to refer you to the survey that you did of your members. I'm not sure if it was that Aim for a Million program, but a survey of your members a while back identified two or three of the top problems that Canadian businesses see as barriers to job creation.
Number one is Canada's fiscal situation. Number two is access to capital. Number three is reducing the cost of doing business in Canada.
Given that's what your members are telling you, wouldn't it be of some use to have the Canadian Chamber of Commerce explore other methods of trade promotion, as we had talked about in the earlier question?
.0950
Given that there's a very high cost to trade finance, trade export insurance, and trade promotion itself that the government provides, therefore providing part of our problem with our debt and the high cost of doing business through our taxes, I'm just wondering if you could.... It seems to me as if you're arguing both sides of this thing. You want the government involved in trade promotion, trade credit, export credit, and yet to lower the cost of doing business by reducing taxes and Canada's overall fiscal situation, getting our deficit down and debt reduced.
What would your comment be to that?
Mr. Page: If you're asking me whether I think the federal government's trade promotion initiatives are helpful to expanding Canadian business abroad, I would say yes. If you were to ask me whether I thought there was room for greater cooperation and partnership with the private sector in the provision of some of the services and programs that are delivered by the federal government, then I would also say yes.
There is lots of evidence internationally to suggest that business and government work in close consultation in some of those markets where we are trying to be competitive.
So I'm not before you today arguing that we should throw one out and adopt another. I'm here suggesting that there are elements of the work we do and elements the work the manufacturers do, and probably elements of the work others do, on which we should be focused, and trying to bring those parties together and ensuring that they are working in the most effective and cohesive manner possible. In my presentation this morning I've tried to suggest some of the areas in which we have particularly targeted our resources to achieve that objective.
Mr. Penson: I refer you to EDC, as an example I would use, which has a non-performing portfolio over there of about $2.5 billion. I think we wrote down about $300 million of EDC loans last year through the Paris Club. That's a real cost to the Canadian taxpayer and to your businesses that you represent.
I'm a little bit surprised that the chamber wouldn't take more of an initiative to have private sector trade promotion, because of the very things that your members are telling you: that there's a very high cost of doing business. Those kinds of things that we talked about with EDC contribute to that. Every time you have to write down $300 million, that increases the cost of doing business for your members.
So is there not some room to be exploring this private sector initiative in trade promotion?
Mr. Page: In focusing a response on the EDC and its relationship to the fiscal environment in Canada and to its service to the business community and its responsibility to the Minister of Finance and the Government of Canada, I understand that a fair amount of work is already going on between the EDC and the Canadian banking community, and much of that work is being spearheaded by our friends at the Canadian Exporters' Association.
I know that some strong words have been expressed between those running EDC and those involved in the Canadian banking community. EDC is attempting to provide a service. In certain cases the banking community believes that it is providing a service that the banking community could provide.
In expanding on that for a little bit and returning to the part of the question I think I forgot to answer with Mr. Paré, the Canadian chamber is on the record as supporting a fee-for-service sort of program in service delivery. Our question would be - and I pose it to you because we don't have an answer for that within our organization yet - how much fee is appropriate, and at what point does the provision of a service for a fee by a public sector organization start to compete with a service that is being or could be provided by a private player?
So I'm in favour of a fee for service by the public sector, but ask yourself the question: at what point is that fee either subsidized by the public sector, thereby displacing potential private players in the marketplace, or preventing them from getting into it in the first place?
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Mr. Penson: I'm suggesting that one of the private players could be you. You could take over the area of Canadian trade promotion that's being provided by the department now, much like the German model we talked about earlier. There are different methods of providing that service. We happen to use mainly the Department of International Trade model, but the German one is a private sector model, where they get about three times the dollar value in exports for about one-third of what it costs us in Canada.
Maybe that's something your organization should be looking at very carefully, as a way of reducing the cost to your members of doing business in Canada.
Mr. Page: I take your point.
The Vice-Chairman (Mr. Volpe): Thank you, Mr. Page.
Mr. Lastewka, do you want to go another round?
Mr. Lastewka: Yes, I'd like you to provide more information on the Ottawa-Carleton manufacturing network you mentioned. I continue to stress this area because I see a lack of assistance to manufacturers, especially small manufacturers. I also want to understand a little bit more about your involvement in Bill C-102.
Mr. Page: The project called small business networking has as its objective to convince the small and medium-sized business community that by working with other like-minded companies, they can achieve more as a group than anyone could on their own. I'll give you two very quick examples.
Three technology companies get together at a Canadian chamber breakfast meeting. They understand that there's a real opportunity for them in Mexico, but there's no one company that is strong enough to take a real run at the Mexican market. They also realize they are each very small, but each has its own administration department and own purchasing department. So they agree as a group to jointly purchase stationery, thereby reducing the operating costs of each of the individual companies.
During the course of their relationship they build greater confidence and trust in each other, and move to join marketing efforts. Technology company A is going to Boston for a trade show and brings marketing materials for companies Y and Z, because company Y is going to Los Angeles next week and has prepared to take the materials for A and Z. That's one way of explaining one type of network that can develop.
You might also find a small manufacturer that has a great widget but doesn't have a lot of financial acumen. It doesn't really know how to market its widget. Again, they meet at this Ottawa-Carleton Board of Trade breakfast, or Chicoutimi Chamber of Commerce luncheon and realize that each of them on his or her own doesn't have what it takes to get into an international arena. The finance person has finance skills, but doesn't have a product to finance. The marketing person has marketing skills but doesn't have a widget to market. So they come together in what we're calling networks or virtual corporations to achieve that objective.
The Vice-Chairman (Mr. Volpe): Mr. Page, regrettably our time is exhausted for this particular session. On behalf of the committee, I thank you for coming with us and sharing some of your observations and thoughts on this topic. They will serve us well, I can assure you. I thank you very much.
Mr. Page: My pleasure.
[Translation]
The Vice-Chair (Mr. Volpe): For our second topic, the assessment of programs designed to help businesses expand internationally, we have with us Mr. Jean-Marie Toulouse, Director of the École des hautes études commerciales of the University of Montreal, and Mr. Philip Rosson, Dean of the Faculty of Management of Dalhousie University.
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[English]
Colleagues, Mr. Toulouse will focus on the export strategies of Canadian small and medium-sized enterprises. Mr. Rosson will talk to his evaluation of trade fairs and the Trade Commissioner Service.
We haven't had an opportunity to meet each other formally or arrange who shall speak first. You can speak in the order you are listed, if that's acceptable to you. I merely suggest if you can keep your remarks within that 10- to 15-minute range, preferably to 10, we will have more time for questions by colleagues around the table.
Mr. Toulouse.
[Translation]
Mr. Jean-Marie Toulouse (Director, École des hautes études commerciales, University of Montreal): Good day, ladies and gentlemen. It is a pleasure for me to be here to share with you a few of my thoughts on the exporting behaviour of small and medium-sized businesses. In the ten minutes I have been given, I will try to summarize the remarks contained in the brief I sent you, which I hope you have received.
Essentially, my topic will be the export strategies of SMBs. I have divided this topic into three parts.
Firstly, as I tried to bring out in the text, export strategy is not generic, but obeys laws and rules that are specific to each industry. To illustrate that thesis, I summarized the results of a study I carried out jointly with Danny Miller, a study which is almost complete, on four industrial sectors: auto parts, machinery, non-ferrous metals and aerospace.
If you read the summary of those results, you will see that decisions concerning exportations are not at all the same in all four cases. You will also note that the decision to export is not one where businesses decide to export... [Inaudible - Editor] ...the business.
Basically, I drew three conclusions from our research which I would like to emphasize. In each of those four industrial sectors, the decision to export is not perceived by CEOs as vital to their firm's competitiveness. That is extremely important. The fundamental objective of this study was basically to see what elements most influence businesses' competitive capacity, and we note that the decision to export is not related to a business's competitive strength.
Secondly, in the non-ferrous metals industry, the most important decisions to develop competitiveness are related to operations, and this is also true of the auto parts industry. Those decisions are made locally. So, before exporting, your operational base must be excellent. If you are not excellent operationally, you will not be able to export.
Thirdly, exports do not help businesses increase their competitive capacity. Exports are not, for them, a way to improve their competitiveness.
That is the first point I wanted to speak on.
Secondly, export strategy is based on incremental decisions and can be learned, with the exception of small technological businesses where the export strategy is one of the conditions of the business being created.
