[Recorded by Electronic Apparatus]
Thursday, October 5, 1995
.0909 
[English]
The Chairman: I call this meeting to order. It's a continuation of our research into export potential for small and medium-sized business.
[Translation]
Mr. Paré (Louis-Hébert): Mr. Chairman, I see once again this morning that three untranslated briefs are being tabled and distributed by the staff in contravention with the official languages regulations. Accordingly, I request that these documents not be used.
.0910
The Chairman: The Clerk tells me that the brief from the Canadian Chinese Business Development Association was received this morning and the other one yesterday. These documents have been prepared by the witnesses and not by us. Under the Standing Orders, witnesses are entitled to submit their documents in the official language of their choice.
Whenever we receive documents early enough to be translated, we do so, but if they provide them to us too late, we are helpless. The document received yesterday is being translated and will be handed to you as soon as possible. As for the brief we have received this morning, it will be translated as soon as possible.
Mr. Paré: I appreciate fully these explanations, and I feel that in such circumstances the document should be distributed by the witnesses themselves and not by the staff.
The Chairman: Am I to understand, Mr. Paré, that you want me to insist, as Chair, that witnesses go around the table themselves to distribute their documents?
Mr. Paré: Yes, if the document is not translated.
The Chairman: Unless the Committee requires me to do so, I will not. I feel this will be disrespectful for the witnesses. We're trying to be as effective as possible. If there is a rule to this effect, I will abide by it, but you will have to prove it to me.
[English]
Mr. Flis (Parkdale - High Park): In my twelve years here I've never seen this practice. I think it would be insulting our witnesses, who have come this far and given of their time. This is why we have staff serving the committee. I think it would be embarrassing to ask a witness to come around and hand each one of us what they're going to present.
You're right, Mr. Chairman, witnesses are allowed, by Standing Orders, to present their documents in one official language. Anything coming from the committee or from the government, yes, must be in the two official languages.
The Chairman: Thank you, Mr. Flis.
I think I've made my point clear that we certainly do our best to translate as quickly as possible all documents received, but we cannot be put in the position of doing the impossible and we cannot ask witnesses to do the impossible either.
We have with us this morning Mr. Patrick Wong, who has come from Vancouver, from the Canadian Chinese Business Development Association, and Regina Pearce from the Baltic Business Council.
Our practice is usually to ask you to speak for about ten or fifteen minutes each at the maximum and then you'll find that the members will have questions for you, which is often the best part of the exchange.
We thank you very much for coming to speak to us this morning.
Mr. Patrick Wong (Honourary Advisor, Canadian Chinese Business Development Association): Thank you, Mr. Chairman.
I'm sure there must be some misunderstanding about the information I brought in this morning. Mr. Paré suggested I should distribute the documents, but I don't even have enough copies to distribute. Anyway, this is only a supporting document, partly in English and partly in Chinese.
Thanks very much, Mr. Chairman, for clarifying that point.
Let me start by informing the committee of what the CCBDA has done to assist business in Canada to export.
The CCBDA organizes business seminars by inviting speakers from a panel of advisers and government officers from both the federal and provincial levels to explain policies and changes to policies.
Recent seminars have included the following speakers: the Hon. Raymond Chan, Secretary of State for Asia - Pacific, to speak on Asian trade development; Revenue Canada officers to speak on overseas Canadian tax reporting; and Vancouver Stock Exchange officers to speak on Asian board listing requirements.
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In order to help small businesses make connections in the Pacific Rim region, the CCBDA organized the Asia-Pacific forum on August 12 and 13 this year. During this two-day event, over 4,000 people attended. Exhibitors and sponsors included were over 65 organizations and companies, as well as federal government representatives from Fisheries and Oceans, Revenue Canada (Customs and Excise), Health Canada, Agriculture and Agri-Food, and the Federal Business Development Bank.
Most important of all, consuls and official representatives from Singapore, the Philippines, Indonesia, Malaysia, Taiwan and Hong Kong also attended and all of them expressed that this was a valuable opportunity to communicate with the business people and they would help Canada develop the two-way trade.
It is even more gratifying to mention that this was a free admission event organized by a non-government organization. As a result of media support, the event attracted a wide range of people in the Canadian business community. Participants included the Hon. Raymond Chan, Secretary of State, the Hon. Ujjal Dosanjh, B.C. Attorney General, board of trade representatives, many business leaders, community college representatives, travel agencies, telecommunication companies and several franchisor representatives, among others.
In addition, the event featured seminars on the following: customs duties and tariff, income taxes, environmental issues, fisheries issues, franchise laws, commercial leasing laws, the Canadian legal system, and even offshore trusts, all of which were well received by the attendees.
This forum has resulted in many inquiries from the representatives from as far as New Brunswick, Denver, Seattle, Toronto and New York, who asked to meet with the CCBDA directors.
However, the event did not receive any government subsidies and was self-financed. Accommodating the 4,000 attendees for a two-day event required 3,000 at least man-hours from volunteers. The event was chaired by Mr. K.F. Kam, who owns shipping agencies around the world, co-chaired by Ms Nancy Lau, a business consultant and writer for a Chinese newspaper, and Mr. Tony Yee, a publisher for a TV weekly guide. Its advisory board was chaired by Mr. Patrick Wong, who is a chartered accountant in public practice.
The next thing I would like to bring up regards comments and recommendations concerning the effectiveness of federal programs in assisting SMEs to conduct business in the export market.
We understand that cultural diversity in Canada can be advantageous to develop Canadian export to penetrate the foreign markets. New business immigrants from Asia can play a valuable role in reducing entry costs and promoting two-way trade in a more effective and efficient way.
Success in penetrating the Asian business markets depends, in our view, on an understanding of the political strategies and economic policies of the countries with whom Canada hopes to trade, as well as the ways and means of developing a good personal relationship or linkage with the overseas business communities.
There are several existing programs and services in place to assist Canadian business. Among them are the Canadian business service centres, small business improvement loans, Federal Business Development Bank, International Trade Centre, Program for Export Market Development, CIDA, Canadian Exporters' Association, and the Export Development Corporation.
