International Trade Committee on March 9th, 2015

[The Chair, Conservative, Randy Hoback]

Ladies and gentlemen, it's great to be here at the Standing Committee on International Trade, meeting number 48. The orders of the day are, pursuant to Standing Order 108(2), a study on small and medium-sized enterprises.

We have witnesses in front of us today. Each of the witnesses has five minutes.

Just for your information, colleagues, we'll be taking off five minutes at the very end of the meeting to discuss the Liberal motion on having the minister appear. Mr. Regan will bring forward that motion at that point in time.

I will turn the floor over to the Department of Foreign Affairs, Trade and Development.

Susan Bincoletto, you have five minutes.

[Susan Bincoletto, Assistant Deputy Minister, International Business, Chief Trade Commissioner, Department of Foreign Affairs, Trade and Development]

Thank you very much, Mr. Chair.

I'm Susan Bincoletto. I'm the assistant deputy minister for international business and I'm Canada's chief trade commissioner. I'm appearing today with a slew of colleagues. Together we're going to be doing the Go Global workshops that Minister Fast has been spearheading, and we will show the cooperation happening among our federal friends.

I'm with Industry Canada, Export Development Canada, the Business Development Bank of Canada, and the Canadian Commercial Corporation. To help the committee in its deliberations, we plan to give an overview of the characteristics and needs of smaller Canadian businesses and how, working together, our departments and agencies support their efforts to locate and penetrate markets and build their international business success.

As chief trade commissioner, I head the trade commissioner service, which is the government's network of trade professionals who serve Canadian businesses across Canada and around the world. The service works to enable business success internationally and to attract investment to Canada. Together with the government trade negotiations agenda, it is key to the implementation of the global markets action plan.

As you know, the Global Markets Action Plan has a special focus on small and medium-sized enterprises (SMEs) and sets an ambitious target of nearly doubling the number of SMEs that export to emerging markets over a five-year period.

In support of the Global Markets Action Plan, trade commissioners work directly with Canadian businesses and business associations to ensure our small and medium-sized businesses can take full advantage of market opportunities abroad. These include: those opened up by agreements such as the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and the Free Trade Agreement with Korea; those created by the strong growth of emerging markets around the world, but especially in Asia; and those arising from the constantly evolving dynamics of global value chains.

As we all know, when it comes into force the CETA will improve access for Canadian companies to the world's largest integrated market, representing some 500 million consumers and an annual economic activity of $18 trillion.

The trade commissioner service is already active on the ground to equip Canadian companies with the knowledge, tools, and support needed so that they are ready to take advantage of CETA from day one and secure a place in the EU market ahead of competitors from other countries.

The TCS is present in over 160 cities in Canada and abroad. It engages on the ground with individual companies, delivering almost 200 services every working day of the year, services that include assessing the potential of the market for the individual client and helping them prepare their expansion strategies, as well as identifying key contacts and troubleshooting as required.

Concretely, our focus on SMEs means that we provide services that are directly relevant to them, that are mapped to their needs and performance, and that help them navigate markets that are difficult for them. Our effectiveness depends on the knowledge of our clients, their sectors, and the foreign markets that we develop through our network and through collaboration with our partners. Trade commissioners work in partnership with the federal, provincial, and territorial ministries to leverage each other's support for SMEs to present effective and user-friendly solutions to these clients.

Finally, outreach to business is an important element of our trade strategy, to make our businesses aware of emerging opportunities. As you may know, the Minister for International Trade, the hon. Ed Fast, is currently conducting “Go Global” workshops in towns and cities across Canada. The minister has reached over 1,000 SMEs interested in international business opportunities with these workshops.

The workshops feature expert panels that highlight the tools, information and support available to them from the Business Development Bank of Canada, Export Development Canada (EDC), the Canadian Commercial Corporation and the Trade Commissioner Service.

As chief trade commissioner I'm proud of what we've achieved with our roughly 11,000 clients, of which about 80% are SMEs, and I look forward to questions about that.

I will now turn to Shereen, who will discuss Industry Canada, and we'll in turn then go to BDC, EDC, and CCC, and then we'll be happy to answer your questions.

Thank you.

[Shereen Benzvy Miller, Assistant Deputy Minister, Small Business, Tourism and Marketplace Services, Department of Industry]

Thank you very much.

Good afternoon, Mr. Chair and distinguished members of the committee.