Since this is a bit more complex to demonstrate, I used three studies, one of them bearing on the export behaviour of Quebec and Ontario SMBs. This is a study I am completing with Jerry Haar from the North-South Center of Miami University; it is based on the behaviour of Quebec and Ontario manufacturing businesses chosen from a list of businesses that already export. I will speak about that study somewhat more at length because it might be of more interest to you than the others.
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The first observation taken from that study is that the ratio of export sales to total sales is 43% for the Ontario SMBs and 33% for the Quebec SMBs. Over the past three years, that ratio increased by 56% in Ontario and 42% in Quebec. The ratio of profits from export sales to profits from total sales is 39% for the Ontario SMBs and 36% for the Quebec SMBs.
The exporting SMBs sell their products to more than three industrial sectors in Canada but to only one abroad. The learning curve goes someway to explaining that.
The exporting SMBs manufacture standard products and offer custom-made products for export to international markets. They offer custom-made products on international markets and standard products on the domestic market.
The exporting SMBs in Quebec favour the manufacturing agent approach more than do the exporting SMBs in Ontario.
The exporting SMBs in Ontario consider that their cost of service in export markets is lower than that of their competitors, while the reverse is true for the exporting SMBs in Quebec.
The exporting SMBs in Ontario state that it is easy for them to finance their export activities, while Quebec SMBs are silent on that topic.
Thirty-six per cent of Ontario SMBs and 45% of the Quebec SMBs state that it is easy to use the provincial export assistance programs, while 16% of Ontario SMBs and 34% of the Quebec SMBs state that federal export assistance programs are also easily accessed.
Those results confirm that exporting behaviour reflects the logic of behaviour on the local market. SMBs expand on the local market, and then proceed to export. That is what we mean by an incremental decision. It is in that sense that export strategy is an extension of a business's skills, not the reverse. However, we note that the Ontario SMBs seem to find it easier to establish export strategies.
Next come the results of the study of the export behaviour of SMBs in southern Italy. You may find that I chose my example somewhat far afield, but I chose it because it was a study of SMBs working in sectors that are often characterized as losing sectors, or soft sectors. Those are leather, shoes, food products, tomatoes, olive oil.
Those sectors are not as glamorous as computers, but, be that as it may, there are companies in them that export. What is interesting to note in that study is that export behaviour of SMBs depends on position in the local industrial structure.
What that means, essentially, is that if you are an exporting company and you sell your product to a large business which then sells it on the international market, as an SMB you will not extend your exporting behaviour for the simple reason that you'll be too far away from the markets. In other words, if there is an intermediary between the SMB and the final market, the SMB's export behaviour will not generate learning. I would like to conclude on that point because I think it is important.
The third study I want to mention involves the exporting behaviour of new technological SMB's. In that study, we show that technological SMB's, contrary to other small and medium-sized businesses, do not decide to export and expand their business, as exports are a factor for them right from their inception. In other words, you are born as an exporting SMB or not, period.
In that study, for instance, we note that right from the outset those SMB's export between 60 and 90% of their products to foreign markets, and compete with a small number of other companies in many countries. You might have seven competitors, for instance, one per country. Sometimes there are two in the United States and the others are in other countries. That means a type of competition and exporting behaviour that is quite particular to those companies. Those high-tech SMBs are to be found especially in the health, computer, and optic sectors.
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Since my time is almost up, I would like to make a few comments on the matter of programs and policies, since I expect that is why you are gathered here.
The studies I have been discussing, and which are in the brief, lead me to draw your attention to five conclusions.
The first conclusion concerns the universality of policies. All of these studies indicate that the exporting behaviour of SMBs varies from one industrial sector to another and that, within a given industry, it varies also according to the company's position in the sector's industrial structure. That conclusion invites you to distance yourselves from policies promoting programs and standards applicable to all industries.
The second conclusion concerns the objective of setting a policy on SMBs' exporting behaviour. You must ask yourselves what you are doing and why. Is the objective to increase the number of exporting SMBs? Is it to increase the number of countries to which SMBs export? Is it to facilitate the growth of SMBs and, if so, does exporting ensure growth, etc.?
In answering those questions, there are some political choices that are yours to make. Allow me to point out to you that the studies suggest that your objective should be to make SMBs more competitive. Companies export because they are competitive, not the reverse. Exporting is not the way to improve competitiveness; the reverse is true. If you don't know how to compete, you won't know how to export. Exporting will not improve a business's competitive capacity.
My third conclusion involves the target group for an export- assistance policy for SMBs. The results of the studies invite you to identify the policy's target group clearly. In other words, will you be targeting micro-, small, or medium-sized businesses?
With the exception of high-technology industries, all indications are that middle-sized businesses selling directly to several markets should be the target group; they are most likely to learn gradually to export.
My fourth conclusion involves the crucial nature of the process of creating knowledge. For technological SMBs, the process of creating knowledge is the essential variable. The more intense the research, the greater the probability of the emergence of projects that will market knowledge. Thus, if increasing exporting behaviour in this field is an objective, support for research is an imperative.
In Canada, leading-edge research is done either at the universities or in approximately 50 large businesses. Export assistance for technological SMBs, then, means assistance for university research.
Research, particularly in Italy, is drawing attention to the importance of the education of owner-operators of SMBs as a factor. It can be said that the level of schooling is one variable that affects exporting behaviour. Consequently, if developing exports by Canadian SMBs is an objective, you must develop your learning institutions. That kind of investment would generally translate into a greater propensity to export.
I will conclude by making a suggestion that may be a bit annoying, but I think that it needs to be made nevertheless. I remind you that where exports are concerned, as in other areas, especially where SMBs are involved, the central person is the entrepreneur. He or she plays the central role and may in fact have the only crucial role.
The literature on the decision to export identifies as important the following factors on business owners: owners' previous experience, education, personal commitment, and management style. Those four variables are related to the exporting behaviour of small and medium businesses.
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It is the business owner who decides to initiate exporting behaviour by SMBs. Thus a policy on exporting behaviour by SMBs must first target business owners. Addressing business owners means that you must answer the following two questions: how do business owners learn to export, and how do they succeed in creating entrepreneurial SMBs?
These questions are beginning to be studied, but we already know that business owners learn through doing and through contacts with persons they respect. We also know that business owners' innovative methods and management styles are crucial to creating entrepreneurial SMBs, which demonstrate greater capacity for success in exporting.
In conclusion, I wish you good luck in your reflection, and I hope that my remarks are of some use to you.
The Vice-Chair (Mr. Volpe): Thank you very much, Mr. Toulouse. Not only were your remarks useful, they were also very interesting.
[English]
You probably have seen me undergo a name change. I really haven't, but the chair itself will experience a different body in a moment. So I don't want you to feel distracted, Mr. Rosson, as you go on to your presentation.
Dr. Philip Rosson (Dean, Faculty of Management, Dalhousie University): I'm going to speak about two facets of international trade in Canada that I believe are very important to small and medium-sized enterprises. These are international trade fairs and the Canadian Trade Commissioner Service.
What I'm going to say to you today is based on research in which I've been directly involved over the last number of years. Like those of our last speaker, these are comments based on research, rather than general statements through observation.
I'm not going to repeat the paper, which I believe you have. I'm going just to summarize some of the main points and then leave time for you to ask questions if you're interested in doing that.
With regard to international trade fairs, I would like to make the point that these are tremendously important vehicles for companies to become involved in foreign markets or to consolidate their position in markets in which they're already operating. Companies recognize this, and I think it's true to say that they are allocating increasing moneys to exhibiting at trade fairs around the world.
Trade fairs serve many different purposes for companies. Historically, I think they've been viewed as vehicles for promotion and also for selling. More recently, I think it's fair to say that trade fairs are seen as being venues at which almost any kind of business activity can be conducted, all the way from doing market research to generating ideas for new products to finding distributors and so on.
If you read about trade fairs, most books and most articles provide only a glimpse of what is possible at a trade fair. I believe that companies understand trade fairs much better than writers, including many academics who have a very narrow view of what trade fairs offer.
So, first, they serve many very different purposes and companies going to trade fairs might have quite different objectives.
These might be to do market research. They might be to find distributors. They might be indeed to get leads that they expect to turn into sales after the trade fair.
In very few instances are trade fairs actually venues at which sales are consummated during the few days in which the trade fair takes place. They're mostly about making contacts and learning and developing ideas that can be actioned later.
