Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 22 - Evidence
OTTAWA, Tuesday, February 18, 1997
The Standing Senate Committee on Foreign Affairs met this day at 3:00 p.m. to examine and report on the growing importance of the Asia Pacific region for Canada, with emphasis on the upcoming Asia Pacific Economic Cooperation (APEC) conference to be held in Vancouver in the fall of 1997, Canada's Year of the Asia Pacific.
Senator John B. Stewart (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, the pressure on time is considerable this afternoon because of the budget presentation at 4:30. Several senators cannot be here because of other Senate duties outside Ottawa, but we thought we should go ahead because the evidence we are going to hear this afternoon is very important at this point in the work of our committee.
One other detail: Tomorrow, the committee will be having an in camera discussion of its future work. The point is this: With the prospect of a general election in the late spring or, let us say, in October, we have to try to carry our work forward to the point where we can say something that will be useful before the APEC meeting in Vancouver late in the fall. The only way I think we can do that is by developing an interim report. Therefore, what I should like to discuss tomorrow is the possibility of an interim report to be prepared within the next few weeks, and the possible content of that. I would like to have that meeting tomorrow after Royal Assent because, given the parliamentary calendar, we will lose next week, and if we lose next week without that decision having been made this week, I am afraid the prospect of even an interim report becomes somewhat doubtful. I wanted to say that in a preliminary way.
This afternoon we have, from the Alliance of Manufacturers and Exporters of Canada, Mr. Bruce Heister, the Executive Vice-President Asia-Pacific Region, of Alcan; Mr. Tony Yuen, Senior Vice-President of Nortel; Mr. Barry Grace, Trade Consultant with a particular focus on the Asia Pacific area; and Mr. James D. Moore, the Vice-President, Policy, of the alliance.
I now turn the floor over to them.
Mr. James D. Moore, Vice-President, Policy, Alliance of Manufacturers and Exporters of Canada: Thank you, Mr. Chairman and senators. The alliance appreciates this opportunity of meeting with you to discuss the importance of our relationships in the Asia Pacific region. I believe you met with some of our members in Vancouver recently.
What I would propose, Mr. Chairman, is to introduce my colleagues a little more fully, and keep my remarks very short so we can benefit from the tremendous experience represented by my colleagues here.
Just to introduce my colleagues a little bit more fully, Bruce Heister has a tremendous amount of experience in Asia Pacific. As you mentioned, Mr. Chair, he is currently the Executive Vice-President for Asia for Alcan but his experience goes back many years. He was Managing Director of Alcan Australia Limited. He moved on to become President of Alcan Pacific Limited. He then held the position of Executive Vice-President, Asia Pacific, and was appointed to his present position in November of last year. He is also active in the Canadian Chamber of Commerce in Japan, and has served as Vice-Chairman of PBEC and director of the Canadian committee.
Tony Yuen is Senior Vice-President for new market development at Northern Telecom. He is responsible for new business initiatives and strategic alliances in the Asia Pacific region. Over an extensive career with Nortel, he has been very involved in the R&D and technical side but moved over to take a broader interest in the marketing side when he was appointed as the Senior Vice-President in charge of strategic planning and business development in Beijing, and later as the Vice-Chairman of Nortel in China.
Barry Grace has spent much time in the software industry. He was manager of off-shore operations for Cognos for a number of years and moved on to look after that company's third-party sales in Latin America and the Far East. From 1988 to 1992, he developed Cognos's partner network in Japan and established its Japanese subsidiary. Subsequently, he has been looking at some of the APEC members on this side of the Pacific -- Mexico and countries of Latin America.
That is the team we have brought. They represent a tremendous wealth of experience and I am sure we will have some very interesting discussion.
The alliance, as you are probably aware, is a new organization in Canada. It was founded last year following a merger of the Canadian Manufacturers Association and the Canadian Exporters Association. You have already heard from alliance representatives in Vancouver and you will understand that we see the countries of the Pacific basin as being pivotal to Canada's future prosperity as we enter the 21st century.
I will not bore you with a lot of statistics because I suspect you have heard them all already. I could talk about phenomenal growth rates and the share of GDP in the world that Asia Pacific represents and is likely to represent in another 5, 10 and 15 years. They are incredible figures. At present, about 9 per cent of our total exports go to the region, and that is excluding the NAFTA members of APEC. There is clearly much room for improvement. The opportunities are staggering.
Many of the countries are recording growth rates in the 5 to 10 per cent range and their appetite for goods and services, particularly infrastructure such as power, transportation and telecom, present enormous opportunities for us, and I would not leave it there. The whole range of Canada's products and services has potential there.
The key, from the alliance's perspective, is recognition of the challenge and the opportunities. We must shift our traditional emphasis. I am not sure whether the alliance, when it met with you in B.C., would have agreed with this, but in central and eastern Canada we tend to think north-south, and we should all continue to do so, but we also think in Atlantic terms and our traditional markets across the Atlantic.
We need to shift this focus. We think that the declaration by the Prime Minister of this year as the year of Asia Pacific is a very important first step. At last count, 83 APEC-related events were being organized across the country this year. The alliance is involved in many of them and spearheading some.
However, recognition is not enough; there must be commitment. Business is not conducted in one brief flying visit, a point my colleagues will, I am sure, underscore. Companies must recognize the importance of developing long-term relationships and the need to invest for the long term.
I have gone on longer than I had intended to. I should like to call on Bruce Heister to talk about some of the experiences that Alcan has had over the years. They have probably been in this market area longer than most Canadian companies and have a perspective on the future which will be interesting to you.
Mr. Bruce Heister, Executive Vice-President, Asia Pacific Region, Alcan, Alliance of Manufacturers and Exporters of Canada: Thank you for the opportunity to appear before the committee. My responsibilities in Alcan are to direct Alcan's existing investments and businesses in the Asia Pacific region, as well as to develop profitable -- the operative word being "profitable" -- new growth opportunities for Alcan in this region.
The Asia Pacific region is very important to Alcan for three major reasons: first, as an export market; second, as an investment opportunity and; third, as a raw materials source for the aluminum business.
Alcan's experience in the Asia Pacific markets started in 1901. The first export order and the second shipment from Canada's first aluminum smelter at Shawinigan Falls was bound for Yokohama, Japan -- all 30 tonnes of it.
Today, Alcan in Canada produces and ships one-quarter million metric tonnes annually to the Asia markets. In total, the Alcan group of companies in Asia produces, fabricates and markets three-quarters of a million tonnes of aluminum and related products.
