Industry Committee on June 13th, 2013

[The Chair, Conservative, David Sweet]

Thank you very much.

Mr. Regan, go ahead for five minutes.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much, Mr. Chairman.

I want to thank the witness for joining us from beautiful downtown Bedford, Nova Scotia.

Mr. Johnston, you talked about some of the things you think could help on the cost side. You talked about tax programs, federal support, and labour-based credits, for example.

I see on your website it says:

Using a series of government tax incentives and research grants we are able to keep our development costs down while providing top rate quality.

I guess there are two parts to this. First, can you share your experience with the committee in terms of the kinds of grants you've had? Is there too much red tape? What's worked well? What hasn't worked? What changes would you recommend to make the system that's there more useful to companies like yours? On top of that, could you describe the kinds of things we should be doing in terms of tax programs or labour-based credits?

You can do all that in 20 seconds, right?

[Michael Johnston]

Yes, that's great. Thanks, Mr. Regan.

It's a horrible cold cloudy day so you're not missing much here.

For our part, because we've been a software engineering firm, over the years we have been part of a number of initiatives and projects that have qualified for the federal SR and ED program. That program has helped us reinvest in new technology, invest in skills that we've used to help grow our business, build new service offerings that we've taken to the market, and, I think, remain globally competitive. That program is getting more difficult to work with and to qualify for.

The sad reality, I suppose, is that we're an 80-person company that builds interactive technology for the world's leading media brands and we've never once had a successful digital media tax credit application in Nova Scotia. We have several applications in the file now that are under way for review yet again, but never has one been successful, for a variety of criteria and considerations. We won't go into all that except to say we've tried to leverage some of those but they are not clearly administered.

I think there's much room for improvement there. If there's room to make it more uniform across the country so we're not competing for projects and for talent with the other provinces across the country, I think Canada probably will be stronger overall. As a country, we're recognized as being a leader in this space, but once people come in across the border, the provinces all fight for the business and we fight for the talent, and I think no one gets any further ahead for it.

[Geoff Regan, Liberal, Halifax West, NS]

I should tell you that the weather here is beautiful, sunny and warm, and I'll try to bring this home with me tonight for the weekend.

[Michael Johnston]

I appreciate that.

[Geoff Regan, Liberal, Halifax West, NS]

I just checked the weather. It looks good for Saturday and Sunday at home, so I think I'm going to succeed in that.

I want to ask you about the cloud and the idea of cloud-first policies, because some countries do have those in place, policies in which companies must first consider cloud-computing strategies before implementing other strategies. For instance, in the U.K. they have the G-Cloud model. That involves a government-run online catalogue cloud store. Talk about your experience, if you would, with cloud computing some more, and tell us what you think would occur if the Canadian government developed a cloud-first policy of this sort as a central component of Canada's IT policy?

[Michael Johnston]

Honestly, I don't know much about the U.K.'s program specifically, but I think just from what you've said I'm actually quite excited about the idea.

I think one of the things that have really been lacking—and it's probably something I've assumed that business should drive, but perhaps government has a role as well—is that the vendors of cloud services haven't done a very good job, in my opinion, of selling the business value of what they're offering to businesses that don't necessarily understand IT.

Traditionally, companies have had to have a technology-minded person who knows what the company needs and goes out to the market and tries to figure out what's available rather than having cloud services communicated in the language of business. If you're running a real estate agency, you shouldn't need a huge on-staff IT department to understand how to get your team set up with a fleet of iPads so you can be responsive to your customers at open houses on Sunday. Selling cloud services from that perspective and using the language of business, and putting those in some centralized place where companies can see what's available and try it, I think is a fantastic idea. I think adoption would skyrocket.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Johnston and Mr. Regan.

Now we'll go to Mr. McColeman for five minutes.

[Phil McColeman, Conservative, Brant, ON]

Thank you, Mr. Johnston, for being with us today.

I want to explore this global context that you talked about in your opening remarks. There were many different levels. I know you touched on human resources a bit with questions from my colleague. Specifically, when you need to fill a position or you're expanding and creating new positions, how exactly do you recruit individuals for those positions?

[Michael Johnston]

There are a few ways. We've fostered long-standing relationships with a lot of educational institutions. We're on curriculum development boards at universities and community colleges. So we know well in advance who the good students are as they're coming up the line. But we get a new crop every year at graduation time.

We work with recruiting agencies locally and across the country. We have attended a lot of job fairs in international markets, but less so in the last few years now that the temporary foreign worker programs have become more challenging. It's more difficult, time consuming, and costly to attract someone from outside Canada to fill a position.

Generally, I need someone quickly. To find someone in the U.K., Armenia, or pick a country, it's now taking me six months on average to figure out the legal obstacles and help them relocate. I don't know what my world is going to look like three months from now, let alone six to nine.

I try to attract expats from the region to come back home and do interesting work here. I try to hire graduates locally and train them. We do a lot of ground-up building of resources, and that takes serious capital investment.

[Phil McColeman, Conservative, Brant, ON]

You mentioned your connections to Boston, Silicon Valley, and such. Is there talent in those areas? Out of your 80 active employees, how many are Canadians, and how many were brought in internationally?

[Michael Johnston]

I have to think how it breaks down. I would say that out of those 80, we have about 65 or so here in Nova Scotia. Probably between 5 and 10 are from outside of Canada. They are folks we've brought into the region. We have half a dozen or so in Toronto. We have three or four who sit in the U.K. They're U.K. citizens, and they work from there under the corporate structure we've set up in that country. And we have eight or nine Americans who work from home offices, whom we bring in as full-time resources. So it's kind of a mix.