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Trade fairs do not cost a great deal of money for the average Canadian company. A few years ago I would have said to you the average cost of exhibiting at a trade fair would be around $20,000. My most recent research suggests that cost is creeping up. Like everything else, costs are increasing in this field, and of course the weakness of the Canadian dollar has made exhibiting in many parts of the world, particularly in Europe, more expensive in recent years.
My most recent study suggests the average was about $38,000 at one world-class trade fair in Germany. So these are not very expensive activities, but they are tremendously beneficial activities. By and large I would say companies get very good results from trade fairs, but that's taking the average view.
If you look at companies' results from trade fairs, it's also true they vary tremendously. Some companies achieve no sales whatsoever for as much as twelve to eighteen months after the trade fair. It's fair to say the partnering and adjusting of operation that takes place as a result of exhibiting at a trade fair is seen these days as being perhaps more important than just thinking about sales.
Our previous speaker spoke about learning. It's very true that trade fairs enable companies to learn a great deal about markets and industries and what it takes to be competitive in those various arenas.
So on average companies do quite well, but there are some that do very poorly. In one of my studies I found that more than half of all companies exhibiting with Canadian federal government assistance made absolutely no sales for as much as twelve or eighteen months after the exhibit took place, as I said earlier.
If you look at the average benefit cost ratio, it's very high, but again, I do want to point out this is a mix of some companies doing very well, others doing very poorly and then some doing pretty well. It is fair to say that the performance of companies, measured in strict sales and cost terms, varies tremendously.
Governments and their programs do need to look very seriously at this. We need to ensure that the companies that go to trade fairs are very well prepared so their chances of success are fairly good.
That, in summary, is what I have to say about trade fairs. There is a lot more detail in the document I have provided, but I don't want to get into great detail in this presentation.
The second subject I wrote about and that I've done some research on recently is Canada's Trade Commissioner Service. I'm sure the committee has talked about trade commissioners very often during its deliberations. These are the people on the front lines of the government service. These are the people who interact very closely with Canadian business. These are the people who often make a very big difference between companies becoming involved in foreign trade and companies becoming successful in foreign trade. That's not to suggest they make the difference between winning and losing, but they play a very instrumental role.
Our Trade Commissioner Service has been called the best in the world, but in the 1990s we've seen growing concerns about the effectiveness of this Trade Commissioner Service. These are views businesses have expressed, but they're also views many trade commissioners have expressed about what they're able to do as trade commissioners.
A year or so ago I conducted a study of the Trade Commissioner Service. This was to prepare a paper, which was discussed during the centenary celebrations of the Trade Commissioner Service. I surveyed a wide number of documents that had been focused on the Trade Commissioner Service, either wholly or in part. I also conducted extensive interviews with practising trade commissioners, both in Canada and in a few overseas locations.
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I think the effectiveness of the Trade Commissioner Service does give some cause for concern. What I discovered from doing the research I did was that there seemed to be two main factors that really were causing people to question its effectiveness. One main factor has to do with the workload of trade commissioners, and a second factor has to do with the expectations of business regarding service quality not fully being met. I want to speak about each of those two factors in turn.
When I talked about the work overload question, what I discovered was that over the last number of years an increasing amount of money has been allocated for trade programs at the same time as the operating funds for running these programs were in decline. The Trade Commissioner Service is very instrumental in this. In effect, what we have is more money to do things but less money for those things to be actually carried out.
This was also a period of increased company interest in international trade. More and more companies are coming forward, in part because there are more funds available but largely because they're being exhorted to compete in international markets. In many cases, Canadian companies have to go overseas just to be competitive at home.
Another work overload factor has to do with the fact that there are something like 17 or 18 federal government departments that play some role in trade. Because the trade commissioner is really in the trenches, he or she is very much affected by this great government organization involvement in trade, investment and tourism as well as in scientific and technological developments.
Finally, I would point to the fax machine as a kind of curse for the Trade Commissioner Service, because really what it means is that these people are immediately accessible to almost anyone who wants to access them. Not only has the fax machine made them more accessible, but I believe it's also created differing expectations. Now when people send faxes, they almost expect a response the next day, whereas in the more genteel times when we used telex machines, people were conditioned to think about getting a response in two or three weeks as being a very good turnaround.
In the document I have provided, I do point out some of the ways that these problems of workload might be dealt with. I think we can pick those up in the question period, if you wish.
I'll go on to the question of service quality expectations not being met. Of course, it's not surprising that with the conditions of a heavier workload and fewer people there to carry out the work, service quality has declined.
I think one of the main concerns of business, as well as of the trade commissioners themselves, is that they see fewer and fewer of their fellow officers actually being in the field overseas. More of these officers seem to have congregated in Ottawa over the last decade. I think there is a wish that there be more trade commissioners actually working overseas in missions and working with business in those foreign markets.
There's also some question that the service expectations of business are not being met. It's said by business, and also by some trade commissioners, that they lack the necessary business acumen to be of tremendous benefit to companies. I'm not sure if this is an old or a new complaint. My guess is that it's a new complaint and that it has to do with the fact that business is increasingly complex these days.
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Whereas in the old days there were a few ways in which trade was transacted, today there are many different ways in which it is transacted. In the old days it was really exporting sales that the trade commissioner helped to develop. Today, as I've indicated, the trade commissioner is expected to be an expert on trade, on investment, on science and technology agreements and exchanges, as well as very often in the area of tourism. So the trade commissioner is being asked to be an expert in more areas.
Also, with Canada increasingly targeting technology sectors as sectors for development, there's all of the technology knowledge that really is necessary in order for a trade commissioner to be effective in the field. Many of us are quite perplexed; we find it very difficult to understand technology. We see a box and we know what it does, but in promoting a Canadian company that is selling one of those boxes you need quite a bit more knowledge about what's inside the box and why our box is different from theirs. This complexity of business and technology is a factor contributing to the idea that our trade commissioners don't know enough to be able to service companies.
Clearly, there are ways in which this can be dealt with, and I believe the Department of Foreign Affairs is doing that. I'm sure it will need to take more action in the future.
Another problem about service quality goes back to the universality of treatment that Canadian trade commissioners are expected to provide to companies. Every inquiry has to be answered. Many inquiries are spurious; many inquiries are badly thought through; many companies really don't make intelligent use of trade commissioners. So with this growing access and growing number of companies that are using trade commissioners, I would say, with some emphasis, that there is a great deal of....
I'll use the term that the trade commissioners use: they talk about garbage traffic. A considerable amount of demand is put upon the trade commissioner's service that shouldn't be there, and this, because all these inquiries have to be responded to, tends to reduce the amount of time that could be spent on the very hot inquiries and the very well qualified companies that are seeking assistance.
So the Trade Commissioner Service really needs some direction in the area of priority setting, in the area of filtering out the companies that really are not very well prepared for exporting and really shouldn't be taxing the system.
Informally, trade commissioners do this already, but it would be preferable for there to be formal rules about what kinds of criteria and what kinds of qualities companies should show in order to be able to use the Trade Commissioner Service at all.
I think we are facing a bit of a crisis, and we need some different ideas about how to use this very valuable resource.
There is more in the document, but I'm going to stop there because the clock is ticking. I'm sure that you would prefer to ask questions, rather than to listen.
Thank you.
The Chairman: Thank you, Professor Rosson.
[Translation]
Mr. Paré.
Mr. Paré: My first question is for Mr. Toulouse. I must say I was very interested to hear the point of view of two academics. It was quite different from what we've heard until now.
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I was wondering, Mr. Toulouse, if the conclusions you referred to, which are based on research, are known to the Crown corporations that work in the export sector. That seems important to me because I am under the impression sometimes that we are flogging a dead horse. If the businesses that want to export don't meet the criteria you referred to, it seems to me there is a problem there that we should know about at the outset. Are the Crown Corporations aware of your conclusions?
Mr. Toulouse: I can't answer you. I don't know if they are aware of the conclusions drawn from those studies. I would be tempted to say that some people within those corporations are aware of them. But one must be very careful. The dynamics of research aren't necessarily the same thing as the internal dynamics of programs. Programs have many qualities, but they generally have one fault: when you are a program administrator, you want to obtain results that correspond to the objectives of the program on which you will be evaluated. Research does not get very good press in that type of environment. Program imperatives will generally triumph over research results.
Mr. Paré: I got the impression that the organizations that appeared before us were seeking the best means of encouraging businesses to export, as well as the best strategies. Aren't there prerequisites?