Fortunately, my personal experience in Asia did not start in 1901, or I would not be here today, nor would I have had the opportunity to view the rather dynamic growth of the Asia Pacific region over the last 25 years. During that period, Japan demonstrated amazing resiliency through several oil and foreign-exchange shocks, yet today suffers a crisis of identity and conscience over the bursting of the bubble economy.
Hong Kong, Singapore, South Korea and Taiwan emerged as the new tigers in Asia, and then lost their competitive edge as their labour costs rose. Indonesia, Malaysia and Thailand have developed through economic stimulation of direct foreign investment. China and then India have opened and reformed their previously centrally controlled economies. Australia and New Zealand awakened to the realization that their futures were in Asia and not as insular Anglo enclaves in the South Pacific.
This illustrates that the Asia Pacific region has been, is, and will be a market area of continual change, and that a person like myself, a company like Alcan, and a country like Canada must be flexible and alert to the challenges and opportunities that this change will bring.
Part of being alert as a company means having senior management involved in the region. Alcan's president and CEO, Jacques Bougie, is co-chairman of the Canada-Japan Trade Council and was recently appointed to the Prime Minister's Council on Asia Pacific.
I was, among other things, the first senior Alcan manager to be posted in Asia and to work from that location rather than from a headquarters in Montreal. As Mr. Moore pointed out, I have served on the Canadian committee of PBEC and continue to serve on PBEC's international special committee on the environment. Many of our local managers in Alcan, whether in Korea, Hong Kong or Japan, are very active in the various bilateral groups such as the Canada-Korea Business Council.
In 1986, Alcan Aluminium had annual sales in Canadian dollars of $10 billion and shipments of 2.6 million metric tonnes. These figures are an update of those shown to this committee by Alcan about 16 months ago when we talked to you about the 6 per cent duty and tariff issue vis-à-vis the European Union. While revenues, shipments and major capacity numbers are about the same as 16 months ago, there are 6,000 fewer employees. Most of those job losses are not in Canada, by the way. It is a negligible amount in Canada.
As you are probably aware, Alcan has been refocusing its business over the past several years and disposing of non-core and non-performing businesses, a process that is just about at its end. This reduction reflects the disposal of businesses primarily in Europe, the United States and South America.
As the most international of the major aluminum producers, Alcan's shipment mix is in pretty good shape relative to the overall regional consumption mix. It is perhaps a little over-exposed in North America and a little under-exposed in the Asia Pacific region.
Alcan has an impressive presence in Asia, especially when one includes the totality of our Asian affiliates and subsidiaries. I will show you some details on that later. The dynamic growth expected in this region means that Alcan's under-exposure could rapidly worsen if we do not do anything about it. However, Alcan is doing something about it in terms of exports, investments and the development of raw materials. We trust that the Canadian government will also be doing their part in ensuring secure access for Canadian trade and investment in Asia Pacific markets.
Asia Pacific covers a lot of countries, as does the Asia Pacific Economic Council, APEC. My comments today will cover major sub-regions on the western edge of the Pacific Rim or, as we westerners think of it, the mysterious East. This would include East Asia, Japan, China, Koreas, Southeast Asia, the ASEAN countries, plus Australasia with Australia and New Zealand, plus South Asia, which is actually not part of APEC at this moment in time, though India would certainly love to be a member.
In contrast, of course, APEC also includes countries on the eastern edge of the Pacific Rim, such as Canada, Chile, Mexico and the United States.
From the aluminum industry's perspective, the countries of the Asia Pacific region are at different levels of economic development and different stages in the application of aluminum. A good illustration of this is that, in North America, we consider the building products business a pretty mature business and one from which Alcan has withdrawn except for supplying aluminum. However, in Asia, it is the fastest-growing and one of the largest businesses. We still pursue building products business in the Asia market.
Because of these different economic levels and different stages, each market and country requires a different approach. Certainly no one marketing or investment strategy applies to the region overall. This need for varying approaches also applies to dealing with the legal structures, the barriers to trade, and protectionism that exist in these various countries.
What is required is that Alcan must continually review its understanding and strategy in all of these countries on an individual basis. Time does not permit me to explain Alcan's interest and strategy in each of these countries, but a brief look at our history will give you a idea of how Alcan's strategies have evolved in some of these countries.
I mentioned that the first export shipment and Alcan's involvement started in 1901. Alcan is probably the only multi-national company that was born as an international company when, in 1928, Alcoa made a strategic decision to split itself in half. One half of the company was to concentrate on the domestic market. The other half was to concentrate on the international market.
It may come as a surprise to some Canadians and Quebecers that Alcan has not always been a Quebec-based Canadian company. In fact, Alcan started out as a holding company in the United States, in Boston, with investments in Canada and the U.K.
Today, however, Alcan is viewed in Asia as an international Canadian company. That certainly has its pluses in dealing with some countries to some extent because of the gentler, non-threatening approach of Canada, as compared to our neighbour to the south.
Our experience investing in Asia started in 1931 with our first joint venture in Japan and also another one in China. It has continued on to the present time. In fact, our major export thrust did not start until Kitimat, B.C., was built and up and running in the 1950s.
Our interest in Asia as a source of raw materials began with our bauxite mining in Malaysia in 1956, continued with the formation of the Queensland Aluminium Company in Australia in 1964, and continues today with our present studies of bauxite mining in Australia and in a major bauxite mining and aluminum project in India. Along the way, Alcan geologists have studied the rich bauxite resources of Viet Nam; however, the development of business in that country will depend on the necessary infrastructure and, obviously, a favourable investment risk. Investment in Viet Nam will probably be put off for several decades into the next century.
Probably the most exciting investment opportunities today are in China and India. These countries have a combination of resources and aluminum demand or consumption not generally found in other countries. The Canadian government's early recognition of China when it first opened up gave Alcan a good export opportunity. It also provided a good reputation on which to continue with its investments in that country. Because the investments there are now reaching in excess of $1 billion, we must do a lot of homework. We must understand the risks, both commercially and politically, and we want to advance at our own pace. We also want to be cautious.
The companies in the Alcan group in Asia today have total revenues of $9.6 billion Canadian, shipments of three-quarters of a million metric tonnes and 29,000 employees. Since Alcan's shareholding in most of these companies in Asia is less than 50 per cent, only a small fraction of these numbers are actually included in the numbers which I showed you earlier. So, in essence, the business activity of the Alcan group of companies in Asia is a second Alcan in size.
