International Trade Committee on March 9th, 2015

[The Chair, Conservative, Randy Hoback]

Okay. Mr. Shory.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Thank you, Mr. Chair.

Thanks to the witnesses as well.

I have to say this, numerous times in the past I have asked numerous SMEs in this committee, and also on the ground, when I go to a foreign country on a trade mission, etc., about the TCS's performance. I am very happy to share with you that to date I have not found one single SME that has said they are not excellent, so thank you for your service on that.

But at the same time, I agree with you, with this Go Global—and one of you agreed and accepted—that not a lot of people know about TCS, EDC, CCC, etc., because normal people, small businesses specifically, say, this is more red tape, bureaucratic stuff, because they don't know. The question, then, is this. You have had very successful Go Global meetings in the past, now you are going forward with all those kinds of awareness campaigns, I would call them. Once you meet these people, and you make them aware that there is a service. I have a couple of questions in that. First, are all your organizations interconnected? My understanding is if, for example, one person contacts TCS, you will guide them or direct them wherever they need to go. Second, once someone approaches you, how long does it take to process that SME's application or to follow the contact?

[Susan Bincoletto]

We are connected. In the last year we've made a lot of progress in trying to increase that connection. We have cross-referral services. We have information centres that have been trained so that if an SME calls and says, well, I need x, y, and z, and it doesn't fit within the trade commissioner service offering, but we know that it might be EDC- or BDC-relevant, then we refer those SMEs. The worst thing that SMEs will have happen is that when they call a number, and then we give them another number to call, and another and another.

The cross-referrals are a way to actually provide almost a one-stop shop. It won't ever be perfect, but it is a great improvement from what we used to have, which was much more siloed. This is also enabled by the co-location. EDC is co-located in many markets with the trade commissioner service. If you're just on the other side of the corridor or the side office, the kinds of connections that can occur when we say, “I've met this SME, what can you do for them?”, are a lot faster and easier than if you're not co-located. We share business plans and we share lists of clients that we feel are promising so that we can actually be more targeted in helping those.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Is it fair to assume that when someone contacts the TCS, once you see some benefit of helping that SME you also share with them that there is another department, EDC for example, or you refer them to EDC for them to follow up, etc.?

Is that right?

[Susan Bincoletto]

Yes, we do that.

We're more of a leading indicator in a sense because a lot of people come to us to figure out how to do things. Once we've exhausted our conversation with them, I think that's when they become more ready to hit EDC. Then their business plan is a lot more advanced and matured, and they may actually have a proposal to bring to EDC, whether it's for insurance, or bonding, or anything that EDC feels they can help with.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Mr. Winterhalt, my colleague from the NDP, who has good wishes, which may not come true, talked about CETA.

My question is whether you have seen any effects or demands from SMEs since we signed the free trade agreement with Korea, and at the same time with CETA. Even though it is not in place yet, do you have some inquiries from potential exporters about how it will work?

[Todd Winterhalt]

Yes, and on the South Korea front a little bit more so, in particular in the ICT, information and communications technology space, with LG and Samsung, and others as foreign buyers. As we know, it was ratified on January 1, so it's in force.

There has been lots of interest from a lot of the small manufacturers in the ICT space, as well as in the auto sector, where there are a lot of Canadian companies that would like to get into the supply chains of a Kia or Hyundai, for example. There's a significant amount of interest there.

On the CETA side, I think it's still a bit early days; we're still probably a year or more away from ratification there. But certainly the size and the scope of the market is extremely appealing to a lot of Canadian small and medium-sized exporters. I am anticipating quite a bit of interest there. Our own economist is looking at a 30% uptick in terms of applying to Europe.

[The Chair, Conservative, Randy Hoback]

Thank you, Mr. Winterhalt.

Mr. Lizon, the floor is yours for five minutes.

[Wladyslaw Lizon, Conservative, Mississauga East—Cooksville, ON]

Thank you very much, Mr. Chair.

Welcome, and thank you to all the witnesses.

For my first question, I need a bit of clarification. I'm not the regular member of the committee; I'm subbing in for my colleague today. It relates to the first question that was asked today.

Small businesses have up to 100 employees and medium businesses have up to 500 employees. Now this is a bit confusing for me. Why is it based on the number of employees? I mean, it was very relevant years ago, but now in some sectors it doesn't really matter how many employees you have because you could have state-of-the-art equipment and it would be considered a small business although, really, they could be a huge business in an economic sense. Therefore, should there not be additional indicators that you could use to compare businesses: what is small, and what is bigger or medium?

[Shereen Benzvy Miller]

Different jurisdictions use different metrics.

