Evidence of meeting #13 for Industry, Science and Technology in the 39th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was services.
A recording is available from Parliament.
Conservative
The Chair Conservative James Rajotte
Order, please, ladies and gentlemen.
This is the 13th meeting of the Standing Committee on Industry, Science and Technology. Pursuant to Standing Order 108(2), we are continuing our study, which is the review of Canada's service sector.
Of course, we'd like to welcome all the members of the media who have chosen this committee over the other one.
Conservative
The Chair Conservative James Rajotte
The throngs of media covering good committees are impressive. That's my political comment for the day.
We have with us here today two organizations. First of all, we have two members from the Canadian Association of Management Consultants: Ms. Heather Osler, president and CEO; and the vice-chair, Mr. Bob McCulloch. Welcome to both of you. The second organization we have is the Conference Board of Canada. We have the senior vice-president and chief economist, Mr. Glen Hodgson.
Welcome to all of you. You will have up to 10 minutes for your opening presentations and then we will go right to questions from members.
So we'll start with Ms. Osler or Mr. McCulloch.
Bob McCulloch Vice-Chair, Canadian Association of Management Consultants
I'll be doing that, yes.
Vice-Chair, Canadian Association of Management Consultants
Good morning. Thank you to the chair and members of the committee.
My name is Bob McCulloch. I run an independent consulting practice in Toronto. I'm also vice-chair of the board of the Canadian Association of Management Consultants, also known as CMC-Canada, and I'll be referring to that during these words. With me is Heather Osler, the president and chief executive officer of the CMC-Canada.
Thank you for inviting us to appear before this committee today. While we always appreciate more time to prepare, being consultants we also always have something to say. So that's what we're here for.
Before I describe the current state of management consulting in Canada, it's probably helpful to this committee to understand a bit more about CMC-Canada.
The title, certified management consultant, or CMC, is a statute-protected professional title in all provinces across Canada. CMC-Canada administers the CMC designation and actively promotes it to the client community. To be eligible to become a CMC, one must have a baccalaureate degree in a relevant discipline and have at least three years' experience in management consulting. Applicants must agree to abide by the rigorous uniform code of professional conduct and successfully complete a comprehensive examination administered by CMC-Canada.
Currently there are 2,400 CMCs practising in Canada and a further 800 members of CMC-Canada who have yet to gain their designation. This represents about 13% of an estimated 25,000 management consultants in Canada. The CMC designation is recognized in 43 countries, and CMC-Canada is affiliated with many of the institutes that provide the CMC certification in their countries. We're also a founding member of the International Council of Management Consulting Institutes, the profession's international standards body.
I'll now give you a thumbnail sketch of the management consulting landscape in Canada. A lot of this comes from a study of management consulting in Canada that we just completed by the Kennedy Information group in the States.
After a tough couple of years at the beginning of this century, the post-Y2K letdown, 9/11, following the recession and structural changes in the business environment, Canadian management consulting is now again experiencing strong growth. In 2006 the industry generated gross revenues of approximately $9.3 billion. Gross revenues are projected to hit $11.5 billion by 2010. I would like to put this in perspective. Industry revenues 40 years ago were an estimated $25 million, so it has grown dramatically in that period.
For analytical and descriptive purposes, management consulting in Canada is broken into five service lines or components: strategy; operations management; information technology; human resources; and a recent entry, business advisory services, which focuses primarily on financially related matters and comes out of the accounting firms, by and large.
While each of these components has experienced solid growth for the last several years, the leaders are, not surprisingly, business advisory services, with their link to the large audit firms, and information technology. The public sector, which includes all levels of government and the publicly funded portion of health care, constitutes the largest single-client grouping for management consulting services in Canada, accounting for over 30% of total expenditures on management consulting. In addition to direct consulting expenditures, government legislation, policies, and initiatives drive a large part of consulting to clients in the private sector.
The Canadian management consulting industry is what economists would call an atomistic market, meaning there are many players in the marketplace and no one firm is large enough, relative to the market as a whole, to have any appreciable effect on price.
The structure is consistent with what those same economists--perhaps you, Glen, I'm not sure--would identify as perfect competition.
In composition, the industry contains several multinational firms, primarily in human resources and information technology, several Canadian-based companies with a global reach, a few large national players, smaller Canadian consulting firms that focus on one sector or a geographic region, and a long list of small management consulting boutiques and sole practitioners.