Actually, all that Alcan does in many cases is to take the equity profit and put it into their books, so there is a lot of volume going on outside Alcan's operations.
In opening I mentioned that Asia was important to Alcan for three reasons: exports, investments and raw materials. Since the price of aluminum is set every day on the London metal exchange and is very much out of our control, it is important to us to reduce our costs. Minimizing cost to market is an important means of creating value for Alcan shareholders.
Some of you may remember this slide from last time, pointing towards Europe, showing that it costs $50 to ship from Quebec to Europe, and $50 to ship from Quebec to the mid-west. It costs us $50 to get from Kitimat to Asia, but $90 to get from Kitimat to the mid-west, which is where the bulk of American consumption takes place. That certainly makes Asia an attractive export market for Alcan with a West Coast base.
Investments in the aluminum industry require at least a 30-year time horizon and, therefore, one analytical approach we use in determining long-term aluminum consumption potential is, in our jargon, the bubble chart. Along the horizontal axis is the expected growth rate of aluminum consumption over the next five years in each of the areas or countries shown on the chart. The vertical axis is the per capita consumption for aluminum at the end of those five years.
That is similar to measuring economic development of a country in terms of the GDP or other economic activity per capita.
The size of the bubbles represents the new incremental consumption of aluminum during that five-year period, regardless of how big the market was to start with.
As you can see, even after five years of 8 per cent annual growth in China, India and elsewhere in Southeast Asia, there will be considerable additional growth as the aluminum consumption per capita moves upward towards the levels of 24 to 25 kilograms per capita that is enjoyed by countries such as Japan, those in Western Europe and North America.
This may be more than you wanted to know about measuring aluminum consumption, but it certainly demonstrates the long-term growth potential that supports aluminum investments in Asia.
The third interest that we have, of course, is raw materials for the industry. I believe in our presentation to you in January you were given a brief overview of the structure of the aluminum industry. That is, God has seen fit to put the raw materials basically in semi-tropical areas.
Fortunately for Alcan, God put a lot of snow and slope in Canada to produce electrical power. The consumption takes place in North America, Europe, China, India and Japan.
For the raw material, we have to go to where it is, and Asia, as you can see, has over 40 per cent of the future resources and reserves of bauxite, as compared to Africa, and, to a very small extent, Europe and North America. The region is important to the aluminum industry and to Alcan as a source of future raw materials.
As you are aware from Alcan's previous appearance before this committee, and from our public position on trade issues, Alcan supports a fair, free and rules-based world trading system. Asia Pacific countries that are not yet members of the World Trade Organization, WTO, should be encouraged and assisted by the Canadian government to develop their domestic rules of law such that their WTO membership can be expedited.
Fair trade also relates to the issue of business and government ethics. Alcan has taken the position, in a number of countries, that we are big enough to just say no to the pressures for bribes or other inducements. It is important that the Canadian government continue to give this message as a standard for all Canadian companies and for other countries.
In addition to our desire to have the Canadian government ensure that countries where we trade and invest have recognized legal systems or structures, Alcan believes that there are some inconsistencies in Canada's tax treaties and domestic tax law which affect efforts of Canadian companies in Asia.
For example, the taxation of capital gains is not treated in accordance with the OECD guidelines and with the tax treaties Canada has with Japan, India and China. Also, Canadian tax law does not allow foreign tax credits for taxes withheld from fees paid by Indian companies for training and engineering services supplied by Canadian companies.
Both examples result in double taxation to Canadian companies. We would encourage the Canadian government to resolve these impediments to foreign investment and services contained in some of the tax treaties and Canada's own domestic tax law.
Exports from Alcan's Kitimat smelter in British Columbia represent half a billion dollars a year of export revenue to Canada. If Alcan had been allowed to complete the Kemano project in British Columbia, that annual revenue would have doubled to over $1 billion annually.
Even with the unilateral rejection of the project by the British Columbia government in January of 1995, Alcan remains committed to this export business. Depending on a reasonable, negotiated or court-ordered outcome, we will remain committed to the long-term potential for additional exports from Canada aimed at the Asia Pacific market.
I thank the committee for allowing Alcan to appear, and I thank the alliance for arranging the appearance. At the end of the presentations, I would welcome your comments and questions.
Mr. Tony Yuen, Senior Vice-President, New Market Development, NTL, and Vice Chairman, Nortel China: Mr. Chairman, honourable senators, it is a pleasure for me to take this opportunity to share with you my experience and the experience of Northern Telecom in the Asia Pacific region.
I will start off by talking briefly about my involvement in the region, then about Nortel's activities in the region, especially in the last couple of years, and then about Nortel's globalization thrust which is based on the evolution of the information technology and the partnership we have with the Canadian government, especially Industry Canada. I will then talk about our involvement in the future. I hope my information will be of use to you.
As Mr. Moore mentioned, I spent the first 20 years of my career in research and development. However, as Northern Telecom globalized, I ended up, for the last 10 of those 20 years, helping Nortel set up markets around the world in the area of technology or information transfer.
For Northern Telecom, I have set up offices in the United Kingdom, in the U.S., in Japan and, of course, recently in China.
In 1993, we signed a major memorandum of understanding with the Chinese government and the state planning commission which led Northern Telecom to invest over the following two or three years over $100 million in the Republic of China, and to set up another five joint ventures.
I was asked to move to China to oversee the transfer of the technology, both its R&D and manufacturing base, so I spent two years living in Beijing.
I have come back to North America, particularly to Toronto, to Northern Telecom's headquarters. Since then I have been appointed the vice-chairman of the Canada China Business Council. I hope I can serve that council well.
I should like to tell you a little about Northern Telecom. I am sure you have read about Northern Telecom in the paper lately, because the company has grown over 20 per cent every year since 1994 and our global revenues have now reached over $17.5 billion Canadian. Close to 35 per cent of that revenue is from outside of Canada and U.S. While our North American business is growing at a healthy pace, the growth is even bigger in the rest of the world.
I will give you a little more information later on about how well we are doing and what we have to do to succeed in the Asia Pacific region.
I came back to Canada and started to examine what we were doing. I had learned a few things along the way. After having spent 17 years of my career in Ottawa in our research and development centre, I still keep track of the statistics of our R&D sector, almost as a hobby.
I found that of the 22,000 Canadian that we employ in Canada right now, over 50 per cent are involved in research, development, design and engineering. We have increased our knowledge base considerably. Therefore, it is not surprising to me that when I look at the other statistics in front of me, we are increasing our exports from Canada to the rest of the world.
