International Trade Committee on Feb. 26th, 2019

[The Chair, Liberal, Mark Eyking]

Welcome to the trade committee. Today we're going to continue with our study on Canada's support for small and medium-sized businesses on international trade.

We have guests with us. We are waiting for one guest. Mr. Fowler from Manna International is on the way, I've heard, so we'll get started, and he can do his presentation when he comes in.

Welcome, witnesses. If this is your first time in front of a committee, let me tell you that we try to keep your presentations to five minutes or so, but whatever it takes to do it, that's fine. Usually I start with the witnesses on video conference, because sometimes we have technical difficulties. Give me a thumbs-up if you can hear me okay.

Okay. We have with us, from the Chambre de commerce de l'Est de Montréal, Madam Fréchette and Madam Mandelbaum.

Bonjour and welcome. You have the floor.

[Christine Fréchette, President and Chief Executive Officer, Chambre de commerce de l'Est de Montréal]

Good afternoon.

Thank you for this wonderful invitation. It is very much appreciated. First, I would like to point out that Mrs. Mandelbaum, who is with me, is the Director of Export Assistance for the Chambre de commerce de l'Est de Montréal. I am the President and CEO.

I would like to say a few words about the Chambre de commerce de l'Est de Montréal. Our organization covers a vast area located on the eastern half of the Island of Montreal. We cover half the Island and our area has 32,000 businesses. Our organization has 1,200 members working in 125 sectors of activity. More than 80% of our members are small and medium-sized businesses. Therefore, we are very familiar with the reality of SMEs. The Chambre de commerce de l'Est de Montréal hosts an ORPEX, or regional export promotion organization, which has four export specialists on staff. It is a real asset in terms of support for businesses that want to export. The Port of Montreal, which is the gateway for maritime shipping, especially with Europe and the Americas, makes our area a very strategic one. In short, we have a very strategic asset in our area.

How can the government foster export opportunities for SMEs, particularly with respect to CETA and the TPP? We have four suggestions.

We believe it is essential for the government to include in its efforts front-line service providers such as regional export promotion organizations, and that it work closely with them. These organizations have a special relationship with exporters, especially SMEs. Their close ties are particularly useful because SMEs often prefer that the organizations supporting them use a highly individualized approach. Additionally, our organization works with more than 200 exporting businesses every year, year after year. We have offered this service for 18 years. We can most definitely develop a relationship with the area's businesses and gain a sound understanding of their dynamics.

First, we simply want to tell you to make greater use of our organization. We have resources and we are on the ground. This is an advantage and an asset that the government can use to raise awareness among businesses and to inform them of the potential benefits of free trade agreements.

Second, it is important for the government to have a greater presence on the ground in order to reach out to SMEs. In the east end of Montreal, the Government of Canada's presence in the business community is insufficient. This lack of representation can be addressed in two ways. For example, we could ask that the businesses in the Montreal area that Government of Canada representatives cannot help, due to a lack of resources, be referred to organizations such as ours. Based on my personal experience, I can tell you that this has not happened very often. We have received few referrals from and had little contact with Government of Canada representatives concerning our export services. I think that there is a place for such referrals.

Third, the federal government could definitely increase its export services presence in the area. We can be a part of the solution and the government could also decide to increase its presence.

More tools, content and concrete information could be provided to SMEs. We invite the government to consider this option. In fact, our organization relays this information to businesses on its website, in its newsletters and with social media posts. These are different ways of reaching businesses. In that regard, the more information and documentation we receive from the Government of Canada, the more we can share them with businesses.

The fourth important element would be for the government to participate in events organized by organizations such as ours including training, team meetings, brainstorming sessions and presentations about government programs. We organize about fifty events a year, and we are quite open to having a greater Canadian government presence at these events.

We actually had an event a few months ago with the U.S. Consul General at the U.S. consulate to inform companies about how to export to the United States. That is the type of activity that we are very willing to organize with the Canadian government as well.

How much time do I have left, if any?

[The Chair, Liberal, Mark Eyking]

You have another minute if you need it.

[Christine Fréchette]

Okay, great.

Naturally, the signing of free trade agreements has a positive effect on businesses' trade relations by providing an economic advantage and making trade with the signatory countries appealing.

[The Chair, Liberal, Mark Eyking]

We have no translation.

Hold on for just one minute.

[Raphaëlle Mandelbaum, Director, Export Assistance, Chambre de commerce de l'Est de Montréal]

We hear it, but we can also hear the simultaneous interpretation.

[Christine Fréchette]

May we continue?

[The Chair, Liberal, Mark Eyking]

Yes, we can hear you.