These programs and services have been effective to a point. However, we believe more emphasis should be put on establishing personal linkages between business people in Canada and overseas contacts. The CCBDA, however, would like to comment on the following federal programs.
Canadian business service centres: We note that the existing centre in downtown Vancouver does not provide any officers who speak languages other than English and French.
.0920
We met with the centre's manager, Ms Tebbutt, at the centre. She did not appear to be responsive. There is a large number of Asian immigrants who are required to establish business in Canada within two years under the terms and conditions required by immigration laws. Eager to establish a business in Canada, many of them had difficulty communicating with government officials. What is more, in our view, neither the federal government nor the provincial government have provided the kind of services to these people in assisting them to establish small businesses.
We recommend that the CCBDA ought to become a partner with the CBSC to provide more meaningful and efficient services to the target group - new business immigrants who have the necessary overseas contacts and business experience.
The partnership can be in the form of providing information through computer modem, CD-ROM, face-to-face contacts, faxes, and seminars held at the CCBDA office. The cost would be less and more direct to the users. Such an arrangement would make information flow faster as well as reduce the language barriers. The CCBDA has the resources to draw on volunteer professionals to assist users. A user fee system is recommended.
The second program: small business improvement loan. This program, which provides a government guarantee to the lending banks, is attractive to start-up businesses. Many of our members, however, have had bad experiences with this program. It appears to them that bankers do not encourage this type of loan because of the complicated forms to complete, and the stringent requirements imposed by the top-level banking management.
In one case, the application took four months to complete, and the legal fees payable by the borrower were extremely high due to the exceptional due diligence demand from the banker.
Bankers are not well acquainted with the government requirements and therefore inclined to demand excessive collateral from the borrowers. In one instance the bank required the borrower to obtain the approval of the landlord's mortgage banker to assign the lease as a collateral. This was impossible since the mortgager was not willing to give up his right solely for the benefit of the tenant's banker.
We recommend that a special training session ought to be required to better acquaint bank loan officers with the spirit of SBIL. A set of guidelines provided to them is not adequate. Since such bank loans do not exceed $250,000, usually junior bank officers are assigned to handle the application, which can result in a delay, leaving many small business people frustrated.
Alternatively, an independent agency may be required to execute the SBIL since bankers are not enthusiastic about it. In any case, the results of the program have to be revaluated by contacting the borrowers.
Third is the Export Development Corporation. With export business, letter of credit (LC), DP and DA are terms frequently used. Many local bankers do not have an adequate knowledge of these international financial instruments. In many cases a banker requires a business owner to post 100% collateral in order to issue a letter of credit. Transferable LCs and back-to-back LCs, which are popular in overseas trading practices, are rarely known well in many of the Canadian chartered banks. This represents an impediment in developing foreign trade for SMEs.
Many chartered banks do not accept letters of credit from many countries, like China. The EDC should consider assisting in the arrangement of issuing letters of credit.
We recommend that it is very important to improve the local bankers' knowledge of the international financial instruments. Otherwise, many potential export opportunities will be lost.
.0925
Outside Canada, the financial industry has developed many more sophisticated financial instruments, which are vital in international trade. Both SME and Canadian bankers need increased cooperation and to be familiar with the EDC products and services available to assist SMEs. The CCBDA can help to make EDC's expanded role known to the Asian business community in this area.
Other than the programs, we find there are many inherent problems for the SMEs in the export market. There are several problems inherent in the Canadian business environment that hinder the export capabilities of the SMEs.
First, the price competitiveness of the Canadian products should be improved. Large companies have dominated the export market, but there are many disadvantages and difficulties faced by the SMEs. These include high income tax, red tape, complicated regulations at all levels of government, disintegrated anti-business tax system, excessively strict environmental rules, and government incentives such as generous UIC and welfare, which have made Canadian exports less competitive. All these disadvantages have resulted in one thing: products exported by Canadians are not usually price competitive in the global market.
We recommend that to help SMEs develop a competitive edge in production costs, the government should set up a body called a productivity improvement centre to increase the SMEs efficiency and cost-effectiveness. SMEs do not have to require research funding. It would be more economical for all Canadian businesses involved in exporting to pool the research funding. The proposed centre would cooperate with the academic institutions and publish research project results for the benefit of all the businesses in Canada.
Another point is to train more export market traders. Many SMEs are not equipped with the required knowledge to handle the export business. They are either short of qualified staff or too slow or reluctant to accept export markets. Many of the potential exporters, such as small paint manufacturers, still insist on working with the format of the purchase order and payment upon delivery or on account basis. An international trading firm cannot operate under these kinds of payment terms.
SMEs supply the products and services to the foreign markets. They need help and specialized knowledge of the trading firms that make a living by charging the sales commission, or price spread. Each party has its own role to play in the export business. Other than sourcing the buyers and making contacts with Canadian suppliers, traders are responsible for inspecting exported goods and ensuring that the products arrive at export markets in time. At present, this trader system is not popular among the SMEs, although large suppliers have their own selling offices overseas.
We recommend that to assist the traders who can help export Canadian products, programs should be extended to benefit this group of people. In addition, the banking industry should be encouraged to accommodate this kind of business to promote Canadian exports. The CCBDA is able to find traders who are experienced in the Asian markets to train the SMEs with export potential.
Finally, we talk about the linkage CCBDA has developed between the government and the new business immigrants.
.0930
In December 1993, through its committee for Asian Pacific business immigrants, chaired by Patrick Wong, CA, who is a founding adviser, the CCBDA gathered information from over 200 business immigrants and presented its recommendations to the government.
These recommendations are: to establish a Canadian-Asian business service centre; to establish an entrepreneur investment pool; to provide a tax incentive or deferred tax payment program; to establish an industrial zone for polluting industries; to simplify tax compliance; to modify the Unemployment Insurance Program; and to encourage small business by reducing red tape. A copy of the report is enclosed in the appendix today for reference. I just brought it in this morning.