Northern Telecom is now 101 years old. We have actually introduced a new name. We now call ourselves Nortel. Previously, we had many different acronyms, such as BNR and NTJI, for Nortel Japan Incorporated, and NTUK. Now we call ourselves Northern Telecom or Nortel. We have locations such as Nortel Canada, Nortel U.S., Nortel Japan and Nortel China. We are really going after globalization.
We have also introduced the terminology "world of networks" because we find through deregulation that more of our customers come from different parts of the world. Many of our customers are not the traditional service providers that once dominated the telecommunications infrastructure in the world.
We have about 7,000 employees in the Asia Pacific in manufacturing, R&D, sales and marketing. We have divided the Asia Pacific into three super-regions. One is focused on greater China, which is composed of the People's Republic of China, Hong Kong and Taiwan; one is focused on Japan; and one large group is focused on what we call the Asia South Pacific, which comprises basically all the rest of the regions that Mr. Heister mentioned, such as Australia, Korea, India, Vietnam, Thailand, Malaysia, the Philippines, Singapore, and so on.
Our business in the Asia Pacific has been growing over 30 per cent a year for the last four or five years. Despite that, looking at market research reports, many of our major competitors, such as Alcotel and Siemens, draw close to 20 per cent of their global revenue from the Asia Pacific. Northern Telecom's revenue in the Asia Pacific right now is a little less than 10 per cent. We know that to be as global as we want to be, we have to take advantage of the opportunities in the Asia Pacific, especially working with other partners and other Canadian companies.
Most of our customers in the Asia Pacific are working with us partly because Northern Telecom has a good reputation, but also because of the Canadian reputation. You have to be there to appreciate it.
I want to apologize to the committee for the fact that I did not bring any charts with me. In the Asia Pacific, I find that most meeting rooms do not facilitate using charts at all. When you talk to a minister in China, you sit beside him. It is awkward to stand up and say, "Hey, I know how to use a Mac." In most of my conversations, I have to explain Canada and Northern Telecom through words.
I have benefited greatly from my two years in the Asia Pacific. I have had the opportunity, for which I thank Northern Telecom, to learn to speak fluent Mandarin. Before I went there, I spent 30 years in Canada. I have no idea whether I am a Canadian Chinese or Chinese Canadian, but now I can speak fluent Mandarin.
As a technical person, I have this great tendency to go to the board and draw diagrams about what I am designing and what I am doing. Of course, in my new job of strategic planning and government relations, I often have to explain what I do with words only. When I am in some other parts of the world, I must use a translator. The fact that I can use both the Chinese language and the English language reasonably well has helped me tremendously in my work in the Asia Pacific.
What is Northern Telecom doing in the Asia Pacific right now? From the point of view of going after new customers, we are very fortunate that deregulation is moving forward at a rapid pace in almost every country in the Asia Pacific. It may be a little slower in places such as Japan and China, but certainly it is moving very fast in Singapore, Hong Kong, Taiwan and recently in Thailand, Malaysia, Indonesia and the Philippines.
I can show you a chart dealing with our presence in the Asia Pacific from 1994 to the beginning of 1997.You can see we have made many new inroads with respect to our map. We have recently done extremely well in Thailand. We have done very well in the Philippines and in Malaysia. Two years ago, I would not have been able to share this with you.
Most of our customers buy from us because they are new service providers. They need to put new networks together. What better company to work with than Northern Telecom? We have learned from what we have done with Bell Canada and the other Canadian telephone companies. We have the ability to put total networks together with our equipment, engineering and design. We have also had the help of Bell Canada Enterprises. They know how to operate a network as well. The number of customers we have in the Asia Pacific right now is almost double what we had as little as two years ago.
Given that we now have a manufacturing base in the Asia Pacific, we are also building up our research and development base. We understand that in order to serve certain markets, we must do certain kinds of engineering design closer to the customer. By setting up laboratories in Australia, Japan, India and China, we found that we have become much more responsive to what the customer is looking for. That is particularly true in our dealings with new service providers that do not have a large engineering staff to serve them.
Another thing we are doing in the Asia Pacific right now is related to university interaction. We have a very strong university interaction program in Canada. Some of you may have heard or may have seen in the papers that we have become partners with the University of Toronto and set up the Nortel Institute of Telecommunications. We are using similar techniques so that we can repeat the experience of being able to recruit the best resources from the universities in Canada. In terms of manufacturing, R&D and university interaction, we intend to move the things we have learned and which have kept us successful in Canada into the rest of the world. We especially want to take advantage of the economic boom happening in the Asia Pacific to be on the leading edge. When we entered the Asia Pacific, many of our competitors had been there many years before us.
I would like to conclude by talking about the future of Northern Telecom in the Asia Pacific. As well, I would like to talk about our involvement with Team Canada and some of the activities we are doing in conjunction with the Canadian government.
We have had two very strong years. Our customer base is growing by leaps and bounds. One statistic is that there are about 1,700 service operators or service providers globally right now. Market research predicts that in the next five years, 1,700 service providers will be added to the telecommunications scene. We certainly want to be the provider, the supplier and the partner to many of these 1,700 as well. In other words, our activities will become even more global as more service providers around the world begin to build their networks.
Given that we are a knowledge-based company, more and more of our people will be involved with research and development, design and engineering.
We also see that an increasing percentage of our work force will become knowledge-based. We were something in the order of 30 per cent 10 years ago. Some of my colleagues mentioned that we are now close to 65 per cent to 70 per cent. Perhaps two years from now, if we get a chance to appear before your committee again, we may be able to give you the statistic of 80 per cent or higher. This is where we are going right now. Because we are Canadian and because we have learned how to do it well, we are quite confident that this is the right strategy to move forward.
Because we cannot do everything ourselves, and because more and more of the R&D around the world is being done by small companies, whether small Canadian companies or small Singapore companies, we intend to become a partner increasingly in this regard. Hopefully, we can show that by partnering with more Canadian companies, we can make Canada stronger in the information infrastructure and telecom industry.
In Asia Pacific, besides going after new operators, our focus in the coming years is to ensure that we can complete our technology and knowledge transfer. Having spent two years in China sitting on the boards of directors of many of our joint ventures, I have learned that sometimes it takes many years to do something completely. It takes time to build up a relationship. It takes time to build up trust. It takes time to train people who do not have the benefit of some of the systems we have in our universities, such as internships and co-op programs. Therefore, we will try to train people in a way that will ensure that the things we have done well in Canada can be repeated around the rest of the Asia Pacific region.
