Industry Committee on Sept. 26th, 2016

[The Chair, Liberal, Dan Ruimy]

That's correct. We've done this in the past in this committee.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Why wouldn't you just call the question, though, Mr. Baylis?

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

Because I have a great respect for the people who have come a long way to be part of it. I don't feel that it's the clerk's job or our job to educate you on the rules of Parliament. I have the right to do it.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Somebody has to educate me.

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

I know someone does, but I don't think we should be using their important time.

I've moved it be adjourned. You made many, many points after the motion was moved, which you do not have the right to do, so I want the vote.

[The Chair, Liberal, Dan Ruimy]

There is no vote. You've moved the motion. It's done. We are going to move on to....

[The Clerk]

We do have a vote.

[The Chair, Liberal, Dan Ruimy]

There is a vote?

(Motion negatived)

[Alex Nuttall, Conservative, Barrie—Springwater—Oro-Medonte, ON]

Is it the clerk's job to educate, or is it just not...?

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

They are the ones who didn't know the rules.

[Alex Nuttall, Conservative, Barrie—Springwater—Oro-Medonte, ON]

He's there to help all of us, Frank.

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

That's fine.

[The Chair, Liberal, Dan Ruimy]

Okay, we're moving on.

First on our list is Mr. Baylis—sorry, no; we have our witnesses here.

I hope you enjoyed the show. We could have provided popcorn if we had known in advance.

We have Stephen Brown, managing partner for consumer and industrial products at Deloitte. As well, as from Acadian Seaplants Limited, we have Jean-Paul Deveau, president and chief executive officer.

Mr. Brown, you can go first. You have 10 minutes, but if you can shrink it down, that would be helpful. Thank you.

[Stephen Brown, Managing Partner, Consumer and Industrial Products, Deloitte]

Thank you, Mr. Chairman.

Good afternoon. My name is Stephen Brown. I'm a consulting partner with Deloitte and, as the chairman said, I'm the leader of our consumer and industrial products practice in Canada. I have been with Deloitte for 20 years, serving Canadian, U.S., and global manufacturing clients. It is a pleasure to be with you here today.

My remarks are based on the details of Deloitte's 2016 global manufacturing competitiveness index, plus my own experience serving Deloitte's manufacturing clients.

As we sit here in 2016 and look toward the end of this decade, manufacturing-related activities across many nations are rapidly evolving. Manufacturing-based earnings and exports are stimulating economic prosperity, which is motivating nations to increase their focus on developing advanced manufacturing capabilities. To support this, nations are investing in high-technology infrastructure and education.

The manufacturing industry is striving to advance to the next technology frontier. As the digital and physical worlds of manufacturing converge, advanced technologies have become even more essential to company and country-level competitiveness.

That said, the number one driver of manufacturing competitiveness today, which is consistent with the two previous studies that Deloitte has done on this topic in 2013 and 2010, is talent. In this case, talent is defined as the quality and availability of high-skilled workers, which facilitates a shift towards innovation and advanced manufacturing strategies. I doubt that is a shock to this committee. We deal with it. I'm sure you deal with it on a daily basis. I see this issue with my current manufacturing clients, and it is a complex and multi-faceted one to solve. I'm sure we'll get into this in the questions that follow.

After talent, the next three most critical drivers of manufacturing competitiveness are, in order, cost-competitiveness, productivity, and supplier network.

When we look forward, manufacturing CEOs are saying that advanced manufacturing technologies are key to unlocking future competitiveness. The three specific technologies called out by our study participants—and there were over 500 global participants in this study—were, one, predictive analytics; two, the Internet of things; and three, advanced materials.

As the industry becomes increasingly more sophisticated, the traditional powerhouse manufacturing countries of the 20th century—the U.S., Germany, Japan, and the U.K.—are now seeing a resurgence in competitiveness ranking. Leveraging their foundational strengths in talent, innovation, and strong industrial ecosystem clusters—that's a mouthful—these nations are competing with renewed strength and surpassing their low-cost rivals. The shift to higher-value-added manufacturing is shaping a new battleground for global competitiveness going forward.