[Christine Fréchette]

Okay, that's good.

I was saying that the signing of free trade agreements definitely has a positive effect on businesses in the signatory countries.

These free trade agreements create a very clear financial interest for businesses. However, many barriers constrain SMEs' ability to take advantage of the government support and to benefit from these free trade agreements. It is important to be aware of these constraints so we can better support SMEs.

Although the number of free trade agreements has increased, we see that they occasionally cover markets that are not a priority or that are not well known by small and medium-sized businesses. Therefore, it is important to create a greater awareness of the countries with which we sign agreements and the business opportunities they provide.

The usual reflex of a small or medium-sized business that is beginning to export is to look to more familiar markets that are less risky and more geographically or culturally aligned. More mature SMEs that are already exporters will consider exporting to less familiar destinations outside the United States, France or England. We have to bear that in mind.

If we look at it from the SMEs' perspective, we realize that exporting is not necessarily a priority. We try to explain why it is important to export. However, sometimes the potential for growth in Canada has not been reached and the businesses feel the need to further work on the Canadian and even U.S. markets. We must be able to enhance the potential and further promote it on the Canadian scene.

The issues related to the recruitment of labour also lead to significant constraints at times. Increasingly, a number of businesses and SMEs are not operating at full capacity because there is a labour shortage. They sometimes curtail operations. In this context, it may seem impossible to open new markets abroad just because the business cannot consider increasing production. This could continue for some time unless we change our immigration rules and let in more immigrants who could be hired by our businesses.

There is also the factor of internal abilities and skills, which could quickly become an issue for SMEs, particularly when it comes to language.

Another issue is technical, tax and regulatory knowledge and knowledge of programs that the company could access for help. From our perspective, there is a lack of clarity regarding the different roles of such federal entities as Canada Economic Development, the Business Development Bank of Canada and Export Development Canada. It is sometimes not very easy for businesses to know who does what. This needs to be clarified for businesses.

To summarize, signing free trade agreements is a very important step that will encourage our businesses to export. However, other measures must be implemented to develop the true potential for our SMEs abroad. This means relying on more organizations such as ours, which are in direct contact with businesses every day. The Canadian government must have a greater presence in the area in order to be in contact with businesses. It must also develop information tools that can be used with businesses. Finally, the government must be available to share information and promote its programs to businesses.

Thank you.

We would be happy to answer any questions.

[The Chair, Liberal, Mark Eyking]

Thank you, Madam Fréchette. That was a very good presentation with some good suggestions for the government.

I welcome Mr. Fowler. You made it just in time. It's good to see you.

We're going to Mr. Stepien from Iafrate Machine Works Ltd.

Go ahead, sir. You have the floor.

[Gary Stepien, Finance Manager, Iafrate Machine Works Ltd.]

Good afternoon, Mr. Chair.

Thank you for allowing Iafrate Machine Works to provide input into this study of federal support for the international trade activities of small and medium-sized firms.

I will cover our experience in international trade under the existing NAFTA, the challenge of providing machined products on a global basis and the possibility of utilizing the trade commissioner service to identify potential foreign customers that meet our unique production requirements.

As a custom machine shop, we do not manufacture our own line of products. Instead, we invest in sophisticated computer-controlled lathes and mills that are operated by semi-skilled operators and skilled tradesmen to produce products designed by our customers.

Approximately 30% of our sales do constitute international trade as automotive products under the current NAFTA. These products are components that are assembled into a driveline module by a major automotive parts supplier and then sold to one of the most popular sport utility brands in North America.

Automotive vehicle platforms typically have a seven-year production cycle. We are now into the second platform for this product line. This is an example of a successful long-term contract based upon compliance with the terms of an international trade agreement because it meets the following business requirements for us: long production runs to spread the cost of machine set-up over significant volume, stable and specified lead times for both raw material and production schedules, relatively short shipping distances, the ability to control the shipping environment to minimize the risk of the finished machined product rusting during transit, and the ability to discuss engineering and design changes in English during normal business hours.

However, approximately 70% of our business is complicated by the challenge of short production runs of custom-designed products that require significant machine set-up time and subsequent tear down after the product is complete. This type of work is further complicated by unique steel requirements, heat treating and specialized testing to prove compliance with engineering specifications.

Providing custom machined products requires the coordinating of schedules for steel production, raw material shipping, machine set-up, production scheduling, heat treat scheduling, off-site hardness testing, final machining, and the shipping of the finished product in a controlled environment to minimize the risk of rust.

