Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 25 - Evidence - Meeting of April 23, 2015
OTTAWA, Thursday, April 23, 2015
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 10:30 a.m. to examine such issues as may arise from time to time relating to foreign relations and international trade generally (topic: trade promotion).
Senator A. Raynell Andreychuk (Chair) in the chair.
[English]
The Chair: Honourable senators, we have one witness by video conference. I'm sure that he will nod if he is hearing me. And we have one witness in person before the committee.
This is the Standing Senate Committee on Foreign Affairs and International Trade, and we are authorized to examine such issues as may arise from time to time relating to foreign relations and international trade generally.
Under this mandate the committee has begun hearing from witnesses on trade promotion, and today we continue with that portion of our study.
In our first session this morning, we are pleased to welcome Alain Masson, President, GNR Technologies Inc.; and, by video conference, Lance Richardson, Vice President, Operations, of Arc'teryx Equipment Inc.
I'm surrounded by people who know your jackets, so I'm in a learning curve here.
We will hear your presentations in the order they are before me, and then we will turn to questions from senators.
Mr. Masson, to you first.
Alain Masson, President, GNR Technologies Inc.: I would like to start by saying how honoured I am to be here, and on behalf of GNR thank you very much for the invitation and the opportunity to speak.
As you know, the purpose of this event is to explain how various government programs have helped GNR over the past decade.
Who is GNR? GNR started off as an innovative, Montreal-based company with one lonely mechanical engineer who had found a way to convert scrap tires into commercially viable products specifically in the traffic industry: parking curbs, speed bumps, things you see in parking lots.
Over the years we have processed about 200 million pounds of scrap tires. So besides the obvious environmental benefits of that we have been able to, through the help of the Canadian government, generate hundreds of jobs over the years, both in Quebec and abroad.
How did Canada help GNR? From the outset the challenge was to turn 30 pounds of scrap, a tire, into an opportunity and then turn that into profitability. As a young, Canadian-controlled private corporation, CRA's Scientific Research and Experimental Development tax credit program was the catalyst that started the ball rolling for us.
Even to this day it allows us to hire engineers that we would not be able to afford otherwise. Had we rested on our laurels 10, 20 years ago, we probably would be out of business by now.
In this fast-paced, competitive world economy you need to constantly improve yourself, find ways to make your products better, faster and stronger. Standing still is not an option.
So with the help of CRA's tax credit program in R&D, we built a great product, but now we have to sell them. Obviously going to the States was an easy first step, but we quickly realized we needed to go beyond those borders. Our products are heavy, so we needed to ship full containers from Montreal to beyond the States, say to Mexico. A full container of product is significant dollars for us, and we would not be able to take that risk and ship to foreign lands without ensuring those receivables.
There are a lot of products out there, but the Export Development Corporation's receivable insurance program has proven to be extremely helpful to us. It's extremely efficient, very well priced and far better than any competitive product out there.
When we approached them with customers, almost every reasonably established customer was easily accepted, and we even had a couple of bankruptcies that they quickly paid out where, had we been strung out for a year or two, we would not have been able to survive. Even though we had some claims we never missed a beat, and EDC was amazing.
Because of this program we had a great product and the ability to sell abroad. Our export business grew extremely quickly, to the point where our next step was to open up a second manufacturing facility, and this time we chose Mexico City. To my surprise, even though this facility was in Mexico, where we were going to hire non-Canadians, the EDC continued, pedal to the metal, to help us grow our business outside of Canada.
No banks in Canada were going to give us any financing on the equipment in Mexico except for the EDC, who now has a direct-loan program where they leant money to our Mexican affiliate. That was unheard of. No other Canadian bank was willing to do that for us.
On the surface it seemed counter-intuitive that the Canadian government would help finance a Mexican company with Mexican employees, as opposed to a Canadian company. Even my friends and colleagues thought it was counter- intuitive and taxpayer money not going to the right place but, when you think about it, it makes a lot of sense.
It's true that some of our manufacturing that used to be done here is now done there, but given the competitive world that we live in there was no way we would have had those sales had we continued making them from Montreal. We needed to be closer to the customers and closer to a vibrant labour force in Mexico that we can easily find and be extremely competitive.
This setup allowed GNR to not only expand its export business, but the profits generated ended up coming back to Canada. What we ended up doing is transferring some of our blue-collar jobs to higher end, white-collar, skilled jobs. Where we had one engineer a little while ago, we now have twelve engineers, ranging from mechanical, chemical engineers, automation engineers and even computer engineers because now we have developed an electronic lineup of products for the traffic industry.
We feel that we have become the poster child for the Canadian government in that we've found an economical solution to an environmental problem, we've created lots of jobs and we've even created a lot of engineering jobs in Canada, which is generally the goal in this competitive world.
To summarize, the three main areas where the Canadian government has been critical in our growth are the tax credit program with CRA; EDC's AR insurance program; as well as EDC's new direct financing program for foreign affiliates.
Thank you very much.
The Chair: Thank you. We'll turn to Mr. Richardson.
Mr. Richardson, thank you for getting up at that very early hour to be with us by video conference. Welcome to the committee.
Lance Richardson, Vice President, Operations, Arc'teryx Equipment Inc.: Thank you very much for having me.
Thank you for giving this opportunity to Arc'teryx to speak to the Senate on the subject of trade and how it can help Arc'teryx and similar companies keep on expanding our businesses.
You mentioned that some of you know about our jackets and the other products Arc'teryx makes.
To give you a background here, we're a 25-year-old company based out of Vancouver. We are a manufacturer, wholesaler and retailer of outdoor clothing and sporting goods. What has made us successful in the market is focusing on producing high-quality products. We differ from others in our design, our materials and our craftsmanship. This has given us a pointed difference in the global marketplace, and it's something we continue to push.
We operate in three main markets. We're in the outdoor and ski channel; we're also in the high-end men's apparel business; and we also have a division called law enforcement and armed forces, which makes products for elite police units as well as NATO special forces.
Right now, we have over 700 staff in Canada, 350 people at our head office and over 280 people in manufacturing. Last year we hired 100 people, and in 2015 we expect to hire another 100. We have been hiring a lot because we have been growing at over 25 per cent per year for the last four years, and we expect that to continue.