My name is Shereen Benzvy Miller and I am the Assistant Deputy Minister for Small Business, Tourism and Marketplace Services at Industry Canada.

I would like to begin by underscoring the importance of small and medium-sized enterprises—or SMEs—to our economy.

SMEs account for more than 99% of all businesses in Canada. They provide approximately 52% of total private sector GDP and account for 40% of the value of exported goods. There are some 1.1 million SMEs across the country and they are found in every sector. The vast majority of SMEs, 87%, are very small, with less than 20 employees. They are also the job creators. Between 2002 and 2012, small businesses accounted for 78% of new private sector jobs.

Industry Canada's mandate is to help make Canadian industry more productive and competitive in the global economy. This intersects directly with the interests of SMEs. We work to ensure that our economic framework policies promote competition and innovation, support investment and entrepreneurial activity, and instill consumer, investor, and business confidence. We encourage business innovation and productivity because businesses generate jobs and wealth creation.

More specifically, we take action to help SMEs to overcome challenges, including those related to exporting.

We are in an era of free trade, reduced tariffs and information and communications technology (ICT) that facilitate commerce across borders. Exporting SMEs, on average, generate higher sales and return on assets, while undertaking more research and development activities than non-exporters. In other words, they participate in activities that are synonymous with growth.

We are focusing our efforts in three areas: venture capital, consulting, and supporting financing.

We are increasing the availability of risk capital through the venture capital action plan. IRAP, the industrial research assistance program, helps by providing technology assistance to innovative SMEs and working to commercialize Canadian products and services. BDC provides consulting services to help SMEs get export ready and to expand into international markets. You will hear more about that from my colleague Michel. It also provides about $4 billion each year in financing, including for those firms that export.

Thank you so much for the opportunity to speak with you regarding how we can better support Canadian SMEs, and I will be happy to take your questions when the time comes.

[Michel Bergeron, Senior Vice-President, Marketing and Public Affairs, Business Development Bank of Canada]

Mr. Chair and distinguished members of the committee, I am pleased to be here with you today in support of your study on competing globally: opportunities for small and medium-sized businesses.

I would first like to say a few words about the BDC and then provide you with an overview of our activities geared toward improving the export potential of Canadian SMEs.

BDC is the only bank in Canada entirely dedicated to meeting the needs of entrepreneurs, with a focus on SMEs. While we have greater risk appetite than other financial institutions, BDC has to be commercially viable as it does not receive government appropriation to run its daily operations. In fact, BDC has paid more than $363 million in dividends to the Government of Canada since 1997. Our 30,000 clients generate $192 billion in annual revenue, of which $22 billion is in export revenue, and are responsible for more than 674,000 direct jobs in Canada. In fact, approximately 16%, or 5,000, of our clients are exporters.

As previously expressed by my colleagues, global competitiveness is key to the continued success of Canadian SMEs. On the other hand, Canadian firms face some important hurdles. The first one is the lack of scale and small size of our businesses; in fact, more than 98% have less than 100 employees. The second challenge is that the Canadian market is relatively small, which implies that in order to grow their businesses our firms have to start exporting a lot sooner than their U.S. counterparts. A good example of this is that an SME based in California has access to a market the size of Canada strictly within their own state boundaries.

Expanding into foreign markets requires an additional level of market understanding and resources if the SME wants to be successful. Going abroad also entails assuming a greater level of risk for SMEs. Therefore, we believe our role as a development bank is to help compensate for this lack of scale by linking our SMEs to the appropriate resources, while adjusting our service offerings to their particular needs. Given these challenges, BDC has recently adjusted its offerings to better respond to the specific needs of Canadian SMEs. These can be broken down into two categories: helping entrepreneurs define the right strategy consistent with their objectives, and offering financial support to help them make the required investment.

On the advisory services side we have the following offering. First, we help SMEs determine whether they are ready to expand internationally. Second, if they are, we help them select the markets that represent the best chance for success. Finally, we can help these SMEs develop go-to-market strategies for these specific markets. These affordable services are paid for by the SMEs and we work in collaboration with the trade commissioner service and EDC to optimize the value.

On the financing side, BDC is able to support domestic investments required to, for instance, ramp up production capacity or even help finance the investments to be made abroad, which, in many instances, are purely unsecured financing with no collateral attached. BDC works with EDC and DFATD to help Canadian firms expand abroad in line with the government's global markets action plan. A good example of this is our support to the Canadian technology accelerator program put forward by DFATD in the U.S. for technology-based firms. Another example of this is the fact that BDC holds some trade commissioners in our offices in Canada.