This atomistic structure keeps the management consulting industry very competitive and very nimble in Canada. Ontario continues to be the largest market for management consulting services of all types, and Alberta evidences the strongest rate of growth currently.
The factors that drive growth include strong economic growth of the companies that use consulting services; the pattern of economic growth, such as increased focus on international competitiveness and the increase in mergers and acquisitions, both of which are prime areas for management consulting involvement; the focus on improving effectiveness and efficiency in the huge health care sector; the growing shortage of highly qualified personnel, brought on by both economic growth and aging demographics; the Canadian-U.S. dollar exchange rate, prompting the drive for companies, especially manufacturers, to achieve greater efficiencies and competitiveness; and increased interest in and investment by governments at all levels in infrastructure projects.
The barriers to market entry for management consultants and management consulting firms are not as high as for other business areas. At the extreme, all it takes is the declaration that one's a consultant, and with fewer multinational management consulting firms in the United States, the Canadian market provides very fertile ground for locally formed small and medium-sized firms to establish themselves and prosper.
Challenges: the future of the management consulting business in Canada is very bright. We see that, and it's not without its challenges. One challenge is that there's currently no effective way to prevent anyone, including the charlatans--superficial celebrities and dubious experts--from hanging out a shingle, calling themselves management consultants, and offering their services. CMC-Canada and the provincial institutes do their best to warn potential clients of the dangers of hiring such individuals and to encourage them to hire only those who can demonstrate their qualifications of background, education, and experience through their membership in CMC-Canada. However, this is only a partial solution, and clients will still have unfortunate experiences with no recourse if the consultant is not a certified management consultant. When the foreign client assumes, in good faith, that a Canadian who calls himself or herself a management consultant must be competent, and experiences a shoddily executed intervention, that situation reflects both on the profession and on Canada as a whole.
Regulation of professions is within provincial jurisdiction. Still, members of CMC-Canada operate under a national uniform code of professional conduct, and the criteria for certification are consistent across Canada, providing a professional with unencumbered migration across all provinces.
Yesterday the competitions commissioner unveiled her report on professional regulation in Canada. The report cited several areas of concern, including entry to practice, interjurisdictional mobility, overlapping services and scope of practice, advertising regulations, and pricing and competition. We can say unequivocally that CMCs enjoy reciprocity not only across the country but in over 25 countries around the world. Our only caveat is that CMC entrants to Canada must complete a short exam on the Canadian code of professional conduct to ensure our cultural norms are adhered to while they are practising in Canada.
On the provincial front, the Province of Ontario has recently recognized the CMC designation as a preferred designation in the request for proposal for professional services. We want to encourage the federal government to incorporate similar wording in its procurement policies, consistent with other designations it already recognizes.
The second challenge: Canadian management consultants frequently have to address entering the United States to work for U.S. clients or to work on projects in the U.S. for Canadian clients. Management consultants are granted reciprocal temporary entry privileges to the U.S. under appendix 1603-D-1 of NAFTA but are too often stopped or detained at the border for what we would characterize as somewhat frivolous reasons.
The frequency of these irritants tends to ebb and flow and is particularly acute at Toronto and Vancouver international airports. These border issues have a disproportionate impact on small firms--I can speak personally on that one--and particularly on sole practitioners, who often lack the infrastructure and wherewithal necessary to navigate the U.S. border control system.
CMC-Canada spends considerable time dealing with the Canadian and American authorities, trying to resolve these issues, but thus far hasn't had a great deal of enduring success. CMC-Canada has also been dealing with Canadian authorities who try to bring the definition of management consultant under NAFTA and GATS into line with the eligibility criteria for certified management consultants that has become the international standard.
The third issue our members often confront is non-tariff barriers while competing for management consulting contracts in some countries, usually in the developing world. CMC-Canada believes that Canada has a competitive and comparative advantage in worldwide management consulting. This is because of our high academic standards, our varied and sophisticated industries, our leadership in certification, our multicultural and multilingual society, and the prudence and probity Canadian professionals characteristically bring to their business arrangements. This is why we have spent significant time trying to make it easier for members to do their business in other countries by expediting members' entry into the United States for temporary business purposes, by reconciling the definition of management consultant under GATS and NAFTA with industry practice, and by trying to level the playing field for foreign contracts.