We are truly a global brand, with 85 per cent of our revenues from outside of Canada. In 2014, this was $240 million. With 45 per cent of our sales from North America, 34 per cent from Europe and 21 per cent from Asia, we are one of the few companies in the market with a true global presence. Interestingly, China is now our third largest market. We have seen that market grow exponentially, and it's an area that we're really focusing on for the future.
As a company, our main way of selling our products is through wholesale trade, so we sell to retailers such as Harry Rosen, Sporting Life in Toronto and other similar companies.
We also have an aggressive retail push. We're opening brand stores both within Canada and around the world. Last year we opened six stores; five of those were outside Canada. This year we will open another six; one of those will be in London and another one will be in New York.
We manufacture our products in Asia, Central America and we also have our own facility in Canada. Interestingly, we are going to be expanding our Canadian manufacturing. We see a high demand for Canadian-made products, so it's key for us to keep growing our business. Overall, we have ambitious growth plans and we intend to be within $750 million in sales within five years.
As an exporter, we started from the get-go with selling to the United States and Canada. That was part of our initial market. Then we started looking at Europe and Asia. Initially, we took that, as many companies do, with an easy step of how to approach those economically, and then we started branching out and using sales agents or distributors, depending on the models.
In order to promote our brand using government services, we've used the Canadian embassies in Tokyo and Seoul to do product showings to accounts. That has been very beneficial for us. That is because it's both cost-effective and it helps tie our Canadian heritage to our customers.
We also use the SR&ED tax claim. That is a big benefit for us. We have been using it year after year, and it helps fund our R&D.
Free trade agreements with Norway, Switzerland and Korea have also been a benefit to our Canadian manufacturing and sales, and we look forward to an EU agreement coming into effect. We would like to see more free trade potentially with Japan or, on a smaller scale, Australia and New Zealand.
When we look to what will help Arc'teryx grow in the future, our number one issue is skilled labour. This is not an issue unique to Arc'teryx; it's common with other apparel companies within Canada, such as Lululemon Aritzia. It's an issue because we are competing in a global marketplace for sales and with so many globally competitive people. This means we need more graduates trained for the apparel industry from the technical side of patterns, materials and design to manufacturing, sales and operations. It also means that we need employment and training programs that recognize the requirements of the apparel industry. There are programs such as the Canadian Manufacturers & Exporters Path2Work program and the Canada-B.C. Job Grant program. We need those programs to have elements that work for the apparel industry and not for the other industries that exist today.
The other area that is important here is we need a faster labour market impact assessment program. Right now it is quite slow. We do use it and get employees coming into Canada, but it's detrimental to us bringing in more talent. For every external hire that we bring in, we figure we are hiring 10 Canadian-based jobs at the same time. It's very important for us.
To summarize, we really need the SR&ED claim as a big benefit to continue. Our embassies are another benefit for us, and we need to look forward to how to make sure we are competitive internally within Canada so we can continue our export growth.
The Chair: Mr. Richardson, thank you for your opening statement.
[Translation]
Senator Fortin-Duplessis: Thank you, Madam Chair. My thanks to both of you for your presentations. My question will be for Mr. Masson.
Mr. Masson, I was reading an article last month in Exportateurs avertis that was talking about your company, a Montreal company that invested in the Mexican market.
In this article, you said that selling to other companies without having a brand or an identity would not make it possible to ensure real growth abroad. We can therefore conclude that brand and identity are very important for succeeding abroad and expanding into new markets.
Are there any tools right now to help you develop various strategies for brand and identity?
[English]
Mr. Masson: When GNR started, we had most of our production in molding products for other people, so we had no trade identification, no brand recognition. As we grew, we focused our strategies towards only proprietary products, so we stopped molding for other companies and worked on our own proprietary products where margins were higher.
We no longer make products for other companies. We've trademarked our own brands, and whether it's in Europe, South America or Mexico, people now focus on our brands, whereas when we were molding for other companies, they wouldn't know that GNR even existed. Yes, that was a big part of our growth in that we needed to have brand recognition and develop our trade name.
[Translation]
Senator Fortin-Duplessis: My second question is also for you, Mr. Masson.
The article mentions that, when a viable distributor came forward, you used Canadian services. You turned to EDC to insure your client accounts. You said that it was a very good thing, because, at the end of one year, your distributor had experienced financial hardship and could no longer pay its bills.
So I gather you were satisfied with the service, but overall, are there other tools you would like to have to further promote trade for companies such as yours?
[English]
Mr. Masson: As I mentioned earlier as well, the EDC was key in providing us AR insurance. In this particular case, we had a large distributor in Mexico that went bankrupt, and we were paid back by the EDC quickly. We actually hired the manager from that company to be our current manager.
At this point, I find the EDC has done everything within its power to help us. They've helped us with the AR insurance and with getting financing. I really don't see at this point what else they could be doing to meet our needs. They've covered both angles for our business, financing and insuring our receivables. I'm extremely pleased with them. I've never heard any bad descriptions of EDC's services from my colleagues who have also used them. There is nothing else we would need from them right now.
[Translation]
Senator Fortin-Duplessis: You don't have suggestions regarding other tools that might be useful to you and that are not available right now?
Mr. Masson: For us, no. Things are working well. There is nothing else to be done for us.
Senator Fortin-Duplessis: Thank you very much, Madam Chair.
[English]
Senator Oh: Congratulations to both gentlemen; your companies are doing well exporting from Canada. I will buy one jacket from your company, a great jacket. Thank you.
With your company's first project in Mexico, how was the financing done? Was it through here, or did the EDC office in Mexico finance you?
Mr. Masson: We were trying to get financing in Mexico for a very long time. We originally thought that we would go to a Mexican bank and get the EDC to guarantee the loan. When we opened in Mexico, we were a brand-new company, so we had no credit history in Mexico. No Mexican bank would give us a loan directly.
The EDC had a guarantee program, but even though HSBC in Mexico would give us a loan guaranteed by the EDC, the interest rate was in the teens, at 14 or 15 per cent, which was ridiculous for us. That stalled.
A couple of years later EDC came back and said that they had a program where the EDC would lend money to our Mexican company directly. So the EDC — we finished in January — lent US$750,000 directly to our Mexican company, which is paying the EDC back directly. It's not even a loan with the Canadian company.
That makes sense for us because the balance sheet of the Mexican company is the company that has the assets, so now there is a loan that properly matches the two, and the interest rate is very reasonable. The security the EDC has are the assets in Mexico, so it's as if it is a direct loan from that Mexican company but through the Canadian bank.
