International Trade Committee on March 25th, 2015

[The Chair, Conservative, Randy Hoback]

I'm sorry, John. He is out of time. We'll have to go to the next round of questions.

Ms. Liu.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

I have a question for Mr. Kalbfleisch.

This comes on the tail of what you said about the R and D tax credits, the SR and ED tax credits that you believe should go towards helping manufacturers. As we know, there were changes in the 2012 and 2013 budgets around the SR and ED tax credit in particular. I know from touring my riding that there are many manufacturers and many research-intensive SMEs that have looked at the SR and ED tax credit and have decided it's not for them. We know that the changes that came about in 2012 and 2013 actually reduced eligible expenditures and lowered the benefit rate on those expenditures as well.

Do you think we should look at reversing the changes that were made to SR and ED in 2012 and 2013? What would be your recommendations on those levels?

[John Kalbfleisch]

Yes, absolutely. Again, it makes Canada more attractive as an R and D base, and reducing the amount of tax credits is for us.... We spend millions of dollars on R and D. It helps us to be more successful. If we can lower our costs to develop our product, obviously that can allow us to be profitable faster. If we're profitable faster, the government is going to get income tax faster.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Do you have any major difficulties with the SR and Ed tax credit in particular? What are the major challenges? How would you suggest that we study the tax credit?

[John Kalbfleisch]

Obviously, just doing R and D for the sake of R and D is great, but for companies that are developing products, selling those products, and creating jobs, it is critical to our success to have competitive R and D tax credits versus our competition. We have very large multi-billion-dollar competitors. We need to be able to do research and development in a cost-competitive structure.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Thanks.

Moving on to the issue of trade commissioners, would you say that there are any countries that are underserved by trade commissioner offices? That is, are there any countries for which we don't have any offices or which are under-represented?

[John Kalbfleisch]

I'm probably not the best person to ask. I have only dealt with the trade commissioners in two main markets, Turkey and Brazil. I know our work associates have dealt with them in Mexico and found that they provided good service overall and have been very helpful. In the markets we've been in, the primary ones, we have found good support from them.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

You mentioned in your testimony a few issues about trade commissioner offices. Are there any other recommendations or observations you can make in terms of how the Government of Canada could improve the services offered by these offices?

[John Kalbfleisch]

I think Mr. Lynch talked about key performance indicators and getting feedback from their customers on a regular basis saying where they can improve. We're always going to our customers on a regular basis asking how satisfied they are with Alpha Technologies and whether they would recommend Alpha Technologies to a friend.

The trade commissioners need to understand from their customers how they're valuing the services that they provide.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Thanks.

Mr. Lynch, on the topic of Go Global events, you mentioned the lack of publicity or advertising for these events. In your view, why were these events not very well attended?

[Ernie Lynch]

As it was put to me, it was a matter of timing. They said that if they could have had a little more time, perhaps another couple of weeks, to get the word out...because it does take time for these stakeholders to get out to visit their clients.

I just want to tag on to the previous question with respect to the way we work with trade commissioners in Germany, for instance. We're doing an exhibit there in three weeks. We've been in touch and have had a teleconference with the trade commissioners there. They in turn, the ones who are going to be attending the show, will be coming to our booth. They will be walking the show. They will be seeing other opportunities for us that we may not necessarily be seeing. Then they will be bringing customers to our booth. It's great: in addition to having five people there of our own, we have an additional four or five people who are helping out. That's a great way to go. They know the people; they're feet on the street for us. It's a big help.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

That's great.

[The Chair, Conservative, Randy Hoback]

I'm sorry; you're pretty well right at the five-minute mark.

We'll go to Mr. Shory.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Thank you, Mr. Chair.

Thanks to the witnesses.

Mr. Lynch, I'll start with you. From your experience growing a company from a “one man in a garage” operation to a 100-employee success story—and then you talked about taking over a company in the United States as well, which this time didn't work but in future will definitely work—can you comment on Canada's tax environment and whether it incentivizes or disincentivizes the growth?

[Ernie Lynch]

My controller would tell you that it's disincentivizing, but I don't get too worked up about the tax side of things. It is what it is. We take advantage of SR and ED tax credits when we can. We take advantage of any facilitation that can be provided to us, but we don't cry over it. I look at it this way: if we're paying into a good economy and are running a company in a free country that provides lots of services to us, if it's going to cost money to provide those services, I'm not here to beef about it.

You may have had other witnesses come forward and say so, but I'm not one of those.

John may have a different view of it.

[Devinder Shory, Conservative, Calgary Northeast, AB]

I'm sure that when somebody wants to establish a business, they look at all of these things in the business environment. As you said, tax is one of those components.

[Ernie Lynch]

It is, and funding or financial assistance from banks is also a major concern. I've heard SMEs complaining about that too. But if you have sound business practices and a good business plan, a good track record, then the banks are willing to help you out. I think that if SMEs are going to look at exporting, they should be dealing with banks that are more world banks and not just local Canadian banks. We've had better experience with banks that have presence in many countries than with the nationals that are only here and that understand Canada and have trouble just exchanging funds.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Mr. Kalbfleisch, do you want to make a comment on tax?

[John Kalbfleisch]

I think, being from B.C, that it would have been great if the HST had actually come through and stayed. That was a very positive initiative. Unfortunately it got bungled in the rollout, but I think it was a good initiative.

I have probably commented enough overall on taxes, but it's just a question of making sure we're competitive. We appreciate living in Canada and we understand that there are costs associated with it. It's just a question of looking overall and making sure that we're as competitive as possible. As I said, we have major competitors in Taiwan and China, and there are competitors that are based in the U.S. but that do most of their manufacturing in Mexico or other countries. We have to make sure that we're a nimble company, that we're innovative, and that we really understand our customers well. That's how we're successful.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Mr. Lynch, we have heard from some witnesses that the regulatory system in Canada is among the most thorough in the world for demanding quality, and that if a product or service can pass the test here in Canada it can pass anywhere.

From your experience with Ontario Aerospace Council and the SME advisory board with Foreign Affairs, can you comment on Canada's regulatory system compared with other countries?

[The Chair, Conservative, Randy Hoback]

It will have to be fairly quick.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Oh, come on.

[Ernie Lynch]

I would not comment on Canada's regulatory system as much as I would on the ISO systems and AS9100 systems, which are self-imposed and now industry-imposed upon companies that are participating in the industry. If you're not AS9100-certified, you're not eligible to deal with companies such as Boeing or Airbus, or with NASA, or with any of the military applications. You need to be certified, and those proclamations that you make about what standards you're going to keep need to be adhered to.

Canadian products are highly regarded around the world as having high quality. I think Canadian SMEs don't realize just the high regard that we have.

[The Chair, Conservative, Randy Hoback]

I am going to have to stop you there.

Thank you, Mr. Shory.

I'd like to thank both witnesses for taking time out of your busy schedules to be with us here today. We appreciate the information you gave us. At this point, I will release you from this meeting.

We are going to suspend for five minutes while we get out next witness lined up, and then we'll start again right away at 4:30.

Thank you very much, guys.

[The Chair, Conservative, Randy Hoback]

Let's reconvene.

Our next witness, via video conference, is Rebecca Reuber, professor of strategic management at the University of Toronto, Rotman School of Management.

You have 10 minutes, and then we'll go into questions and answers. The floor is yours.