Industry Committee on May 30th, 2013

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Merci beaucoup.

Thank you very much to our witnesses for being here this afternoon.

I'd like to start actually by asking both presenters—I'll begin with you, Monsieur Lavoie—about the technology or the innovation voucher system that both presenters spoke about.

Monsieur Lavoie, starting with you, if you could, please elaborate on that program, how it might look, how it might operate. You mentioned some countries that have these technology voucher programs. Could you maybe point to one or two best-practice scenarios for us?

A third part of my three-part question is, how would such a program work alongside SR and ED, if it existed?

[Martin Lavoie]

Thank you.

Among the countries I've reviewed that provide voucher system programs for adoption of digital technology, some of them cover, more specifically, electronic commerce programs, for example, which are probably broader than those that would be accessible for a bunch of different industries.

Certainly for our sector, manufacturing, an electronic commerce kind of voucher would be interesting. When you talk about supply chain innovation and when you talk about joint research and development, these two areas would probably be interesting.

In terms of specifically digital programs, like electronic commerce incentives, you're talking about countries like Italy, which has an interesting one.

There are other programs, such as those in the Scandinavian countries. For example, in Finland and Norway they are more like digital innovation programs that go beyond electronic commerce. This is where I think manufacturing could also benefit, because electronic commerce, of course, is only one of the digital technologies in our sector. As I said before, how do you actually convert some of your old machinery and equipment into modern machinery and equipment that is tied into the Internet system so that you can then acquire some data about your production processes?

That would be a nice way to compensate for the elimination of machinery and equipment used for R and D purposes and not necessarily just for fabrication. That would compensate for the elimination of capital expenditures under the tax credit. So when I was making a reference to SR and ED, I was making reference to the elimination of the capital expenditures eligible under the tax credit.

A tax credit and a voucher are two different ways to achieve the same objective.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you very much.

Monsieur Morin, could you elaborate as well? You also mentioned in your presentation this notion of technology or innovation vouchers. Could you tell us more about your concept of these?

[François Morin]

I can give you the example of what the Government of Quebec is doing with tax credits for e-business development.

That program was implemented about 10 years ago and will end in 2015. It has been a conduit for digital economy in Quebec. Companies—both SMEs and large businesses—have benefited from it. It has even been a conduit for international companies. SITA and some other international companies have set up shop in Montreal to take advantage of that credit. This program is very simple in terms of application. I think it is a nice example of what is being done in Quebec.

The government is currently deciding whether to renew the program. We at the Fédération des chambres de commerce du Québec are strongly advocating its renewal, and even its expansion to include the manufacturing sector, which our colleague Mr. Lavoie belongs to.

I think this is a very nice example the federal government could consider. The program is simple in terms of application, and it works very well when it comes to e-business.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Merci.

That's actually a good segue for my next question for you, Monsieur Morin. It sounds as though this is a Government of Quebec program that already exists. Are there any other programs that have been implemented by the Government of Quebec that you feel have been successful in helping to enhance the adoption of digital technology?

[Françoise Bertrand]

For video games there was a similar program, but other than that.... There have been some in other areas. We would promote e-learning, which would be a good vector to invest in, but the programs are not there.

[François Morin]

To your point, I just want to mention that Développement économique Canada actually have some very good programs for infrastructure investment for SMEs.

The problem—and it's one of the recommendations I just shared with you today—is that it's not known. I think that's an issue.

I'm not answering your question, because off the top of my head I'm not sure if there are other programs we're aware of.

[Françoise Bertrand]

There are not that I know of.

[François Morin]

But what I'm saying is that there are existing programs and there's a lack of promotion of those programs to SMEs, especially in Quebec. I met with Développement économique Canada and the BDC, and we were actually very surprised to see that those programs existed.

I think there is some work to do. This is one of our recommendations: the promotion of the innovation technology culture to SMEs, because some of those programs do exist and could benefit SMEs, especially in Quebec.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

You're absolutely right. We—

[Françoise Bertrand]

May I share with you that there's only—

[François Morin]

Pardon?

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

I was just going to say that you're absolutely right. We had the BDC at our last meeting, and they talked about one or two programs that I hadn't heard of either. It sounds like they're being very successful, so exactly....

[François Morin]

It's a key point. I think the promotion of an innovation culture in Quebec and in Canada should be undertaken by the federal government.

[Françoise Bertrand]

That's why the digital strategy would help in that direction.

[François Morin]

Yes.

[The Chair, Conservative, David Sweet]

Thank you very much to the witnesses and to Mr. Braid.

Now we'll go on to Mr. Regan for seven minutes.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much, Mr. Chairman.

Welcome to our witnesses.

Mr. Lavoie, on the Canadian Manufacturers and Exporters website, you state that the organization advocates for, “manufacturing competitiveness” through “investments in productive assets: knowledge (R&D), technology (new machinery and equipment), and workforce skills.”