Mr. Toulouse: Indeed, it's very clear. When I said that, in conclusion, I drew your attention to the role played by the business owner. Obviously, the role and the behaviour of the business owner are a prerequisite. Experience in the field and research results are sufficient, as you heard in what I and my colleague said. If the entrepreneur himself is not at the centre of the decision to export, sooner or later, someone's trip to Milan will be nothing but a tourist trip. It's all well and good to go to the Milan fair to see lights and lamps, but that won't necessarily turn lead a business into an exporting business. It might be a useful element, a triggering element, but things have to go further than that. The entrepreneur himself is the key, and he or she will make things go further.
The second key, and I want to emphasize that, is the business's competency. A business that isn't good enough to compete on the local market cannot export. If it tries, between you and me, it will get eaten up. It's that simple. Even if you want to export, if you can't compete, you are only going to do one thing: you will be revealing your weaknesses to competitors who are stronger than you are. And they are going to wipe the floor with you at the first opportunity, that's certain! In fact, some small businesses should not even try, because they are going to get swallowed up, that's obvious.
Mr. Paré: I have a brief question for Mr. Rosson; it is related to what's been said. Shouldn't the assistance the Canadian government provides to SMBs to allow them to take part in international trade shows reflect the conclusions of your study? Are we sending people abroad as tourists instead of sending business people who already meet some minimum criteria, as they should if they are to have any chance of success?
[English]
Dr. Rosson: Yes, I do believe that most companies chosen to participate in government-organized and government-assisted trade fairs do in fact meet those criteria, but I have written some case studies about trade fairs organized by the federal government and I know that sometimes the companies exhibiting are not the best advertisements for Canada.
I should say that there is fault on both sides here. For example, let's say there is a stand with 50 spaces for companies; in order to organize that stand and for it to be a good advertisement for Canada there are certain deadlines that have to be met by which time Canadian companies have to have paid deposits, provided information for catalogues, and indicated various things. I have to say that my research shows that many Canadian companies are terrible in terms of meeting those deadlines and providing that information.
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If you look at some of the files on these fairs, you will find that they're very fat. They're very fat because the government officer who is responsible for that fair is sending six and seven faxes to try to pull necessary information from companies.
So what you have is a project that has to be managed, and its very difficult for the government officer to manage it because companies are very difficult to deal with. Very often you have companies that have asked for space and then two months before the fair they say that they've decided they're not going now. And so all of a sudden your stand only has 40 companies on it when you've budgeted for 50.
So what happens is that very often companies are being added at the last moment, because the spaces have to be filled up, and the companies are either not the best in the sense of being export-ready, or else they....
What I'm trying to say is that there is a problem in many respects, and business has a lot to answer for, I would say. I am sometimes critical of government, but I have also to be very critical of many businesses that are very slipshod and very ineffective in the way.... This doesn't really say very much about their chances when they get to Leipzig or to Tokyo. If they perform that badly just getting the paperwork done, what can you expect about their chances of success when they're in a very competitive foreign market? I think there are many problems.
Mr. Mills (Red Deer): I have several questions, mainly for Mr. Rosson. Following from where you were just at, obviously I would question whether government should be in those kinds of situations where one has to ask whether business would go if it weren't for government being there. I've participated in a number of international trade fairs, and it seems to me that the bigger they are.... It's getting so now that you have to be big, you have to have a hook, you have to spend a lot of money to really do the job right, and I fully agree with you that sometimes some of the Canadian exhibits are such that when you go by them you wish they'd take Canada off their promotion.
The other problem with trade fairs, as I see it, is the dilution affect. There now seem to be more and more and more, and the dilution now occurring even furthers that problem. That isn't really the question. That's more of a comment, and I wonder if you agree with it.
In terms of trade service, we've asked a number of businesses...and Mr. Flis and I traded asking the same question of a number of the people appearing here earlier. I asked them to rate the trade service and how good a job they were doing - rate them from zero to ten or whatever. A number of them said they didn't need the trade service, that they could go to their market and they could get it. They knew what the market was. They had the expertise, and they could do it, even smaller businesses.
The problem, then, is if that's true - and I think most would agree that it depends on what part of the world they're in. Obviously in dealing with China or Europe governments have different status and there's greater necessity. But the real thing comes down, if I had to evaluate it, to the trade commissioners themselves. Some are good. Some are not good. Some do have the contacts. Some don't have any contacts. Why doesn't the trade service have an evaluation form from business so that they can actually score their trade commissioners, and so that they know who's doing the job and who isn't, and have some credibility there? Have your studies indicated that same sort of finding that I'm indicating to you?
Dr. Rosson: Let me very quickly try to answer all of your points. I think the first point you made had to do with trade fairs, and you said you have to have a big exhibit to do well. I don't think that's true. The typical size of a stand, the smaller size, is 10 feet by 10 feet. You can be very successful with a very small stand. I don't believe you have to be big.
.1045
You said there are lots of trade fairs. That's right - and there are more each year. So you have to be very careful about choosing which ones to go to.
My work suggests that small companies find the Trade Commissioner Service, in general, to be tremendously helpful. If companies are saying to you that they know exactly what to do and where to go, then you've probably been seeing the best companies, because many companies don't have a clue. They have an idea that they're competitive, they have an idea about a market, but they really don't know very much. I find that a lot of exporting companies and entrepreneurs are very unsophisticated. In fact, my students are much more sophisticated than they are, and when we put students and companies together, the students often are the leads.
The Chairman: They're well taught.
Dr. Rosson: Thank you.
I think the usefulness of the Trade Commissioner Service depends on the stage the company's at in its export development, on the size of the company, and on the markets, as you say, that are being looked at. Our service is being reduced in Europe now because the sense is that it's very difficult for most Canadian firms to do business in Europe. There is a lot of very good market information on European countries. We don't need as many people in Europe.
The other thing I would say - and this is in the document - is that the attributes of the trade commissioner have not been used to the fullest extent in the past. So, for example, you train somebody to learn the Japanese language. They work in the Tokyo embassy for two years, and guess where their next posting is? It's to Helsinki.
We spend a lot of time in developing skills in people, but we don't really exploit that properly through their career. If they come back to Japan, it might be in ten years' time, or they might never come back.
These days we need to exploit language and technology knowledge much more and create a career path for trade commissioners that will mean that we shall benefit from what they know more than we have in the past.
Mr. Mills: Using our multicultural nature obviously should be a huge advantage for us.
Mr. Rosson: Sure.
The Chairman: We've heard evidence from the department officials that in fact what you just described was the past practice, but that they are moving very much toward what you have said. Has your empirical evidence recently shown a shift to career path development, recognizing that once language training is taking place you can't just move somebody somewhere else?
Dr. Rosson: That's what I'm told. I can't say that I have any empirical evidence, but I've been told that also. I believe that.
Mr. Lastewka: I really appreciated both of your presentations. We've talked with many associations, whether it's the Chamber of Commerce, the Manufacturers' Association, the Exporters' Association, or other associations.
On your comments, Mr. Toulouse, on the competitiveness of SMBs, especially in the manufacturing of the product, my theory has been been - and I appreciate your confirming it - that if we bubble up more companies that are competitive in Canada, it will automatically transfer over to exporters, not the reverse.
When I've been searching how much research and development, and working with SMBs on the manufacturing side, there's always a missing link. We're seeing the associations doing all their work in trying to train the existing ones, rather than developing and making our smaller manufacturers more competitive. That message is loud and clear in your report, and I appreciate it very much.
I would like you to expand on the bottom two paragraphs on page 4 of your report so I shall really understand this. Your comments were:
- Exporting SMBs in Ontario consider their cost of service in export markets is lower than that of
their competitors, while the reverse is true for the exporting SMBs in Quebec.
- Would you expand on that so we could understand why there is a difference?
Mr. Toulouse: That's the result of the research we are currently doing with the University of Miami. Essentially, the question was: what are your costs? The results are those that you mentioned; I can't explain why. We'll try to, but up to now I can't explain.
Mr. Lastewka: I think it's very important for us to know why that is happening, because that could be happening elsewhere in Canada also.
Mr. Toulouse: It could be.
Mr. Lastewka: We need to know, Mr. Chairman, what it is that's causing that in order for us to....
On page 6 of your report, you mentioned sizes relating to export behaviour. Micro-businesses and small businesses export very little; those that do export can be described as medium-sized businesses.
I want to make sure I understand from your study what that medium size was in sales, dollars or employees. With what other benchmarks did you see that happening?
Mr. Toulouse: When we talk about size, we usually use two criteria. One is the number of employees. If you use that criterion, especially in the manufacturing sector, you will use between 80 and 100 employees. This would be a medium-sized range.
