Industry Committee on Feb. 5th, 2008

[The Chair, Conservative, James Rajotte]

Members, I call to order the 17th meeting of the Standing Committee on Industry, Science and Technology. Pursuant to Standing Order 108(2), we are continuing a review of Canada's service sector.

We have with us here today three organizations. I'll start with the witnesses who are here, and I'll finish with the video conference witness.

First of all, from BIOTECanada, we have two individuals. We have the vice-president of external affairs, Ms. Cate McCready, and the co-chair of the public affairs committee, Ms. Joanne Harack.

The second organization is the Canadian Advanced Technology Alliance. We have Mr. Barry Gander, the executive vice-president, and we have Mr. Eli Fathi, vice-president commercialization.

The third organization is the Organisation for Economic Co-operation and Development. We want to thank Mr. Dirk Pilat, head of the science and technology policy division, for joining us by video conference today. I believe you are in Paris. Welcome, and thank you very much for joining us from such a distance.

We will start with each organization in the order I read them. You will be able to present for hopefully between five and seven minutes, and then we'll go to questions from members. Our meeting today is about an hour and 30 minutes, and then we will have discussion of a motion from Madame Brunelle.

We'll start with BIOTECanada. Ms. McCready, please start.

[Cate McCready, Vice-President, External Affairs, BIOTECanada]

Good day, ladies and gentlemen. Thank you for the opportunity to be here today.

I'd like to present Joanne Harack, who is the co-chair of our public affairs committee at BIOTECanada. She serves as a senior consultant and has a particular focus on human resources within our industry.

Joanne will begin our remarks.

[Joanne Harack, Co-Chair, Public Affairs Committee, BIOTECanada]

Thank you, Cate.

Good day, ladies and gentlemen.

Thank you very much for inviting us to participate today.

As you know through your work on this committee, the world economy is undergoing a fundamental transition that has the potential to surpass the impact of the industrial revolution. Characterized by the decline of traditional industries, rapid technology change, and even more rapid technology convergence, this transition impacts all sectors.

As a result, like all industrialized nations, Canada faces both threats and opportunities to its economic well-being and quality of life. The key driver of economic prosperity will be knowledge-based innovation.

Increasingly ours is a bio-economy. Biotechnology, both in the traditional sense and as it impacts diverse sectors, has been identified as galvanizing one-third of the global economy. Biotechnology is amongst the most innovative in Canada. We contribute more than 12% of the total national business expenditure on research and development, a remarkable achievement when one considers that our companies typically employ fewer than 50 people and they have yet to realize profits.

The impact of biotechnology far exceeds the number of companies traditionally grouped in this sector. Biotech industrial innovation impacts the service sector in hundreds of ways. From health care to agriculture, transportation to construction, along with more traditional industrial and manufacturing enterprises, all today have the potential to benefit from innovations in biotechnology, and they have a stake in the success of future innovations.

Canadians are inventing new models of value creation as well. Public-private partnerships such as the Centre for Drug Research and Development in Vancouver, the Canadian Light Source in Saskatoon, the Ontario Institute for Cancer Research in Toronto and other similar ventures across the country represent new attempts to translate public investment in basic research into downstream economic and social benefit.

At the same time as biotechnology-based organizations are knowledge and research intensive, their financing, development as companies, and fundamental ability to create value depend upon, and in turn contribute to, economic prosperity in dozens of service sectors--legal, financial, market research, and general consulting, to name a few.

Given Canada's acknowledged expertise in biotechnologies, the challenge is to leverage our investments in research so as to enable innovative companies to grow and sustain themselves here. Economic opportunity, including the jobs of today and future jobs across the service and industrial sectors, are at stake if we don't.

[Cate McCready]

Government is an integral partner to the success of our emerging companies. It can be the enabler of an economic operating environment that captures know-how and assists in translating it into products for the global marketplace.

The diversity of these products is staggering: eco-friendly home furnishings, recyclable fabrics, environment-friendly dyes and other processes, canola, biofuels. The list goes on, and all are examples of the application of biotechnology in the lives of Canadians.