I would be remiss if I did not mention our existing relationship with two federal government programs.
Here at home, for many years our CMC members have provided management advice in the areas of marketing, strategy, and operations to clients through the National Research Council's industrial research assistance program, IRAP. In support of our members seeking work beyond Canadian borders, we have enjoyed support through the program for export market development, the PEMD program.
Where do we seek support? What might you do for us, or think about? Support our efforts to spread a high standard of professional conduct for the practice of management consulting by Canadian practitioners, whether they are operating within or beyond Canadian borders; support our efforts to ease the flow of qualified Canadian practitioners across the Canada-U.S. border to carry out U.S.-based assignments; support our efforts to inform qualified Canadian management consultants on how to earn assignments in other countries where Canada has a trade presence; and encourage Canada's representatives in these countries to educate the local business community on the benefits of hiring qualified Canadian management consultants.
Thank you for the opportunity to present our perspectives this morning. Either now or later, we welcome any questions or comments you'd like to present.
Conservative
The Chair Conservative James Rajotte
Thank you very much, Mr. McCulloch.
We'll now go to Mr. Hodgson for ten minutes.
Glen Hodgson Senior Vice-President and Chief Economist, Conference Board of Canada
Thank you, Mr. Chairman.
Good morning to members of the committee.
I'm going to give you a little bit different perspective. The Conference Board of Canada is the biggest think-tank in Canada by far. We produce about 200 studies a year, whether they're economic research or looking at human resources issues. I'm going to draw upon two or three studies we've done over the last couple of years with respect to services.
I thought I'd start by pointing out the fact that services are about 70% of our national economy right now. Often we're stuck with what I see as a fairly old paradigm, where we think about resource extraction, agriculture, and manufacturing as the core of our economy. That may have been true 50 years ago, but it's not true today.
Everybody in this room today has a service provider. None of us make anything. None of us are knocking down wheat or sawing logs. That is really the face of the modern economy. So as the committee thinks about services, think about the fact that services are the core now of Canada's economy. It's not a little subset; it really is the guts of what Canada does within the world.
I'm just going to say a few words about three studies we've done over the last few years that looked at particular aspects of the service economy. In fact, it links very nicely into Bob's comments about barriers north-south, but I'm also going to talk about barriers across the Canadian provinces that really prevent our service economy from becoming as dynamic, efficient, and competitive as it could be if we could find ways to reduce those barriers.
As to the first study, we have done a report card in Canada for about a decade now. We've just re-branded it. But I'm going to go back to 2005-06. In the fall of 2005, we published a report, called Performance and Potential, which really examined ways in which we could make the Canadian economy more competitive and more effective.
One of those particular segments looked at a Canada-U.S. comparison of productivity by sector. It was based upon work we did with Industry Canada. If you want to call industry officials, Someshwar Rao has been the leader of research in that department for a long time now. He's a first-rate economist.
It was the first time we did a Canada-U.S. comparison of productivity by sector. One of the things we discovered is that in sectors in Canada that are open to international competition—and these are often the traditional sectors, such as forestry, autos, or mining—Canadian productivity is as good as U.S. levels of productivity or even better. But it's in those parts of our economy that are protected—and a lot of those are service sectors, such as financial services, retail, telecom, and frankly, consulting services as well—in those sectors, that we have levels of productivity that are below, and sometimes far below, U.S. levels. A sector like retail, for example, which is a pure service sector, has a productivity level output per worker that is less than two-thirds of the U.S. level.
That might be due to the fact that we have a smaller economy, just a matter of scale, American firms being able to move to scale economies, but it also might be due to different levels of competition between the two economies.
It's very interesting, in the recent debate about whether Canadian retailers should be cutting their prices as the dollar rose up to U.S. levels, what the factors were that led to the slow increase. I would argue that this is a topic definitely worth examining in greater depth, because retail is clearly a service sector that touches all of us. So was it a matter of having inventories that the firms bought when the dollar was at 85¢ or 90¢ and allowing the price to rise slowly, or is there something more fundamental about the nature of our national economy and whether there's adequate competition within retail?
Secondly—and this is a corollary study to it—we put a study out in the spring of 2006, with the wonderful name of Death by a Thousand Paper Cuts. It was really an examination of all the regulatory barriers that exist to competition within Canada, what economists call non-tariff barriers, things other than prices. That gets into the guts of what Bob was talking about, into the design of regulatory practice, standards, whether you need more standardization of standards, whether you need recognition of credentials.