If we look specifically at how Canada fares based on manufacturing competitiveness, we are currently ranked ninth, with a prediction from the participants that we will fall one place to tenth by 2020. We have advantages such as an efficient regulatory environment, strong support for exports, reliable support for industry, and abundant natural resources, but challenges remain, and I suspect that our conversation this afternoon will be focused on those challenges.

Thank you.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We're going to go to Mr. Deveau.

[Jean-Paul Deveau, President and Chief Executive Officer, Acadian Seaplants Limited]

Thank you very much, Mr. Chairman.

I certainly appreciate the opportunity to come here today to provide testimony.

I'd like to give you a little background on our company, Acadian Seaplants Limited, in comparison to what Mr. Brown just talked about in terms of the big picture.

You'll hear the story of a company that was a start-up. We started in 1981. The company was started out of my old bedroom. One day I came home from university, and my mother said to me, “You don't have a place to stay here anymore; your father has started a company.”

Where is Acadian Seaplants today? Today we're manufacturers of value-added products for people, animals, and plants, all derived from marine plants. We export our products to over 80 countries around the world. We have 350 employees based in Canada, the United States, Mexico, Chile, Brazil, Colombia, Ireland, Japan, Korea, and India. Soon we will have employees in China. We operate four manufacturing facilities in Atlantic Canada, and in 2014 we bought the largest seaweed processing company in Ireland. We have an R and D centre, and our head office is based in Nova Scotia, where we have 70 people. We have over 30 researchers on staff, including ten with Ph.D.s, and we have done over 30 research collaborations with academic and research institutions in Canada and around the world.

How did we get from that bedroom that I talked about a moment ago to where we are today? We did that by focusing on four major areas.

The first one was an investment in research and development; the second one was an investment in international market development; the third was an investment in sustainability; the last was an investment in people. I'd like to give you some examples of what has worked and some of the challenges we have had throughout the years.

On the R and D side, we were able to build our company because of the SR and ED tax credit program. We commonly refer to it as “Shred”, but it stands for scientific research and experimental development. I think it's important that we all take those words very carefully out there. You can imagine that nobody believed in a start-up seaweed company in 1981. That SR and ED tax credit program was there for us to use, and we used it successfully. We were able to take our investments in research and development and then finance ourselves and our growth throughout the years.

Recently, in the last couple of years, that program has been cut back, with the tax credit going from 20% to 15%. That is certainly a step in the wrong direction, because we need more business-led research and development and we want to encourage companies to do more of that into the future.

The other thing that I think is important to note is the complexity of the SR and ED program. I have the opportunity, given the people that we have, to assign one of our Ph.D.s to do the paperwork necessary for about one month a year so that we can put through our claims. A small start-up doesn't have that kind of luxury. I believe we should be looking having a simplified process for small organizations, while companies that are as large as or larger than ours would be able to continue with the program as it is.

That was from a financing point of view. From a technology point of view, we were able to benefit from the National Research Council programs that were around a number of years ago. The National Research Council had tremendous bench-top work on marine plants, but they didn't just do that work to develop technology; they were there with us, side by side, as we ran into the commercialization struggles as we headed into the future. That was extremely important, because it gave us that background in technology to be able to go and build into the future. Recently the National Research Council has turned into more of a fee-for-service type of organization, and it is very difficult for start-up companies to be able to benefit from those types of capabilities.

I want to talk about the importance of industry research and academic partnerships. This is a major point of differentiation through which Canadian manufacturers can find ways to differentiate themselves from competitors and be able to compete globally. I believe that government funding for universities should be more associated with industry so that those collaborations can be put together and that we can find the paths by which we can be globally competitive. A great example of that is the ACOA Atlantic innovation fund.

The Atlantic innovation fund was a program that was put together to encourage industry to work with academic and research institutions to develop technologies that could be globally competitive. One of the challenges recently is that the National Research Council is no longer eligible to be part of that particular program, which is interesting if you look at it, because this is essentially a conditionally repayable loan to the company, and of course the company should be able to access and use the best technologies out there.