To conclude, these requirements can be managed with long, known production schedules; however, the shorter the lead time, the easier it is for any one of the above elements to seriously impact the ability to meet a customer's deadline. We do not want to be responsible for shutting down a customer's production line. This is precisely our concern with trying to take advantage of any non-North American trade agreement. Distance, language barriers and significantly different time zones make it extremely difficult to justify the risk of accepting production contracts that have a large risk of error when we are not able to control all the various organizations involved in the entire process.

There is no question that we support international trade. However, we must be able to manage the process to ensure our customer receives the level of service we have promised.

One possibility for identifying potential customers in Europe or Asia that would meet our requirements for long and stable production forecasts would be to utilize the trade commissioner service, which has offices around the world and is connected to the local community. We have used the trade commissioner service in the past to investigate the possibility of expanding our customer base in the U.S. They may be able to identify international opportunities through their local networks that could provide manageable risk. Naturally, we have to feel confident that our machined products are not at risk during transit.

Thank you for your time.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to Mr. Fowler from Manna International Inc.

Go ahead, sir. You have the floor.

[Gerald Fowler, President and Owner, Manna International Inc.]

Thank you for the privilege of coming to talk.

My apologies for my outfit. Air Canada is protecting my blue suit, white shirt and blue tie incredibly well. In fact, they're in a secret location and no one really knows where they are, so we have to put up with my current Air Canada-approved outfit.

[Voices]

Oh, oh!

[A voice]

It's casual day.

[Gerald Fowler]

That's right. It's casual day.

Thanks again for allowing me to come. I'm new to this environment. It's very different for me. I thought maybe for the five minutes allotted I'd give a brief background of my history in exporting, to provide some context and perspective and also maybe some credibility.

I noticed from your mandate that you are to study ways that government can help small and medium-sized enterprises to export, so I'll target my presentation to that end, trusting that mandate extends not only from encouraging or generating interest in exports, but also enabling companies to realize that potential.

Again, I thought the best return on investment of your valuable time is if I give maximum time for questions, as opposed to my jumping up and down saying what I've done.

Please forgive me if this sounds like, “Look what I did.” I'm very blessed and very fortunate. I just want to give you an accurate background of where we're from.

We've been exporting products since 1980. In fact, 100% of our revenues are involved with exporting. We started with maple syrup and then moved to certified organic soybeans, which we moved to Japan and Europe. In 1996, we started moving non-genetically modified soybeans into Europe, first by vessel out of the Great Lakes, but then by containers since 2004.

As part of that, working with the biggest soy milk producer in Europe, we became the first in the world to ship fully traceable, guaranteed non-GMO soybeans to meet the EU standards. Because of that, we were invited to speak at a variety of international conferences on the subject and were able to raise the Canadian flag. Canada, therefore, became the preferred supplying country of this type of soybean in the international food sector, a position that Canada still holds firmly today.

I use that as an example to emphasize to you people that you have the potential to affect that type of stuff. As you already know, there is incredible importance in the value of small to medium-sized enterprise and the exporting values for Canada. We started doing this because a door was open to us in Europe. We were able to step through that door, and we were thankful it worked well.

Because of that, there are elevators, groups of farmers in southwestern Ontario, that are now exporting that would never have exported before. Just to emphasize the potential for small to medium-sized enterprise in the Canadian marketplace, all this is from an office with two people in Sault Ste. Marie, hundreds of miles away from the nearest soybean.

Because of that privileged position, someone—I don't know who it was, actually—put our name forward and we were fortunate to be recognized as the 1999 recipient of the northern region's leadership award for excellence in export development. We were then invited on numerous trade missions, predominantly by the Ontario Ministry of Agriculture. With that interest, as well as interests in ministries helping orphans, widows, refugees and human trafficking issues, I've been blessed to travel to 42 different countries to do business there.

In addition to agricultural trade missions, I was involved in the Soo in another export development project. I taught international business at Sault College for their first graduate class and subsequently ran a year-long government-funded program with the graduates of that course, developing export development business plans and reports for local businesses to try to encourage exporting up north. That led to being asked by FedNor to develop and lead a 10- to 14-day trade mission to Ecuador and Chile for forestry experts and professionals, as well as business people, to see if our Canadian forestry expertise had potential.

As a follow-up to that, we started looking at export clubs in Sault Ste. Marie where, in conjunction with FedNor, we started doing export breakfasts. That was a relatively informal time of talking with a wide variety of local businesses that were interested in exporting and didn't know where to go next with that, and they were just asking questions. We just sat around and talked about “I wouldn't do that if I were you”, “This would be a good idea”, or “Be careful of this”, that sort of stuff. It worked well.

