Good afternoon, Mr. Chair and members of the committee.
Thank you for inviting us here today to speak on behalf of Canada's 90,000 manufacturers and exporters and our association's 2,500 direct members to discuss e-commerce and its impact and opportunities for Canadian SMEs.
Canadian Manufacturers & Exporters is Canada's largest industry and trade association, with offices in every province, and is the chair of the Canadian Manufacturing Coalition, which represents 55 sectoral manufacturing associations. More than 85% of our members are SMEs representing every industrial sector, every export sector, and all regions of the country.
Manufacturing is the single largest business sector in Canada. In Canada, manufacturing sales surpassed $600 billion in 2016 for the third consecutive year, directly accounting for over 11% of Canada's economic output, while employing more than 1.7 million Canadians directly in highly productive, value-added, high-paying jobs. Manufacturers are also directly responsible for the majority of Canada's exports. In 2015 and 2016 manufactured goods exports accounted for almost 70% of total Canadian exports. Nearly 80% of those exports go to our NAFTA partners.
While the sector is critical to Canada's current and future prosperity, manufacturing in Canada and around the world is going through tremendous changes, including major shifts in economic and market conditions, acceleration in the creation and adoption of new technologies, and changing political and policy priorities. In addition to these shifts, manufacturing itself has become much more globalized for production and customer bases, and the lines between manufacturing, services, and technologies are rapidly blurring. This is the challenge for manufacturers, as the production processes they use, the goods they produce, and the skills of their workforce are undergoing constant change.
However, these technologies are also providing new and significant opportunities. We see four core areas that are changing in manufacturing as a result of technology and e-commerce: retail consumer sales, B2B transactions, product design and commercialization, and production.
Retail consumer sales often get the most headlines and attention. Canadians are buying more and more of their goods online—everything from groceries to music to computers. From an SME business perspective, this provides great opportunities as well as challenges. Obviously it means that there is much more competition at home from retailers based all around the world and selling products through websites such as Amazon or eBay. But it also means that Canadian SMEs have access to billions of consumers around the world and the opportunity to dramatically increase sales and exports.
B2B transactions are not as well covered but are very similar to the retail environment. Companies today have access to a world of business partners who can provide them highly specialized services, technology, and equipment to help them grow. They are also faced with increased competition at home and abroad to sell similar services. Companies like Amazon are now looking at setting up exclusive B2B portals to mirror the consumer retail sales sites. Leveraging e-commerce sales, including through platforms like these, is becoming a requirement for participating in global value chains.
The third area where e-commerce is having a potential impact is around product design and commercialization. Companies today are leveraging technologies to create new innovative products and processes through real-time, multi-location research and design and testing. These technologies are rapidly speeding up time for product development and time to market for new products. Access to e-commerce platforms makes it cheaper and easier to learn about and purchase these technologies from both domestic and overseas suppliers.
The final area of note for manufacturers and exporters is on process control. Today technology allows a company, or a service provider, to operate an entire plant and all the machinery and equipment within it from anywhere in the world. Some companies are working toward complete automation of production in this manner to reduce the cost of production labour to shift those resources to higher skill, higher value-added activities, such as R and D.
Overarching all these issues is Canada's ongoing challenge with productivity and competitiveness. Because of declining business investment, skills shortages, a poor record on innovation and commercialization, and a range of other issues, Canadian manufacturers are struggling to compete globally.
E-commerce and online trade offer a potential solution. Studies show that companies that shift toward greater online sales enjoy significant production gains as a result. But there is a catch-22 here. To be successful at leveraging e-commerce opportunities, our businesses will have to be as competitive as possible. In other words, we need to improve our productivity in order to realize potential gains from e-commerce.
With all these changes and challenges, companies are, frankly, struggling to keep up and remain globally competitive. At the same time, these changes are providing massive new opportunities, but they cannot take advantage of them without a better, more modern framework. Some of the most critical issues are as follows.
First, companies need to invest in more advanced technologies to take advantage of the e-commerce opportunities, yet in Canada our investment levels in new technologies continue to fall behind those of international competitors. U.S. manufacturers, for example, invest more than eight times the amount of a similar size Canadian manufacturer. The government must do more to help companies invest in technologies and software, including through enhanced depreciation rates through the ACCA program.
Second, Canada needs to have better digital infrastructure. It is often too expensive and not up to necessary speeds for modern manufacturing to operate in a digital e-commerce world. We cannot stress this issue enough. Internet data and mobile phone fees are among the very highest in the industrialized world. Our businesses cannot hope to be competitive for as long as that remains true.
Third, free trade agreements must be modernized to include digital trade and e-commerce protocols. The TPP, which is being relaunched without the U.S., has a chapter on these issues that is supported broadly by industry. This chapter should be made part of the modernized NAFTA and other FTAs moving forward to provide stronger trade protections for SMEs and secure flow of data.
Fourth, SMEs need help in understanding the opportunities that e-commerce provides both at home and abroad, and should be encouraged to participate both in B2B and B2C activities.
Finally, Canada should do a better job in promoting goods that are designed, engineered, and made in Canada. Our products and technologies are world class, and consumers around the world will buy them if they know about them. We need a “made in Canada” branding program that can be used to promote Canadian-made goods to consumers both at home and abroad.
Thank you again for inviting us here today. I look forward to the discussion.