We examined the barriers that exist across the national economy, from east to west, and put a lot of weight on the very many barriers that continue to exist between provinces, and also the misalignment of regulation between the federal and provincial levels. But we looked at the same thing north-south. We looked at the non-tariff barriers that exist, largely in services, between Canada and the United States, hence your point about the barriers that service providers encounter at the U.S. border. You simply don't have free passage to do management consulting in the United States.
The culmination of the study was that we did an econometric analysis looking at the impact of these barriers on Canada's productivity and whether non-tariff barriers really were a factor in explaining the productivity gap already talked about. Its very original research came out with a positive result, that yes, non-tariff barriers, either east-west or north-south, were a contributing factor to the fact that Canada has been slipping in the rankings globally for 20 years now in terms of productivity output per worker. That's an interesting piece of research you might want to refer to.
The third study—and I'm going to spend just a couple of minutes on this too, because my name is on it—was called Opportunity Begins at Home, looking at service exports in particular and what we can do to enhance Canada's service exports.
The facts are a couple years old now, but I think they really do explain a long-term trend. About 13% of Canada's exports are services; 70% of our national economy is services, but only 13% of exports. How do we stack up internationally? Well, for the U.K., it's a third of all British exports; 34% are services. For the U.S., it's 28%. But even for another resource economy, like Australia.... We often use Australia as a reference point. It's roughly the same size as Canada. It has a huge natural endowment of resources. It's a major resource player. For Australia, it's 22%. So the Australians are 50% to 60% higher than Canada in terms of service exports.
We tried to probe into why that existed, and it really came down to three factors explaining why Canada is an underperformer in terms of service exports. And that really does speak, Bob, directly to your comments in terms of management services, but you could apply it to everything from health care management systems to financial services to retail.
It really came down to three factors. One was the desperate need for domestic reform. The fact of the barriers, the fact that we had balkanized our national economy, and the fact that we've had an Agreement on Internal Trade for 13 years now and have made very tepid progress in terms of actually reducing the barriers--that was really an inhibitor in terms of service exports. We looked at sectors like the financial sector, education services, and transportation, as examples of where things like interprovincial barriers have really impeded the ability of Canadian service providers to get to optimal scale.
Second, it was around trade policy, and the fact that the Doha Round has failed now, has collapsed. Services were playing a small part within that. It's been very hard for the global trade community to find a way to reduce barriers in services around the world. We tend to do it on a bilateral basis, or on a reciprocal basis. That is not the basis on which we negotiate free trade for goods. So we're really taking baby steps forward in the whole area of trade globalization around services. And because Canada cannot gain access to other markets, it's no surprise that our service exports have really been impeded.
Third, it was around trade promotion. I think the global strategy that the government has announced in the last few months is a good step forward, but trade promotion is only one part of the agenda. It really starts with reform at home, domestic reform, to allow your service exports to achieve a scale to be internationally competitive and then go forth, combining with market access, which is really critical to success in service exports.
Committee members, that really just gives you a taste of the kinds of work we've done in looking at the service economy and asking questions about how Canada could be more competitive when it comes to both trade and services and the domestic provision of services.
Conservative
The Chair Conservative James Rajotte
Thank you very much, Mr. Hodgson, for those remarks.
We will start now with questions from members.
Mr. Simard, for six minutes.
Liberal
Raymond Simard Liberal Saint Boniface, MB
Thank you very much, Mr. Chair, and I thank the witnesses for being here this morning.
My first question is to Mr. McCulloch. We've had witnesses here over the last several weeks, and one of the first things they talked to us about was the qualified labour shortage. As a matter of fact, we had the IT people here saying that in the foreseeable future they were going to be looking at 25,000 new jobs, but that when they looked at what's coming up in the pipeline, there were only about 8,000 people coming up.
I'm just wondering if you're facing the same thing. Do you foresee problems that way, in terms of being able to fill the spots that you have available?
Vice-Chair, Canadian Association of Management Consultants
Do you have a comment, Heather? I do have a comment, but after you.
Heather Osler President and Chief Executive Officer, Canadian Association of Management Consultants
Go ahead.