Although this report has been forwarded to both federal and provincial governments, including the Minister for International Trade, the Minister of Industry, the Minister of Immigration, and the Premier of British Columbia, as well as other provincial ministers, this report unfortunately has not generated the attention it deserves.
We recommend that the CCBDA collect, as a non-government organization, the feedback from the business people involved in exporting to Asian markets and report to the standing committee on a periodic basis. With the help of the Secretary of State for Asia-Pacific, the CCBDA is most confident that the Asian market will be penetrated at an accelerated speed.
Thank you.
The Chairman: Thank you very much, Mr. Wong. Thank you for your offer to continue to furnish us with information. It could be very useful for us. We appreciate that offer.
Our next witness is Madam Pearce from the Baltic Business Council.
Ms Regina Pearce (Director General, Baltic Business Council): Thank you for inviting me to speak here. We feel this is a very important opportunity for the Baltic Business Council.
We are a fairly new organization. We actually started in 1993, but the ball didn't really get rolling until early 1994. I assumed the position of director general of the Baltic Business Council in July 1995, so I'm also learning the ropes.
My heritage is Lithuanian. I was very involved throughout my youth in the movement to help liberate Lithuania. Many youth in Canada with Latvian or Estonian heritage were also very active in that area. I have been very active in the community and feel that I can empathize very well with the needs of the Baltic community in Canada. Also, since I am a small entrepreneur myself, I am an SME so I understand what these groups need and so on. Because of that, I'm able to relate the information more from a personal level as opposed to an experience level.
I will not get into telling you more about the history or location of the Baltic states. I've included copies of that information for the committee and assume you have read about them. I'll try to briefly go over some of the major points I feel might be beneficial to addressing the mandate of this committee.
The three Baltic states, obviously, are in a very strategic position in Europe for the development of business opportunities for small to medium-sized businesses. Although the population of the three Baltic states totals probably around 6.5 million, they present a very strategic location for business development.
Because the Baltic states are close to Sweden, Finland, Norway, Denmark, Poland, Germany, Byelorussia, Russia and Ukraine, they offer a tremendous opportunity for small to medium-sized companies. This is the key and the motivation that the Baltic Business Council has undertaken. The main goal of the Baltic Business Council is to help promote business opportunities for Canadian companies in the Baltics. We act more or less as an information clearing-house for such opportunities.
.0935
The interesting focus right now is the fact that the companies showing the greatest interest in developing opportunities in the Baltics are those who are of Latvian, Lithuanian or Estonian heritage. They came to Canada forty or fifty years ago, built very good companies for themselves, and now with the movement and the liberation that has taken place, they want to give back something that Canada has given them. They want to help the old mother countries by establishing their businesses, whatever they may be, back in their old homelands. They are the ones who have spearheaded this movement towards developing business opportunities there.
We also feel Canadian companies of non-Baltic heritage are missing out on a great opportunity in this regard because there is a tremendous need for all sorts of technology, development and improvement, especially in the construction sector. The construction industry in Canada has lately been on a downward trend, whereas the construction industry specifically in the Baltics and eastern Europe - especially eastern Germany - have been in an upswing. The need and demand in eastern Europe for construction equipment are at their peak.
Right now, construction companies in the Baltic states are buying products from Germany. The Germans are really making an aggressive move, as are the Swiss, the Finns and the Danes. They are aggressively involved in the Baltic states because they see that opportunity. Canada, unfortunately, has taken a sort of more conservative attitude. And I'm not talking about the business people of Baltic heritage; I'm talking about traditional business people, along with traditional bankers.
There's a fear factor among these people that they will be blown up, that the mafia is in control. This marketing job, an increased transmission of information that says the environment is not as bleak or as dangerous as painted, is one of the main roles the Baltic Business Council unfortunately feels it has to undertake as well.
There has been tremendous growth, a revolution from 1991. When countries are oppressed for so many years and are all of a sudden liberated, unfortunately there are individuals in that environment who take advantage of the situation. In chaos there are opportunities and sometimes those who are not exactly in the right legal framework take advantage of that chaos to their own personal advantage. Unfortunately other people suffer, and that creates the bad press the Baltics have been receiving.
The governments in Latvia, Lithuania and Estonia have been very aggressively trying to clear that picture. They have stabilized a lot of the banking systems and have purged some of the more corrupt institutions in this transition. We in the Baltic Business Council, based on the information we have been receiving, know things are moving and progressing towards a more democratic system more in tune to the system that has operated here in Canada.
So the role the Baltic Business Council has undertaken is to promote business opportunities in the Baltics. We are privy to information coming from the Baltic states on business opportunities there. We are also privy to the fact that business people are calling us from small and medium-sized businesses, or SMEs, to find out what opportunities there are in the Baltics. We therefore act as a conduit between the Baltics and businesses in Canada.
However, the other good component that the Baltic Business Council fulfils does not just deal with business opportunities in Latvia, Lithuania, Estonia. When companies call us, they may also be looking for opportunities in the rest of eastern Europe. We therefore act as a stepping-stone for other such opportunities. In fact, we received a call from a company in Norway that was looking for companies in Canada who might want to do business in there. I think they came to us with the idea that because we're the Baltic Business Council, and because they're so close to the Baltics, there might be a linkage. So opportunities arise through that network base as well.
.0940
Because the Latvian, Lithuanian and Estonian community has been very aggressively promoting business or opportunities for those who are of Baltic heritage, we have also liaised and contacted other associations that are similar in nature, i.e., the Hungarian Business Council, the Czech and Slovak Chamber of Commerce, the Ukrainian Chamber of Commerce, and the Polish Business Council. We have formed a network between these associations, which in fact do assist us in finding opportunities that exist in the Baltic states. From a network point of view and in the transmission of information, we are very valuable. We fulfil a vital role in this gap insofar as this is concerned and in trying to match-make business people in Canada by helping them to see the opportunities.
We are in the process of putting together a fax modem by which we can transmit as the information on business opportunities comes to us. Originally a newsletter was being published by the previous board of directors, but when I took over the directorship I realized the information being transmitted was usually four or five months out of date. That was really not good for business opportunities because you have to act on these things right away. By going into more of a fax-modem type of transmission, information is relayed to the members as soon as possible.