In your view, how can a greater focus on information and communication technology manufacture more innovation and global competitiveness?

[Martin Lavoie]

Could you repeat the last part of your sentence?

[Geoff Regan, Liberal, Halifax West, NS]

How does greater focus on communications and information technologies help foster more innovation and global competition?

[Martin Lavoie]

I think we agree in saying that productivity is one of the key factors of economic growth. That's especially the case in the manufacturing sector, but also in other sectors. Think of the retail industry and other sectors where productivity issues can result in a price drop with regard to the number of units sold. In our sector, we are talking about units produced.

When it comes to that, an increase in productivity is the only way to provide a long-term response to the challenges our sector has been facing over the past 10 years. We are facing increased international competition from countries where labour is much cheaper than in Canada. We also have a dollar whose value has gone from under $0.80 to parity with the U.S. dollar. In the long term, greater productivity is the only thing that will allow Canada to manufacture products at the same price as those from countries like China, where workers have lower wages.

In Quebec, the company Mega Brands has invested in the automation of its Montreal factory and has repatriated to Canada the production that was previously being handled in China. The $30 million it has invested in its factory to improve productivity has made that repatriation worth its while. This way, the company is reducing the risks stemming from manufacturing in a country it is less familiar with.

I want to come back to what I said in the beginning. Many people think productivity implies that people will no longer be involved and that only machines will handle the production. That's not how I see things. I think that, by reducing labour costs, we can be more productive, thus enabling us to manufacture here products that would normally be manufactured in countries with cheaper labour. Our labour has become fairly expensive. Over the past 10 years, the manufacturing sector has gone from an hourly rate that used to be half as much as it was in the United States, to a rate that is now slightly higher than it is in the U.S. We are not even talking about China here. We are talking about the United States. Our labour is more expensive than U.S. labour, and we have a productivity deficit of about 50%. Currently, our problem is twofold, and we need to resolve it.

[Geoff Regan, Liberal, Halifax West, NS]

Do you see a difference between productivity and innovation?

[Martin Lavoie]

Some types of innovation lead to an increase in productivity, while others are less related to productivity.

There are four major areas of innovation. One of them is product innovation. If I design a new telephone, that is a new product. Another area is process innovation, which has to do with the way a machine is produced. That machine does not necessarily have to be a new product. There is also supply chain innovation, which is often referred to as organizational innovation. That has to do with the way companies manage their relationships with their suppliers, clients and so on. The last area is marketing innovation.

In sectors such as agri-food production, innovation is often related to the way products are presented to consumers. That's important. Many inventors design products in their basement, but they don't know how to market them. I think it's just as important to be innovative in marketing as it is to be innovative in processes and products.

As for which types of innovation help increase productivity the most, process innovation is definitely the first one I think of in terms of productivity, since it has to do with the way things are done. Product innovation is much less related to productivity. Its main goal is to penetrate new markets and manufacture new products. Organizational innovation also has an impact on productivity. It improves supplier response time when a component is needed to manufacture a piece of equipment, or when products must be delivered to clients. Marketing innovation is more related to product innovation than to productivity.

Basically, I would say that process innovation and organizational innovation have the biggest impact on productivity.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you.

Mrs. Bertrand, in 1996, you became the first Canadian woman to chair the CRTC. Over the course of your whole career, you have encouraged competition and creativity.

Women account for less than 20% of the workforce in information and communications technology in my province, Nova Scotia, and less than 25% across the country. Only 14 Canadian technology companies have women among their senior management teams. Given those facts, do you think this is a problem that should be addressed? If so, what kind of a role should the government play?

[Françoise Bertrand]

This is a matter of strategy.

We clearly have a problem in terms of skills. These are technological professions, and that's one thing, but there are also positions for managers who understand technologies, who promote them and know how to benefit from them. It seems to me that this could be a very good fit for women who don't want to have a career in technology.

As we know, most business schools are currently attended by both men and women. So it would be extremely important to demystify technologies in those schools and teach future managers that, without technology, their companies, regardless of the sector they are in, will not be able to remain competitive. We may be talking about competitors across the street, but also about international competitors. Globalization is not ready to go away—quite the contrary. The requirements and challenges will increase.

That's why I am talking about skills again. In Quebec, and in Saguenay, more specifically, this is not an issue of access. Information technologies are available. People have access to the Internet and to broadband networks. However, how can we explain that more than three out of four companies in Saguenay have no website? That's really a basic tool.

We can criticize companies that are not renewing themselves, but all too often, I think we have to take initiative and remind people of what is absolutely essential. For instance, we have to remind them how they can use these opportunities to access markets, to access knowledge and services that would be impossible to have without information technologies, especially outside major centres.