Industry Committee on Nov. 22nd, 2006

[The Chair, Conservative, James Rajotte]

I call this meeting to order. It's the 31st meeting of the Standing Committee on Industry, Science and Technology. We are continuing our study of the challenges facing the Canadian manufacturing sector, pursuant to Standing Order 108(2).

We want to thank our witnesses, especially for coming in at such a late time after hours. I want to thank members and all staff who have put together this session late at night here in Toronto.

I'll introduce the witnesses and then we'll go right to opening presentations. I believe you've been given a time limit of about five minutes each for opening presentations.

First of all, from Edson Packaging Machinery Limited, we have the president, Mr. Robert Hattin. Welcome, Mr. Hattin.

Secondly, from Mancor Industries we have the president and CEO, Art Church. Welcome, Mr. Church.

Perhaps we'll start with you, Mr. Hattin. You have up to five minutes for an opening statement.

[Robert Hattin, President, Edson Packaging Machinery Ltd.]

Thank you very much. I appreciate the opportunity to speak.

I put together a ten-page document, and in the interest of brevity I will skip to what I call my top ten.

When I was asked to talk here, it was about how small to medium-sized enterprises in manufacturing companies like ours are being affected by the economy. My whole topic is really about interdependence.

Small to medium-sized enterprises like Edson are very dependent upon large manufacturing enterprises. We supply equipment to large multinational and national companies. The interdependence of small companies like ours is really that, if they're here, we have an opportunity to play with them to get going. As we have flourished over 45 years, we get to follow these large companies around. It's just basic market economics and there's no magic to it.

My general concern on the more global side is that Canada's demographics are against us. We're basically a very small country and getting older, whereas the United States is getting much larger and much younger. If we're going to have any industrial base left in Canada, we need to quickly adjust those demographics.

We also have aging infrastructure, whether it's seaports, airports, roads, highways, or sewers; and lack of energy--electricity or carbon-based energy. We have all these different challenges affecting manufacturers, yet we don't seem to be able to respond to them, so it's kind of a paradox. On top of that, we have the aging workforce I mentioned earlier. But I think there's a way that can all be addressed, and our very integrated economy can respond to that and become very vibrant again.

Just to let you know, we have about 60 to 100 people and are located in Hamilton. We've been around for 45 years, and our customers include Proctor and Gamble, Kimberly-Clark, Kraft Foods, and so forth. They rely upon us. They buy our equipment to make themselves more efficient .

My concern on the demographic side is that we won't have an opportunity to even defend the natural resources we have. We'll sell them off to pay for our social programs, as we are with our oil, gas, and potentially water. Further to that, we won't have a young enough market segment to even respond to that from a workforce standpoint. Ultimately we are going to become deindustrialized very quickly and heavily reliant on services to our older generation.

I don't know if the Conservative government has outlawed it, but certainly the word “innovation” has become inappropriate and they're replacing it with something else. I heard this on the news, and whether or not it's true I don't know. At the end of the day it's going to be all about knowledge. Whether it's a small company or a large company, the only way Canadian companies are going to compete will be based upon knowledge and the use of that knowledge in innovation in both machinery and process. If we don't have any innovation in either how we do things or what we use to manufacture things, we'll never compete against low labour cost countries. That's a given.

I'll just jump to recommended actions.

We have to understand that there's an interdependence between governments and large manufacturers or large enterprises. They don't care about borders; governments do. How are we going to entice large companies to invest in Canada?

Before I get to that, the first thing we can do to help the industrial sector--and you've heard it before--is provide accelerated writeoffs for capital equipment. That will spur the purchase of equipment to become more competitive.

I'll put it this way. If I can write off a piece of equipment in the United States in 18 months, up here it takes up to five years. So I have to ask myself, if I'm going to invest $1 to become more efficient, where do I do it, in the U.S. or here? It's quite obvious. If there is any one thing, one concrete action, that this committee can take away, just do that.

The second thing is a little larger. We have to attract the large manufacturing enterprises to Canada.

[The Chair, Conservative, James Rajotte]

I'm giving you the one-minute alert.

[Robert Hattin]

Okay.

That's essential. If it's a large company, we service them. That's how that works.

The other thing we have to look at is really our tax regime. When you combine or compare the tax rates of our capital tax as well as our business tax, Canada is second worst. Only China is worse than Canada. That has to change. If we provide the incentives, people come here. Then we don't have to make certain sweetheart deals with a particular company in order to attract them. That makes that much easier.