Another program I want to talk about is NRC's IRAP. This is an excellent program for funding research and development, and when the SR and ED program was cut back a number of years ago, it was announced at that time that IRAP would be enhanced. That said, our access to IRAP hasn't changed since that particular period in time.

I talked a little about the R and D side of the situation, but I want to talk about export assistance programs.

Generally, federal and provincial governments do not put as much effort into export development as they do into research and development, and if we truly want Canadian manufacturers to be globally competitive, we have to find ways to help them export, because exporting is far more time-consuming and expensive than domestic market development.

One of the things I would ask the committee to look at is something like an incremental export tax credit whereby, for a short period—say, one year—the incremental amount of exports would be taxed at a lower rate. This would allow companies like ours to hire people around the world and develop those value-added products and markets at a much faster pace. Very quickly it would turn into the existing tax base, and it would be only a temporary measure that would take one year.

Now, if we truly want to have globally competitive companies, it is extremely important that we find ways to attract the talent that is out there around the world and bring it to Canada. We at Acadian Seaplants have first-generation immigrants from eight countries working for our company in Atlantic Canada. We have gone around the world looking for highly qualified personnel and we have brought them to Canada to be part of our organization. However, it is far too complicated, time-consuming, and onerous to obtain work permits and landed immigrant status for these people. There is no special status that is given to these highly qualified individuals. That system is broken and needs to be fixed if we want to be globally competitive. We need a fast-track way for companies—and it can be pre-approved companies—to be able to hire highly qualified personnel, the best people in the world, and to be able to get them a work permit within 30 days.

I want to make a few comments. The Canadian Manufacturers & Exporters Association presented some information to this committee a while ago. There are two initiatives that I believe are worthwhile for me to mention in terms of supporting them.

The first was a discussion of direct investments of conditionally repayable loans for capital plant improvements, commercialization of a product or process, or export-related activities. I am certainly in favour of those types of activities.

The second point is with respect to the SR and ED program. We believe it would be important to clarify what qualifies for the SR and ED program and also to clarify what is needed to be able to make a claim.

In closing, I believe manufacturing is extremely important as an economic driver here in Canada. We can be globally competitive, and our company is a great example. It is important for everybody to understand that the manufacturing sector provides a huge diversification of jobs for unskilled to skilled to highly qualified personnel, from one end of the spectrum to the other.

I certainly appreciate this opportunity to come here and testify today. Thank you very much.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We are going to move right into questioning, for lack of time. I have reshifted it, so the first round will be five minutes each.

Mr. Baylis, you have five minutes.

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

Thank you, gentlemen, for coming here. It's been very interesting.

Mr. Deveau, you touched on SR and ED as a major issue. I'd like to ask about Deloitte's perspective. You deal with a lot of companies and do a lot of these claims. What is your view on the SR and ED program? How is it working? What should we do? What should we be looking at to improve it?

[Stephen Brown]

During my preparation last week to come here today, I sat down with two of the presidents of manufacturing clients that I'm currently working with, and they spoke quite favourably of the program. These are mid- to larger-sized manufacturing companies.

To the point Mr. Deveau made, it's not always easy for some of the smaller companies to understand, to file, to follow through, to dispute. The whole process actually generates a fair bit of opportunity and business for Deloitte. I doubt that was ever the intention.

Frankly, there are probably better uses for the capital that these companies are working so hard to generate than getting us to help.

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

Yes, Deloitte goes across the country.

[Stephen Brown]

We do.

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

One of the things we've seen is that there is an inconsistency in the application of programs. Has that been your experience?

[Stephen Brown]

I'm not aware of that situation. I personally haven't seen it and I haven't heard it come up in discussions with my colleagues or clients.

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

Have you seen anything? Have there been questions, Mr. Deveau, on consistency in the program, so that one year you get something and one year you don't? Have you heard of that in your industry?

[Jean-Paul Deveau]

We deal with one of Deloitte's competitors—a national firm, KPMG—and they certainly tell us that we have been turned down on things that at the other end of the country they accept.