Industry Committee on May 19th, 2016

[Christyn Cianfarani]

The idea was that if you were leveraging defence procurement, you'd be able to grow the defence industrial base by I believe 40% over a 10-year period of time. That was one of the metrics that was set by ISED. A second metric was that we would be able to grow the exports by 40% over a 10-year period of time as well.

Those are two metrics that are supposed to be used on the sector. That was one of the reasons why we worked with ISED and StatsCan to set the base-building for the statistics that we would then measure.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Do you have any other requirements in order to make sure you're able to continue on that path with the 40% increases and so on? Is there anything else government could put together to make this become a little bit smoother?

[Christyn Cianfarani]

As I said, those are two very high-level metrics. I think if we want to get more strategic about it, we would start looking below the hood, so to speak, at certain sectors, or certain parts of the sectors, or certain niches with them, and start to drive metrics.

For example, as Mr. Arya said, C4ISR is a growing area. It will be growing with the cyber and digital era. If you wanted to set a metric to today, for the 28% of the community, for example, who work within the C4ISR sector, if you wanted to grow that, then you'd set a very specific target on each particular part of the sector.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Is there a difference between what Canada and other countries are doing? I know that's part of the report, but I'm wondering whether there are more similarities than differences. How do you see that?

[Christyn Cianfarani]

At the top level, Canada is an outlier, and not in a good way. As I mentioned, we don't have a defence industrial policy that's in any way even semi-documented. Most, if not all, G7 nations do. There are some really good examples. The British have a great one. The Australians, in a country our size, have another one. I think we are definitely an outlier in that way.

We also are an outlier in the way in which we do not aggressively use our procurement tools, which are multiple in the tool box, to strategically choose and incentivize certain sectors of our economy. They all dovetail together.

[The Chair, Liberal, Dan Ruimy]

Mr. Masse, you have four minutes.

[Brian Masse, NDP, Windsor West, ON]

Mr. Champagne, 3-D printing is emerging potentially as a self-supply line for some products. How is that affecting or potentially could affect your aftermarket providers?

[Jean-François Champagne]

It's early, it's evolving, it's clearly something we would need to research more, but it's clearly going to influence the supply chain.

I'd like to tie it back to product standards and ensuring that as the method by which we produce parts changes or evolves, all the way down to printing your own part at home, obviously we have some framework that ensures the quality of the parts that we put in vehicles.

It clearly is going to change the supply chain. It's evolving. At this point there isn't a lot of core research available, but we're monitoring it to ensure that our members will be prepared to respond to that change.

[Brian Masse, NDP, Windsor West, ON]

That's excellent.

I'll go across the board here with regard to SR and ED tax credits. Give us one good thing and one thing you'd like to have fixed in that regard. It really depends on whom you talk to. I know that narrows the scope rather well, but I think it's important.

My second question is about extending the duration of the capitalized cost reduction and perhaps advancing it from 30% to 50% as a tool. It's one of the tax credits that has clearly been in favour of Canadians for the purchase and development of machinery equipment and processing, which is very difficult to move and send to China.

Mr. Champagne, I'll start with you.

[Jean-François Champagne]

I'm not sure I can express an opinion.

We have to look at that from the perspective of our manufacturers based in Canada who export. Of our a membership base of about 150 people, about 20 of them are core manufacturers in Canada and we will need to see how that impacts them and we may want to follow up with them on that.

[Brian Masse, NDP, Windsor West, ON]

That's fine and it's fair, but I'm interested in that because, depending on whom you talk to, they'll give you a different opinion on SR and ED.

[Christyn Cianfarani]

I have had either the great fortune or misfortune of having had this as part of my job for about six or seven years. One of the single biggest impediments to it is the variations among the technical reviewers about what the experimentation really is. You probably heard from the Aerospace Industries Association that production innovation is a major future concern of theirs. It's very rarely appreciated from a technical reviewer perspective in the granting of the SR and ED tax credits.

Those are two areas.

To your second point around the extension of the capitalized cost reduction, anyone who works in manufacturing has been advocating for quite a long time that this should be extended and increased. I would not go against that philosophy.

[Brian Masse, NDP, Windsor West, ON]

In our first manufacturing report in 2002, this committee recommended that extension. I'd love to see it at 10 years, with a minimum of five years. It allows predictability, because the two-year decision-making has already been done.

[Christyn Cianfarani]

That's right. Also the capital costs are escalating in a lot of them. If you really want significant capital cost expenditure in major R and D, you have to increase the volume and the amortization time frame.

[The Chair, Liberal, Dan Ruimy]

The time's up.

[Darren Praznik]

We'll get back with some information, but generally anything that encourages....

[The Chair, Liberal, Dan Ruimy]

We're trying to make it through this.

Mr. Baylis, you have four minutes.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

It would be appreciated if each of you could submit to us in writing the SWOT analysis for your industries: the strengths, the weaknesses, the opportunities, and the threats. Could you also tell us the one or two things the federal government might do to help in that area.

Do clusters exist in your industries, and if so, do incubators or accelerators exist in them? Normally we think of incubators or accelerators with clean tech, internet, IT, med tech, or certain types of businesses.

So, do incubators or accelerators have a role in your industries and do cluster exist or play a role? We'll start with Darren.

[Darren Praznik]

They do not in the conventional sense, which is probably what you're getting at. Given the nature of our industry, we tend to find that there are several places in the country where you will get a cluster of manufacturing, usually because personal care products are generally a relatively small industry compared to many—but the suppliers of our ingredients and raw materials, and the distribution network that we ship into, have to be relatively close. There will be several places where we tend to have those clusters of our companies, and when we do, they enhance other business around them.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Is anybody doing R and D in these small companies, out of an incubator or an accelerator, and coming up with something, or is that not the norm? For example, my company supported something in Waterloo, in which these guys are going to use a marker to see if the sunscreens'.... I don't know if you heard of that or not.

[Darren Praznik]

No.

Innovation takes place everywhere. In Canada we've had a lot of work done particularly around colours. You might wonder what innovation there could be in colours. When you're in the fashion and beauty industry, you are coming out with new colours seasonally on a regular basis to be where the market wants to be. There's some good work done on the creative side. As I said, in Toronto, there's a world-class colour lab. There's also work on the creative side around marketing in various clusters, including Montreal.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Okay. Thank you.

I'll pass it over to Mr. Champagne.

[Jean-François Champagne]

I guess the short answer is—

[Christyn Cianfarani]

Don't use up all the time.

[Voices]

Oh, oh!