The rest of the world sees opportunity in Canadian biotechnology companies. Axela of Toronto received Frost & Sullivan's 2007 North American Protein Assays Product Innovation of the Year Award. Bio MS Medical of Edmonton, a company developing leading-edge treatments for multiple sclerosis, has partnered with Eli Lilly in a deal of almost $500 million dollars to realize the value of its product in the global marketplace. Medmira of Halifax, Nova Scotia, a company that has developed a rapid HIV test, is now marketing its products in Russia and China. Medicago of Quebec City has presented its plant-based technology for growing vaccines to the World Health Organization. Resverlogix of Calgary was recently recognized by the World Economic Forum with its Technology Pioneer Award for 2008. It's the second year in a row, in fact, that a Canadian company has won that award.

These are but a few of the dozens of examples of Canadian ingenuity capturing the interests of our global partners and competitors. For Canada to realize the value and opportunity of our expertise in biotech, we need to be both more competitive and more realistic about what is required, namely, a potent combination of ideas, people, and money.

A key component for an innovative bio-economy is a modern and responsive taxation system that leverages investment from national and international sources to ensure that innovators have sufficient capital to commercialize their research-based innovations. Notably, we are recommending two key changes to the scientific research and experimental development tax credit. We've noted those in a couple of documents we've shared with you today, but very shortly, they are, one, remove the CCPC restriction; and two, increase the expenditure limits set in 1985 at $2 million to a more realistic $10 million, which is more reflective of today's economy.

Canada's capital market is too small and too risk-averse to provide this assistance directly, so early stage companies seek equity from public or foreign investors. As a result, they lose their CCPC status and refundable tax credits. Just when they get the capital they need to succeed, they lose the business case to help keep jobs here.

The current $2 million expenditure limit for refundable tax credits was established in 1985 and does not accurately reflect the cost of research today, 20 years later.

Additional key components for a bio-based economy are to keep the regulatory system science based and ensure that Canadians will benefit in a timely fashion from discoveries made here. We need a socio-economic environment that supports invention and entrepreneurship. We need a strong and competitive respect for the protection of intellectual property, the one asset most small emerging innovative companies have that leverages investment for them to pursue development.

In closing, this is an important turning point for you as parliamentarians to embrace the dynamic of building an economy for the next century, one that encompasses knowledge-based innovation as an economic driver. Canada has a lot to offer the world.

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. McCready.

Before I go to Mr. Gander, I just want to check to see whether the video conferencing and audio is working for Mr. Pilat. Is the audio working?

The other thing is that there is an option. We do have available French, English, or on-the-floor translation, which is simultaneous translation. I think he's getting the French right now.

Is the French preferable, or would you rather have the floor translation? It's just the language spoken on the floor. What would you prefer?

[Dirk Pilat, Head, Organisation for Economic Co-operation and Development]

I can hear you very well, thank you.

[The Chair, Conservative, James Rajotte]

Would you prefer the audio in the language that people are speaking or translation?

[Dirk Pilat]

I would probably prefer the English, but both are okay.

[The Chair, Conservative, James Rajotte]

It's your choice. You're the master here.

[Dirk Pilat]

English.

[The Chair, Conservative, James Rajotte]

Okay, thank you. I just wanted to clarify that.

We will then go, I believe, to Mr. Gander. Will you be starting? Thank you.

[Barry Gander, Executive Vice-President, Canadian Advanced Technology Alliance]

Thank you, Mr. Chair, and thank you to all committee members. This is a wonderful opportunity for us.

CATA has 28,000 members. We've been in existence for 30 years. We cover all of Canada and cover every sector. Our goal this year is to raise our membership above 100,000. We're growing quite fast because our industry is growing quite fast.

A lot of it, of course, has to do with the service sector, which is something else I wanted to congratulate you on. Tackling the service sector and the service side is an interesting and hugely complex task. The service sector is scary because it has some very low-paying jobs in it, but it also has some of the highest-paying jobs in Canada. In fact, the top 10 industries in terms of salary growth this year are all in the service sector. You can see some evaporation in the other sectors, but overall the service sector has 70% of our GDP and 76% of our employment. Canada is very much a service sector economy. I do want to thank you for the work you've already done on manufacturing. If we can apply that now to the service sector, Canada will be in great shape.