We have benefited tremendously from the Team Canada exercise. One can argue that Northern Telecom is not a small company by Canadian standards; but neither are we a big company by world standards. When I visit the regions I see that we do not have the power of Siemens, which is supported strongly by Germany, or the power of NEC, Hitachi and so on, which are supported by the bankers of Japan. Therefore, we really need the support of Team Canada. We always try to do our best, not only to help ourselves but to help Team Canada do the right thing.
Personally, I have benefited tremendously from the support we have received from our ambassadors in both Japan and Beijing. What they have been able to do for us has been wonderful.
Finally, through the team training program, we want to share some of our experience and what we have learned. Hopefully, we can also support CIDA and other institutions in Canada to share our method of doing business with the rest of the world, especially in Asia Pacific.
Thank you, Mr. Chairman.
Mr. Barry Grace, Trade Consultant with particular focus on Asia Pacific, Alliance of Manufacturers and Exporters of Canada: Honourable senators, I should like to flip the page and look at the world in a different way. I spent the last 11 years developing and managing a software product sales network in Asia Pacific for a small- to medium-sized software company, which is becoming larger. I should like to talk about my personal experiences and some lessons I have learned. I should also like to emphasize that the views I am expressing are my own and not those of my previous employer, Cognos.
Imagine, if you will, that you are the chief executive officer of a small, fast-growing Canadian high technology company. By "small", I mean significantly smaller than Northern Telecom or Alcan, in the $10 million to $20 million range. You have just started to make your mark in North America and perhaps in European markets and you are reaching the stage where you sense that Asia Pacific is important. You start to ask yourself some basic questions.
The first question you might ask yourself is: Should I tackle Asia Pacific as a market; and why should I do it? The answer which comes back is that you know that if you are to be a player in major high technology markets today, going global is not an option. What happens is that you reach a stage where your multinational customers demand it. Therefore, if you are small, you have to find a solution somehow; otherwise you cannot fully service those extremely important major customers.
You must then ask the other basic questions, such as: What do I need to get started? When do I start? How do I start?
Let us have a look at the answers to those question.
You need two things to start. First, you have to have absolute confidence in your product. You have to feel that your product is a winner. As some kind of a benchmark, you should be able to point to some visible success in the U.S. and/or major European markets. If you can do that, then you will be able to attract the attention of business partners in Asia Pacific.
The other thing you need is desire. You have to want to be a global player and be ready to act, because some of these markets will really test your patience.
Naturally, you will want to start with a strategy and a plan. Here, you can spend a lot of time because there are so many inputs. You have inputs from your multinational customers. You are watching what your competitors are doing. You are looking at the trade publications and analysts' projections, and you are getting inquiries from would-be partners. There are many inputs, a lot of which are changing rapidly. You cannot assess reliability. You are wondering, "What is possible? How can I get the best return on my investment?" There are many things churning around.
What you have to do is come up with a simple plan that allows you to start quickly. For most companies in that situation, that distils down to recruiting some distributors.
Then, of course, you have to find a way to simplify that exercise. Usually, there is some reasonably obvious way to set your priorities. I will use Cognos as an example. In the early 1980s, Cognos was selling fourth generation languages on HP-3000 computers. The HP-3000 was, at that time, the number one business mini-computer in the world.
For Cognos, the questions became relatively simple: Where are the largest concentrations of HP-3000s? Which of these markets are growing the fastest? Where can we sell the current English language version of our product, because we know that localization will take a lot of time and money? It became obvious that we had to target Australia, New Zealand, Singapore and Hong Kong as the first phase markets in Asia Pacific. It was really that simple.
Beyond that, the questions were: Where are the HP distributors and value-added resellers? What software houses are servicing these vendors' markets? We narrowed it down to a target list of potential distributors which could then be approached and rigorously qualified.
Each business is different. However, what I am getting at is that there is usually some kind of rationale which can be followed to narrow the focus and come up with a short list of promising distributor prospects.
Other things you have to consider when you are getting started is trying to use Canadian government programs such as PEMD. This is something which can reduce your initial risk. We found that the embassies and consulates were very helpful with economic and cultural orientation. However, do not expect these organizations to have specific expertise in a narrow high-tech market, because they will not have it. Similarly, the provincial government organizations and offices, where they exist, are very helpful.
Be cautious about exclusive contracts. They are very tempting because they offer early advantages, but they can produce problems down the road.
You can expect positive financial returns within a year if you are in a market where you do not have to localize. By "localize", I mean produce a version of your product which offers a complete local language interface. If localization is required, then you can expect to wait at least two years for those positive returns. That is a long time for a high technology company that is small and on the move.
There is a strong argument for doing the easy things first. You have to get a foothold in the important markets. You have to start generating revenue and market knowledge. You have to move up in terms of recruiting and managing partners, and there is a lot to learn in that respect.
Let us say that you have done all of the above, you have signed up some partners, and that things are moving along nicely. What is next? This is where it gets a little more complicated. You have to evolve the business model in each market to fit the local conditions. You have to look as locally as possible, and that can have many different results.
I will refer again to the example of Cognos in this regard. In Australia, Cognos negotiated the buy-out of a local distributor to establish a subsidiary which is now highly successful. It is now the headquarters of their Far East operations.
In New Zealand, on the other hand, which is a very small market, the decision was made to stay with the existing distributor and to strengthen that relationship. They can now proudly point to a 15-year relationship which is still going strong.
In the case of Singapore, there was a strong, locally based distributor which was a quasi-governmental organization, as many are in Singapore. The decision was made to strengthen that relationship through a joint venture which still exists today and which has now been extended to cover all the Asian countries.
In Hong Kong, an office was established to serve as a bridge to the PRC and Taiwanese markets. The office still exists and now reports through Singapore.
In the cases of India and Pakistan, where there were natural business links with the U.K., a decision was made to stay with the distributors and to manage those through the subsidiary in the U.K.
Once you have established a beachhead, there are many ways a company can develop the market. The key is to find the business approach which is the best fit to both the local conditions and the corporate objectives.
We have talked about doing the easy things first and getting started in the market. What is left?
The real challenge is the Asian language markets. I will concentrate on the major ones: Japan, Korea, Taiwan, and People's Republic of China. For these markets, localization -- that is, providing a complete local language interface for the product -- is not an option. You absolutely must do it. You must spend the time and invest the money. With software products, you must also maintain native language versions. This is an ongoing, critical process which you simply must perform.