But the other thing, as far as I'm concerned, is that we have to open up Canada to immigration almost immediately. We should be doubling immigration to that sector that has brains and/or money. That's the only way we're going to start to reinvigorate and change the vibrancy of our demographics.

The other thing is obviously the SR and ED credits. That program has to be revisited. I currently am making close to $500,000 in SR and ED credits that I'd love to either spend on my EI premiums or be able to purchase a piece of equipment so I can better compete, but they're sitting there not even earning interest. So you have to look at it from the standpoint that it's not the companies that invest in R and D that are the problem and not creating the jobs; it's those who are in the sunset. I'm being penalized for investing in R and D, and I can't even cash in my credits.

The last thing: get to it.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Hattin. That was very concise. Thank you for that.

We will now have Mr. Church for five minutes.

[Art Church, President and Chief Executive Officer, Mancor Industries]

Thank you.

Well, I came because I heard there was going to be a free lunch, but clearly it's just water and coffee, so I'm a little disappointed already.

Thank you for inviting me. I'm president and CEO of Mancor Industries. Mancor is a Canadian company with a head office in Oakville. We have sales of $250 million with approximately 900 employees. We have two plants in Oakville and four plants in the U.S. We produce fabricated and machine components for companies like Mack Trucks, Volvo, John Deere, Caterpillar and PACCAR.

We've essentially grown from $50 million to $250 million in less than eight years, so we've done pretty well. Unfortunately, for our country, almost all of our expansion has been in the U.S. One reason for that is simply--and I don't think it's Canada's fault--that our customers are in the U.S. and our Canadian customers are continuing to shrink, which we hate to see. Another reason is that land and building is much cheaper in the U.S. than here in Canada. Another point is that we're basically welcomed and offered incentives to come there by various levels of government. We feel welcome when we go into the U.S.

I'll give you an example. We're opening a new plant in Indiana. It's 120,000 square feet. It's almost a brand new building. We bought that for $3 million. That would probably have cost $9 million to $10 million here in this area. The various levels of government have given us close to $1 million in grants to be there, with a workforce that's just chomping at the bit to go. That has encouraged us to continue to expand there.

I'm a Canadian and I've worked here all my life. I used to be CEO of Champion Road Machinery up in Goderich, which we sold to Volvo. So I've been in the business scene for quite a while. But our Canadian business environment right now is not encouraging.

One thing that bothers us when we look at the view of government towards business--and I'm sure you've heard this before--is that the recent decision of the government not to grandfather existing trusts has convinced us that this is not a good place to be. In a moment's notice, something can change, and we think something can change on many different fronts. So it has us really thinking that maybe we shouldn't put our eggs in this basket in Canada.

Another is the current friction that our government has with China, which is a silly thing. We trade with China and we need to be friends with people. Canada needs to be friends with people. We don't need to be picking fights.

The Canadian dollar doesn't help, and I'm sure you've heard that ad nauseam. However, our company takes a different view on the Canadian dollar. We think that too many companies in Canada confuse the low Canadian dollar with being really smart at business. In our company we don't worry about the Canadian dollar. We focus on productivity and continuous improvement, and the dollar can go where it wants to go. We're continuing to invest and innovate, including in our Canadian operations. Essentially, our Canadian operations are as efficient as our U.S. operations at the current 85¢ range. Why? Because when it was 65¢ we pretended it was 85¢ and ran our business like that. I also don't remember any businesses asking to send money in to the government when it was 65¢.

Quite frankly, we don't even discuss it, but what I tell outsiders is, quit your whining and get on with improving your business. That's the one thing we control. We don't think the Canadian government actually controls the Canadian dollar all that much. One thing we do control is how smart we are, how well we run our businesses, and I think that's what Canadian businesses need to focus on.

In terms of advice, I'm not really sure what to tell you. The rest of the business community, I'm sure, has given you lots of details--ideas and numbers and all the rest of it--and I'm probably not smart enough to do that. What I would say, though, is that Mancor is a very successful company and we have a motivated and trained workforce. We have good management. We've invested in continual improvements, lean techniques, automation. We've focused on our customers' successes, and we need to do much more.

In terms of Canada, my advice is biased. We need to do the same thing as successful companies do. We're competing against some very good guys.