The ICTS, or information and communications technology portion of this, which is really the core of CATA's membership, is hugely important for the service sector, because that's where the productivity improvement comes. Almost nobody knows anything about improving productivity and innovation in the service sector. It's just beginning. So you are again to be congratulated for tackling the subject. You're among the earliest people to be doing this. It's enormously important to us that this be done.

Canada has a wonderful role to play in advancing prosperity through its productivity increases in ICTS. ICTS is Canada's golden card. It's already of course growing much faster than the rest of the economy, about 8% a year. It's a little bit less than that for employment growth--about 3.2%--but it's still better than the Canadian average. The ICTS service sector is recession-resistant in the sense that it follows the curve of the recession, if there is one, happening elsewhere in the world, so there's more time for adjustment. It's also less dependent on America and its economy, because half of our trade is done around the world, globally. This makes absolute sense, because companies in India have no prejudices against dealing with a Canadian company. While an American company would rather deal with an American firm largely, we don't have that problem around the world. Services in ICTS are largely software, so it's easy to flow our services on a frictionless globe.

Another thing to bear in mind is that Canada is a country that's a world in miniature. So when we have a product that we can sell around the world, we have an expat community somewhere in Canada with links back to India or Pakistan—which I returned from just recently—and our colleagues can help us move into that economy and can sell through to it.

Finally, I think Canada has the working stock of the knowledge economy. We have an excellent supply of highly knowledgeable people. So it looks as though ICTS will be a huge growth industry for Canada moving forward into the future.

With that, I might add that there is one area in particular.... We have a paper on this that we put together as a result of a meeting with Industry Minister Prentice last week. We put together a panel of about 20 CEOs from ICTS companies, and we gave the minister a briefing top to bottom on what the ICTS sector was about and where the opportunities are, and we expressed that there is one part that is the gold mine for global ICTS development in a service economy such as Canada has, and the globe has. It's in the gap between the development of a technology and its use by consumers. Remember that line from T.S. Elliot, something like “Between the reality and the idea...falls the shadow”? It's in that shadow that nobody is doing a good job, really. I could give you an example from the drug sector, or the communications sector, or the consumer goods sector in the service side, but I think I'll leave that to my colleague Eli, if he doesn't mind.

[Eli Fathi, Vice-President, Commercialization, Canadian Advanced Technology Alliance]

Thank you, Barry.

And thank you for giving us the opportunity to discuss this area, which is very important.

The ICTS sector is clearly an enabling, horizontal type of sector to other technologies in other areas. If we look at the two key words of “productivity” and “innovation”, clearly we are in the best position to impact these two. If you consider innovation and the importance for Canada, we were ranked number 14 out of 17 by the Conference Board of Canada a year ago, and productivity-wise we were 22% below the Americans. So we need to improve on both of these aspects.

How do we address that? I would like to discuss a couple of statistics and then talk about trends, because the trends are important to us. The Canadian government recognizes how important these trends are that are taking place outside of Canada and that will impact what we're doing.

In terms of the ICTS sector, we are 32,000 companies, about 600,000 employees, and our total revenue is about $130 billion. On average, our growth was about 8%, against a GDP of about 3.4%.

If there is one area that is very important to us, as I said, it is to look at the trends. I'm going to use a couple of examples that will bring the point home very rapidly.

Number one, take the iPod and what happened with that. There is a company, Apple, that dethroned, literally overnight, a company of the size of Sony, which was the king of the Walkman in portable entertainment. They were dethroned overnight basically with the invention of the iPod, which addressed the user experiences, the user needs.

These are the trends. I'll give you more examples. When you are addressing user needs, user experiences, manufacturing and technology is not as important, and you can dethrone an incumbent overnight in this area.

