Industry Committee on June 2nd, 2015

[The Chair, Conservative, David Sweet]

Thank you, Mr. Stuart and Madam Nash.

Mr. Daniel, please.

[Joe Daniel, Conservative, Don Valley East, ON]

Thank you, folks, for being here.

I'm going to take a slightly different tack. Obviously disruptive technologies is a wonderful area in which we can grow our economy and grow our processes and technologies, etc. It's also at the leading edge. When you have some of these technologies, your companies have explosive growth.

One of the things that comes to mind is how you are dealing with getting the right people in your workforce, in your circumstances, and in terms of dealing with colleges, universities, etc., to get some of the basic skills. Are you developing those skills in-house, so you have the workforce you need for the future?

That question is for anybody.

[Pierre-Luc Simard]

I'll take that one.

As far as skills coming from university into our company is concerned, we try to work with our local university to give them feedback on the kind of expertise we need. Mostly for us it's around software. Software leads a big part of the world. Being good software engineers means not only.... It's what universities are good at, in learning how to learn new technology.

From within our company, we encourage pairing and working in teams to build up that knowledge and create and move development up in terms of knowledge. We look toward universities to give them that first base of curiosity and being able to learn new technology very quickly. Especially in our space, there is something new every day and every month.

[Marie D'Iorio]

I'd like to use the Nortel example.

Nortel, as time went on, had different mechanisms to support training of highly qualified personnel. They had institutes in different universities, and they came to know certain departments. They came to know the graduate students. They hired a lot of summer students. For them, it was the experience of working in that company, and it didn't much matter what the project was. You had the experience of how a company is run and where your project fit in the company's business. They kept looking at those students and would hire them.

It informed, as well, the type of training universities could provide to their undergraduates and graduate students. I think the whole ecosystem benefited from that experience. At the NRC, we had superb researchers and technicians who came from that training experience through Nortel.

[Andrew Stuart]

I would add to that. Programs such as what NSERC has to help hire summer students—not just summer students, I should say, but also students who are finished their third year and enter what is called a professional experience year—particularly for emerging small companies are fantastic. The kids come in with three years of education in their discipline. They join the company for 12 to 16 months before their fourth year starts. After a few months, they're just like regular employees. They love it. They're motivated. The NSERC program helps cover some of those costs. It's a much lower entry point than hiring a full-time position, yet we've gone back and hired some of those people full-time because they've been terrific students. The various programs that encourage and enable businesses to hire students is really one of the best ways to help develop the students, help develop the companies, and to create knowledge in Canada.

I've also, in my past, had 10 collaboration projects with various universities in Ontario, Quebec, and British Columbia. I found these to be very helpful in many ways, but I think the intellectual property rules are critical. In making effective collaborative work with universities, I think it must be clear that the private sector entity needs to raise capital, and it needs clear intellectual property statements or rights in their agreements. They can't rely on wishy-washy things, because when you try to take that the next step further, your investors are simply looking at something that's wishy-washy and it will not go anywhere.

Where we can develop these programs is very important. I'd add also, in speaking to people from IRAP last week, they said that Quebec is very well organized in the integration between industry and universities to get projects done; particularly, rapid response to an industry need is stronger than in other provinces. I'm not sure what they do there that's better, but I thought I'd mention it.

[Joe Daniel, Conservative, Don Valley East, ON]

I'm reading between the lines in saying to you that people are not the problem. You can get enough people to grow your businesses with these disruptive technologies, with the right sorts of skills that you need.

[Andrew Stuart]

I don't think you can rely on students to achieve everything, so—

[Joe Daniel, Conservative, Don Valley East, ON]

I've gone beyond that. This is now your business.

[Andrew Stuart]

I think one thing we do very well as a small business in a very high-knowledge field is act with consultants and knowledge-based experts, people who we could never afford to hire full-time, people who would never want to work for us full-time, but people who have very strong expertise and knowledge who can deliver that information in a just-in-time way. The Internet and tools to collaborate over the Internet are very helpful ways of staffing and satisfying that need.

[Joe Daniel, Conservative, Don Valley East, ON]

When we look at these disruptive technologies, it's always looking back. They've already been successful. You have a successful company. Various nanomaterial products and services are now coming and are under way. Looking to the future, what do you think the next disruptive technologies are going to be in Canada?

[Marie D'Iorio]

When I think about nanotechnology, disruptive technologies come from the integration of technologies, so now it's not only about having something that's purely electrical engineering, but it's also biology, physics, chemistry, and engineering all coming together. That technology integration is key.

I think it's our ability, for example, to design new materials very quickly, and then to put those materials to use in a variety of applications. It links to your question about training. I think that training future entrepreneurs means they have to be comfortable with working at the edges of discipline, that yes, I'm an engineer, but I can work with a biologist on this sensor for personal medicine. I think that's very important in training.