Vice-Chair, Canadian Association of Management Consultants
One of the things that I observed is that.... Remember I mentioned the notion that I can go out into the marketplace and declare that I'm a consultant. This is what's happening with a lot of people who are somewhat younger than I am who are retiring and moving into the consulting world. Being a consultant, you can carry on well into your late sixties, seventies, and beyond.
One of the things, I think, is that qualified people right across the board are in fact entering the consulting field as part of a change in career or a final career.
President and Chief Executive Officer, Canadian Association of Management Consultants
I'd just like to add that we have a member in Alberta who has his own rather significant consulting firm. He was telling us not very long ago that because business is booming so much in Alberta and because there is such a huge need for consultants, you can do very bad consulting and still earn more than $300 an hour. And the clients are simply thrilled because at least they have a consultant. This, to us, is not good business.
Liberal
Raymond Simard Liberal Saint Boniface, MB
Can you give us an idea how much of your membership's work is international?
President and Chief Executive Officer, Canadian Association of Management Consultants
Our best guess is about 10% to 12%.
Liberal
Raymond Simard Liberal Saint Boniface, MB
So the increase in the dollar will affect your people too.
President and Chief Executive Officer, Canadian Association of Management Consultants
I don't think it will change.
Vice-Chair, Canadian Association of Management Consultants
I'm still doing the same amount in the States as I was before.
Liberal
Raymond Simard Liberal Saint Boniface, MB
You briefly mentioned the health care sector. One of the things we've been talking about at this committee is the need for governments to find more innovative ways of delivering their products and services.
One thing the government introduced five or six years ago was the Health Infoway. Have you worked with that? I heard it was slow getting off the mark, and all that. It wasn't doing very well.
Vice-Chair, Canadian Association of Management Consultants
I haven't worked with it personally.
President and Chief Executive Officer, Canadian Association of Management Consultants
No. Neither of us is in the health care area.
Liberal
Raymond Simard Liberal Saint Boniface, MB
I'm batting zero for three here.
Mr. Hodgson, we've been talking about interprovincial trade barriers for years, and every government has tackled this in some way or another. As a matter of fact, I was parliamentary secretary to the minister looking after this.
What are the barriers to removing these barriers? It's just ridiculous. We know it's a problem and has to be resolved, but nobody can resolve it. The provinces seem to say they want to, but they don't really want to. I had a financial wealth manager in Manitoba who couldn't transfer his clients to Alberta. It was absolutely ridiculous. That kind of ridiculous thing is happening.
How do we tackle this? Probably every witness has mentioned this as an impediment to productivity as well.
Senior Vice-President and Chief Economist, Conference Board of Canada
I would start with the politics of the issue. You have certain skill sets, businesses, and individuals who are gaining an advantage by having protection within their home markets. So even though it would benefit us as a national economy as far as productivity goes, and it would benefit us as consumers because there may be better prices available in the marketplace, it's a classic case where the interests of the few are crowding out the smaller interests of the many.
That is fundamental to what all of you do: trying to decide how to get that balance right, understanding that there will be losers, and whether you're prepared to compensate the losers, even though many of us would gain from the reduction of these barriers.
There has been a little bit of progress. Barriers on government procurement have come down under the AIT. You can buy B.C. wine in an Ontario or Quebec liquor store now, which you couldn't do 10 years ago. But the area where the barriers are probably most acute is around professional services. We still have 10 different standards when it comes to professional credentials. You have to ask yourself pretty profound questions about why nursing skills that are adequate in B.C. are not adequate in Alberta, Quebec, or Ontario.
A lot of this is about political will. I look to what has happened between B.C. and Alberta--the TILMA agreement--as a sign that it is possible to find the political will, the courage, to actually make progress. It is very instructive that Premier Campbell pushed so hard with the other premiers but there was so little uptake.
This is clearly not rocket science. How to make progress on this is quite clear. I'm really struck by the fact that the Europeans, in forming the European Union, have made huge progress. They have come up with a common European standard on everything from cheese to consulting services, and we're stuck in the 1940s and 1950s model in Canada with a balkanized national economy.
The barriers around goods are not that acute. People point to things like Quebec margarine having to be a different colour. So the goods barriers are slim. It's when you get into the transportation of goods--having to take things off a truck in one province and put them on a different truck in another province--that things become truly irrational in the effective functioning of our national economy.
But the biggest area is around professional services and standards.