Senator Oh: I heard a lot about BDC too. BDC is doing a lot of work that even private banking in Canada is not willing to do. They come out to finance SMEs.
Mr. Masson: I meant EDC, the Export Development Corporation. In Canada, we use the BDC only to finance our long-term assets in our factory in Montreal. They are also excellent. I didn't bring them up because we were talking more about the export. BDC has also been excellent, financing 100 per cent of our assets over extended periods of times, with competitive interest rates. We like to use them instead of the regular Canadian chartered banks as they are easy to work with.
Senator Oh: Mr. Richardson, your company is exporting to Asia. The Korean FTA just came out, so that will be good for you in exporting to Korea.
Mr. Richardson: Yes, it is. We've been exporting to Korea for close to 15 years. The FTA with Korea is giving a boost to our Canadian-made product sales. There is definitely an appreciation for Made in Canada product over there, and we will be utilizing that as much as possible to drive sales and growth.
Earlier agreements were introduced with Norway and Switzerland, and they were also a boost for our sales and ability to position ourselves in those markets. It is definitely an advantage for us to have these agreements in place.
Senator Oh: Another good market for you is Japan. You should look into Japan. Japan will suit your market.
Mr. Richardson: We have been in Japan since the mid-1990s. We were using a distributor before last year and have since made it a subsidiary. Sales are growing in Japan. It's a growth focus for us. It has a nice income, as well as marketplace for outdoor products and ski products. That is where we use the embassy and we have a good working relationship there to help promote the products.
Senator Oh: Great, thank you. Keep on exporting.
Senator D. Smith: My question is for Mr. Masson. I'm quite intrigued by the creative genesis of your company, what you started out doing and then how the jobs have shifted a bit. I'm curious how many of your employees would be in Canada, how many in Mexico and how many in the States, if there are some there too?
Mr. Masson: The States is really just a sales office and we have five people there. There are 100 in Montreal and 40 in Mexico. Our factories work 24 hours a day, five days a week. The factory staff in Montreal is about 60 and the factory staff in Mexico is about 25 to 30.
Senator D. Smith: Are there other jobs in Canada that exist because you exist? They are not on your payroll, but they are people providing you with stuff. Do you have any idea how many jobs there are in that category?
Mr. Masson: It would be hard to say. You could say there is a seven to one ratio, but there are freight companies and all the recycled rubber suppliers. Some are American, some from Ontario, some from Quebec. Certainly we have hundreds of suppliers, freight companies, so I would say probably 1,000 jobs outside of GNR are related to us and our need for raw materials and the freight services to keep us going.
Senator D. Smith: I'm glad to hear those numbers. I thought it might have been a little more of a shift to Mexico, but that's a very good balance and I commend you on this very creative and innovative organization you have.
Senator Demers: It's nice to see people who work hard and who have a vision. I congratulate you for that.
The constraints are very difficult. What constraints are the most problematic for Canadian businesses that wish to expand into the international market?
Mr. Masson: For us, in Mexico for example, finding the right people was key. We visit the factory on a regular basis, but you have to have trust in the people you put in place. That was our biggest challenge. In this case we basically had a distributor go bankrupt. From the ashes of that, we found a very hard-working and trusty individual that we put our faith in and built our team around that person.
We do plan on opening another facility in South America, and the key is finding the right people down there. Once we have people who are hard-working and trustworthy, it helps us feel comfortable to keep going and expanding.
Senator Demers: Mr. Richardson, do you have any feelings on that?
Mr. Richardson: I will reiterate what Mr. Masson said, and that is people. When we're hiring people in Canada or in other countries it's about getting the right partners in each location, whether it's manufacturing or people selling our product in different countries. Having talented people available to promote the brand properly and build the brand in the right way is the key to success.
Senator Demers: Should the federal government, in your opinion, play a bigger role in helping Canadian companies? How do you see that at this point?
Mr. Richardson: If I could answer from Arc'teryx's point of view, we would like to see the federal government take a more active view and interest in how to help apparel companies grow within Canada. There are a number of companies in Canada. It's still a small market overall, but in Vancouver there are $3 billion worth of sales for the companies there. We need support to make sure we have the right people coming through our school systems, to make sure we're trained in the right areas, so we have talent being homegrown in Canada to grow the business. It's a good, healthy business and employees lots of people with reasonably well-paying jobs.
[Translation]
Senator Demers: Mr. Masson, do you have an answer?
[English]
Mr. Masson: As I said before, I'm very pleased with all the programs that the government has put in place. I think they are extremely fair and help us very much. I would hate to see the R & D tax credit program pulled back. I know there have been some changes and reductions on some of the rates, especially for smaller businesses. We want to make sure those tax credits are maintained and are not pulled back through budget cuts.
Senator Eaton: Gentlemen, what great successes you both are and you both have built.
Mr. Richardson, have you or lululemon gone to various schools, design people and trade schools saying, "This is what we need. There are so many jobs.'' Do you think that schools are alive to what you do need and are aware of your needs?
Mr. Richardson: The schools are becoming more aware and alive to the needs. Chip Wilson from lululemon, is funding a school in Vancouver and Arc'teryx has established a scholarship with the school. In general, the number of schools in Canada is not sufficient to produce the number of people we require, especially in some technical areas.
A lot of companies in Vancouver in particular have been growing rapidly, so this is not necessarily our government being short-sighted in planning. But now we need to react as we have a good, strong group of businesses in Canada that want to continue growing. We need the support of government to help that growth continue within Canada.
Senator Eaton: There are so many things in this country that are siloed. You talk about Vancouver. When I grew up, Montreal was the hub of textiles and the textile trade, the "rag trade,'' as we used to say.
Is there any cross-pollination between the West and the East — what's going on in Ontario and Quebec and what is going on in the West?
Mr. Richardson: There is not much right now. It is something that industry needs to get together on more. One of my employees is actively communicating with people at Canada Goose what we can do there. We're working with another Canadian manufacturer.
There is definitely more for the industry to do in that area, to come together to form more proposals to the government.
Senator Eaton: Mr. Masson, we've heard from other exporters and manufacturers that EDC and BDC are both difficult to navigate if you're a small company that's just starting out. Did you find them difficult to navigate at first?