While we believe that our current offerings are relevant, we continuously benchmark ourselves with other development banks from around the world to learn from them how better to support SMEs.

In closing, BDC is a strong believer in the importance of having more successful Canadian exporters and we believe the bank has an important role to play in making this a reality. This is why we will continue investing in resources to increase SME awareness of the benefits of exporting and provide them with the support they need.

That concludes my presentation.

I would be happy to answer any questions you may have later on.

Thank you.

[The Chair, Conservative, Randy Hoback]

We will hear from Mr. Anthony Carty now.

[Anthony Carty, Vice-President, Corporate Services and Chief Financial Officer, Canadian Commercial Corporation]

Mr. Chair, and members of the committee, thank you very much for having us here today.

My name is Anthony Carty, and I'm the chief financial officer and vice-president for corporate services at CCC. I'm very pleased to give you a little bit of background about CCC and also our support for SMEs.

CCC is the Government of Canada's international contracting agency. The corporation was established by an act of Parliament in 1946 with a mandate to assist in the development of trade between Canada and other nations.

CCC's business model is unique in the world. The corporation's primary service involves the establishment of government-to-government contracts with foreign government buyers to provide goods and services available for export from Canada by Canadian exporters. In turn, CCC enters into contracts with Canadian exporters to fulfill the requirements of these government-to-government contracts. Using this approach, CCC guarantees the performance of the terms and conditions of contracts with foreign government buyers, thereby mitigating their risks and providing added incentive to procure from Canada.

CCC's business model also mitigates risks for the Canadian exporter as the corporation is able to leverage its capacity as a Government of Canada organization to monitor progress and bring resolution regarding any issues that may arise in fulfilling the contract requirements. CCC's involvement can reduce payment collection risks and business development costs, not insignificant when a business is dealing with buyers overseas. It can aid all Canadian exporters, particularly SMEs, to gain more advantageous contract and payment terms, and it helps increase international awareness by supporting and promoting ethical business practices and corporate social responsibility as Canadian firms seek to increase their international sales.

CCC is a 140-person organization located here in Ottawa. The corporation processes approximately two billion dollars' worth of exports annually, a figure that is expected to double over the next five years as a result of a growing pipeline of opportunities and prudent investments in business development. CCC currently represents the maintenance of about 22,000 Canadian jobs per year.

CCC charges fees for its services, revenues from which have grown over the past number of years from $13.5 million in our most recent fiscal year 2013-14 to a forecasted $25 million for the current fiscal year of 2014-15. As returns on planned investments in business development materialize, fees for services are expected to grow to $35 million by 2017-18.

Since 1956, CCC has also been the Government of Canada's custodian for the Canada-United States Defence Production Sharing Agreement or the DPSA. This is a bilateral agreement that covers purchases by the U.S. DOD of defence and security goods and services provided by Canadian exporters. The DPSA supports over half a billion dollars of defence and security trade between Canada and the U.S. each year. CCC's DPSA business has often been the platform that Canadian companies, particularly SMEs, have used to build their capacity to compete and to generate other global sales outside of the U.S.

CCC works with SMEs in three particular ways. In the first instance, we support SMEs in direct government-to-government contracting opportunities. In our last fiscal year, 2013-14, CCC had contracts or pursuits with over 115 Canadian SMEs, largely through its role as Canada's custodian of the DPSA. CCC's planned establishment of a foreign representation network over the next three years will also help SMEs that cannot typically afford to travel internationally as often as may be required to develop trusted relationships with foreign government buyers.

Second, we work closely with Canada's primary defence and security exporters and encourage them to maximize Canadian content in their supply chains. While figures for these indirect SME impacts are not reflected in CCC's performance measures, their connection to CCC is well understood across the defence and security industry.

Finally, CCC has also begun enhancing its engagement with SMEs on a broader scale through increased participation and profile at domestic and international trade show events. It has strengthened domestic outreach in collaboration with industry sector organizations such as CADSI, AIAC, CME, and other Government of Canada stakeholders in trade, including Western Economic Diversification Canada, through an MOU.