We have landed on this one, in a sense, because it's the simplest one to do comparative analysis with. Generally, size by employee is actually one of the indicators for growth and job creation because that is one of the economic generators. At the end of the day, in a jurisdiction like ours where we don't have a set-aside system, for example, it becomes less important. We don't target programming specifically for small or particularly for medium, so we don't say that if you have a 101 employees you're no longer eligible.

It doesn't prejudice businesses in any way that this is how we measure them. We just find that it's the easiest way to do the comparative analysis that we need economically.

[Wladyslaw Lizon, Conservative, Mississauga East—Cooksville, ON]

Where I was going was this. Wouldn't it be easier to do it based on annual output or annual sales?

[Susan Bincoletto]

Yes.

It's clear that for some programs we do look at the sales revenue, and the normal breakdown is $50 million. Some say that if you have $10 million in sales you're a small company, and if you have up to $50 million you're a medium-sized company. The EDC uses the $50-million cutoff point, which Todd will say is almost the equivalent to less than 500 employees.

We do have the two indicators: employees and value of sales. We do look at both, especially in the programs that we have that help SMEs go abroad to investigate opportunities.

[Wladyslaw Lizon, Conservative, Mississauga East—Cooksville, ON]

Small and medium-sized businesses in Canada, of those that can potentially export, how many do it at the present time? Not all of them are geared to exporting; you mentioned hairdressers.

Do you have a number or a percentage of businesses?

[Susan Bincoletto]

I think we’ve identified 11,000 currently exporting, but it’s not an exact science. We don’t look, as a denominator, at all those companies that have the potential to export, and then get the percentage that actually export from that base number. They use the total number of SMEs overall. So 10% might look bad, but that’s out of every single SME, including those that would never, ever export (like the guy that plow out your driveway). If they looked only at those SMEs that could potentially export, the percentage that do export will be much higher.

[Wladyslaw Lizon, Conservative, Mississauga East—Cooksville, ON]

What would be the main challenges for those who want to become exporters to becoming one?

[Susan Bincoletto]

The challenges are the uncertainties of foreign markets. They don't know what they're getting into. They may say that they're doing five million dollars' worth of sales in Canada so they're happy to stay in that niche. It takes backbone. It takes entrepreneurship. It takes ambition to actually say, let's try to find other niches. It's a combination of factors...whether the management team within an SME is less ambitious and says, well, I'd rather stay with $5 million because it buys my cottage and it gives a pension to my children. That level of “okay let's take risks” varies according to categories of SMEs, but BDC has a lot more experience.

[Michel Bergeron]

I have an interesting anecdote where an owner of a very important business—it's a $25-million business—didn't want to tackle the emerging markets because the owner didn't like flying. Basically he passed over the business to his two sons and now the business is entirely global in emerging markets. Back to my point, it's in the mindset of the business owners and whether they have the ambition or not. Some don't have the ambition, but could have the means, and for others it's the opposite.

It's just an interesting anecdote.

[The Chair, Conservative, Randy Hoback]

Thank you, Mr. Lizon.

We'll move back to Ms. Liu.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Thank you very much, Mr. Chair.

According to a Statistics Canada investigation, 10.4% of Canadian SMEs exported goods and services in 2011. That is 4% of the revenues made by the businesses.

Are those numbers comparable to those in other countries? How does Canada compare to the rest of the world?

[Michel Bergeron]

We have data on the diversification of markets. Canada relies heavily on the U.S. market. Canada's dependence on the U.S. market is much greater than what we are seeing with all the other OECD countries that have more diversification. From a risk management perspective, it is important for us to diversify beyond the U.S. market. The agreements with Europe, Korea and emerging countries are a good illustration of that.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Thank you.

The government must provide SMEs with tools and support for exports, rather than provide that to big businesses, since the SMEs are the ones having a hard time exporting for lack of funding. Is a tool such as the industrial research assistance program (IRAP) directly geared toward SMEs?

[Shereen Benzvy Miller]

Yes. Our programs are specifically geared toward SMEs. I must say that most Canadian businesses are SMEs. That is why our programs are for them. They represent 99% of Canadian businesses.

When the time comes to make changes to those programs, we take a close look at the needs of small and medium-sized businesses.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

What do you mean exactly by an approach that is specifically geared toward SMEs?

[Shereen Benzvy Miller]

We have round tables with them.

Minister Bernier has recently participated in a dozen or so round tables to discuss with the SMEs their needs in terms of growth. How do we make a business grow in Canada? Round tables are making it possible to determine the challenges facing SMEs on a daily basis and the programs that the government could set up to help them grow.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

We now know that the production chain has become internationalized. The reality is that often many goods no longer come from one manufacturing point only. There are several points.

How do you incorporate this change when you think about programs designed to help Canadian SMEs?