International Trade Committee on April 27th, 2015

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Is your franchise system quite developed, or is it still in the early stages?

[Nicolas Letenneur]

We've been learning about technology transfer for seven years now. We've built up a lot of tangible and meaningful knowledge. What we're missing is the financing. As a SME, we put our financial focus on the local market, above all. We need support. We are completing a very big project in the Middle East.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Maple water exporters in my riding told me that finding export capital is one of the challenges they face. They have to maintain a huge inventory. They met with their first Japanese customer. They would've needed $25 million to maintain the inventory and meet the demand.

Do you have the same problem?

[Nicolas Letenneur]

For any business or SME, inventory is always a problem, certainly, because it's idle money, especially when you're talking about such a large amount. When you get an order for one or more containers, it's definitely a big burden.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

It's also harder to finance. Your product is being held hostage, so to speak, in another country until you receive payment.

[Nicolas Letenneur]

Exactly. And since we're dealing in food, it's always a risk for us. It's even risky for a business that doesn't have a solid grasp—

[The Vice-Chair, NDP, Don Davies]

Thank you.

We are now joined by Écotech Québec.

Thank you for being here, Monsieur Leclerc and Monsieur Drouin. I'll interrupt the questioning so we can get your testimony in. You have eight minutes, please, to make your initial statement.

[Denis Leclerc, President and Chief Executive Officer, Écotech Québec]

Thank you kindly, Mr. Chair.

My name is Denis Leclerc, and I am the president and CEO of Écotech Québec, a cleantech cluster in Quebec. Unfortunately, ours is the only such company in Canada. I say "unfortunately" because it would be great to have other Écotechs in provinces across the country.

Our goal is to help the environment and businesses by accelerating the development of clean technologies, facilitating technology financing and, above all, commercializing these innovations.

In Quebec, Écotech Québec brings together more than 500 innovative and exporting companies and SMEs. According to the Institut de la statistique du Québec, they accounted for $10.7 billion in total revenues and 30,000 jobs in 2011. Some 70% of these businesses are already exporting products outside Canada. As far as the ecosystem is concerned, Quebec is home to 200 research centres and clusters that are directly involved in environmental or energy-related innovation.

Clean technologies do two things. First, they allow companies to be more competitive while reducing costs, and second, they reduce waste production, particularly in processing plants. Of course, they also benefit the environment, enabling companies to reduce their eco-footprint.

We are here today to discuss international trade. And one of the problems cleantech companies face is that commercializing an innovation is significantly more expensive than developing it. How can we help Canadian companies export their know-how and technology?

Currently, the government offers an R and D tax credit. We suggest expanding that tax credit to include commercialization, which would go a long way towards speeding up the process of marketing clean technologies abroad.

Guy Drouin, our taxation committee president, will tell you more about this proposal.

[Guy Drouin, Co-President, Taxation Committee, Écotech Québec]

Thank you.

I am also the president and CEO of Biothermica carbone. We've been around for 27 years. We export technology. We are an integrated developer. We just completed a major carbon transaction in the California market thanks to a facility entirely paid for by us to reduce the quantity of methane emitted by an underground coal mine in Alabama. These carbon credits are recognized by both California and Quebec, since the two share a market.

Why have a commercialization tax credit? As the president of a tech company, as well as the president of Écotech Québec's taxation committee, I'm the right person to explain that.

We have long-term R and D tax measures, lasting measures. Canada's SR&ED program was put in place 30 years ago, in 1985, paving the way for a number of innovative high-tech companies in Canada.

The measure hasn't been rounded out, however. As far as developing a technology is concerned, Canadians are very inventive. There's no question that we are a population of inventors when you compare us with other countries around the world. The real challenge isn't coming up with a technology but, instead, marketing it to the world. For a tech company, Canada's market is small, and Quebec's even smaller.

So longevity is key. Numerous government programs exist to help with tech missions abroad. These are one-shot deals, however. Commercialization doesn't work that way. In order to market your technology successfully, you have to make a sustained long-term effort.

That calls for a sustainable measure, and we're proposing a very simple one. Under our proposal, a company would have to meet three requirements: have received the federal R and D tax credit, have intellectual property covered by a patent or other form of protection, and have a structured commercialization plan, similar to an R and D program. The company itself would need to have a credible commercialization program, one that it had developed or that had been designed by an external consultant or expert. A company that met those three conditions would then qualify for the commercialization tax credit we are proposing.