We have undertaken a massive membership drive as of July and August. We have mailed membership applications to 500 Canadian businesses, and not just businesses of Lithuanian, Latvian or Estonian heritage, although there are those on the membership list as well. These are non-Baltic-heritage Canadian business people to whom we want to emphasize the opportunities of being part of the Baltic Business Council so that they are privy to some of the business opportunities coming through our office.
By doing this, we have found the banks are very conservative about investing or helping small companies to invest in the Baltics because of the rumours and bad press the Baltics have been receiving. This is one thing we will try to address and nullify at our convention, which we are organizing for November 28 in Toronto. We will invite Canadian business people to come and get a fuller picture of what is involved in doing business in the Baltics.
The other thing we find as the requests for assistance in developing business linkages in the Baltics come through our office is, of course, that there are prime concerns about whether or not they will get their money back - taxes, benefits, and all those usual questions. We have a library of information that we try to relate to these business people. We then also inform them about the different associations and different Canadian government offices and programs that can assist them to attend trade shows - perhaps financing through EDC, through the renaissance program, through the Ontario Development Corporation, through the financing of certain direct projects, and so on. So we relate that information.
The problem a lot of the companies that come to our office all have, of course, is that a lot of the projects are in the range of $1.5 million to $3 million. In fact, the majority of the projects that come through our office are around this level: $1.2 million, $2.5 million and $3.5 million. They require this kind of funding so that they can spearhead their projects into these countries.
Realizing that if the Baltic Business Council is to be as proactive as possible and is to be of greater assistance to these SMEs, we must begin the process of establishing a Canadian-Baltic investment development fund. With this fund we will be able to be proactive and assist in an equity base to actually help these companies establish businesses in the Baltics. We will also handhold the people and the companies in the Baltics throughout this joint venture partnership to ensure that the revenues and profits are maintained and that they follow proper marketing procedures that can realize profits.
.0945
The Canadian-Baltic investment development fund will only be looking at companies that are profit-oriented. This way the Baltic Business Council will be part of the board and therefore assured they will be self-funding as well from that source.
I suppose in my capacity...one of the key reasons, perhaps, it's very important that I'm here is that I ask the members of the committee to give me some advice on where we could access the seed - not so much, I suppose, production - costs of putting together this fund. It is very crucial that the fund be established because then we can be proactive and can allocate the funds so these projects can happen.
For example, there's a Canadian manufacturer from Winnipeg who wants to establish a noodle factory in Latvia. He requires some money. There is a prefab wall manufacturer in Toronto who wants to establish a factory in Kaunas. We have a telecommunications long-distance savings company from Richmond Hill that wishes to establish a franchise operation in Lithuania and the rest of the Baltics. We also have a project in the Baltics right now, a resort complex undergoing privatization procedures, that wishes a joint venture partner from the hotel and restaurant industry here in Canada to be joint venture partners with them in the Palanga, which is a seaside resort. I have personally been there and it would be well worth while to invest in that.
These are the projects we are looking at, and the Baltic Business Council is going to spearhead putting together the fund so that we are proactive. We do not want to be just another association, which is important. We want to be working together with the Canadian government, accessing the programs, informing our members of the programs that the Canadian government has. But at the same time, if we want to make a difference I think it is very important that the Baltic Business Council be as proactive as possible in assisting. One way of doing this is by putting this fund together.
Again, I appreciate the time you've given me to speak on their behalf.
The Chairman: We appreciate your coming. Thank you very much. It was very interesting.
[Translation]
Mr. Paré: Ms. Pearce, you mentioned in your presentation - I did in fact read your brief - that the Baltic Business Council is aware of business opportunies in the Baltic states. However, you didn't mention any specific possibilities in your brief or in your presentation. Could you give us an idea of the main areas where there are business opportunities for Canadian SME? Would this be in the area of industry, services, or technology transfer? You didn't say anything about this in your presentation.
[English]
Ms Pearce: I can safely say all of the above. I think the biggest one right now is construction. The construction industry is in great demand in the Baltic states. They require all sorts of equipment from Canadian glass to structural material, to prefab walls, technology, heating equipment, to waste management equipment.
For instance, we had a visit from four mayors from Lithuania recently. They came to Toronto and I hosted a reception. I invited Canadian business people to talk to these leaders of those municipalities. Among their main concerns were projects involved with waste management, parks and recreation, how to establish an efficiently run municipal parks and recreation department, how to put up senior citizens' homes. These are some of the projects that were advised to me.
The Chairman: Mr. Penson.
Mr. Penson (Peace River): Thank you, Mr. Chairman, and welcome to our guests this morning.
One thing I think we have heard this morning, which follows along the same kind of testimony we heard when we had our foreign policy review, is that there is a need for recognition of people from different ethnic backgrounds as having made a direct contribution to Canada in terms of cultural diversity, but also offering some opportunity to Canada in terms of export opportunities into the countries these people have come from. They have the cultural background and the language and they know the business opportunities there.
.0950
It's really astonishing to me, Mr. Chairman, a year after a foreign policy review when we heard much of the same thing, that we are still not taking advantage of these opportunities. Mr. Wong identified the Canadian business centre in Vancouver as not even having anybody there that can speak Chinese, for example. We know the tremendous influx of immigration into Vancouver and the opportunities that exist in China. I can sort of feel the frustration that must exist out there that we are not responding to this kind of very important initiative that needs to be taken.
Therefore, I really welcome the suggestion of your association about working closely with the business centres in order to provide them with that information. We heard a couple of days ago here that one of our embassies working in the Middle East didn't have anybody with knowledge of the oil industry. To me, that has really identified a weakness in our approach to international trade, something we have to overcome.
Mr. Wong, you've identified that mostly large companies trade. In fact, exports out of Canada...I think something like 100 companies have 90% of the exports. We need to have small and medium-sized enterprises get into this export game in order to give Canada the kind of growth we need in the future.