Number one, we need to invest far more in our colleges and universities and support training in companies. We compete with people. That's the key.

Number two, we need to encourage immigration from places that have demonstrated high training and work ethics. We actually have a good workforce in Oakville because we have a very high rate of new employees there.

Number three, we need to dramatically reduce our health care costs by demanding competitive performance and efficiency improvement using Six Sigma and lean techniques. Again, my advice is let's start running it like a company.

Number four and most important of all, as a company needs to decide on products, I think a country needs to decide on products, and we need to decide if Canada wants to be in manufacturing or not. If you don't want to be in manufacturing, just tell us. Then we can make our plans. If you do, you need to get on with figuring out how to really help the companies and encourage the companies to be highly competitive in this world economy, and if you do want to be in manufacturing, lots of us can help you figure it out.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Church.

We will also welcome Jan Courtin from Port Credit Secondary School. Is that correct? Welcome. We also have Jean-François Michaud. We have two people, and I'm not sure, but I believe Madame Courtin will be presenting on behalf of the school.

You have up to five minutes for an opening statement. Welcome, and thanks for coming.

[Jan Courtin, Principal, Port Credit Secondary School]

Thank you very much for the opportunity to speak to you today about the SciTech regional program at Port Credit Secondary School. I am very pleased that J.F. could join me. J.F. is the head of technology at the school, and certainly a driving force in terms of getting it off the ground.

We are in our second year of this regional program at Port Credit, so we have just grade 9 and grade 10 students. As the principal of the school, I spent well over a year with my staff planning and, should I say, plotting to get it off the ground, because we really had to do this on our own and get it through the board and the board's approval. Because it's regional, any student in Peel can apply for the program. We take under a hundred students per year into the grade 9 level.

The board did support us in terms of giving us $3.8 million worth of refurbishments to our building to accommodate the program, but we are not funded in any way for equipment purchase or for the general running of the program.

To be successful, we need industry partners. We have approached 125 companies. While I'm running a school, this is a challenge. We do not, as yet, have an industry partner, but we're still looking. We need cash and we need in-kind donations to make our program viable.

Our clientele consists of students in both applied and academic streams. That means the hands-on learners who will go straight to work, to apprenticeship training, or to college; and the academically focused students who want to be engineers, scientists, and doctors.

Why did we create this program? There's a need for leading-edge secondary school programs with links to industry and academia. Of skilled trade workers, 52% will retire in the next ten years. A machinist makes more than $100,000 a year, but we can't fill those jobs because kids aren't taking that kind of training. We need to build better pathways for students, and we have to sell those pathways both to the parents and the students.

We have a high school drop-out rate in Ontario that has been reported to be as high as 32%. Our goal at Port Credit Secondary School is to build a stellar, cutting-edge manufacturing program that will give students a firm grounding for a manufacturing career. We want to build awareness in students and parents that manufacturing is a highly viable career path. It is not dingy, dark, and dirty; it's high-tech and it's essential work, and we need to put this in front of kids and parents. In the academic component of our program, we want our students to be accepted to any college or university they choose for post-graduate training in the sciences.

Obviously we need partnerships, and we have academic partnerships. We are partnered with the Department of Aerospace Engineering at Ryerson University. Why did Ryerson partner with us? They currently get first-year students who are wonderful mathematicians but aren't that great at writing a concise report. They want students who have both math and literacy skills. Ryerson works with us on backward design, integrating the Ryerson curriculum of their first-year program into our senior program. Ryerson wants high school graduates who are well grounded in math, physics, chemistry, computer science, and technical writing. Such grounding will equip our graduates with the tools they need to excel not only in aerospace engineering but in many other technical fields.

We are also partnered with Sheridan Institute of Technology and Advanced Learning in Brampton. That's much more geared to the manufacturing component.

So we want to provide a strong technical background for our students. Collaboration with post-secondary institutions allows us to develop in our students the tools they need for success in a range of technical careers. Funding and partnerships are our key issues. Bake sales won't cut it. We need industry to step up and partner with us, providing input into curriculum, providing co-op placements and funding us for equipment purchases. Then we can provide our kids with the solid foundation for a future in manufacturing, science, and technology.

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. Courtin. We'll go now to questions from the members.

I will just let the witnesses know that there will be questions. The first round will be six minutes each.

So perhaps we could have you be as brief as possible in your responses. If one question is asked of you and another one of you would like to comment, just make it clear to me and I will ensure that you come forward.