Because of this higher level of investment, you must have a high level of confidence in the medium- and long-term returns you will receive from the markets. The burning question is: Is this a strategic market for your company? That is a tough one. What it really means is: Is it strategic to your customers?
In the case of Cognos in the last 1980s -- and this would change now because of the shifting importance of the markets -- Cognos assessed that Korea, Taiwan, and the People's Republic of China were not sufficiently strategic to warrant a complete commitment to those markets in the sense of full localization, so it was decided to continue to address them through partners.
Japan, on the other hand, was considered strategic because it is a major economic power. Most of Cognos' multi-national customers were represented in Japan. Japan was a world force in computer hardware and certainly showed the potential of becoming a world force in software. It was a unique market. It was a very different market from North America, driven primarily by Japanese hardware vendors. The North American vendors had a smaller share, and still have a smaller share, much smaller than you would expect, as compared to the U.S. or Europe. However, the point is that the market segment, even though smaller, was profitable. The companies in that market were profitable, and they were growing rapidly. There was definitely a window for North American software vendors that were selling into those segments to succeed in Japan.
It was decided that it was strategic, and an approach had to be found to address that market. In the Cognos case, it turned out to be an evolutionary approach in three steps.
The first step was to recruit and develop high-quality distributors. They were fortunate in being able to enter into a distribution agreement with Yokogawa Hewlett-Packard, which was the Hewlett-Packard subsidiary in Japan. In the digital equipment market, they were able to recruit one of the leading value-added resellers for digital, so they were able to cover all except the IBM segment of the market in Japan. The IBM segment was much trickier, and they had less success in that regard. They did not have products ready to address that market anyway.
However, they were able to generate healthy growth for about three years simply using high-quality distributors. At that point, it was very clear there was a credibility barrier in the sense that the largest Japanese prospects and customers did not see signs that the company was committed to the long-term development of the Japanese market. They wanted to see more. So a second step became necessary. We had to consider establishing a company in Japan, and that is the route that we followed. A company was established to show increased commitment to the market and to show a stronger support to the business partners that we had. I emphasize that it was not a case of doing away with the partners and establishing something else; it was a question of building something to help to do a better job for, and with, the partners. This improved business substantially.
Things went along well, but it turned out that that was still not enough investment to convince a significant number of large Japanese customers that Cognos was serious, so it was necessary to take a third step, which was to enter into a partnership with a very large Japanese company committed to expansion in high technology. The Japanese subsidiary of Cognos in fact merged with a large Japanese company and is now proceeding as a partnership.
Here we have a three-step process, simply following the natural evolution and psychology of the market. It was necessary to go through the first two steps to get to the present situation. It would not have been possible just to jump into that market as a relatively small and unknown, in Japanese terms, Canadian-based company and form the alliance that ultimately was formed.
Japan was a major personal commitment for me. I spent six years deeply involved with Japan, so I will make a few more comments about some of the processes and the things that happened.
It was the product excellence that led to our ability to recruit a high-quality distributor. In fact, the same product excellence won the respect and admiration of a key manager in YHP. That was a very fortunate turn of events for Cognos because it presented an opportunity to develop what I call a champion within that organization. I was able to do that, fortunately, by becoming a personal friend of this individual. It was a major investment of time on my part, but it was certainly a natural process. This personal relationship allowed the two of us to collaborate closely in some difficult negotiations with potential customers, and out of that flowed a large deal with a large Japanese-based multi-national which turned out to generate something like $2 million net revenue to Cognos over a period of three years. At that time it was a major international sale for a relatively small software company. This deal flowed out of both the corporate and the personal relationships which had been developed.
There was a similar pattern with the our partner on the digital side. The executive director of marketing was a power-house champion, and he became and remains a personal friend of mine. We still correspond by e-mail. This has been a 10-year relationship. I am very proud of and happy with it. I expect it to go on indefinitely.
I should mention some points about setting up a company in Japan, through the eyes of a relatively small player. You might normally think that if you were planning on setting up an office somewhere, you would find a competent manager and delegate to him the responsibility of setting up the operation. That seems the logical way to do it. Not in Japan. In Japan, before we could even get a manager to look at us, it was necessary for us to set up and staff the office. We had to show the potential manager or candidate that the company was truly serious about the Japanese market. It took an enormous amount of time and effort to recruit a manager.
After 17 interviews over something like nine months, I was feeling absolutely lost and getting nowhere. The technical expert I had in the Japanese office belonged to the Canadian Club, and they were going on hiking outings in the Japanese mountains. He was talking to a Canadian colleague who happened to be in the executive recruiting business. Completely by accident, out popped the candidate. However, that was not the end of the story. While we had a candidate after 17 interviews and nine months of work, it took a further 10-month courtship to actually bring this gentleman on board, 10 months of getting to know each other. You have heard these stories, I am sure, but it really does happen, and it is necessary.
The other key point was that in setting up the Japanese operation, we did not make any attempt to dispose of or otherwise terminate our relationships with our existing business partners in Japan. We built them into the equation and made them part of the solution. It turned out to be a very positive move.
I want to speak very briefly on the Pacific part of Latin America, specifically Mexico, which, through NAFTA, is a part of APEC. Cognos had what I call a closely managed exclusive-distributor relationship starting in 1983 in Mexico. That produced some reasonable results in the mid 1980s but got into some serious difficulties toward the end of the 1980s because there had been some management changes on both sides which resulted in a lack of communication, and it made it a dysfunctional relationship. So we had a classic problem: What do you do with a failing exclusive distributor? You cannot just abandon your only revenue generator. It leaves you with nothing. Obviously we had to develop alternative channels quickly. Developing a partner channel is typically a 12- to 24-month job. It does not happen overnight.
The solution was a two-track approach. I applied damage control until the alternative channels came up to speed, and rewrote the contract to a non-exclusive status, tightening the financial controls, strengthening management supervision, providing direct hands-on guidance, offering direct technical support and so on to keep the failing engine going. At the same time, outside this relationship, I was moving to a multi-channel model. I developed a model which was successful in Mexico and throughout Latin America. It is a model which is multi-channel and which has two tiers, comprising authorized distributors and resellers that are reporting to them. It involves no exclusive relationships at all. The resellers derive their product and their support in local language from the authorized distributors. The resellers also are in a position to deliver business solutions in vertical market segments so that what the customer is getting is a complete business solution based on the products of the sponsoring vendor, and the resellers can also be used as a farm team to be evolved into distributors at a later time.