So I really welcome the input you people have made this morning to make that possible. I just hope the trade component of our Department of Foreign Affairs and International Trade is listening very closely. I'm going to raise the matter with the minister when he's here before our committee to pursue that. I appreciate the offer you've made for your association, Mr. Wong, to become part of that.
I'm just wondering if you have anything to add in that area in terms of trying to have better communications, to reach out to businesses in China and other places and help our Canadian businesses of both backgrounds.
The Chairman: Mr. Wong, Mr. Penson is asking if you could provide him with lessons in Mandarin, because he's very anxious and is willing to buckle down and learn the language and get to work.
Mr. Penson: I'm certain, Mr. Chairman, there are lots of people in Vancouver who can speak Mandarin that would be very, very helpful in our Canadian business service centre there.
Mr. Wong: Definitely, language is a very important barrier to the Asian group. When they arrive here, many of them don't speak the language and sometimes they're afraid of going to talk to the government officials about business opportunities.
Before I came here I received a phone call. This person imported some products from overseas and he didn't know how to process the brokerage, the customs duties, the procedure. One thing that surprised me was that he was told by the customs officers, ``If you don't speak the language, don't do business''. To us, that is an insult. When I heard that my heart sank. It was actually yesterday morning I received that phone call, when I came here.
Mr. Penson: I have another question. Mr. Wong, you've identified the high cost to Canadian businesses that makes them uncompetitive - UI, for example, and welfare. One thing I've heard a lot of that hasn't been identified much before our committee yet is the red tape, all of the work that's necessary to comply with government regulations. I understand from your submission that you feel this to be an impediment to doing business, that it reduces your ability to be competitive in the international marketplace. Is that correct?
Mr. Wong: Yes. For instance, I have a case. If you start a small business, you have to change. A friend of mine started a garment manufacturing business for a fancy type of women's underwear that requires a lot of techniques to handle. She has orders already from the United States, so everything's in place except that she produces and manufactures in Vancouver.
.0955
She spent three months training workers to the standard she needed. After another couple of months the workers started to say they only wanted to collect UI and that she should forget it. So she kept training workers. After one year she lost $300,000 right there.
She had orders and everything was in place. She had the knowledge but nobody was going to produce. She could not comply with deadline for filling the order. What could she do? She could buy it from overseas and ship it by air.
This is what I saw.
Mr. Penson: Mr. Chairman, I have a question.
The Chairman: You can have one very short one, Mr. Penson. We have quite a few other questions.
Mr. Penson: Yes. This is a short, final question that is perhaps more like a suggestion.
In the province of Alberta they have a committee looking at government regulation to see whether it still is needed or not. Some of the legislation has been on the books a very long time, so they're trying to assess whether these are impediments to doing business. They're finding that many of these regulations can be thrown out because they are obsolete and actually hurt small businesses' opportunities.
Would you see that as something the federal government can do? Could it review regulations that might stand in your way?
Mr. Wong: Definitely. There are many.
I think the government is now improving UIC, which is one of the big problems in the supply of labour. I think we are actually working towards the right way. Of course government can do a lot of things such as providing more training types of work, which should be shared between the business people and the government.
Right now it appears to businesses, particularly to the manufacturers, that they're working alone, that the government is not standing on their side, and that they alone have to finance the training of the people to do the work.
I feel this is a very important factor that increases the cost of Canadian products.
The Chairman: Mr. Penson, do you recall the witness from Lee Valley Tools? I don't know if you were here when he gave evidence, but he made it very clear that the regulatory climate is an inhibiting factor for manufacturing in the country. I'm sure the researchers will be trying to put a handle on the extent to which we can make positive recommendations in that area.
[Translation]
Mr. Paré: I have a very brief question regarding what our witness has said. He mentioned a business that trained its workers over several months, simply to have them quit their job voluntarily after a few months to get unemployment insurance. I thought that since Mr. Axworthy's last U.I. reform, this was not possible anymore. Am I wrong?
The Chairman: Is this question for the witness?
[English]
Can you answer that, Mr. Wong?
Mr. Wong: Yes. My example was from before the reform.
[Translation]
The Chairman: This was certainly one of the aims of the reform, because this was a problem that was felt throughout the country.
[English]
The Chairman: Thank you.
Mr. Lastewka.
Mr. Lastewka (St. Catharines): Thank you, Mr. Chairman.
I first have a remark for Mr. Wong. I think Mr. Chan's office forwarded the October 1993 report to me.
Mr. Wong: I brought it with me this morning.
Mr. Lastewka: I've seen that report before. There was a section on industry that talked about the various tax exemptions for exporting products. Bill C-102, which is going through the House right now, addresses that area. I think you should know there are other people who have read the report who are using your input to make it easier for Canadian companies to export products.
.1000
I just received this report this morning through, I guess, one of the other committees I was working on.
Mr. Wong: I gave about 11 copies to Janice.
The Chairman: If you just look at the second page, it's dated October 1993, Vancouver, British Columbia.
Mr. Lastewka: I was working on free trade zones in another committee, and somehow we got that report.
You mentioned multiple languages and so forth, and that your committee had created personal linkages. When you create these linkages, is there something available to the community at large in whatever sector of industry or business you're working with? How is that continued on, or does it remain as a personal linkage?
Mr. Wong: When I talk about a linkage, it's a linkage first between Canadian business people and overseas business people as well. So it would be on a person-to-person contact level. Of course, we can bring the connection to a group as well. Say we can bring a group of people in garment manufacturing to meet with another group of importers from overseas. Actually, we export to them. We are talking about person-to-person as well as industry-to-industry linkages. But between the two, personal linkages are more important than group ones.
Mr. Lastewka: Okay. The reason I want to talk a little bit more about personal linkages, linkages between companies and so forth is because, in one sense, we ask our trade commission to open doors and introduce Canadian entrepreneurs with various people, wherever they are in the world. We ask them to open the door.
My concern is that we might open the door and introduce some Canadian entrepreneurs with these people, but it's not shared enough with others.
One of our previous people mentioned that they knew the contacts they needed to know, so thank you very much, trade commission. I just wonder how that is shared, or does it become strictly a personal thing, so that we then have to open those doors continuously for everybody?