Another good example is Procter & Gamble with their Swiffer. They put somebody in a household and watched for a few weeks. They recognized that the family was not using the vacuum cleaner when there were little spills. There is the eureka moment where they are going to develop the Swiffer, where you don't need a vacuum when you have something else to address small user experiences.

The last piece that is important to us, as we see the baby boomers arriving, is the use of the Wii. The largest-growing segment of the market right now for the Wii is for physical fitness by retirees, by the people who are at home, who need to exercise. They are using this. This is an unintended use of this kind of process.

What is the conclusion? Why is it so important to us? It is important because the trends that are taking place around the world are going to happen irrespective of what policies we are making here. We have to be really in tune with what's happening, and the one area that is very important is to recognize that the Internet, the Web 2.0, the social networks, are the ones we really have to address.

In conclusion, what we would like to promote is having more policies that will enable Canadian companies to look at this area. We would like to see innovation that will enable companies to address these areas.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Fathi and Mr. Gander, for your presentations here.

We'll now go to Mr. Pilat. We will go to you for your opening presentation.

[Dirk Pilat]

Thank you, Mr. Chairman.

Thank you very much for inviting the OECD to say a few words about our work on services.

I'd like to make three points and elaborate on them a little bit. First, I think the services sector is becoming more and more important in the OECD area. Nevertheless, we feel there is more that can be done to make it more dynamic. Secondly, we think the services sector is really of vital importance for all OECD economies for the future, because this is where the growth of economies is really coming from. And third, there are some policy issues that I think are important to make sure that this sector grows more rapidly.

I think the previous speaker already mentioned that services have become a very important source of employment growth. Most of the jobs currently being generated in the economy, in all OECD economies, really come from services. As well, an increasing part of productivity growth is coming from the services sector.

I think there is potential there for the sector to make a difference, but we see still large differences in some countries where the services sector does not create a lot of jobs, countries where productivity growth is probably not as rapid as it could be. We need to pick up on the potential that's there thanks to a growing trade in services internationally and thanks to, as the previous speaker mentioned, information technology.

We also see that services now account for a growing share of innovation in the economy. In Canada, for instance, about 40% of R and D is carried out in the services sector. We see, in some of the indicators we have, that services can be just as innovative in terms of new products and processes they generate in the manufacturing sector, but we still don't recognize a lot of it. We don't necessarily notice that so much innovation is going on in the services sector.

I think that particularly for the future of OECD economies and the Canadian economy, it's really crucial to get this sector more innovative and more dynamic. There are some policy issues that I think are important, and I'll mention three.

The first issue is really the opening of the services market. If we say that the sector can be more dynamic, can be more tradeable, can be more international, then it is really important that we have enough competition going on in the services sector. Sometimes we still feel that the services sector is not really ready for competition, but I think a lot of the experience we see across the OECD is that if you do open them up--and I think we've seen this very clearly in Europe--then you can generate a large number of new services and new jobs in such sectors as leisure, health, business services, and other sectors where there's large potential for new jobs to be created.

Secondly, if we look at innovation policies, they are still very much focused in most countries on the manufacturing sector. A lot of the support provided by governments in most OECD countries for innovation typically goes to manufacturing companies, often because services firms don't know that the support can actually be made available to them as well. So to adapt better the policies we have for science, technology, and innovation to the services sector can be quite important.

Third, get the environment for information technology right. This is technology that has enabled the sector to become more dynamic, to become a source for job growth and for productivity growth. That's something that I think many countries are struggling with--to get broadband in all homes, to get broadband to all companies, to make sure that people have trust in information technology and are willing to use it, and to make sure that we have some of these new services being generated that now the Internet is really delivering for us.

So in some, I think, there really is potential with this sector. There is a lot of interest in this topic, not only in Canada but across the OECD, where many countries are looking into what can be done to make this sector more dynamic and to adapt policies. Of course, our work on this issue is available for your deliberations as well.

I will leave it at that. Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Pilat.

We will now start with questions from members. The first round is six minutes total for questions, comments, and answers.

Mr. Eyking, please.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Thank you, Mr. Chair.

Thanks for those very good briefings. They gave us an outline of where we should be going, I guess, in your sectors.