It is possible to come up with partner-based models that offer you a great deal of flexibility and can be adapted to many Asia Pacific markets.
What are the key lessons for both the Far East and Mexico? To achieve continuing revenue growth through partners, you must find a way to make the partners commit to you as a vendor and invest time and money in selling and supporting your products. You cannot get that commitment without a very high level of trust. Trust was mentioned by Tony as well. It is absolutely essential. This is both personal and corporate, and these things tend to converge the farther you get away from headquarters. The way I see it, developing and maintaining trust is the major challenge in managing partner organizations. It is so critical because it is the relationships which make the business model work and drive the revenues, and not the other way around. It is true that great products will get you started quickly, but alone they will not sustain you in the long run. In the long run, you will need great products and excellent support -- technical, marketing and administrative. You have to do everything really well. Above all, you need consistent and fair management practices. You have to manage that relationship in a very fair and open way.
If I had to give three pieces of advice to a high-tech entrepreneur under this scenario, they would be the following. First, high-tech companies can succeed in Asia Pacific markets with an evolutionary approach. The caveat would be you should try to build in the hooks for local language support in your products as early as possible because you are going to need them.
Second, your choice of partners is critical to your success. You have to be highly selective in recruiting them and you have to be rigorous and consistent about supporting them.
Finally, and most importantly, the relationships that you have with your partners are not just about money. You have to achieve a high level of personal and corporate trust. That is your major challenge.
The Chairman: Thank you. I have a question that I want to address to Mr. Heister. We have had evidence from the Canadian Shippers Council that the Canada westbound rate agreement has raised freight rates excessively through the application of surcharges levied on normal freight rates. Has your experience supported that evidence or is your shipping done in such a way -- in-house, in a sense -- that that observation with regard to the charges does not apply in your case?
Mr. Heister: As I think the chart showed, for Asia we tend to rely solely on Kitimat, shipping outbound from B.C. rather than trying to ship material across Canada at all. It is only the rare occasion, where we might have an imbalance between our businesses, that we will ship material from Quebec, let us say, to the Pacific market. I am not an expert on freight rates.
The Chairman: I think we are talking about shipping costs, not rail rates.
Mr. Heister: Yes.
The Chairman: I gather, then, that you do not have too much with which to help us on that point.
Mr. Heister: There have been some proposals regarding changes in taxation and user fees which have a big effect on us in terms of port fees and things like that, on which some of our people in government relations have been having discussions with the Canadian government, but, generally, it is more the geographic split between our two major manufacturing centres that we rely on.
Senator Grafstein: I have two questions, Mr. Chairman. My first might apply to all the witnesses. Would it be helpful to large and small companies if the government utilized its resources to develop a very highly up-to-date, current data base for choice of partners, as an example, in various sectors of business on the one hand, and relevant market information, sector by sector, in other businesses? In other words, where should the government put its resources, aside from Team Canada and its assistance and so on?
The question that intrigues me a little more than that, however, is whether or not in Canada we have had enough debate, as Team Canada rolls out, as to the ideal or optimum corporate structure that we should have to develop trading investment entities. We have had the experience of Nortel and Alcan over 100 years, and the more recent experience of software companies and so on, but is the corporate model the best model?
Let me give you some examples of contrast. In Germany, Deutschebank sits on the board of Siemens and the other companies. I can tell you of my own experience when I went to China, sitting in a dusty little town in Xinjiang province with no one there except a few of us who had just arrived. The Xinjiang province had just opened up. This is 1983 or 1984. As we are getting off our little dust-ridden bus, getting on another little bus was a group of Japanese who had just been there from a trading company talking about some resource-developed items, and then on another bus was a group of Germans who had been there for three or four months and were leaving.
It had opened up in January and we were there in the summer or the spring, but the Germans had been there from day one with a group, and the Japanese had arrived two months later with a group, and both of them had the resources obviously from their corporate entities to spend the time in this rather narrow, segmented market. Xinjiang province is a huge market of future development.
Are we in Canada using our brains to put together the best strategic trading and investment vehicles following the German model as its relationship applies to the trading companies in Japan, or the Dutch model? I was surprised to learn that Holland is the third-largest investor in the United States. They have done that quite successfully and invisibly.
Have we given enough thought to the best vehicles? I know that is a hard question because each of you believes that your vehicle is the best, but perhaps you could tell us of your experience along those lines. We are trying to give strategic advice and I am not sure that we have yet captured enough information to do that.
Mr. Moore: With communications the way they are now, we should not be wasting government resources on market information. Through the Internet, you can plug into any one of dozens of data bases which will give you all the information you want on China or any other market. What is absolutely crucial is market intelligence: specific information which will aid a company in breaking into a market or expanding its market.
To back that up, in Asia Pacific we need to strengthen our trade-related services, and by that I mean specifically the trade commissioners. It is very easy to talk about redeploying trade commissioner resources from Europe or even the United States, but it is not as easily done. However, we have to bite that bullet. We have to put more of our resources where our future markets will be.
In addition to market intelligence, in a number of Asian markets, although not all, it is still necessary to have the ambassador or senior diplomats open doors for you, although privatization is changing that.
Mr. Yuen: Because the telecom industry is more developed, there has been more market research done that you can buy. As Mr. Moore said with regard to market intelligence, what you find may not be very useful to you. I believe that if there is something we can to do help medium- and smaller-sized companies in particular, it should be done.
Of course, that is just part of it. The opening of doors is just as important, if not more so. Even if you know what you want to do, if you cannot get someone to talk to you, it is no good.
The example you used, senator, is very valid. We find that in Germany and Japan they are more integrated. When NEC goes in, there is always a bank involved. I know that it is not the same for Canada. I do not expect that we can do what Germany does but, nevertheless, they have an advantage. We need better product. Without it, we cannot get in.
Although I have spoken highly about what we have done, we have less than 20 per cent of market share in all the market segments we are in in Asia Pacific, even though we are doing extremely well. It is difficult to fight what Japan and Germany are able to do right now.
Senator Corbin: Representatives of Nova appeared before us in Vancouver ten days ago and suggested that issues such as human rights and cultural accord and so on should not be part of trade deals between nations, that they should be separate issues. They said that business is one thing, human rights, child labour and such things are another issue altogether, and that the two ought not be linked. What is your feeling about that?
Mr. Moore: One way of transferring Canadian values is through encouraging interchange. Business interchanges bring stronger and more open economic arrangements.