Our disruptive technologies, in the future, will be at the edges of a number of fields. They're coming together, the software, the hardware, the sensing part, the biology or genomics part. That's where I see some of the disruptive technologies.

[The Chair, Conservative, David Sweet]

Thank you, Ms. D'Iorio.

Now we will go to Mr. Masse for eight minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, witnesses, for being here today.

Some of the testimony we've heard, including yours, has really indicated that something that really matters, for me coming from an area where manufacturing has been hammered for the last decade, is that we have great ideas and we're able to get things to patent, but we can't get them into production for a lot of different reasons.

One of those reasons, which I'm concerned about, is that we don't have the decision-makers. We have a branch plant economy. I'd like your comments on that barrier. We have investors coming in from abroad owning Canadian companies or buying Canadian companies or having enough of a stake in them, but because of the economic advantage through programs in the United States or just because of the real numbers at the end of the day in terms of getting a product to market, the production of that Canadian idea is done elsewhere.

What can we do about that situation?

[Andrew Stuart]

I could comment on that. Since I was trying to reduce my opening remarks, I chose not to address that, but I'm very glad you raised the question.

I think Canadian control and ownership has been lost in so many of our leading firms like the Incos and the Alcans, and then you go a layer below that and you get the private equity guys taking out the middle players. Now instead of responding as an entrepreneur.... I recall years ago going to Dofasco and speaking with their vice-president of technology about an innovative technology I was working on. They're not there anymore. We have the branch plant manager from the great state of wherever and to connect with that Canadian entity is a whole different game. They have a different agenda. They have probably little or no mandate. Things have to go back to the head office in Atlanta or somewhere like that.

As part of this ecosystem, as entrepreneurs and people developing products and technology, we need to latch on to companies that are larger than we are to help get that market pull and to help get that Canadian prototype demonstrated before we take on the world. The ecosystem is not what it once was. I think this is an issue for us. I recall speaking to an investment banker a handful of years ago about another product and really trying to find out where there were great chemical companies in Canada. He mentioned two and I had already been working with them. At the end of the day, just about all of them had been taken out by private equity interests or were foreign owned.

Generally the R and D is definitely not done in Canada. They're not looking for ways to do things in Canada. Maybe a policy could encourage branch plant companies to work with Canadian companies for the benefit of Canada. That might be helpful. Maybe Industry Canada could encourage Canadian firms—and I don't like this—to find those non-Canadian entities to build their business with. That's kind of the reality we have. I think we're a bit weaker in the innovation ecosystem when we don't have Canadian-focused strategic partners on the business side to build up to.

[Brian Masse, NDP, Windsor West, ON]

This is the thing that disturbs me. I come from an automotive town, and when we consider purchasing a vehicle, we talk about buying North American. That means with the supply line in North America predominantly being Canada and the United States. There's no problem with that as opposed to buying from offshore where there is obviously a lot less production connected to us. There was one particular case. We've talked a lot about getting credit or getting access to resources that can be taxpayer funded or backed. The concern is that if we subsidize that and then the product manufactured is something else, then this becomes an issue.

I want to point to one specific example that I'd like to get some commentary about. I meet with BDC and EDC in particular. Just this past month EDC decided to give Volkswagen $500 million in low-interest loans, which are going to Arkansas, I believe, and Mexico for production facilities there. We hear a lot about small and medium-sized businesses not having resources or not getting access to credit to get their businesses off the ground and to actually include production. They can't get that or if they get it, it's at high interest rates from the banks.

[Andrew Stuart]

I think you have to separate out EDC's activities a bit. They are there to support Canadian interests in export markets. I think what we're looking at is what we can do in Canadian markets. Sometimes it's harder for a Canadian company to win in Canada than it is for a Canadian company to win on an export contract because of EDC. It's been a great success for Canada. It's probably one of Canada's great success stories.

We need better in-Canada funding for Canadian parts and products. COFACE, if I'm saying that right, is the domestic equivalent of EDC in some regards, and it'd be good to have that. I'd also expand it and stronger.

We also note that, in our funding arrangements with organizations like IRAP, should we move to the United States or elsewhere in the world, we would have an obligation to pay back the IRAP money. I think that's an important innovation that's come in fairly recently, which recognizes that the Government of Canada is helping us, but also recognizes that we have to survive in the world markets and don't know what's going to happen. At least Canada is going to get some funds back.

I think you raise an important issue. I really can't stand seeing the deindustrialization of Canada, and I think this is a horrible situation we must change.

[Brian Masse, NDP, Windsor West, ON]

I see it also through the lens of national security for our country, in the sense that the exiting of the manufacturing industry is more than just the jobs themselves, and the employment and so on. It's greater than that.