Mr. Wong: Let me give you an example from just last night. A friend of mine supplies 80% of the cigarette manufacturing equipment to China. He is very successful. I think he trades close to $1 billion a year. He went to a show in the United States. He wanted to buy the equipment to print cigarette packages. At the show, he met 14 manufacturers in the United States, but only one manufacturer from Montreal. This the only supplier in Canada.
He told me that the price in Canada is very uncompetitive compared with those in the United States. I asked what he decided. He said that since he's an immigrant in Canada, he wanted to export Canadian products, even though the price in the United States is higher.
Of course, for political reasons he wants to export to China, and there may be danger between China and the United States in a political sense. He said that if he could get a comparable price, or even a little bit higher, he would export Canadian products.
So he flew to Montreal last night. He wanted to sign a contract and start business with that Montreal company.
The equipment he needs to make that package is pretty advanced, but compared to the United States it's still only at a medium level. He needs paper and ink to do this. You are talking about a business worth at least a few million dollars a year to start with.
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When I talk of a personal link, that means the personal link because of his connection. He's able to bring that linkage to the Montreal company, which is a manufacturing company. I'm talking about a person-to-person basis.
Linkage is very important, particularly for Asian immigrants. Because they are here already, they want to set up a business to help Canadian suppliers export products. However, in many cases it's almost impossible for them.
A friend of mine here wanted to set up a paint export business to overseas destinations in the Far East. The paint manufacturers says to pay right now in cash; no cash means no deal. What can he do? A bank will say that if he wants to buy it, he must give them his house, bank account, or even his dog. So this is impossible.
Right now we are suffering from a kind of mentality such that a lot of small business are not well prepared to do export business. This is a very important stumbling block in promoting Canadian products.
Mr. Lastewka: Mr. Chairman, the reason I was going on with the linkages is that it's key item to me. A number of witnesses have brought it forward. But we need to find a mechanism whereby other people can get into the network of these linkages.
If we have trade commission people opening the door for, say, Charlie Penson, I want to make sure those doors are also open for Bernard Patry, who might be selling products also. If we're not, we're going to be just opening doors continuously. I don't think we want to be in that business. We need to rise above that, somehow. That's why I'm very interested in the linkages factor.
The Chairman: Did you have a comment regarding that?
Ms Pearce: With regard to the linkage aspect, the Baltic Business Council feels that the essence of our role is linking. We want to make sure the information is transmitted to as many people as possible.
We have not segregated our association strictly for those of Baltic heritage. In fact, we want to expand so that non-Baltic Canadians are using the Baltic Business Council and are members of it especially for that reason.
As we progress, and as the Baltic Business Council grows, our information network and our own prowess will be increased through the Baltics and also, as I said, through the other countries around the Baltics, namely Norway, Sweden and Denmark. We have also sent information via different trade publications, newsletters, and banking information. The EBRD has newsletters. There's a Nordic Union. All these people have their own news wire and news information linkage.
The Baltic Business Council is transmitting that information via this network. As we progress and grow, that network or web is increased. Therefore, they come back and focus back on the.AAC, and we transmit it to people in Canada.
Our target is not to have strictly people of Baltic heritage; in fact, that would be self-defeating. The more non-Baltic members, the better. People will be more aware of what the Baltics are really all about.
Baltic people know what they are all about. Non-Baltic people don't know this. They have this vision, as I said before, that the mafia is in control and everything is not quite as it should be.
We would rather have more and more non-Baltic-heritage members and get that information transmitted to them.
The Chairman: It is not our vision, I assure you. Our vision of the Baltics is of cold water and warm people.
Mr. Alcock (Winnipeg South): I do want to come back to the mafia. Mr. Chairman, you've conjured up different visions for me, which I'm having trouble integrating.
The discussion this morning has been helpful. There are certainly the problems with regulations and financing that are repeatedly being identified. I think it's going to be very important to this report.
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There is an issue, though, that keeps coming up, particularly when you're dealing with SMEs, who don't have the resources, the networks or the experience in foreign markets. It is the issue of bribery - of payments being demanded. As it turns out, I have two right now, one involving China and one involving the Ukraine. I have none in the Baltic as of this point, but I was very interested in your comments about how they're cleaning up.
It's a tough one. Just to use one example, a very successful small company here in Winnipeg attends a trade show, develops a good connection, gets involved, all the financing is put in place and everything's moving along very well. Contracts are signed in China. At the eleventh hour a request is made by an official for a payment that is clearly inappropriate. They decline to make the payment. From that moment on, all communication ceases.
What advice do you have for them? How do we deal with this? I'd be interested in a response from both. What does a company do?
The Chairman: I'm sorry to interrupt your questioning, Mr. Alcock, because this is an important issue, but I just want to introduce Madam Ostrovski, who arrived late because, I understand, she had a problem at home.
Thank you very much for coming in spite of that.
Ms Halina Ostrovski (National President, Canadian Council for the Americas): I sincerely extend my deepest apologies. It's just that my daughter had a broken nose a few days ago, and this morning when she was practising something happened, so I had to coordinate with the school. As you know, school starts at about 9 o'clock. I sincerely apologize for my delay.
The Chairman: I just wanted to introduce you and say that after this question we will ask you to make your presentation for the Council for the Americas.
However, if you have an answer to Mr. Alcock's specific issue about the problem of having to make facilitating payments or other types of payments, perhaps it would be helpful if you would speak of the Latin American area or the area you're familiar with. It should be helpful to hear from various areas of the world, where different business mores prevail, as to what advice we are giving our exporters about how to deal with this issues.
We'll go with Mr. Wong and then the Baltic.
Mr. Wong: We usually handle large companies under LC terms, but for SMEs, other than LCs, we sometimes use DPs or DAs, documents against payment.
The Chairman: I'm sorry, Mr. Wong. The question specifically is what happens if a government official requires a payment to be made? I don't think you can make that with a letter of credit.
Some hon. members: Oh, oh!
The Chairman: Maybe you can, but it would be unusual that it would take that form.