Which expenses would be eligible? Only the salary paid to the individual within the company responsible for commercializing the technology. Few people in Quebec have that expertise, so they are very expensive, earning between $150,000 and $200,000 a year. Usually, they are engineers with MBAs or international trade experience. SMEs should benefit from the same rate they have access to under the R and D tax credit. At the provincial level, it's 30% and about the same at the federal level. Such a measure would enable companies to make genuine long-term investments in commercialization in target markets, further to a sustainable marketing strategy, instead of accessing ad hoc measures that don't work.

We examined what amendments would need to be made to the federal legislation and how businesses would qualify for the tax credit. We hired Deloitte Touche Tohmatsu to that end, and the work was done. We have a comprehensive document produced by Écotech Québec.

Together with the Institut de recherche économique du Québec, we also evaluated what the fiscal cost of such a measure, applicable solely to SMEs, would be for Quebec. Under federal legislation, a SME is defined as having less than $50 million in investments. The Bombardier's and Bell Canada's don't need a commercialization tax credit, but SMEs do. On the second-last slide, you'll find the fiscal cost associated with the measure, as well as the increase in revenues that the measure will generate as a result of additional sales. The net fiscal cost for Quebec cleantech SMEs is $7.5 million annually. The gross fiscal cost is $17.8 million, and the fiscal and para-fiscal revenues total $10.3 million.

At the federal level, those figures would be four times more, representing $30 million to $40 million a year. Rest assured that this will truly secure the growth of cleantech SMEs.

This is an important element of Canada's economic growth going forward, given the interest many companies have in clean technology.

In conclusion, I would just like to point out that this measure is cross-cutting. A clean technology can be developed by a company like mine or one that manufactures recycled furniture. It's a matter of how you define it. We had that same discussion with the Institut de la statistique du Québec. It's important to clarify the area to which the fiscal measure applies.

[The Vice-Chair, NDP, Don Davies]

Mr. Drouin, you're out of time. I'll have to ask you to stop there, but I'm sure we'll have a chance to expand further when we have questions.

Mr. Gill, you have the floor for seven minutes.

[Parm Gill, Conservative, Brampton—Springdale, ON]

Thank you, Mr. Chair.

I want to thank the witnesses for appearing before our committee and helping us with this study. Let me also congratulate all of you for all the success everyone has achieved so far, and for your hard work. You're definitely very deserving.

I'm going to start with Mr. Hall, but I would like all of you to answer this question. Can you tell us if you had any dealings with any of the government agencies, such as the trade commissioner service, EDC, or BDC? Share your experience with us in terms of the help you might have received and the interaction you had. Do you have any suggestions on how it could be improved?

We'll get started with Mr. Hall, please.

[Brandon Hall]

As I said, most of my interaction was either at the provincial level with STEP, or with the TCS in Saskatoon.

I have never once had a bad experience in my interaction with the trade commissioner service. They're always really helpful and on time. Angela out of Saskatoon is fairly overworked. She's all by herself here, so she's getting pulled in a lot of different directions. That makes it difficult to access her all the time, or to get really fast responses, as is typical with the trade commissioner service.

We haven't interacted with BDC for several years. Again, as somebody stated earlier, we were stated as being “high risk”, so we went elsewhere for funding.

I have not used EDC, but I have heard nothing but good things about it.

[Parm Gill, Conservative, Brampton—Springdale, ON]

Thank you.

[Michelle Laflamme]

As far as my company, Emovi, is concerned, we have dealt with the trade commissioner service. A trade commissioner based in Montreal introduced us to commissioners in the U.S., China and Australia. We also had the opportunity to meet those commissioners in person. Just this morning, in fact, I met with the Beijing trade commissioner. For us, the service they provide is one-of-a-kind. They understand our needs and are part of our team. I've been working with them for a number of years, since we began the commercialization process.

Like Mr. Hall, we sought the help of the BDC, but the bank viewed us as too high risk, so we used venture capital, and the Royal Bank of Canada gave us a line of credit with EDC providing the guarantee.

I don't know if they're like that everywhere, but the people we've dealt with at the trade commissioner service and EDC are enthusiastic and understand business owners and their needs. They take the time to do things properly and respond quickly. They've done a lot to help us.

[Parm Gill, Conservative, Brampton—Springdale, ON]

That's perfect.

[Nicolas Letenneur]

I can speak to my trade commissioner experience in Paris.

It felt as though I wasn't a valuable enough player for the European market. It's too bad because I should have been treated differently. I wish I had been given the opportunity to develop that market. As for how to improve that experience, I would recommend more knowledge and a better attitude towards products like ours, which do have a place in a market of 700 million people.