If you're talking about sales, that's much more difficult. It depends on the sector you're in. In some sectors, sales are a very good indicator of being a small, medium or large corporation, but in some others, it's not.
What I was referring to in this study was a kind of combination of both. I'll give you a picture so it will be clear. Suppose that you are a manufacturer, you have at least 100 employees, and your sales are at least $10 million.
Mr. Lastewka: Can you then -
Mr. Toulouse: I said ``at least''.
Mr. Lastewka: I realize the product becomes the determining factor.
Mr. Toulouse: Absolutely, that's the answer.
Mr. Lastewka: Could you please give me your comments on this? There's been a discussion that sometimes it would be better for smaller companies to be working with larger companies as suppliers rather than the smaller companies going direct. There are pluses and minuses on both sides.
Mr. Toulouse: This is the heart of the Italian study that I've quoted. That's one of the reasons I selected this study.
I will repeat what I said about the Italian study. Say you are selling your product. I will use an example. You produce a piece that you sell to Bombardier. Then Bombardier is exporting the end product. What will happen, according to the Italian results, is that your exporting behaviour won't expand very much, apart from selling to Bombardier. So you're called an exporter because your product is being exported by Bombardier. But in a real sense, are you an exporter? That's what the results say.
The same is true if you sell to Boeing; it's going to be exactly the same thing. You sell to Boeing, but Boeing is an outside company, so you'll be classified by all of us as an exporter. But the Italian study says to be careful. If you sell to Boeing and they integrate your piece in their product, you won't learn very much about exporting by doing that. It will be as difficult for you to sell abroad to somebody else as it was when you first sold your piece to Bombardier.
So there is no learning. That's a key aspect. He also mentioned this: are you learning when you go to a fair? What are you learning? Are you learning to export? The same thing is true when you sell to one large company that does the whole job for you.
Mr. Lastewka: That's a very key point for us. That small company can very easily be taken out of the marketplace by redesign, integration, and competitiveness.
Mr. Toulouse: Absolutely.
Mr. Lastewka: You're a supplier to an exporter, rather than an exporter.
Mr. Toulouse: Absolutely right.
Mr. Lastewka: That's something that we need to be very cautious about.
[Translation]
The Chair: That is exactly the opposite of what the big businesses told us, which was that they provide access to export markets for small businesses.
Mr. Toulouse: The real question raised by the Italian study group was: Did the small business learn to export by attaching itself to that large business?
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If it did not learn, it might has well have gone to a fair organized by the federal government. If it did not learn, it will not export. It's quite simple.
[English]
Mr. Lastewka: If I were a big company I'd be doing the same thing, because if I have a good handle on these small companies I can take care of them, but if they're out there competing with me I lose.
Dr. Rosson: That statement can also be made about trading companies. Sometimes in Canada we've felt maybe we should develop the trading house sector. Exactly the same conditions apply. The company that's supplying the trading company is learning nothing about doing business overseas. It's making a domestic sale, and the trading company then makes the foreign sale.
Mr. Lastewka: I'm getting those remarks on Bill C-102, which I'm very familiar with. People have said we're putting them out of business, but they really don't understand we're trying to help more businesses.
Mr. Penson: Mr. Toulouse, one of the conclusions of your study is that the decision to export is not perceived by many of these companies as vital to their firms' competitiveness. I'm wondering if they're taking into account the changing nature of the business environment because of our reduction in subsidies and tariffs.
What I'm getting at here is that as Canadian tariffs come down, our Canadian businesses are going to find more competition at home for our markets. I'm wondering if that's reflected in your study.
Mr. Toulouse: I suspect they do take into consideration the evolution of the market, but it goes back to the same thing. If you're not good at competing locally, how can you think you will succeed in competing abroad? That's the big question.
The companies that will succeed in exporting are those that are good competitors locally. Our study says there are a couple of indications. It's tough to answer your question, but we know if you have just one product or one line of products and you sell to just one industrial sector, your chances of exporting are not very big.
You have to learn to sell to different clients locally. That usually means if you produce computer chips, for example, you have to be able to sell those chips to pulp and paper companies as well as aluminum companies, which is not the same thing. That also applies to auto parts. I think from all the indications and data we have, we can say they are aware.
The companies we studied use provincial and federal programs, but we cannot say small companies run after those programs. They use them but they don't run after them. That's why in some fairs we're missing clients to make sure we have 50 companies.
Mr. Penson: I understand it's important to have a domestic market and build your source at home. To that extent, trade barriers within the country certainly play a part. But I'm a little surprised that even with that these companies would not consider they're going to have to be more active in the export market, because they are going to be facing increased competition at home as tariffs go down.
Mr. Toulouse: I can't say you're wrong from the data I have, but maybe you're right.
Mr. Penson: Maybe that's a good future study for you.
Mr. Toulouse: Yes, but I suspect other studies show that exporting behaviour is something that expands from a centre. You expand slowly, and to go outside of your local market is the first step - except for high-tech companies; they are always the exception. For a regular manufacturing company you sell locally first, then you go a little farther, and then you slowly go abroad. You don't move from Jonquière to Moscow.
Mr. Penson: Yes, I understand.
Mr. Toulouse: It's very rare.
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Mr. Penson: Yes, I understand that.
Mr. Toulouse: It can happen, but it's rare.
Mr. Flis: We've already explored the fax curse, etc. I'm glad this was raised. When a similar study on SMEs was done in 1980-81, the Trade Commissioner Service was rated as one of the highest government services, as being of the greatest help. I see that it now is deteriorating. I think a lot of the deteriorating is because of things such as the fax curse, and I think it's proven that many companies really should not be in the export business, but they tie up the government services.
What kind of a screening or a filtering can we do? Maybe the industry themselves have to do this before they approach the government service, which is very costly. Then I think we could become more efficient, etc., and be of greater assistance.
Dr. Rosson: One of the pieces of the filter was supposed to be the international trade centres, which we have right across the country. I think that's still a very good level at which to filter.
For some reason that hasn't worked. I think many companies believe they have to go directly to Paris or directly to Brussels, that that's where the knowledge is, whereas, in truth, in each regional capital there is knowledge. There are also trade commissioners there who can answer the first questions and can either encourage or discourage the company from going forward. In Ottawa we have many country and sector experts.
That's perhaps one thing that should be encouraged: that companies don't go directly to the foreign mission. They should work their way first through the ITC, and then the ITC would use the Ottawa resources. Only if things then look positive should the inquiry be forwarded to the foreign missions.
That would be one suggestion. We have the structure for that, but somehow it's not quite working.
Mr. Flis: Professor Toulouse, do Ontario-based and Quebec-based companies try to find regions in the world where they can trade best? Or are Canadian companies competing for the same market and, as a result, losing a lot of contracts? There are distinct cultural differences here. Does one set of firms use a different approach in their marketing and seeking new markets as opposed to the other?
Mr. Toulouse: In terms of the number of countries they are looking for and in terms of which countries, there is no difference. The only difference is that Quebec small businesses trying to export use manufacturing agents more frequently than Ontario ones.
I don't know why this is, but I have a suspicion. It's probably because there is a provincial program supporting manufacturing agents.
[Inaudible - Editor] ...your idea that the programs we have induce behaviour on the part of small business.
Mr. Flis: I have just come from Baku and Kazakhstan, etc. Canadian companies are bidding on projects there; i.e., building a section of a subway. They won't get into it unless the government pays for a feasibility study.
Does government finance really convince Canadian companies to get into the export business or not? I feel that the companies are large enough to pay for a lot of the feasibility studies themselves, but they come to government cap in hand, asking it to finance $50,000 or $100,000 or whatever for a feasibility study.
What impact does government financing have on the export market?
Mr. Toulouse: I don't have data on that.
I don't know if you have.
Dr. Rosson: Not really. I think we all know that Canada doesn't get the same proportion of returns for the money it puts into the international financial institutions as other countries do. So we need to do better on project work, I think.
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The Chairman: Sir, that's not the question.
I'm sorry to interrupt, Mr. Flis.
Dr. Rosson: I think I'm coming to it.
The Chairman: Okay.
Dr. Rosson: I think what we find is that there are some huge companies that pursue these projects overseas. Many of them are in Quebec, as we know. They are world-class companies and they're very well resourced. So I would agree with you; I think they don't really need assistance.