This is the problem of a government official who specifically says ``This transaction is not going to take place unless I get paid something as well''. I'm not suggesting it's exclusively a Chinese problem. This is something we have heard from all over, so we we are very anxious to know what advice you'd give.
If one of your members were to come to you and say ``Look, I've set up everything here, I've invested a lot of money and now I've been asked for this payment'', what advice would you be able to give?
We're going to ask the same question of the Baltic and of the Americas as well.
Mr. Wong: Can you clarify one point? Why is the government asking for payment?
Mr. Alcock: Not the government; an individual who's involved in the discussions or in facilitating the deal.
The chairman is being very circumspect. Let me use the word ``bribe''. Somebody's asking for money to put into their pocket.
Mr. Wong: Oh, all right.
The Chairman: Yes, you're right. I'm being too lawyerly.
Mr. Alcock: This is a real situation. This has just occurred. When the group declined to pay the bribe, all of a sudden all communication ceased.
I guess the question is what do I say to them now? If we make a big public issue of it, it just gets more complicated and everybody runs for the hills. How do you advise people? You're doing business all the time there.
Mr. Wong: I understand what ``payment'' means now.
Some hon. members: Oh, oh!
Mr. Wong: This is a very common problem for all businesses, particularly when you deal in Asian regions. I understand that even AT&T in the United States cannot explain a sum payable as one of the promotion expenses.
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I was informed that they hire an agency in Hong Kong and pay that company to promote the products. In that case they have invoices and everything in legal terms, which are legal for audit purposes. So they can explain to the head office where the money goes because it's for promotional expenses. That means the payment won't go directly to somebody who cannot be identified.
How are you going to make an unexpected payment? I'm afraid that when we start a business, we should look at things from all sides, from all angles. What kinds of expenses should be included as part of the business expenses?
It's very seldom that you are asked for payment at the eleventh hour. If you don't anticipate that kind of payment, you should not be in that business because you cannot anticipate. That is part of expenses.
Let's come to the point. I think it's business experience that's needed.
The Chairman: Ms Pearce, you had a comment.
Ms Pearce: I reiterate Mr. Wong's comment. Unfortunately that is considered a business expense when you deal in....
The good thing about three small countries is that the bureaucracies are smaller and are therefore open to more scrutiny. Perhaps a government official in the early 1990s would have done something, but because of tremendous scrutiny and the need by the Baltics to show a certain level of credibility to the world there have been tremendous purgings. I would hazard a guess that in the government sector it wouldn't happen because there are too many eyes looking at that small government sector.
However, from a private business point of view, that does occur. It's considered a business expense. So unfortunately when you do business there, this is something....
I don't know what the percentages are, and it really is important to get to know your business partners. That's why the Baltic Business Council is really helpful. We are a credible organization. It's very important that Canadian business people deal with the true-blue partners. Our connections are directly with the governments. We find partners who are authorized and endorsed by the governments, not the private sector, so that business people are not placed in that position.
We cannot totally eliminate it, but this is the best we have at this point.
The Chairman: Ms Ostrovski, could you answer?
Ms Ostrovski: I have a couple of comments.
First, I think there is a clear need for us in Canada to understand what those practices you're referring to really mean. In simple terms, it means corruption.
Let us look at a a wide scenario. For instance, if I understood you correctly, you were talking about a situation in another country - and I'm referring to Latin America and Caribbean countries - that comes to a point where a decision-making situation occurs and somebody tells a Canadian company that something is only possible for the company to get if money or some kind of additional support or something like that is given.
At this point I would advise the Canadian business person not to be too confrontational at this time. Sometimes what we think is corruption is not what they think corruption is. For instance, presents and dining out and those kinds of things can have different interpretations.
Having them ask for cash is something that even those countries in Latin America and the Caribbean countries are trying to avoid. They are working very hard to stop this type of practice from proliferating. It exists, but they are trying to stop it. So I would definitely advise the Canadian companies to get directly in touch with the closest Canadian representation office in that country or in the region, because we do not have representations in all the countries there.
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I would also advise that particular company to talk to their lawyers or to their bankers to see how that could be resolved. If they ask for a specific percentage of the deal or something like that, perhaps there are other ways to negotiate, but our posture is basically to say don't give them cash.
We do not want to create the feeling in Latin American and Caribbean countries that Canadians can buy their way into the system. We are competitive. We are good. We do not need to buy our way into those countries. We have to make sure they also realize that.
But we also have to be conscious of the differences in practices. I was recently participating in the Couchiching Conference of the Americas and I brought up this specific issue, because we do need to clarify. Every country has different ways of interpreting business management practices, and we should work on that.
The Chairman: American law makes a specific distinction between a facilitating payment, which is a minor payment to get something done, and a bribe paid to someone. When I was teaching this matter in international trade law, I would illustrate it by saying that it would be legal under American law and it might be acceptable under ordinary practices if, for example, you were trying to get a bank going in a foreign country and you made a payment to the post office to get a fax machine, because you don't get a fax machine without making such a payment in such countries. But it would not be legal or correct to pay the finance minister $100,000 to get the banking licence. That is a very subtle distinction, but that is a distinction recognized in American law.
Do you find that is something that commends to you? I can tell you about countries where, when you're lined up at the immigration department, if there is not something in your passport when you pass it across the desk, you're going to be in that line-up for a long time. If your businessmen are going to go to that country, maybe they should know that. On the other hand, they shouldn't be giving out money to officials to obtain contracts.
Do you make these distinctions? Are these worthwhile distinctions? Is there something we should put in our report to enable Canadian small and medium-sized businesses to live within the spirit of the law and survive in a complicated world outside of Canada?
Ms Pearce: You hit the nail on the head. It's much more complicated out there.
I hate to say Canadian small business people are naïve. We are actually very nice people. But we've been living in a very sheltered environment and all of a sudden we have to go into a global environment. We're shocked into saying ``My goodness! We don't do that here'' or ``Gee, how can they do that? It's immoral; it's illegal''.