Mr. Masson: No, not at all. Our managers on both those files have always been very helpful. We even started with the EDC and their small-business division, and they were always very helpful. We just moved into their mid-market division, and they actually come to us with ideas. They are very forward-thinking and helpful.
So even as a small- and medium-sized business, we had no problem with them at all.
Senator Eaton: And you, Mr. Richardson? Do you use EDC?
Mr. Richardson: We do not. We have been fortunate to use the regular banking system and the investors in the company for funding.
The Chair: Just to follow up, Mr. Richardson. You're using the regular banking system. When you moved into Mexico, did you continue to use the Canadian banking system? We've heard issues that the banks want a track record, and if you're moving into another country, they're allergic to that kind of move.
So how have you been able to navigate that? Is it because you're still manufacturing basically in Canada and then it's a sales force you're looking to?
Mr. Richardson: This is a question for Arc'teryx, correct?
The Chair: Yes, please.
Mr. Richardson: For us, Mexico is not a market. We do business in Europe and Asia. Initially in Asia, we didn't extend credit, and that was how we dealt with the credit issue there. Especially in China, with a lot of the businesses there was no credit. With Europe, it took us time to develop the credit system and do credit qualifications for our accounts there. We were able to work with our banks in order to extend credit to European customers. So it did seem to be a fairly seamless process, but we were careful at the start.
The Chair: Is it because the banks were working in Europe, they understood the banking system there, they understood the rule of law and the contract basis in those countries that the banks continued to support you there, and had you moved somewhere else in the world, it might not have been as seamless?
Mr. Richardson: Yes. I would say that's the case. I think if we tried to go into China, for example, extending credit would have been difficult. We do business in Russia. In Russia, we do not extend credit. It is cash before delivery in Russia right now. Given the marketplace in that country, it's the smart thing to do.
The Chair: I want to go back to the question of the skills that both of you need in your businesses when you move out. Mr. Richardson you mentioned that the labour impact assessment takes too long. You're not talking about temporary foreign workers; you're talking about trying to bring in skilled labour that you need within your system, and it's taking too long. Is that the case?
Mr. Richardson: Yes. It takes up to six months to get a labour market assessment done, and that is a long time for a candidate to be waiting to find out if they're going to come into Canada. That's detrimental for us in bringing in good talent to the company. We have lost some candidates in the past because of the length of the process.
Just to reiterate, when we compete on a global level, we're also competing against global talent in many other places, so we have to make sure we have the best people on board.
If I talk about our schooling, where schools within Canada do work on the fashion side of things, those graduates are not just looking for jobs in Canada; they're looking externally, as well. That means we're both competing to get international hires and competing to keep our graduates within Canada to stay in Canada.
We need that combination of being able to hire externally to make sure we can bring talent in and also to develop the talent within.
The Chair: In a different environment, recently I was told that our technical training schools, whether they be the polytechnics or the trade schools, actually train people with the approach of going into someone else's business, as opposed to nurturing people to become entrepreneurs. Small business is entrepreneurial, you're going to work in a different environment than in a large shop somewhere.
Is that a problem, or do you see now that the schools are more responsive to the needs of the employers? Mr. Richardson, you can start, and then maybe Mr. Masson.
Mr. Richardson: We find that the schools are producing a good range of candidates. Specifically, in apparels where specific skills are needed, we need more good graduates, and the programs could be more in-depth. There could be support for more training programs where students do work periods with companies to gain more skills. Whenever we're bringing people on who need a lot of training, it's a burden on the company to provide that training, and it would be easier to bring in people who are fully trained.
When it comes to general business skills, our business schools are producing good graduates that have the appropriate skill levels.
The Chair: Mr. Masson, do you have anything to add?
Mr. Masson: Sure. As a small business, you wear a lot of hats in the entrepreneurial field. I'm a CA, but I spend more time in my factory now with urethanes, electronics and rubber. It's exciting, actually.
Because we're rather specialized, a lot of our technology is proprietary and can't be taught in schools, so we try to develop people internally who have been with us a long time. It creates a lot of excitement to stay with the company and to grow. It creates a good family environment. That's how we've developed people over time.
Certainly, at times, we need to hire outside. Thankfully in Montreal, we have four universities. We currently have a posting with McGill and Concordia for a Masters in Chemical Engineering. When we do need to go outside, we have a wealth of candidates capable of fitting into our program, and then they start wearing a lot of hats.
Senator Ataullahjan: My question is to both of you. Both your companies promote sustainability, whether by using recycled materials or actively reducing your footprint. How important is being green or environmentally friendly when doing business on a global scale? Is it now necessary to have an environmental policy?
Mr. Masson: We certainly are environmental, because we use recycled tires. On the world scale, certain markets are more sensitive to the environment. South America or Mexico don't have much of a feeling or care. Europe is certainly more sensitive.
Coming out of the recession in 2008 and the world still being a little sensitive, it always comes down to price. People like the fact that it's environmental, but they're not going to necessarily pay us more because it's environmental. They may pay the same price, but they're not going to pay more.
If we're at the same price point as a non-environmental product, they'll probably look at us more favourably to break the tie, but I don't feel the world economy right now on a large scale is going to pay more for environmental products.
Mr. Richardson: In the apparel world, it is more and more important to have sustainability and corporate programs in place. If you look at Europe in particular, they're ahead of North America in the regulations. It is not just governments but also industry groups and consumer groups and they look at what companies use in terms of chemicals and dyes, waste and how much you spend on transit. Are we air freighting goods or ship freighting goods?
To Alain's point, yes, the cost may not be considered by the consumer, but more and more, the requirement is there to have sustainability within the products and to show through the value chain what we are doing to reduce the footprint of what we do and to reduce the chemicals.
If you travel through Asia and look at the pollution China, it's really not good, and whatever we can do to reduce that footprint is definitely a good thing. It will definitely benefit our companies when they can promote that.
Senator Ataullahjan: We're living in an increasingly connected world. Do you still place importance on face-to-face contact when doing business abroad? Do you still attend trade shows or try to meet potential partners in person as opposed to marketing your company on line or conversing by email or videoconference? Has that landscape changed?
Mr. Masson: Certainly more than ever we use a lot of Internet advertising, pay-per-click, GoogleAd words, things like that. As we were saying before about people being important, absolutely we need to be in front of our major distributors. We need to be with our factory in Mexico or other locations. We still go to trade shows, but there's more of a balance now than there was 10 years ago. You cannot completely ignore your distributors. You need to see them face to face on a regular basis. It's critical in our business.