We'll start with Mr. McTeague, for six minutes.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Thank you, Chair.

Witnesses, again, thank you for being here this evening and making your time flexible for us.

As you know, we have now been tasked for the past nine months, almost since the House of Commons came back, and we have been working as best we could to try to provide recommendations to Parliament and to the government that would help modernize our perspective as it relates to manufacturing. We are indeed getting quite a bit of information, which I think will be very helpful. And we are getting themes constantly coming back to us.

Today we have a bit of a different perspective from all of you, and I want to thank you for that.

First of all, Ms. Courtin, with the work you're doing at that very important level.

We've heard from many manufacturers that it's a question of skills, and I think as we go further west into Edmonton, into the chair's riding, Mr. Rajotte's riding, we may find out just how important it is to have students going towards skills.

I'm wondering if you have found, as you've contrasted the number, the percentage of drop-outs, this program itself is having some success--the partnering and the awareness of the program. I know that within the CME it's a great, well-known program that you're putting forth for those at a very young age. How widespread is it known throughout the school system that there is this possibility of bringing kids into this stream of education?

In my view, if I'm looking at my average constituent, those who have trades make a hell of a lot more than do those of us with shirts and ties.

[Jan Courtin]

In fact, because our program is only two years old, it does take time for the word to spread. I think we're really going to see the numbers come in when we have a full four-year program that is partnered with industry, that does have the equipment we need, that does have the funding we need. To a degree, we launched this on pure guts, with smoke and mirrors. I knew I didn't have the money to buy what I needed, but because I believed in the program, I knew we would get there.

I have 800 people expected at my information night, which will take place on November 28 at the school. I had about that number last year. It could be higher this year. So the interest is there. People are keen to see what it's about and to apply.

Again, I take under 100 students per year. My goal is to have two academic classes and two applied classes in the grade 9 stream. My feeling is that the grade 9 applied--that would be, say, a group of about 50 kids, then--would be moving forward in the manufacturing pathway. So that's what we're shooting for.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Thank you.

Mr. Church and Mr. Hattin, neither of you has raised per se the challenges that you're facing from China. I'm looking at the recommendations you made, Mr. Hattin, but at Mr. Church's as well. Both of you have said it has a lot to do with innovation, it has a lot to do with the perspective the company takes, and you look at yourself through your own responsibility. What has been the key to your success?

I note, Mr. Church, you talked about some problems with respect to disincentives here in Canada, things like land being too expensive. You were, I guess, with Champion tractors in Goderich. I wouldn't suspect that the land was very expensive down there, being an old Seaforth boy myself, for many generations back. You say the customer base in Canada is shrinking. Can you expand on that?

[Art Church]

Yes. I think the problem is nobody's fault. You have the bigger plants consuming the smaller plants, and some of that work is going south, especially in a downturn. I think some of our Canadian customers have suffered from the inability to respond to the dollar quickly enough. Especially with multinationals, they have the ability to redirect product. That product gets redirected and the reason for us to be close to them goes away. We have that with several customers here in Canada. So it's nobody's fault, but it's the way it is.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

We want to make sure you get those jobs back here in Canada, as well as greater investments.

Mr. Hattin, your company has been successful. What kinds of innovations have you been involved with that have allowed your company to flourish?

[Robert Hattin]

Speaking to Mr. Church's point, we're involved and lean and going down that path. I think really just having a broader understanding, certainly for smaller companies, of terms like “global supply chain” and all this other stuff and understanding how those mechanisms work is just as important as whether or not you know how to weld certain steel together or whatever it is. The kinds of things that people need to know to fully participate in manufacturing are very broad now.

I guess I have a slightly different take on it than Mr. Church does. I think it's absolutely critical to create those or have those kinds of projects or businesses, whether it's infrastructure or whatever. If we were building more roads in Canada, Champion might be more valued up here.

When we were a war economy, Canada was doing very well because, certainly, of demographics and the need for certain things. Because we're established, we chase our customers, as he does, down to the States. Because we're established, we can do that. But if you're not established, why would someone start a business up in Canada, only to chase a customer that's somewhere else? That, in a relationship, is just fundamental, and that's why we celebrate the Toyota plants, the Honda plants, and things like that.