But once you leave behind those five or six huge consulting companies, what you find are thousands and thousands of very small companies, and these companies certainly don't have the resources. For many of these bids, it costs $50,000 to $100,000 to prepare a proposal. So I think in that case the PEMD money is extremely necessary for more than just the SNCs and the Lavalins to compete on projects overseas.
The Chairman: That's helpful, thank you. We'll have to -
Mr. Toulouse: I have two thoughts on that question, and I'll be very short.
My first thought is that I think if you want to invest some money, always ask yourself the question of whether you're investing in something that is knowledge-based. If the feasibility study is something that is knowledge creating, I think you're right, because in some sectors the knowledge creation will always be somewhere in the heads of the government.
The other is not from this study. A couple of years ago I made a study of the immigration policies around the world. One thing that appeared very important in this study - and I think it's the same here; it's a little related to what he said - is that you always have to have in mind that in these policies the firms are competing for export market, but behind that, countries are competing with one another. You should be very careful not to mix your analysis of firm behaviour with the behaviour of countries.
In immigration, for example, you have phenomena at the individual and regional levels, but the only way you can explain them is by looking at the competition between countries like Canada, New Zealand and Australia. That's the best example you can have; we are competing with New Zealand and Australia for immigrants. How the countries compete - and this is true also in here - is another level of analysis.
[Translation]
The Chair: I would like to put a brief question to Mr. Toulouse.
You said in your report that exporting Ontario SMBs claimed that it was easy for them to finance their export activities. That seems to run somewhat counter to the evidence this committee has heard up till now. Those are the results of your research?
Mr. Toulouse: Those are the results of my research.
The Chair: And do you make a distinction between the United States and other countries?
Mr. Toulouse: No.
The Chair: The situation is the same in all countries?
Mr. Toulouse: Yes.
The Chair: It is just as easy to finance exports to China as it is to the United States?
Mr. Toulouse: Yes.
The Chair: Very well. Thank you.
[English]
Thank you very much.
[Translation]
Mr. Toulouse: It's very rare that the same small business will be very active on American, Chinese, Indian and Pakistani markets at the same time. If it exports to one or two foreign markets, it has all that it can handle and more!
The Chair: And it is very familiar with the financing arrangements in the market it has specialized in.
Mr. Toulouse: Absolutely, and all the more so since those companies export very few custom-made products.
[English]
The Chairman: Thank you both very much for taking your valuable time to come and share your very useful experience with us.
Mr. Toulouse: You're welcome.
Dr. Rosson: Thank you and good luck.
The Chairman: Merci beaucoup. It's very helpful to have an overview.
Two minutes have been requested, so we'll take just two minutes. Madame Labelle is here with some officials, if she would take her place at the table.
We'll take a two-minute break.
.1114
The Chairman: Could we recommence, please, because we're running a few minutes behind.
Madame Labelle, welcome once again before the committee. You're accompanied byMr. Pierre David. This is a somewhat different topic from the one you so often address before us, but one we would be very interested to hear.
Ms Huguette Labelle (President, Canadian International Development Agency): Thank you, Mr. Chairman.
As I mentioned to some of the members, I was getting lonesome. It had been a long time since I had the chance to appear before the committee.
The Chairman: Don't worry, estimates are coming back soon.
Ms Labelle: I know, it's December and we're already all lined up. Couldn't we do both this morning?
.1115
I would like to make a few introductory comments and leave you with some documentation - I'm sure you don't have enough of that - to allow, Mr. Chairman, for more time for discussion between ourselves.
In looking at CIDA and all that we do in the many countries around the world, there is no question that in all our lines of business we work with a very large number of small and medium-sized Canadian enterprises. I think it can be readily ascertained that through international cooperation there are many different ways this group of Canadian enterprises has succeeded in exporting, for many years now, goods and services in just about everything, from very small niches in technology, to areas of special expertise, and, finally, in all the broad areas of daily living.
We do this through our bilateral programs. We do it through some of the multilateral lines, and I'd like to come back to that. Of course we do it through CIDA INC, and this is why I have at the table with me Pierre David, who is the director general for the CIDA INC program per se.
How has it helped? In what way has it made a difference? First of all, I would venture that many of the Canadian enterprises that are now working internationally on their own would not be doing so without having started to work with CIDA. Some have remained small and medium. Others, such as SNC-Lavalin, have become very large.
I think SNC-Lavalin is the first one to return to their roots and how they started to work outside of the North American market in Africa through work with CIDA. This has allowed them to have access to outside markets, which are outside markets that not many people very often go into because of the risks involved. It has also permitted them to learn to work in very different ways in these markets - because we know that they are very different. It enables them to become known by the countries and the enterprises of these new markets, allowing them very often, through a project, to establish a small office in a country, which then permits them to know what kinds of businesses will be forthcoming via World Bank, Asian Development Bank, and the country itself because of the proximity.
Also, what we are finding is that by having one Canadian company, let us say, involved in environmental technology work in Bangladesh, what it does is very often get that country to suddenly realize that there is Canadian expertise in that field. Then they're more likely to come to Canada as opposed to France or the United Kingdom or Japan when they have a need in some of these areas.
I will spare you, because I think this is information you're probably aware of already.
[Translation]
Bilateral exchanges are effected in various ways, but since we began using a much more open system for calls for tenders, the OBS, small and medium-sized businesses have far greater opportunity to access our programming. There are also more opportunities when small businesses are aware that a big business has requested prequalification, or will do so: they can get in touch with that larger business and offer their services, and we encourage that, of course, because that allows small and medium businesses to benefit from the expertise of those companies that are active or have been active in foreign markets.
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Very often, they are offered specialized niches.
[English]
On the multilateral side, I would just like to say in the last year we worked with the Department of International Trade and many other departments to look at how we could increase procurement for Canadian goods and services with the international financial institutions. We have done a number of things. We have a report to that effect that we have approved, which we are implementing. We've worked closely with the Canadian Exporters' Association and a number of other Canadian firms.
I think we can do quite a bit more on that front. We are doing things very differently. Our procurement is increasing. The big problem with them was not in consulting, it was very much more in terms of buying construction services from Canada. We want to improve significantly what we do, because there is a great opportunity there. I think we need to continue to work on that.
[Translation]
I believe the Industrial Cooperation Program is discussed in the notes that were prepared by the committee staff. The primary objective of that program is development, good development, and the program is designed to react to proposals from the private sector. We recently received our ten thousandth request for financial support.
That program has been in effect since 1978. We know that about 55% of the proposals come from small businesses and that more than 80% come from small and medium businesses.
That program is much more attractive to small and medium businesses and it allows them, very often, to go and do prefeasability studies and to obtain a small slice of financial assistance to add to the resources they already have.
Insofar as industrial cooperation is concerned,
[English]
we have invested $670 million since 1978, and the return to Canada itself has been $5.35 for every dollar. In developing countries, every dollar invested has resulted in $11 in benefits for those counties. So the leverage effect is very high from this particular program. We think it has been very useful to us as a tool for development, but it has been very good as well for our Canadian companies.
The interesting part about CIDA's INC program is that you might have a medium-sized company that is bidding on a very large project in a particular developing country, and that country values the involvement of the national government of the firm offering services to such an extent that if it is not part of the proposal it will give greater preference to proposals coming from other countries where that element is part of it. There seems to be greater trust in those proposals. Very often, for $150,000 a company may first of all be received with open arms, but also win a contract of a few hundred million dollars.
[Translation]
We see that on a regular basis.
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I would like to discuss one last point, Mr. Chairman, and that is co-operation as I would call it. I know that that is not what you are studying at this time, but I want to raise the matter of North-South co-operation.
At CIDA, we do a lot of work to further the development of micro-businesses throughout the world. We had a special symposium this summer and I will be pleased to provide you with the report of that symposium, where we presented some of the best experiences we have had in countries throughout the world.
I think that Canada has something to learn from that. These are very inexpensive programs that allow millions of persons throughout the world to be self-employed. The capital invested is repaid without difficulty through service charges, whether they are called interest or something else. We know the ingredients that make for success or failure.
We have had a lot of success with that program, and I feel we must sometimes take what we do abroad and import it into Canada, besides exporting our expertise to foreign countries. It would be a pleasure for me to discuss this more at length, today or some other time.
The SMBs are very important partners in our opinion because they put vast expertise at our disposal to help us in our international co-operation activities, in helping developing countries to build their physical, social, or other infrastructures. We have found that to be one of the keystones in helping our Canadian businesses to increase their exports and expand, in many cases. Thank you.
The Chair: Thank you very much, Ms. Labelle.