Mr. Richardson: The same would be for Arc'teryx's business. When someone has been trusting you to sell them products from which they generate their livelihood, it really comes down to that trust to say, "I want to grow with you versus somebody else.'' Whenever you can make that personal connection, it's just another advantage you have to grow the business. It's not just an advantage. It's something you need to do, especially across Asia and Europe. Arc'teryx takes the step of visiting all of our factories a couple of times a year. We visit all of our key accounts. We bring key accounts to Vancouver to help them understand the business and to make them feel that they're part of it and want to continue doing business with us.
Senator D. Smith: Mr. Richardson, I really applaud your success to date. It's very impressive. On several occasions, you mentioned that you'd still like a little more help from the federal government regarding overseas sales in Canadian clothing exports. One thing you specifically mentioned was helping to bring talent in. Within the department, do they have a point person that can sort of help deal with immigration officials to get somebody in where it's really important and necessary, or do you just have to go through the regular procedures? Do they have a point person that could help expedite those situations? Do you know?
Mr. Richardson: We have to go through the labour market impact assessment. There isn't a shortcut around it. We have found that by finding better lawyers you can improve the process, by having a better contact. It's still the standard process that everyone has to go through in order to hire people externally.
Senator D. Smith: Do you have any other specific suggestions as to where the federal government could help you continue to grow your overseas exports? Do you have other specific suggestions where they could help you?
Mr. Richardson: For us specifically, right now, other than helping us to be stronger in Canada, working toward free trade with Japan would be a help. Helping companies set up subsidiaries within foreign companies — helping them set up the financials with the accounts and give credit, let's say, in China or Korea in order to help that business grow.
Senator D. Smith: I'm just wondering. One thought might be that there be a point person in the department when you need to get somebody in because you don't have the talent in the country that could help expedite it.
It's just a thought, chair, that we might take note of. I think it would be worth it.
Mr. Richardson: That would be nice. For us to hire externally, it costs us more. We're using headhunters. We're doing relocation expenses. All of those are extra burdens for the company, but we're doing that because we need the talent in order to help the company grow within Canada. If we could have more attention put on helping the industry and Arc'teryx grow, that would be a huge benefit.
Senator D. Smith: Thank you very much. I believe the witnesses have been A1 in terms of input for our committee, chair. I commend you.
The Chair: You should commend the staff.
Senator Eaton: Mr. Richardson, just to follow up, a new immigration law was just passed — you might ask your lawyers to look into it — where people who want to come to this country are putting their skills into a pool. If an employer wants them, they can be fast tracked. Just ask your lawyers to look into the latest immigration changes. You might find it easier.
Mr. Richardson: Thank you.
The Chair: You two are success stories that seem to have built your business from square one with a global outlook. We have had other witnesses and certainly have heard of other businesses that start out locally and then have great difficulty understanding that the markets are international. What advice do you have to start-up businesses? I'm including small businesses and women entrepreneurs. Why is it that you looked so global, both of you, and built that into your development, whereas others are struggling?
One answer we've been given is that Canadians are risk averse. You don't seem to be. You're cautious, but you're not risk averse. Is there any advice or suggestions you can give the committee for companies that have not been as successful as you have?
Mr. Masson: Honestly, I'm not sure why some Canadian companies only sell in Canada. It seems obvious that when you have a trading partner that's 10 times your size and trades in the U.S. dollar, you would want to go there almost first.
It was almost by default for us, because a lot of our products go on roads, and our roads are snow covered most of the year, so it made sense for us to go to the States. By default, we went to the States because you literally can't install our products from November to March. In the States, you can leave them there all year long. The market is 10 times the size. Back in the 1990s, the exchange was 1.50, so it made even more sense then. With the density of the population, the market is larger. So you have good weather and lots of population. For us, the more population, the better our products are served. They're traffic-control products. So Mexico, with 100 million people, or Mexico City, 25 million people in 100 kilometres, it just screams for a need for our products. When you have a country 100 kilometres from your door that's 10 times your size, you would be silly not to look at that market.
Mr. Richardson: Arc'teryx was similar. Our products were not a Canadian-only market. We're really too small to run a business on it. The key thing there is that when we started the company, we took a global perspective. So we said, how does the brand look? What do the products need to be like? We thought about that and the requirements in global terms. What does it take for us to be successful in the other countries even if we aren't approaching those other countries right away?
Starting off, it's like how do you take that global perspective and what does it take to be successful in the end? Then how do you build a plan to get there? I think that's a key step. To try to go global right away is difficult, takes a lot of money and there is a lot of risk. How do you build a plan, to maybe go to the United States first? Then what is your extension plan into Europe? How do you build that out and make sure you that you understand that from day one you've got an idea of what you're doing?
The Chair: Both of you have stayed in Canada despite opportunities beyond. There are examples of companies that when they want to grow, they followed the money and moved their headquarters to other countries. Often that means moving to the United States. You've maintained your presence in Canada. Both of you seem to think you will.
How is that strategy working? Was it because you were able to get financing and continue the kind of expertise within Canada that compels you to stay here rather than move?
Mr. Masson: For us, I mean there are economic reasons. Well, certainly our owners are from here, so they felt comfortable staying here. But labour rates in general are, we find, very competitive in Quebec compared to many places in the States. Montreal is directly connected to a port. It's very close to a lot of large U.S. cities. Tax rates and corporate tax rates in Canada are lower than in the U.S., even though we have a lot of social programs that make things more expensive overall. We've never felt that we were not competitive by staying in Canada, as opposed to moving to the States.
Obviously, I just described a whole bunch of government support that we have here that we feel is vital for our growth. We travel a lot, and it's always nice to come home. I think the owners feel the same way. We travel to Mexico City and it's nice, but from a security, comforts, schooling and everything, it's a nice place to come home to. When we package all that together, we're not interested. We'll grow and grow in other places, but this will always be home.
Mr. Richardson: To add to what Mr. Masson is saying, it's not just our home; it's our culture, our people. In looking at relocating the company, you would be looking at what that would do. How many people would not be willing to relocate? What skills would you lose?