CCC continues to play a key role in the delivery of the government's GMAP, as well as in the export component of Canada's defence procurement strategy, and it is building on its tremendous momentum to strategically assist Canadian exporters large and small—SMEs in particular—in dozens of markets abroad.

Thank you for your time this afternoon. I'd be happy to answer any questions you may have.

[The Chair, Conservative, Randy Hoback]

Thank you.

Our last presenter is Mr. Winterhalt from EDC.

[Todd Winterhalt, Vice-President, International Business Development, Export Development Canada]

Thank you, Mr. Chair.

I'm Todd Winterhalt, group vice-president for international business development at EDC. Allow me to begin today by providing a brief explanation of Canada's official export credit agency.

EDC provides financing, insurance and bonding solutions to underwrite the transactions between Canadian companies and their foreign customers. For today, I will be limiting my remarks to the financial toolkit for small and medium-sized exporters.

The EDC product most used by SMEs is our accounts receivable insurance. This product allows Canadian SMEs to sell with confidence to a new customer in a new market because EDC's insurance will make sure they get paid. As an added bonus, an ARI policy can also allow a SME's bank to provide additional working capital financing because the payment from the foreign buyer is now guaranteed.

Another product is our export guarantee program, where, if an SME needs to ramp up to fulfill a new contract, we can guarantee their bank loan, giving the SME access to more working capital. Similarly, our customer financing guarantee program makes it easier for banks in foreign markets to lend to Canadian SME exporters as they expand their operations abroad.

These products help the balance sheet comfort of Canadian SMEs and make it less risky to take on new markets. As beneficial as these products are, EDC recognizes that the primary challenges for Canadian SMEs are the lack of time, resources, and knowledge to develop new markets.

To that end, EDC actively seeks out high-potential small companies and works with them as a mentor to help them develop and grow. To date, we have approximately 50 small companies in this program.

One of the most meaningful ways that EDC brings value to SMEs is by doing the legwork for them and helping to connect them to opportunities by leveraging our relationships with foreign companies. These relationships are cultivated on a daily basis through our network of 17 permanent representations across the world, co-located with the trade commissioner service, 16 of which are located in high-growth emerging markets.

We leverage these relationships in three key ways. First is through our pull financing. This is where EDC provides financing to targeted foreign buyers with procurement needs that match up well with Canadian expertise and then they commit to work with EDC to buy from qualified Canadian suppliers. Very often, we make the introductions as well. In 2014, we conducted 25 matchmaking sessions related to these pull facilities. Overall, more than 1,800 Canadian companies won new contracts in 2014. About 90% of these were SMEs.

Second, through matchmaking sessions, we also work with the trade commissioner service to bring groups of Canadian and foreign companies together for events like trade shows, in-market missions, as well as arranging cross-Canada visits for foreign firms to meet potential Canadian suppliers. In 2014, EDC conducted 127 matchmaking sessions that resulted in nearly 850 introductions, which in turn led to new business contracts for almost 400 Canadian companies. More than 75% of these companies were SMEs.

Third, and finally, by connecting our investment portfolio companies. EDC is the third-largest venture capital investor in Canada.

Through our investments in global equity funds, we gather market intelligence and identify opportunities at the grassroots level, and help connect Canadian companies to these international opportunities.

In 2014, we made 455 introductions which led to 73 qualified leads for Canadian companies.

In sum, in 2014, EDC saw a 4.5% increase in our new SME customers, reaching 6,110; a 4.7% increase in the number of small business transactions, reaching almost 2,800; and a 12.4% increase in total business facilitated for our SME customers, reaching $14 billion, with 23.8% of that total in emerging markets.

Thank you for your time and I look forward to your questions.

[The Chair, Conservative, Randy Hoback]

Thank you, witnesses. We'll proceed with the first round of questions.

Mr. Davies, you have seven minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Mr. Chair.

Thank you to all of you for being with us today.

I'd like to start by nailing down some metrics to make sure we're all on the same page. In the figures we have from Statistics Canada, the SME sector is defined as under 100 employees for a small business, and under 500 for a medium-sized business.

Are those the figures that we all use? I see everybody nodding. Great.

According to the figures we have from the Library of Parliament as well, 99.8% of businesses that reported having employees in 2011 are in the SME sector. Only 0.2% of Canadian businesses employing in Canada have over 500 employees. Is that also a commonly accepted metric?

[Voices]

Yes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Okay, thanks.