So really there are two levels. To get started, there is no reason for being a small manufacturing company.... As he said, there's every incentive.... I get calls every week. Please come to Georgia. We love you. We'll give you money. Just hire our people. And they're quite skilled people. So again, if you don't have the markets here, the business here, there is no reason for making things here unless you're already established and have your workforce.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. McTeague. We'll now go to Monsieur Crête pour cinq minutes.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you, Mr. Chairman.

Mr. Hattin, you made an interesting comment about the value of the dollar in your submission. Everywhere we went, people were talking about the very rapid rise in the Canadian dollar and the fact that this has created major problems from a competitiveness standpoint. Most businesses had been guaranteed that the inherent value of the insurance policies that they had acquired would remain relatively stable. However, contracts are now ending and most of these companies find themselves face to face with the reality of the rising dollar.

I'd like you to elaborate further on the following statement that you made: “Government can provide off-sets to domestic manufacturers equivalent to the amount being subsidized by the manipulated currency”. Are you referring perhaps to China's currency? Could you explain that statement further to me?

[Robert Hattin]

The currency thing is a very interesting question. I met with David Dodge and six other people about this thing. Basically Canada has a tier-two currency in that we follow other things. We're not the master. We can't control the U.S. currency or the yuan.

What I'm referring to here, though, is that the rapid rise of the Canadian dollar makes it very difficult for Canadian companies to adjust. No amount of futures or options, straddles, and all that other stuff is going to protect you from it. And it goes to what Mr. Church said. You must be very good at what you do in order to mitigate those effects. I think as we see all the wealth coming in from the oil side--there's a windfall there--obviously there are other industries being affected. There has to be some sort of offset somewhere to possibly iron out those things, those effects, and that's really what I'm referring to.

In terms of the Chinese yuan, we're a flea on the tail of the dog, going for the ride.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Could the off-set be equivalent to the loans awarded to SMEs? The government guarantees loans to SMEs, thereby allowing them to benefit from a lower interest rate.

With respect to fluctuations in the value of the dollar, would you prefer to see things go in this direction? Or, do you go along with the general findings, namely that there are really no intervention means, aside from meeting with the Governor of the Bank of Canada as often as possible in an effort to influence him so that he takes into account factors other than controlling inflation?

[Robert Hattin]

I think that Mr. Dodge's approach is correct in controlling inflation and that we don't have much influence on the value of the Canadian dollar, but I think we can lend our voice to the other countries to say that the Chinese currency has to float; it has to reflect the true value of it.

The problem I have is that we are using...and certainly it's the American policy--they're using cheap goods from China to offset the rising price of gasoline that they pump out of east Texas. I'm not an economist. I don't understand how that works. There is some sort of dysfunctionality in that whole process.

Again, Mr. Church had it right in that companies have to take care of themselves, but if I move down to the States, I don't have a currency issue.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Would you care to comment?

[Art Church]

I think one point that needs to be really clear on this currency matter is that it is a worldwide thing. The U.S. was in terrible shape five years ago because of the high U.S. dollar. Our customers were in hard shape then. Now the dollar has dropped, and the euro is high. It's actually a welcome relief for us, because we don't have competition from Europe anymore.

I really think people who zero in on this currency thing like it's a big deal need to take the longer view. We go forward with our dollar; we always protected our business, and I think more companies need to do that, but somehow companies don't know what to do. They're good at complaining, but they don't know what to do.

That's probably not what I should be saying here, but—

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

You maintain that they don't know what to do or have no concrete proposals. I'm simply trying to understand this issue.

In your opinion, what concrete action could be taken to address this issue?

[Art Church]

What I believe is that if we're going to be successful, we need good, well-trained management. I'm in a consortium called the HPM Consortium. I told members in my company, in this consortium, to protect the dollar, to do this, to do that, but they didn't. I think the fittest survive, and I don't know what the government can do about it, but I think if the government can encourage better management, better training, and that sort of thing, so as to have more skilled business managers in our country, our country will do better and will make better decisions.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

As a matter of fact, Ms. Courtin, you did make a suggestion concerning manpower training. The same conclusion is being drawn in Quebec and in several other provinces. A career in science is a little like the career of a relief pitcher. One succeeds because someone else has dropped out or turned to something else.

Do you think we need to take action similar to what was done to increase milk consumption or to reduce tobacco consumption, for example, real comprehensive action to get people to understand that careers are at stake in this sector?

You defend your program, but I understand that this is the reality everyone must contend with. Do you share my views and what action do you think should be taken?