In 2006, we received Sault Ste. Marie's Community Capacity Building Award and were also asked by then mayor, John Rowswell, to accompany him and a number of local businesses to Sault Ste. Marie's sister city in Portugal, due to the lack of expertise they had in exporting, and potentially help new export business to develop.

During that trip, I had the distinct privilege of meeting Mr. Terry Sheehan and his lovely wife. They were also on that trade mission.

As well as exporting soybeans, we're now focusing on the next phase of European market development, which is traceability. Traceability moved from—I'm trying to give you the Reader's Digest version—organic non-GMO. The new terminology, the new fascination for the European market place is called sustainability. The trouble is getting a definition of that, but that is defined by increasing yields and decreasing use of chemicals—an oxymoron for most farmers—but it is possible.

We're trying to find even more market share for Canadian soybeans by getting Canadian soybeans a bit more sustainable for the appetite that Europe is expressing with regard to sustainability.

At this point, I'm going to stop embarrassingly tooting my own horn in order to make the most time available for questions.

[The Chair, Liberal, Mark Eyking]

Thank you very much, Mr. Fowler.

That's a very interesting story. Most of the times you hear that to increase exports, it's mostly federally government led. Yours is locally driven, very organically driven, right in your own community.

That's a good job by you and your community. It's good to hear from you today.

Now we will turn to the dialogue with the MPs.

Witnesses and MPs, let's try to keep the questions and answers short. That way, we can have a good dialogue.

We're starting off with the Conservatives, for five minutes.

Mr. Hoback, you have the floor.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair.

Thank you to all the witnesses. It's great to be back here at trade committee.

I'm going to start off with you, Gary Stepien.

I find it very interesting. You have a very good understanding of the strengths of your business and where you could add value in the international markets and where you can't.

How did you get to that point? At what point did you sit back and see where you can do this and where you cannot? Was there anybody that offered you that assistance? I think a lot of younger companies haven't done that yet. They just think they can export, but they haven't really analyzed whether they should.

[Gary Stepien]

We know what our capabilities are, and our business is generated by quotes. We respond to quotes. We ended up getting a quote that we knew we could handle based on our capability, our experience and the accuracy that we operate in.

The thing is that each generation of vehicles is getting more and more precise in quality. For instance, drivelines create vibration. Vehicles are now going more toward aluminum bodies, so the weight of the vehicle no longer compensates for the vibration of the driveline. Now we have special balancing equipment to make sure that when the product is made, it's within the right vibration characteristics.

It's a case of understanding your capabilities.

[Randy Hoback, Conservative, Prince Albert, SK]

You're taking those strengths and your capabilities and asking how you can apply them maybe into Europe.

How are you doing that?

[Gary Stepien]

Our international trade is basically under NAFTA. We would love to have trade with Europe, with Asia.

The issue is how we get into those markets, and if we get into those markets, how we make sure that our product doesn't rust on the way. That's a huge issue in our industry. Our products are internal components to a module. The module, once it's made, is sealed, so rust isn't an issue.

But it's the fact that—

[Randy Hoback, Conservative, Prince Albert, SK]

It's a logistical issue that you have to work with.

[Gary Stepien]

These components that we make aren't subject to rusting. They need to get to our customers' production line to be installed before they rust.

[Randy Hoback, Conservative, Prince Albert, SK]

That's a good point.

When I worked with Flexi-Coil and Case New Holland, we were shipping a lot of machinery over to Australia. We had the same issues with stuff being manufactured in Saskatchewan, putting it on a train and crossing the ocean. By belonging to STEP, we compared ways of doing things, and we realized there was something we could do to eliminate rust in our painting process. It's that combination of....

You have your coffee room meetings and your clubs, and that's kind of what STEP was in Saskatchewan. It gave us that information.

I'll go over to you, Mr. Fowler.

You talked about maple syrup, where you started and you've grown from there. I think that's fascinating. Obviously, something drew you to the soybean market. Was one of your visits on maple syrup and all of a sudden they wanted soybeans? How did that end up happening?

[Gerald Fowler]

It's a long story, again a very fascinating one, but maybe not for this platform.

The challenge is there are some marketplaces that have a shelf life over here, but there are other ones that need to go elsewhere.

This particular case was doing some consulting for locals, a manufacturing facility for maple syrup. Their situation wasn't relative to the farm-gate mentality, where typically maple syrup is sold wherever. We had to do it in bulk, because in Austria, they mix maple syrup with lemon juice and cayenne pepper, and they use it as a food substitute. They were looking for bulk, basically.

This particular year, that couldn't happen. We put the deal together anyway from somewhere else, and we built a reputation. International business is done by relationship. Relationship is key.