For nanotechnology, in terms of medical device applications, are we close to becoming a world leader in Canada? I've heard from different experts that we could be. That's what I've been told by different people. If that is the case, what can be done to get us there?

[Marie D'Iorio]

Well, I think we have very interesting small companies in the field of biomedical devices. Again, it's about the ecosystem. Some of those small companies come out of universities, and the question is how to help them transition from a spin-off from a university into an established company.

Certainly, I think that while we've seen incubation-type approaches in Toronto and across the country that are helpful, it's a question of having a strategy to take that company out of spin-off mode into establishing and growing it. You can't always be in the small company mode. You want to establish a base for it.

Again here, the important aspects of medical technology are working with the regulators, being patient with the investment to go to clinical trials, and not losing your energy in the process. It's a very long process. Those entrepreneurs need support throughout those stages, especially for medical devices. There's a societal aspect to it. There's a social licence. Is that what we want? Do we want that type of technology?

It may save us some money for preventative medicine and that's fine. But we must ask and answer the question, and that means working throughout the ecosystem, with the social sciences, the doctors, the hospitals, and the caregivers, as well as with the technologists who come up with the ideas.

[The Chair, Conservative, David Sweet]

We're way over time, but I wanted you to be able to finish that answer.

Madam Gallant now, for the last question.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you, Mr. Chairman, and through you, to our witnesses.

I'd like to start off with Mr. Stuart. The nature of disruptive technologies is that another type of technology or manufacturing becomes obsolete. With your specialties, with the different areas that Isowater Corporation works in, and we'll start with the semiconductors....

I understand from what you said with the deuterium, they have stronger bonds. Would you explain to us, with the types of semiconductors that you would be changing, what would be a consequence of using deuterium, and how would that change the industry?

[Andrew Stuart]

Semiconductor silicon chips have always been hydrogenated to form silicon hydrogen bonds. What happens with deuterium is that instead of using light or normal hydrogen, if you use heavy hydrogen or deuterium, which weighs at a higher atomic mass, there's a unique chemistry that occurs between silicon and deuterium. There's a bond relaxation energy that occurs and a microchip that's been annealed in a deuterium atmosphere can actually take far higher temperatures, operate in more rugged conditions, and not break down, a longer life microchip. It will help enhance Moore's law of whatever it is: every year and one-half you double whatever the number of circuits on a semiconductor. Should that continue on to six or seven nanometre-size microchips, deuterium is a fundamental there.

Isowater's role, again, is to provide that to these companies to capture their spent or downgraded deuterium from the annealing oven and recycle that back at an enriched level to them. We would be focused on enabling that application, because right now a lot of the semiconductor users of this are concerned about where the supply of deuterium oxide or heavy water is going to be. It's just a major unknown to develop a semiconductor plant not knowing if your raw materials will be available.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

In terms of optical fibres, as I understand it, applying the deuterium mist to it would be like galvanizing steel.

How would protecting these fibre optics going through that process change the way we do things or enhance the lifespan? What is that going to do?

[Andrew Stuart]

Deuterium and particularly the hydroxyl ion with deuterium in it replaces the regular hydroxyl ion in the production of fibre optic cables or fibre optic lines. That allows much more light to pass through. The conventional way of doing it blocks about 30% of the light. If instead you use a deuterium technology, then you get much higher capacity in that fibre optic cable.

Again, this is developing customers in China, the United States, and Finland. They need a secure supply of deuterium oxide to expand and exploit that market, which slows down the pace of that innovation.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Twice now you've mentioned the supply of deuterium. Is there a problem of supply?

[Andrew Stuart]

The key thing is that the nuclear demand for deuterium oxide, or heavy water, is growing substantially in countries like India. They're starting up four CANDU-equivalent reactors in 2015 and 2016. They have 10 to 12 more that are being started up in the next eight years. This is really going to put a shock on the world supply of deuterium oxide.

It's a market where we have a few inventories here in Canada and very little production elsewhere in the world. We believe that what's there will get sucked up by these nuclear uses and these non-nuclear applications will not have supply, and that will hinder their growth plans.

In our dialogue with these pharmaceutical companies, for example, deuterated pharmaceuticals take longer to metabolize in the body. You can have a lower dose with fewer side effects that lasts a longer time in your body. These companies are saying, “Andrew, I don't need a lot today, but in five years I will need a great deal. How are we going to get that?” That's sort of the same timeline as a complete crash in world supply.

That's where our collaboration with Canadian Nuclear Laboratories and our strategy to develop private sector production—never done before anywhere on earth—is scalable to meet these diverse, new non-nuclear uses of deuterium oxide. It is really quite exciting and why we cherish that relationship, and hope to do a lot in the Ottawa Valley.