For some reason, our figures say that in 2011, the latest year for which data are available, about only 10.4% of SMEs exported. Is that generally accepted as well?

[Voices]

Yes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Okay.

I want to get a feeling for how much growth is felt to exist among those numbers.

Is there any metric or any target that any of your departments have in order to increase the number of SMEs who are accessing international markets and exporting? Do we have any kinds of targets over the next years that you're shooting for?

[Susan Bincoletto]

I will answer the question, but I will turn also to Todd.

In the global markets action plan that Minister Fast announced in late 2013, there was a quote by the chief economist of Export Development Canada, Peter Hall, which the minister endorsed, saying that the target for the global markets action plan was to double the number of SMEs in emerging markets.

I'll let Todd speak to how those targets were established, but for us at international trade, it is our road map. We are trying to pull together all of our individual and collective efforts, whether it's on the trade commissioner side or with our partners, to enable that target to be met. We will not be able to guarantee it because there are certain risk factors. Sometimes it's better to tell an SME not to go to China because they are not ready.

When we can help, we will be helping, not individually but by cross-referring each others' clients who have shown the most promise.

[Don Davies, NDP, Vancouver Kingsway, BC]

Let me just zero in on that target. In the GMAP, if it says to double the number of SMEs in emerging markets, I'd like to put some flesh on those bones.

How many businesses do we have in emerging markets, what is the number that doubling would entail, and by when?

[Todd Winterhalt]

Certainly. I'll take a stab at that one.

We heard one of my colleagues mention that there are approximately 1.1 million SMEs currently active in Canada, which seems like a very large number. When you actually drill down into that number a bit and you look at the SMEs that are actually even interested in exporting—you can imagine a corner store operator, a hairdresser, or what have you—that number comes down to almost 50,000. It's 57,000, to be specific. Of that number, 40,000 have the means, as my colleague Susan was saying, to actually export. That's not just an interest but the opportunity to do that.

Of that 40,000 number, as of 2012, only 11,000 were exporting into emerging markets, which is where we see the high growth. The goal in the GMAP is to take that number, that 11,000, and over the five-year period of the plan to almost double it to 21,000. That's based on a calculation that was done at EDC—my colleague Peter Hall—looking at the regular growth we've seen in that segment of the population of SMEs, which saw them double about every seven and a half to eight years.

The challenge for all of us working together across the table here is to try to accelerate that and to try to double that 11,000 within a five-year timeframe.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

I think you've raised the very important issue of putting the different businesses in the different categories. As you say, it's unlikely, it's impossible, that a hairdressing salon is going to export.

I'm wondering what areas of the SME sector you feel have the greatest unrealized potential to increase their export footprint.

[Susan Bincoletto]

I can answer in the context of the trade commissioner service. I'm sure the EDC will have their own statistics.

As far as the services delivered by the trade commissioner service are concerned, we have five big sectors, really, that require our support and where there's the greatest volume. It starts with information and communication technologies. We know that in this sector there are lots of little companies. Some sustainable technologies are also a big consumer of our services. Again, they are mostly the service providers and the technology guys within that sustainable technology area. There's also financial and insurance services. Education is very prominent in asking for services from the trade commissioner service. Then there's agriculture and processed foods.

The most services that we generally offer in emerging markets are in Asia.

[Don Davies, NDP, Vancouver Kingsway, BC]

Mr. Winterhalt, is there an area that was not mentioned there that you think shows promise?

[Todd Winterhalt]

It's very similar, from our perspective. I'd maybe just add a little bit in the agricultural services equipment sector as well as in the extractive space. That would be in oil and gas and in mining. That's more in terms of supply for equipment.

[Don Davies, NDP, Vancouver Kingsway, BC]

My understanding is that 90% of the exports from the SME sector currently go to the United States, so there is a question of diversification. I think you've kind of answered that by indicating the focus on the emerging markets.

I have two quick questions. First, with CETA opening up markets in Europe, I would imagine that most of these markets are not emerging but are developed markets. Do you see any promise for the SME sector in Canada in terms of CETA?

My other question—

[The Chair, Conservative, Randy Hoback]

You'll have to hurry, Mr. Davies.

[Don Davies, NDP, Vancouver Kingsway, BC]

Okay.

What's one thing you could give the committee advice on in terms of what would help the SME sector in Canada to export?

[The Chair, Conservative, Randy Hoback]

It will have to be a short answer.