It depends on the specific type of talent. For the more junior resources, I try very hard to bring them here to Nova Scotia to learn from the team and build a base of skills. For the senior, hard-to-find technical resources, I find them wherever I can and hire them wherever they sit, so I can serve the clients.

[Phil McColeman, Conservative, Brant, ON]

Shifting gears to the global context of being competitive as a Canadian business, I want to make sure the committee understands what your competitive advantages might be. You've relayed to the committee through your comments and some questioning that you're a price-driven company. In other words, if someone from Argentina or other parts of the world can provide a similar product of equal quality, consumer demand is based on price. Is that accurate, or are there other factors? We know the reasons people do business with others. But is price right up there as the number one issue?

[Michael Johnston]

No, I'm sorry if I miscommunicated there. If we build a website, we need to host that on a server. Absolutely, we're looking for the best cost on the cloud-based infrastructure we use to deliver the service we provide. But actually, it's quite the opposite: if we compete on price, we lose every time. Every offshore jurisdiction that can rent people at $15 an hour is going to beat us every time on price, if we're looking at unit value.

We tend to be more valuable to clients who are looking for a slightly better cost than they can get in New York, Boston, Atlanta, or L.A. But they come to us with problems that aren't fully formed—that fuzzy area of trying to drive their business forward, to create a new technology. They need a friendly partner from the north they can sit down with and solve a problem on the back of a napkin. They trust us to deliver in a cost-effective fashion, but they realize that if they have a specification for software already built they can hand that off to an offshore company for cheaper. It's the cutting edge of new business that they need us for.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Johnston.

Mr. Stewart.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Thank you, Mr. Chair.

Thank you, Mr. Johnston, for coming today.

I grew up outside of Wolfville. My sister lives in Bedford. It's nice to have another Maritimer in today.

Just following on that, you said you've had companies in Boston, and Halifax, and maybe other places. I guess you had a company in Boston first and then you moved to Halifax. I'm just wondering, why did you move back to the Maritimes? I love it there. I understand it's a beautiful place, but from a business perspective, why the Maritimes?

[Michael Johnston]

Quite honestly, my wife and I had our one-month-old baby, our life packed up in a one-way moving van, and literally the day before we were deciding whether or not to turn left to Toronto or turn right to Halifax.

I set up a services company serving U.S. clients. Quite honestly, it didn't matter at all where I sat. That's the nature of the business. Even to this day I have a lot of clients I've never seen face to face.

We wanted to be close to family. We wanted the cost of living, the rabbits in the backyard, the experience of being near home and the grandparents. I needed a phone and an Internet connection. As long as I had that, I could serve global clients. They look for talent wherever they can find it. My answer was, why not here?

Quite honestly, I've been glad—

Go ahead.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Can I just extend that a little bit? I am now in Burnaby. We have EA Sports there, and Ballard fuel cells, and lots of high-tech companies. When I meet with them, I often ask them, what makes your employees stay? Of course, it is global. You say that talent is very hard to find. Why do you think your employees stay with you? What keeps the talent in Halifax?

[Michael Johnston]

I've actually asked them some of that. One thing that drives them to stay is the work. We do really interesting work for clients, which they can be proud of and tell their friends about. The second is the quality of life. I think we've tried hard as a company to allow them to enjoy the quality of life here. We don't work every evening and weekend. We live in Nova Scotia, where people can go canoeing in the evenings. We've tried to build a business, price our work, manage it accordingly so people can actually come here, do a good day's work that they can be proud of and then actually go out and enjoy the Nova Scotia environment.

We've all travelled a lot to many places in the world. I've never heard anyone who's had a bad thing to say about this part of the world; it draws people in. Clients want to come here to see the place and understand what keeps people so loyal here. We have almost no turnover. We've never laid anyone off.

There's a loyalty to the place and a loyalty to the company, if we treat them right—we think, anyway. We've been trying hard to build on that.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

I like contrasting the two places. In Burnaby, some of the companies say their employees are leaving because housing prices are too high, so we focus a lot on tax credits and those government policies, but it seems to me that some of it comes at the local level and that what we do in cities seems to matter as well.

Do you get any rumblings of that at all? I know Halifax housing prices aren't quite as bad as in Burnaby or Metro Vancouver, but are those the kinds of things your employees are focused on as well?

[Michael Johnston]

Less so. It's more on the availability of public transit, the critical mass. We've had people come here from Toronto and leave because they were bored. People are honestly scared to move here because they think if something doesn't work out with TeamSpace, as their employer, there's nothing else in Halifax for them to do. They've moved my family. I don't believe those rumours are true, but those are certainly some of the rumours we deal with.

Once people get here, I think they're very happy. We tend to lose most of our talent—if we ever do—to poaching between companies in the region. A lot of the companies here are export driven; we're all serving external clients. We poach on dollars, so if I lose people it's because someone down the street offered them $10,000 more in salary.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Chair, how much time do I have?

[The Chair, Conservative, David Sweet]

You have 40 seconds.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Just quickly, Mr. Regan touched on this, but are there any initiatives you would propose that we could do federally to help you grow?

[Michael Johnston]

Honestly, I quite liked his idea about services to help me help my clients understand what some of the services are. Ultimately, people can rent cloud infrastructure, but they ultimately need a service provider to help them implement and understand that. That certainly helps me.

Yes, getting some more clarity around industry-based labour tax credits to help them be more uniformly applied, I would certainly welcome any help in that regard out here on the east coast.