The company's heart and culture is where it is and that's part of its team structure. A key part for any company to be successful is how well the company and its people work. If you can keep that going you are going to have success and growth. That is a key thing for us. Vancouver is home. It's where we are successful and we're going to keep that going as long as we can.
The Chair: Mr. Masson and Mr. Richardson, you certainly come with optimism for business in Canada. That's very helpful to our study, and we're going to pick up on your positive note as we work toward our report.
Thank you for sharing your stories and for your success in Canada, which I think is encouraging for all us who live here.
Our next witness is from DPME International, Yanick Godbout, Administrator, CIQuébec and Director/Export Trade Commissioner. It is a long title but probably well-deserved covering many areas. Mr. Godbout, we are pleased that you are here. You have been advised of our study on issues of trade promotion and where we can serve better, with particular emphasis on SMEs as they grow. We await your opening remarks before we go to questions.
[Translation]
Yanick Godbout, Administrator, CIQuébec and Director/Export Trade Commissioner, DPME International: Thank you very much. I will give my presentation in French, but I will be able to answer questions in English, no problem.
I am wearing two hats here: one as director of DPME International, which is a regional export promotion organization, and the other as board member of Commerce International Québec. So let me explain the link between the two.
I run what is called an ORPEX, a regional export promotion organization. Each region in Quebec has an ORPEX. This organization has three to eight people, experts in international trade whose mandate is to help small and medium- sized businesses to export.
There are 20 ORPEXs in Quebec; I am in charge of the Chaudière-Appalaches ORPEX, which is between Quebec City and the U.S. border, and includes the Beauce region, Lévis, and so on. That is where Minister Steven Blaney and Minister Maxime Bernier, among others, are from. So there are 20 regional organizations in Quebec grouped under the name Commerce international Québec (CIQ), of which I am a board member. CIQ does not provide services to businesses. There is no structure or headquarters. All the ORPEXs come together at meetings that are held a few times a year and that allow us to train our international trade advisers. CIQ therefore brings everyone together, but it does not provide direct services.
I will now talk about the regional export promotion organization model, the ORPEX, and I will use the one I run as an example.
We are non-profit organizations, partly funded by the Government of Canada and the Government of Quebec. In Canada's case, we get our funding from Canada Economic Development through funding agreements over three years. On the Quebec side, our funding comes from the Ministère de l'Économie, de l'Innovation et des Exportations through three-year agreements once again.
We receive about 40 per cent of our funding. The remaining 60 per cent comes from companies that pay for some of the services we provide. We provide two types of services. We have the free information/advice service. A company that has a problem or a question related to international trade calls us or writes to us, and we spend a few hours helping it to find an answer to its questions; it is a free service.
I can give you a few examples of information and advice. For instance, a company that wants to communicate with a person in China, who wants the company to send them product samples for distribution, gives us a call to ask whether it should send the samples or be wary. We then do a study to determine whether the person in China is reliable and see if the person is registered with the government. We do the checking and we make suggestions or recommendations to the company.
That is the type of information and advice we give for free, all year long, for the companies in our region. We also do screenings and spend a few hours with the company to assess the company's profile, its products and production to be able to provide some guidance for its evolution. This service is free as well. In addition, we also provide exporting diagnostics, which takes between 12 to 14 hours; we go on site and ask the company about its working capital, its production capacity, its marketing and communications team to determine whether, in its inner workings, it is ready to export. When we export, we measure ourselves against the best exporters in the world, our major competitors. So before we take this step, we need to be prepared to do so.
Those are the free services we provide. It is a question of seeing whether the company is ready to export. Since we deal with small businesses especially, they are often not ready and, in our report, we tell them what they need to work on before they start exporting so that they succeed.
The export process represents an investment of $40,000 to $60,000 to try to break into a market. For SMEs, that can represent 100 per cent of their working capital. We therefore ensure that the companies are ready to take that step, otherwise they could end up bankrupt if they try to develop a market before they are ready.
Then, once the company is ready, we can really provide consulting services such as market research and international business plans. We can help companies find their network of distributors or manufacturing agents in a country. We can assess, on the company's behalf, which country has the best potential for it, whether it is the U.S., the European market, or Latin America. We do all the research to help them break into the market.
We also conduct trade missions. We leave with a company and go abroad to meet potential clients. When we find potential clients, we categorize them and we help the company attempt to make sales. My team has six people, experts in international trade. We speak eight different languages, including Arabic, Mandarin, Spanish, Portuguese, English and French, to be able to help companies expand into markets around the world.
Now, some people may question whether we are the same as private consulting firms. We are not in competition with them, because in the case of well-established private consulting firms, services are provided at the cost of $200 and $300 an hour, and those rates are out of reach for small businesses.
They are often family businesses with a dozen or so employees who can make doors, windows, honey, maple syrup, and so on. Basically, there are three ways of exporting. You can hire an expert who will be the director of market development and will receive a fairly high salary, a minimum of $80,000 for a knowledgeable person. However, a small business cannot afford a resource at that rate, when it needs at least a year before it starts to make sales.
Otherwise, there are consulting firms, but, as I said, at a $200 or $300 hourly rate, small companies cannot afford them. So what is the third option? It is not to export and we often see small businesses resigning themselves to that choice, because they cannot afford the other two options. That is where we come in, because we are partly funded by the Government of Quebec and the Government of Canada. We help them organize themselves for free and then we support them at a reduced hourly rate that is within the reach of small businesses. That is basically how we operate; that is our model for the Chaudière-Appalaches region, and we have 20 groups in Quebec providing similar services to small businesses in particular, but also to medium-sized businesses.
As I said, our funding comes from Canada Economic Development and our targets are businesses with 60 or fewer employees. So we are not playing in the flowerbeds of the private sector; we don't work with large companies, but with small businesses that need local services. The other benefit we provide is that we are well established in each of our regions. So the support and training services we provide truly meet the needs of the businesses in our regions. That is basically the model in place all over Quebec.
Those were my opening remarks. I would be happy to answer any questions you may have.
Senator Dawson: Thank you, Mr. Godbout. As I said just now, I live across the river. I am from the Quebec City region, like my colleague Senator Duplessis.
If I start by looking at the Commerce International Québec table, I see that the national capital is not a member of Commerce International Québec, if I understood correctly.
Mr. Godbout: It has been for a month.
Senator Dawson: Not on your website.