Mr. Paré, you have the floor.
Mr. Paré: Ms. Labelle, there are two small things in the statement that give me pause, and I'll explain why. At the bottom of the first page, it says:
- Bilateral programs also support, inter alia, microenterprise development, an area which has an
enormous impact in terms of enhancing the productive capacity of poor people and improving
the economic status of, in particular, women who head microbusinesses.
- Its mission is to use the resources of Canada's private sector to promote sustainable
development, by favouring the execution of long-term trade agreements that are mutually
beneficial for businesses in Canada and in developing countries.
If you include departments and Canadian government organizations, the figure rises to 16%. That is much better. In the case of multilateral organizations, it is 18%. As for international financial institutions - and it is unfortunate I did not have this figure handy when the bank representatives testified - the figure that applies is 8%.
Canadian and local NGOs spend 49% of their budgets to meet basic human needs. There is something contradictory in all of this to my mind: either the North-South Institute figures are not accurate, or there are some technicolour dreams in what you are submitting to us this morning.
.1130
Ms. Labelle: Mr. Chairman, as you know, the present government had committed itself to a 25% objective and continues to pursue that objective. The government made a commitment that 25% of our organization's budget would be spent in the sector of basic human needs. According to our assessment at CIDA, until now, we have reached 17% or more. Our objective is to reach 25% as quickly as possible.
We do turn to NGOs a good deal to help us in that undertaking. Perhaps we could seek the assistance of Canadian private sector businesses for water systems, sewers, and so forth.
That 25%, then, represents a quarter of CIDA's budget. Developing countries have needs in several other areas, physical infrastructures particularly. We turn to private businesses much more to meet those needs, but not exclusively.
The Chairman: Mr. Paré, may I ask a question?
Do you think that export-assistance programs for small and medium businesses should also focus on basic needs? Do you think we should have the same criteria for the small and medium-sized business export assistance envelope, which is slightly different, in my opinion, from the general assistance envelope? Is that the question you are asking?
Mr. Paré: Well, we are told that CIDA's Industrial Co-operation Program contributes to meeting basic needs. That seems contradictory.
I'm going to ask another question and I am going to contradict Ms. Labelle again about the 25%. It is true that the last policy statement said that Canada was to devote only 25% of official development assistance to basic needs. You say we are getting there. However, I want to point out to you that the North-South Institute noted that the Canadian International Development Agency had, in its definition of essential services, chosen to include two items that are excluded from international definitions.
At the international level, when basic human needs are discussed, food aid is not included, nor is housing. However, CIDA, by including those two items in basic needs, has almost automatically reached the 25% figure and thus the fact that that statement was added to the policy means absolutely nothing.
Ms. Labelle: Mr. Chairman, I believe the North-South Institute was referring to the past, and you are right. At this time, in our codification and accounting work, we are using the UNDP definition to determine of what can be included in the basic needs sector, and we don't include food aid and housing.
Where basic needs are concerned, it is important to have a roof over your head, of course. However, in the reports we will be submitting to the committee and to Parliament as of 1996, we will make sure that the definition used is the one advocated by the United Nations.
The Chair: Thank you.
[English]
Mr. Penson.
Mr. Penson: Madame Labelle, on page 3 you talk about CIDA's INC program and say it's not in the business of export promotion; it's in the business of promoting sustainable development. Some people would argue you have that last sentence wrong. It's promoting sustainable business development in Canada. To me, we are providing subsidies for Canadian businesses to take part in our aid projects.
.1135
Are we not duplicating efforts of the international trade office? You said you've invested $670 million, I think, over the years. Could CIDA not invest that without having to go through CIDA INC, and then let whoever wants to compete for that business do it on an open, commercial basis?
Ms Labelle: When we receive a proposal, the first thing we do is ask a number of questions. Is this for a development country where we are? Is this good development based on our knowledge of that country, of what the country needs? Does it fit our program priorities as set by the government last February? Then we begin to look at the rest, and if it doesn't fit we just don't look at it; it is automatically left aside. If it answers all those questions, we proceed with a peer review of the proposals that are made and determine on its merit, based on the criteria we have, whether it is good or not.
The part we find interesting here is that in our bilateral program we identify the projects generally; we put them on the open bidding process. If we only had this one avenue it would prevent us from having the opportunity to broaden the possibilities for development that come to us. It would limit us to our own capacity of only identifying specifically.
We do this with the NGOs as well. The NGOs in Canada have the same capacity to be able to come forward with what they feel are top-notch projects, and they're assessed on the basis of whether they are or not. It's the same thing here. That's what we put in the window first, and after that, the rest comes into play.
Mr. Penson: I certainly agree with having the criteria you've talked about in assessing these projects, but it just seems to me that if we are subsidizing Canadian businesses, that's money that could be channelled more directly into ODA. It seems to me we're limiting the amount of ODA we're giving by picking up some of the cost of Canadian businesses to take part in those projects. I think Canadian businesses should be able to compete on the basis of the best quality. If there's a level playing field there, they can compete quite well without having to go through the CIDA INC program.
I see two vehicles here. One is CIDA INC and the other is just putting the money into official development projects through your main department. I would argue that CIDA INC is probably not necessary. I'm sure you have a different view of that, but aren't we actually giving up some official development assistance by allowing our Canadian businesses to take advantage of this?
Ms Labelle: I think if we were really starting with the trade aspect and leaving the development as a secondary factor, one could easily reverse the situation, which we believe is important. But we use it as a tool of ODA, not a trade promotion tool. It's a tool of development, we have found, because the innovative proposals that have come to us have really assisted us in doing good development in the end.
It means making a good and very critical selection of the proposals that come to us. As we mentioned, only about 60% of the projects at this time are approved. A number of times we even discourage people from applying right at the beginning, so a lot of those proposals don't come in at all.
We use it as a tool of ODA and not as an export promotion tool. I think your point is well taken on that front.
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Mr. Alcock (Winnipeg South): Madame Labelle, I always enjoy the time we get to spend with you. I agree that it has been too long.
I'm interested in a couple of things. I note that CIDA, like all departments of government, has taken some, shall we say, reductions in budget, and this has forced you to make certain decisions, like everybody else.
One of the decisions in your funding was to raise the floor of support for companies that you would support. From the documents you tabled with us, I understand something of the reason for that. I also understand that prior to making that decision you did a study that looked at the viability of these very small companies. We're asking here how we can help small industries to get access. I would like you to expand on the reasons why you did that.
Ms Labelle: I would like to make a few comments and then ask Pierre David, my colleague, to comment further.
When we looked at our experience of a number of years back, we were finding that those who were very small, with capital of a few hundred thousand dollars, were not succeeding very well. They would go and do a study, yes, but it would die there. They did not have the capacity then to follow up and enter that market and expand on it.
At the other end, they also were not necessarily people who brought, from a development perspective, sustained expertise over the long run.
So this was one of the prime reasons.
[Translation]
Pierre, did you want to add something?
Mr. Pierre David (Director General, Policy, Strategic Planning and Operations Division, Canadian Partnership Branch, Canadian International Development Agency): Thank you.
[English]
I think the big difference is between a company that could be export ready and a company that has to be investment ready. We are dealing here with a company that will invest in China, not export to China, and in order to do that you have to have deep pockets, as we say. It takes a lot of time, and the evidence we have from the 10,000 proposals is that those companies were not able to sustain the effort long enough to make the investment effectively.
Don't forget that it's a cost-sharing program, so they have to pay for the study.
I think the best advice we can give the very small company is to be strong enough before trying to invest in those difficult countries, because you may lose your time, money, and effort. The best strategy might be to concentrate first in your export business, and then you might be ready to invest in developing countries, where the environment is difficult.
Mr. Alcock: That is very important advice. Is that the result of a formal internal study or an internal review? If it is an internal study, then is it something to which we could have access?
Ms Labelle: We certainly have conducted a study. I'm sure that it is on paper, and we would be very pleased to share it with the committee.
Mr. Alcock: Thank you. This whole question of size, of course, is something that consumes us as we try to look at the support for small and medium-sized business.
Ms Labelle: One of the things we have been doing, as I mentioned earlier, is to encourage the large companies to look to the small companies on the bilateral side, as well as here, and to encourage the small companies to do the same, so they can learn the trade and become known without having to invest in having an office. If you are on the Asia market, then you've got to be known. People will not do business with you unless they know you, as you know.