My question is more tailored towards your personnel and having enough students in the industries and universities--the availability of a workforce, I guess. There are reports that there is a shortage out there, especially in universities.

Where I come from, in Cape Breton, we have a pharmaceutical industry that's emerging quite fast. They have linked up with Cape Breton University and have courses just tailored to their pharmaceutical industry. It's really working well, so there's a match there.

How is your industry encouraging more students, and how is it working? How are universities and your industry working together to make sure that there is a workforce available to you?

[Barry Gander]

It's an excellent question on an important point.

We have found the shortage to be so bad that we are reaching now into the colleges and universities at the pre-graduate level to plug them into companies before they've even finished graduating. In fact, my own organization is busy embedding itself in universities and colleges across the country as the first line between the research students who are there as a fresh supply and the business needs of the people.

We have just gotten an agreement with Algonquin College here in Ottawa, for example, and we're doing similar things at Carleton University and with universities in the Maritimes and in Toronto, and we're rolling that out.

It's a huge gap, and it's one that, oddly enough, is not filled by out-sourcing, because India has the same pressing need. There's almost nobody left who is employable in India; they're graduating IT graduates by the hundreds of thousands, and it's still too tight. So there's a constraint, no question.

Let me pass the floor to my friend Eli.

[Eli Fathi]

In line with that, there's a very sad statistic. Dr. King did a study on the double cohort in Ontario, and the statistics are overwhelming on the negative side: one in four don't graduate from high school, and this is Ontario. So the issue is not only in universities; the issue is also in high schools.

One of the things we're doing, as Barry mentioned, is working with the universities; we're developing an innovation centre with Algonquin College; we are creating.... What we need to do, and this is in the area of innovation, is give the students skills beyond academic knowledge—problem-solving skills, international knowledge, an ability to be entrepreneurial—and create their retention in schools, for once we get them into the school, we need to make sure they stay there.

So we are developing a business innovation centre at Ottawa U and Algonquin and other universities and trying to promote these kinds of skills.

[Barry Gander]

Let me add one more thing to that. We also have a women in technology, or WIT, program that's been working for about two years now. Its mission is to increase the awareness people have of the skills women have, to advance them further up the chain faster.

So there are other resources we're not tapping as well.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

I have one more short question, and then my colleague's going to ask another one.

You alluded to India and Pakistan. How is our industry going to compete, or how do you see the competition in the future with these emerging economies, especially in Southeast Asia? What do you see as our challenges in the future in those areas?

[Barry Gander]

In a service world, I don't see them as being a challenge at all. I see them as being partners. If we can't recognize them as partners, then we're going to lose, because the Chinese are busy graduating more honours students than North America is creating students. We have to take advantage of the knowledge that is there.

For example, we work closely with what I think is the world's largest company now, Tata, from India. They have exquisite global connection centres. I think Tata has 80 centres around the world where they're interacting with the local community. We can put Canadian businesses in touch with the globe through our partner Tata. In fact, that's what Tata does best: take the requirements of large companies, such as 3M or Lockheed Martin or BMW, and connect them to Canadian sources of solutions.

That's what we do. In 3M's case, for example, within a week we had 58 companies providing a solution to what 3M needed from the States. They signed eventually eight deals for Canadian knowledge solutions that are now working with 3M.

We're very much a global matchmaker, in that sense.

[The Chair, Conservative, James Rajotte]

Ms. McCready wanted to comment.

[Cate McCready]

One of the things that also need to be addressed is our traditional approach to education, which has been to get children into school and get them focused on choosing a discipline of study. In fact, I think those days are somewhat eroding. The need for multi-disciplinary expertise, both from a working environment point of view as well as from an educational point of view, is one that has to be taken into consideration.

Students who choose, in our case, to study biology or chemistry will equally need business degrees, legal degrees, business management degrees. That diversity required in skills development at an academic level is something that our academic institutions need to build for and structure themselves around as well.

[The Chair, Conservative, James Rajotte]

Mr. Pilat, you wanted to comment as well.