Mr. Godbout: It has not been updated yet. In the Quebec City area, Québec International was mandated to be the ORPEX, the regional organization. Now, yes, the Quebec City area is included as well.
Senator Dawson: In that case, in terms of your relationship and partnership with Québec International, how are you able to tell who is supposed to take action and when the other one needs to take over?
Mr. Godbout: We each have our areas, our regions. We have the Chaudière-Appalaches region. Québec International has the Quebec City area, the national capital region.
Senator Dawson: Wasn't it Québec-Chaudière-Appalaches before?
Mr. Godbout: It used to be before, but it is not anymore.
Senator Dawson: Is it only the north shore?
Mr. Godbout: Yes, only the north shore. However, I can take this opportunity to stress the beauty of the ORPEX network and the fact that there are 20 organizations. We bring together over 70 international trade experts who have between 5 and 30 years of experience.
I have someone who was the Canadian consul in Shanghai and who worked at the Canadian Embassy for 10 years. He is our expert in Chinese markets. As a result, if there is another region that has needs in relation to China, my expert can help in another region.
We exchange the work according to our strengths, whether to address geographical needs or industry needs. If there is an expert in the mining sector and another region does not have a mining expert, because there are few mining companies, we help that region. We help each other, all 20 regions. That is the case for the Quebec City region; we sometimes help out in Quebec City, when we have the expertise that Quebec City doesn't. That is the beauty of the network.
Senator Dawson: SMEs used to work more locally. And now you have international SMEs?
Mr. Godbout: We have international companies, but our region is Chaudière-Appalaches.
Senator Dawson: Do you manage to offset the absence of Québec International in Chaudière-Appalaches?
Mr. Godbout: Absolutely.
Senator Dawson: I follow your activities a little through the south shore newspapers. I saw the creation of DPME. It was a little confusing for me because, when I was surfing the website, the north shore was not there.
Mr. Godbout: Yes, because our region stops at the river.
Senator Fortin-Duplessis: We are pleased to receive you today, Mr. Godbout.
In light of your experience, can you tell us about the particular challenges that Quebec companies are facing? To what extent are those challenges different from those of companies elsewhere in Canada?
Mr. Godbout: Language is one, of course. When we talk about small companies, such as family businesses in the Quebec regions, a number of them are not fluent in English. As a result, exporting to the U.S. or elsewhere becomes a concern.
We also provide assistance in that sense. For instance, we organize meetings with buyers at Home Depot, Lowe's or Walmart in the U.S.; we offer to accompany the company from Chaudière-Appalaches if the executive does not speak English to help them negotiate with potential buyers. Language is therefore a barrier that prevents people from going into exports. That's what limits some Quebec businesses compared to those in the rest of Canada.
Senator Fortin-Duplessis: Can you give us examples of the trade promotion services that these companies use the most? Are they language services only?
Mr. Godbout: There is really everything depending on the structure of the company and the profile of the leaders.
If we talk about a company that makes wood flooring, sometimes the executive is an expert in the sawmill industry who knows nothing about international trade. Our approach will therefore be different. Other times, some people are very familiar with the market development aspect; they bought a company, so they need less help along those lines. It is on a case by case basis.
We often see that companies are not ready. Some exporters are structured, but that is rare among small businesses. Often, companies receive an order from outside by chance — often through their website — and they hope to export, to develop their market, but they have no idea how to go about it.
The entire export structure is very complex, even with the free trade with the U.S. There is a lot of complexity involving the transit, going through customs, product registration to have the products approved in the U.S. If it is a health or food product, the FDA has to approve it. How do you obtain the FDA's approval? It is very complicated, and a small business does not know how to go about it and gets discouraged.
That is when we can help them with the process. Our approach, which is different from that of the private sector, is to work with the company, to provide support. So there is training at the same time. The company sees how we handle the export process. Our goal is for a company to become self-sufficient as soon as possible. We do the training at the same time as we prepare the mandate together so that it can learn what to do next time. It is often about being ready to export and knowing what exporting entails. Many people don't know.
We see companies participating in trade fairs in the U.S. or in France and they provide a selling price to a company and say that they will take their selling price in Quebec plus 15 per cent to cover the transportation fees. However, the export price includes many more fees than that: transit fees, customs clearance fees and registration fees. Businesses often overlook those fees and sell at a loss, because they did not properly calculate everything related to the export price.
The major gaps come in the basic preparation.
Senator Fortin-Duplessis: Are there problems other than the ones you have described for someone who wants to export and doesn't know how? What are the most common problems that you have identified with small businesses?
Mr. Godbout: The main one is access to financial support. Small businesses have the expertise, but don't have the resources. To take part in a fair abroad, you need $10,000 to $12,000 for renting the display space, the kiosk, plane tickets, accommodation and English-language documents; that's $10,000 to $12,000 for an event from which you are not sure you will draw benefits in the months to come. That is a deterrent for businesses, although they often have a product with an export potential. They get that little boost if governments have export programs in place.
Right now, there are none in Quebec or Canada. Two years ago, the Government of Quebec had an export program that used to reimburse, through grants, 40 to 50 per cent of the cost of participation in trade fairs.
For the $5,000 they had to pay, companies would decide to participate. Now, companies feel that the amount is too high, that they will wait until there is a Quebec or federal government program to help them.
Canada has a fine program through Canada Economic Development Canada, which is an interest-free loan over two years with repayment over five years. That is appealing in the case of large market development projects, but in the case of small $10,000 projects, when you have to work hard to obtain a $5,000 loan for seven years, businesses often feel that it is not worth it.
Obtaining small grants can make a big difference. Prime Minister Harper announced a $50 million subsidy program to help small businesses with exports. We have yet to see the details of the program, but that sort of measure can really help.
Senator Fortin-Duplessis: Thank you, Mr. Godbout.
Mr. Godbout: It was a pleasure.
Senator Eaton: Good morning, Mr. Godbout. Thank you for being here today.
Do you have a relationship with BDC and EDC?
Mr. Godbout: Absolutely.
Senator Eaton: How does that work between you?
Mr. Godbout: We work a lot with EDC especially. BDC is a financing bank, but it is only for businesses. We do not operate in financing. In terms of exports —
Senator Eaton: Do you refer clients to BDC?
Mr. Godbout: Yes. We tell our clients about the range of financing services, such as BDC, financial institutions or lending programs. We tell them about all the programs available, including those provided by BDC.