Mr. Alcock: When it was begun, I thought the Renaissance program in eastern Europe was a very creative approach to that particular market. I understand from some presentations we've had here that one of the problems that seems to have arisen, or at least it is suggested has arisen, is that when you have an economy that's evolving from having been a state-owned economy and private sector companies are coming over to work with them, to partner with them, there is some difficulty with matches. They're having some difficulty in building the capacity to understand, in a sense.
Is that a fair comment on the experience with Renaissance?
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Ms Labelle: I think in that part of the world you would have a number of things to keep in mind. Indeed, it is not easy to go from a centralized economy to a market economy, and the countries who are going through this realize it.
First of all, they very often don't have the regulatory framework, they don't have the infrastructure, and they don't have people who are used to thinking in terms of going out and doing things without the umbrella of control of a centralized economy. Indeed, that is one aspect.
The second aspect is that a lot of those countries' firms are looking for joint ventures. What they want is for a company from another country to come and help them, to the mutual benefit of both.
Again, for a Canadian company that is used to a particular approach to doing business, matched with a company who is just trying to find their feet, that certainly leads to perhaps a longer start than one might have anticipated.
I have a colleague from this program who perhaps could add to my comments.
Mr. Romy Peters (Deputy Director, Northern Europe, Canadian International Development Agency): One of the problems that Canadian companies face whenever they're dealing with companies from central and eastern Europe in trying to set up a joint venture is the mindset of the people who are involved with the central and eastern European company.
What we've found is that it has taken a lot longer for the Canadian company to initiate and implement the joint venture. In addition, they then have to provide some training to the central and eastern European partner. The Renaissance Eastern Europe program has a specific element that allows the company to come back to us and request this assistance for training.
The Chairman: One quick one.
Mr. Alcock: Thank you, Mr. Chairman. I shan't go on, except to say that I think CIDA makes exceptional use of very limited resources. I've read the departmental outlook you've just circulated, and I look forward to having that discussion shortly. Thank you.
[Translation]
Mr. Paré: At a time when the federal government is attempting through all kinds of means to reduce its deficit, and in light of important cuts to official development assistance in the last budgets, and also in light of the fact that there are other Crown corporations involved in helping SMBs, to export, has the time not come for CIDA to simply eliminate the Industrial Co-operation Program and transfer the funds to something that is more directly related to assisting developing countries?
Ms. Labelle: Mr. Chairman, we examined that possibility very closely when our foreign policy was reviewed. We wondered whether it was an important co-operation instrument for us. We felt that if that was not the case and if its objective was different, it should be abolished or transferred elsewhere. That is when we realized that if we transferred the program, we would have to recreate it in some other form because we want to have the possibility of receiving innovative proposals from all sectors of Canadian society, proposals we might not think of, from the private sector as well as from universities, colleges, cooperatives, or the DID, for instance, a group we do a lot of work with, as well as the NGO sector and religious groups.
On the one hand, we want to have instruments that will allow us to put out calls for tenders after having identified needs. We know that if we limit ourselves to our own expertise, even though we have nothing but the highest regard for it, we would deprive ourselves and deprive developing countries of access to a much broader network of innovations and expertise. Through this program, the private sector can show us where it feels the possibilities for good co-operation and good development lie. It is then up to us to make wise choices.
The same thing is true of NGOs, from whom we receive a lot of proposals. The situation is similar in that regard.
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We examined the whole issue attentively, because it was a real issue at the time of the policy review, and we arrived at the conclusions I have just given you.
Mr. Paré: You say that since its inception in 1978, overall budgets for that program totalled 670 million dollars. What is the annual budget of the industrial co-operation program currently?
Ms. Labelle: It is 65 million dollars.
Mr. Paré: Thank you.
Ms. Labelle: Since we were very well supported in that experience, we can expect that investment to yield five or six times the original amount.
Mr. Paré: Rather than paying income tax, it would be better for Canadians to send money to the Industrial Co-operation Program!
M. Labelle: You know, we could do both. That should be even better.
The Chair: We have to convince the taxpayers, that's the problem!
[English]
The Chairman: Mr. Lastewka.
Mr. Lastewka: Thank you, Mr. Chairman. One of my questions was going to be about how CIDA works with the trade centres. Part of the question was answered with Mr. Penson. That was number one: the interrelationship with the trade centres.
As for the $65 million that we spend on CIDA, is that included in part of our ODA total percentage? I wasn't sure on that.
You made it clear - I just wanted to double-check - that the program applies only in the priority developing countries. I think sometimes people are getting mixed up, such that companies can come up with their own programs and then we try to find the place for it.
I want to be assured it's the other way around. It should be the developing countries. Then it's looking for opportunities or different types of programs for that. I think that's sometimes misunderstood.
I have one other short one.
Ms Labelle: Thank you. As mentioned, the budget of CIDA is an integral part of our ODA budget. This is why we think it's very important that its prime purpose is for ODA.
As for the first question, in terms of how we work with trade centres, there is a very open network between the developing countries' planning people, our trade centres, our CIDA staff in the field and in Ottawa, and of course our Department of Foreign Affairs and International Trade.
It's open in the sense that we might suddenly get appraised by a developing country. They have talked to our trade centre because they have had a need to improve their energy efficiency. They lose a third of it, so they say they need somebody to come and help them. Or their manufacturing is so dirty that they have major health problems that are costing their people a lot. They would like to get assistance to have some clean manufacturing or production done.
They very often would approach our trade centres or our staff to look for expertise to be able to do this. It comes to us sometimes this way. So there is quite a close working relationship. It's not on a day-to-day basis, but we are able to channel information requests for assistance back and forth.
In terms of your last point, Mr. Chairman, when a company comes to us, they must have a well-developed proposal that can demonstrate that this is a solid development in the country they want to do this. Their assessment is based on all they bring to us, but it has to be more than an idea, as I think you were stating in your own comment.
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Mr. Lastewka: Yes, in our previous session this morning, we got into a situation of discussing how trade centres are spending a lot of time with companies that really aren't serious and really haven't passed go as far as doing serious work is concerned. I wanted to find out whether you had that type of similar problem where you have to filter companies to get to the serious one. In the meantime, we're spending money where we shouldn't be.
Ms Labelle: Those companies that come to us with just an idea are asked to go and develop it further. Those who come to us with something that is obviously not well thought through, well developed, don't go very far in the process of review. They are asked to go back and do their homework before coming back to us.
Mr. Lastewka: I think that's the message that we've been receiving from a number of witnesses. You really have to be serious in your exporting, or your development, and you need to be a credible organization. It doesn't mean you have to be big, but you have to be a credible organization in delivering whatever product or service.
Thank you, Mr. Chairman.
The Chairman: Thank you, Mr. Lastewka.
Thank you very much, Madame Labelle, for once again coming and making Mr. Alcock stay. We look forward to seeing you again on several occasions.
Members of the committee, I'd like to draw your attention to the fact that we had a steering committee meeting recently. We will circulate the results of that to the members, but I just want to draw your attention to a couple of points that will be raised in that.
The first is that the forum with the NGOs, which we intend to hold and which Madame Labelle will be attending because its central to the CIDA issue, will be held on February 8 rather than the week after the break. We had to defer that.
Secondly, the Auditor General will come and assist at our meetings when we are hearing estimates, and when we are calling department officials we will actually have Auditor General officials here as well. We might even get discussion going between the two. We're not trying to set up some kind of a debate, but we think it would be a useful interchange and a useful exchange of views between the Auditor General and departmental officials.
Thirdly - two other items - we are putting together a panel on the U.S.-Canada binational panel respecting agricultural product tariffs, and we expect to have both industry and government representatives there to explain how that case will develop. That will be an in camera hearing because it's obviously sensitive by virtue of the fact that it is a case that is presently pending. We'll keep you further informed of the details of that.
Finally, you'll recall we decided earlier that our next area of study - subject to any other observations that committee members might have - should be the strategic geopolitical and other trade and other aspects arising out of the circumpolar region. I am starting to work on that now, talking about who would be the appropriate researcher. We'll deal with that in the steering committee.
If anybody has any ideas about how we should conduct that, bear in mind that Mary Simon, who is our circumpolar ambassador, will be before the committee on November 21, that's at the next meeting. I have invited to attend that meeting the chairperson of the environment committee, Mr. Caccia, and the chairperson of the defence committee, Mr. Proud, because there are enormous environmental and defence aspects arising out of that. I think if they were here, they might be able to add to our knowledge and start pointing us in the right direction for our own study.
Thank you very much. We're adjourned now until Tuesday, November 21.