[Guy Drouin]

We undertake build, own and operate projects. We are infrastructure owners. We've owned a plant in El Salvador. We have a methane capture facility in Alabama, which we are in the midst of refinancing to increase its capacity. In fact, we're talking to the people at the EDC, which also provides real project financing. It's very helpful. They really know what they're doing. They have in-depth financial expertise and are very sensible. I'll have to get back to you in terms of whether we were able to complete the deal and whether we were satisfied.

As far as the trade commissioner service is concerned, we did receive support when we did work in China. Canada's ambassador in Beijing at the time and his head of trade helped us in a very specific set of circumstances. When necessary, the service can be useful.

[Parm Gill, Conservative, Brampton—Springdale, ON]

Thank you.

I have a second question. The lack of access to capital can be a major obstacle for SMEs that wish to start exporting to expand into new markets. How difficult is it for Canadian SMEs to obtain affordable financing, and how does this situation compare to that of other countries?

Can we start with Mr. Hall?

[Brandon Hall]

Okay.

As I said, the pillar of any young start-up company is cash and access to financing. I'm sitting here as the operations manager of Prairie Machine and Parts, whereas four months ago I was PapaBravo Innovations. We had to sell our company in order to expand. We couldn't access financing. This company had some financing there—they've been in business a long time—and we needed financing.

We tried the federal government, the provincial government, banks. We looked at some angel investors. Finally we just outright sold our company and our intellectual property so that we could expand. Ownership of the company came second to ensuring that the company was thriving and growing—growing the Canadian economy as well.

I would say that it's fairly difficult to get financing. It's been said a couple of times here that it's difficult to get through BDC. I can go to a traditional bank and get financing before I can go to BDC. There's something wrong if BDC is classifying me as high risk and a stand-alone bank is not.

[The Vice-Chair, NDP, Don Davies]

Thank you.

Ms. Freeland, you have five minutes.

[Chrystia Freeland, Liberal, Toronto Centre, ON]

Thank you very much.

I would like to thank all of the witnesses for your testimony. I think it's very inspiring for all of us to hear from people who are working so hard to start businesses and employ people.

I also want to comment that it was great for me to hear all of this testimony about the hard work of Canadian diplomats and how they're helping you. We sometimes malign people who work for the Government of Canada as bureaucrats, but we hear from your stories that they're really helping our economy grow.

I want to start with Mr. Hall.

Your story about having to sell out to expand, I think is an all-too-frequent and sad story of what happens to Canadian businesses. We're really smart. We're entrepreneurial. We're hard-working. However, we seem to get to this point in our businesses where as soon as they're really succeeding, we have to sell out.

I'd be interested in your view—and from other witnesses—on what we need to do to create conditions for companies like yours so that you can grow to be the giants and the world-beaters who are acquiring rather than being acquired.

[Brandon Hall]

Again, it's access to capital, access to advice, and for me it would have been more mentors and financing advice. I talked about a targeted program that would pick up on small companies, similar to PapaBravo. They are right on the cusp of expanding and need that extra big bump in order to expand at a growth rate that's going to allow them to survive in a new market and penetrate that new market. With a targeted program like that, you could target the specific companies that were high growth and on the verge of either selling or succeeding.

I think that access to capital is the biggest thing.

[Chrystia Freeland, Liberal, Toronto Centre, ON]

Would anyone else like to comment?

[Denis Leclerc]

When it comes to cleantech companies, access to capital is definitely important, but so is access to markets. Cleantech start-ups want to know how they can find a testing ground in order to trial their innovation in a real-life setting. That's why we, at Écotech Québec, really push for public contracts to fulfil that role as well. By that, I mean contracts with government and public organizations, as well as semi-public government bodies. That includes a multitude of corporations and organizations, dealing with outdoor recreation and cottages all the way up to conference facilities. They are all public or semi-public organizations and they can play a role when it comes to accommodating new technology and testing it.

Post-testing, these organizations become technology showcases, which tech companies need in order to market their technology to potential customers. When trying to sell their technology abroad, companies are often asked where the technology is being used in their home country, in Canada. And when that technology isn't being used here, at home, it cuts them off at the knees. So it's important to have a testing ground, a technology showcase and, certainly, support for commercialization both here and abroad.

[Chrystia Freeland, Liberal, Toronto Centre, ON]

Can I ask one more question, or am I out of time?

As I still have a bit of time left, I have a question for Mr. Letenneur.

You are active in Asia. Is the Trans-Pacific Partnership, or TPP, an important element for you?