Mr. Heister: There are two things which go hand in hand with the economic development of countries. One is the environment and the other is exploitation of child labour. The lower the economic development is, the worse the environment is. As the GDP per capita improves, so does the environment, despite much of the clamour in the western world about the environment. The same holds true with respect to child labour. When there is a very low economic level, there are more children in the labour market, simply because the family unit has to put more workers into the marketplace to generate money.
As much as I would not want to see my children treated the way that some of the rug manufacturers treat children in India and Pakistan, for example, it is only through trade engagement and the improvement of the economics of a country that the areas of environment and exploitation of labour will change.
Senator Corbin: Mr. Heister, you said no to corruption, nepotism and that sort of thing. You do not seem to be taking the same attitude with respect to this issue.
Mr. Heister: We would say no if someone asked us to make aluminum using prison labour. First, that is not the kind of people you need in the aluminum business. Labour is a very minor content in the aluminum business. We, as a company, look at where we procure things, and do not procure on the basis of child labour.
Senator Ottenheimer: If I interpreted Mr. Grace's remarks correctly, the process of localization is a major component in a company's ability to maximize its markets. How do Canadian companies compare with their American and European competitors in their recognition of the necessity to localize, and in their ability and willingness to so do?
Depending on the financial structure of a company, this can be an enormous burden for some and perhaps much less so for huge conglomerates. Is this something that all companies, including fairly small Canadian companies, must do on their own -- reinventing the wheel, in a way -- or is this an area where the private sector could cooperatively assist and develop this process of localization, which I realize would differ depending on the company?
Mr. Grace: Canadian software companies that have been successful in exporting to Asia Pacific markets, particularly the Asian language markets, have all stepped up the localization issue and committed themselves to that. Cognos is one and Northern Telecom is another. I am sure the same is true of Fulcrum and any of the other software products companies that are serious about those markets.
However, there are investment and cash-flow issues, and they certainly affect the timing and approach that a company would have to take to certain markets. Some companies have had to be a lot less aggressive than they would like to have been because of that extra investment. It certainly is a major factor to be recognized in going into a full-scale development of those markets.
As to whether it is possible to have some kind of cooperative arrangement, privately based, to support companies that need to go through this process, I suppose some kind of pooled resources might be possible. The products are, generally speaking, so diverse and so unique to the specific markets and specific companies' lines of business that I do not think there could be any technological pooling. It would simply be some kind of a financial approach whereupon one could draw on the resources under some kind of a take-out, some kind of a mortgage, for example, on the resources and pay it back at a later time. Some kind of a financing approach might be possible but I am not really certain how it would work mechanically.
Senator Ottenheimer: How do you think Canadian companies in general -- I know generalizations are difficult but they still have a certain validity -- compare in this optimizing through normalization, with European and American competitors?
Mr. Grace: I realize there are not nearly as many Canadian companies that are exporting software as there are companies in the U.S. that are successful in the software business, but I think the Canadian companies that are successful are particularly alert to the export opportunities and are much more export-focused than the average American software company.
The Chairman: Looking at language, for a moment, how essential is it to have people in your local main office -- let us say in China or Japan or Malaysia -- who are fully fluent in the local language? Or has English become the language of business to a large extent? Perhaps German is important.
Mr. Yuen: Recently, in many areas where English has not been used in the past, its usage has increased dramatically. You definitely want to train your locals to be very good in the English language because they are already very good in the local language. Most of our colleagues who can speak only English can do a great job, as compared with a few years ago when they needed interpretation all the time.
I have a small point on Barry's comment. A major consideration in localization is time to market. The real advantage we have as Canadian companies is that we are better listeners. We know we have to do it; it is just a matter of finding the right way to do it. We know we have no option. It takes a little longer to go to market because it does take time to find the right vehicle to do it. I just wanted to add that.
The Chairman: We heard again and again that trust is extraordinarily important. I am trying to understand why it is so important. Is it because commercial relations are not as depersonalized, by reason of rule of law and the high level of contract law and things like that, so that you are moving away from a kind of depersonalized western model to a person-to-person model? Is that the explanation of why trust comes up again and again?
Mr. Grace: I think that is part of it.
Mr. Heister: It is exactly as you hit it, particularly in Asia where, in many cases, we want to jump immediately to a rather lengthy contract. The reality is that first we do things on a handshake, and then, once we get to know each other, we will have a contract if necessary. It drives our lawyers up the wall.
There is another side of the trust issue which I think applies in Canada, and which Alcan has finally resolved with the Canadian government. It gets into the issue of localization in another sense, the sense of having local people you can trust. In order to do so, you need to get people from foreign countries into Canada to be trained. That has, at times, been difficult with the immigration issues and things like that. However, in Alcan's system, particularly in some of our key areas, we like to have people come in and be in the headquarters in Montreal for a period of time so they get to know Alcan, and we get to know them, before we let them run a company away from the headquarters.
The Chairman: Mr. Yuen, is Canada making reasonably adequate use of our people of Chinese, Japanese and Asia Pacific origins?
Mr. Yuen: Northern Telecom certainly is lucky enough that 75 per cent of the people that work for Nortel come from somewhere else. I come from Hong Kong. Some come from Malaysia. Some come from Brazil. As proud Canadians, we give our colleagues the option of working in the country from which they come, although some of them may not want to go back. We also ensure that, when we have customers coming, we take full advantage of their language skills. Canada has a unique advantage because of our multi-culturalism, and I am proud of that.
The Chairman: You seem to be proud of Nortel also, which implies that some of the other Canadian companies may not be doing as well on this particular point.
Mr. Yuen: A lot of people with technical backgrounds tend to come from different countries. When we do our recruiting, we do most of it from universities. I cannot speak for other companies in that regard.
Senator Bolduc: What percentage of your products sold in Malaysia are from Canada rather than from the U.S.?
Mr. Yuen: Basically, I would say that close to 50 per cent of our product exported to Malaysia comes from the factories in Canada.
Senator Bolduc: If you do your research and development in those areas, it would mean less would be done in Canada.
Mr. Yuen: We have not found that yet because there are so many new products coming out. We always do the new products in Canada first.
The Chairman: Gentlemen, thank you for your help. We may have specific questions later, either verbally or in writing. We are anxious to have the committee make a contribution in the short run to the forthcoming conference in Vancouver, but we are looking beyond that and hoping to give specific guidance to the government for our long-term business relationship with Asia Pacific.
The committee adjourned.