We work very closely with EDC because the services we offer complement each other. EDC does not provide advisory services, so it often refers companies to us. Since EDC invests in the projects of companies, the company needs to succeed for it to be profitable. EDC sends companies to us, and we provide advisory services. We recommend that companies insure their merchandise for export, and we refer them to EDC to obtain credit insurance on their products.
Senator Eaton: So you complement one another?
Mr. Godbout: Yes, absolutely.
[English]
The Chair: Mr. Godbout, do you use any financial services in Quebec that perhaps the rest of Canada does not have that are particularly helpful? I know there are some, but are particularly helpful for export?
[Translation]
Mr. Godbout: Yes, there is the ORPEX network, for organizations like ours, that exist only in Quebec. The Government of Quebec chose an organization in each region that had expertise. It is the Quebec government that has helped to create the network of organizations like ours. This initiative finances our organizations, so each one receives $120,000 a year from the Government of Quebec. As I said, until two years ago — and I hope it will be back very soon — there was a subsidy program for exports. The Quebec treasury board is looking into the project, and we expect it to be approved. It would bring back the direct subsidy program for companies, and would make it possible to finance approximately 40 per cent of costs related to foreign travel, where companies can go and meet with potential buyers. I do not know if this exists elsewhere in Canada, but Quebec is one of the only provinces, if not the only one, that will again start providing direct subsidies to companies for their services.
[English]
The Chair: You pointed out the extra costs of perhaps the language barrier for some companies who don't have an English capacity when they go to the United States. Some parts of the world that I work with are looking for the French capacity, particularly in IT services, et cetera. Those are centred in some parts of Europe, in Africa and certainly in Asia. Have you had any particular experience in using especially small- and medium-sized enterprises that may be unique and valuable for those markets? We have heard from other businesses; sometimes you export because you grow; sometimes you export because you have something unique and the world needs it in small, niche markets. How have you expanded and worked using the French base as an incentive and an opportunity?
[Translation]
Mr. Godbout: Frankly, when we conduct a study for a company to help the company choose its market, we do not really take the language into consideration. Companies want to sell, to grow, to make more money, and this is also good for the Canadian economy.
So, the company wants to go where there is the best potential. If it is in Brazil, so be it, and we will have our website and documentation translated into Portuguese. We are not going to favour West Africa over Brazil if the real commercial market is in Brazil. If it is a francophone market, that of course makes communication easier and all of that, but it is not at all the primary objective.
You mentioned Haiti, but that mainly involves humanitarian aid. A for-profit SME will not consider a market using those aspects. Instead, it is more the potential international market. However, is it true that this is an asset? In Europe, for example, English and French are prominent, so knowing French is an asset. Many entrepreneurs speak English, but in Europe, we can succeed in selling our products. So it becomes an asset, of course, when we consider using it. Furthermore, as I said, language — someone who speaks English will not favour an English-speaking area over another market that is not English- or French-speaking if the potential is there.
[English]
The Chair: Have you seen a trend of small- and medium-sized business in Quebec thinking more globally? One of the issues that we face is that we're told the companies that are risk averse seem to be more focused internally in either their province or their region and the world is going more global. Do you see any trend in the change in thinking within your constituency toward reaching out?
My ancillary question to that is: Do you reach out to the companies or do they reach out to you? In other words, how do you get your service base?
[Translation]
Mr. Godbout: To answer the first part of your question, our region is near the United States border, and the Beauce and Thetford regions in Chaudière-Appalaches, are close to New England. We have seen a very big impact since the mid-2000s, when the exchange rate was not in our favour. A lot of companies that did up to 80 per cent of their sales with the United States dropped to zero. So many companies went bankrupt because they relied on only the American market, and sold only because of the exchange rate, which gave them a 30 to 40 per cent advantage over Canadian companies. That is the kind of impact. Right now, we are seeing the opposite: a lot of companies in our region are getting back into the United States because they see that they are becoming very competitive now because of the exchange rate. It is very short-term, according to the analysis.
So, yes, there are trends related to the exchange rate. There are also economic crises. In 2008-2009, when the United States was at the height of their crisis, the Buy American Act was implemented and created protective measures. Of course, there was a direct impact on the companies. As I said, some companies were forced to go bankrupt for that reason.
We have been seeing the opposite for a year now: a lot of companies come to us and say that they want to start exporting to the United States or to take back the portion of the market they had in the United States 10 years ago.
We are talking about the United States, but this is happening elsewhere, too. A company consulted us recently because it has a very important client in Russia, and a large part of its sales is done in Russia. Everything had to be insured, and its merchandise for export went through EDC. Now that Canada has an embargo on Russia, and vice versa, and some diplomatic issues, all of this means that EDC no longer has permission to insure Canadian exports to Russia. So the company has lost its client because of external factors. There are always these external factors that determine whether companies have an interest in exporting or whether they lose it.
The other part of the question has to do with how we contact companies. So that we do not compete with the private sector, we do not solicit or go door-to-door to companies to offer our services. We always use referrals. These companies have heard about us and come to us, or we are recommended to them by EDC, Investissement Québec, financial institutions, banks, regional organizations, or cities and municipalities that tell them that they have needs, but that there are international SMEs that can help them. It is always through referrals, word of mouth that helps us greatly.
I can give you some figures on our results. For example, last year, we worked with 141 companies for export only. So for unique businesses, there are many companies, two or three times. In total, that is 733 participating businesses linked to our services and activities. We calculate that there are 1,200 or 1,300 manufacturing SMEs in Chaudière- Appalaches. So every year we are reaching 10 per cent of businesses with our services. Our services are fairly well known. It is through word of mouth, the reputation. We do group activities. For example, Senator Demers came to Chaudière-Appalaches in the fall for training on leadership, on how to be a good leader. So there are businesses that have learned about us through this activity and later come to see us to obtain our services.
[English]
The Chair: That may be a good note to end on. Our senator has accelerated your success in Quebec. Obviously, you have presented before. You have been extremely efficient in presenting what we needed to hear in your presentation and the questions you answered. You have a unique situation and a unique niche and it is extremely helpful in our report. We trust the positive points you have brought will be embedded in our report.
Thank you for the time you have taken.
Mr. Godbout: Thank you for the invitation.
The Chair: Senators, we are adjourned.
(The committee adjourned.)