But from a small business point of view, the world has been operating on a different level from Canada's. Therefore it is a matter of educating the Canadian business person that there's a cruel world out there and it's not as nice and rosy as it has been under a lot of Canadian laws that protect small business people who have the legal right to fight and so on. So it is a matter of education, definitely.
Mr. Wong: I would like to add something about the trade system.
It's very touchy if you talk about the term ``payment'' as a bribe. If we ask a third party, a trader, to do business on our behalf and we as SMEs are going to give them a commission anyway, that means they will take care of whatever payment is needed. That's a facilitator's commission. They sell the product into the market. As Canadian suppliers, we're just supplying the products.
That saves us from secret payments or whatever, because we pay them commissions. Of course, some money has to be withheld for tax purposes, which is fine. When I emphasize a trader system, that's what I mean. They take care of the payment. We don't have to worry about it.
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Ms Ostrovski: I would like to make two specific comments. I think that Canadian companies should live in the spirit of law, as you posed it, Mr. Chairman, it in the beginning. I think we should be trying to abide by laws not only in Canada but also in the countries that we live in. There is no legal definition in any of the constitutions of any of the countries that allows for any of those obscure types of practices. I think that is quite important for us to mention.
The second thing is that we have to try to dismantle a number of stereotypes in Canada and in the region as well as from the region in Canada. It is quite important for us to realize that no matter what, we are going to be doing the best we can, the way we are supposed to. Working on the planning stages is perhaps the most important aspect of the business relations that we have with the region.
The Chairman: Since you were late, ma'am, and we only have five minutes left, I wonder if I could ask you if you could tell us in five minutes about the Council for the Americas and your perspective, and then we'll have to adjourn and move on to the next panel.
Ms Ostrovski: Again, I apologize for my delay.
First of all I would like to express my sincere appreciation for having been invited to this very important hearing. I was delighted to hear that the distinguished members of Parliament are actively interested in learning more about the activities of the Canadian Council for the Americas. I really look forward to the findings of this exercise and welcome the opportunity to work with all of you to further enhance the Canadian business presence in the Americas.
The reasons we exist in the markets that we target are very important for Canada. Latin American and Caribbean countries represent a substantial export destination for Canadian goods and services. Canadian investments in the region have been growing and are generally successful. Canada's presence in the region is very positive and our potential in the future is enormous.
The region represents over 500 million inhabitants with increasing purchasing power. Latin American and Caribbean countries provide for a sizeable market opportunity.
Our geographical proximity, more incentive policies on trade, and other domestic economic liberalization programs indicate that individual countries, as well as Latin America and the Caribbean collectively, are good partners for Canadian companies.
According to the United Nations Economic Commission for Latin America and the Caribbean, Canadian exports to the region grew a strong 23% in 1994 to reach close to $4 billion, after expanding by close to 7% in the previous year.
As for the total amount of goods exported to the region, we export about 59% of our goods to South America, 29% to Mexico and Central America, 12% to the Caribbean. On the other hand, again from the figures on the total scale, we import 60% of our products from Mexico and Central America, 30% from South America and 10% from the Caribbean.
In Latin America and the Caribbean Canadian investment amounted to $16.1 billion in 1994, an increase of about 13% over the previous year. This represents about 13% of the total Canadian investment abroad during 1994.
Let me explain what the Canadian Council for the Americas is. We are the principal private sector link between Canada, Latin America and Caribbean countries. We are a networking and information vehicle in Canada with the primary objective of further stimulating the Canadian business presence throughout the region we cover.
We were formed in 1987 by a group of business people who got together with the foreign affairs department. In the fall of 1990 we established the first full-time office operation. We had about 43 members at that time. In 1990 our members were primarily from Ontario. By 1994 our membership had increased to over 500 members across the country. This definitely demonstrates an overall increase in the interest Canadian companies have in Latin America and the Caribbean.
In 1993, the Canadian Council for the Americas successfully completed the establishment of charter representations in Vancouver, Calgary, Ottawa, Montreal and Halifax.
Our board of directors includes leaders of the chapters of our representations throughout Canada, as well as the business committee chairs. The business committee chairs represent Mexico-Canada, Cuba-Canada, Mercosur, Caribbean and Central America. Also, these committee chairs ensure that our programming complies with the demands from our members and contacts across Canada.
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We also have an honorary board composed of ambassadors, high commissioners and chargés d'affaires from the region who are in Canada. This board is chaired by the Department of Foreign Affairs and International Trade assistant deputy minister for the Latin American and Caribbean trade division. Together with the ambassadors from the region to Canada and our ambassadors to the region, we have direct access to the business and private sector leaders in those countries.
Although we have large enterprises in our membership, such as Northern Telecom, Newbridge, Dalhousie University, Teleglobe, Barrick Gold, St. John's Port Corporation, Placer Dome, BC Bearing, ScotiaMcLeod, Bank of Nova Scotia, Royal Bank, Consoltex, and so forth, our main goal is actually to involve more medium and small-sized enterprises into our activities.
Our revenues are derived from three main sources, particularly on an unequal amount of shares. We derive revenues from membership dues, our programs, and from the contracts we have with the government, particularly with CIDA and the Department of Foreign Affairs and International Trade. As of January 1995, the Canadian Council for the Americas entered into an alliance with the Brazil-Canada Chamber of Commerce.
The CCA, as we call ourselves, is now administering the affairs of the chamber, which also maintains a separate board. As of October 1, the CCA and Brazil-Canada were joined in one office location, thus rationalizing costs and personnel and enhancing our capabilities to cover the benefits for all our members. Our total joint membership right now represents over 600 Canadian companies.
How do we promote Latin American and Caribbean countries in Canada? We follow economic indicators. We consult with our boards and members. We also consult other organizations in Canada and try to involve as many people as possible in trying to specifically target the objectives of promoting business with Latin American and the Caribbean.
We can focus our programs on one particular sector, which features several markets, or we can also focus on one country or a group of countries. Our programs are cost-efficient and targeted at specific business opportunities in an effort to actually enhance Canadian comparative advantages with the markets we cover.
Last year, together with our chapters, the Canadian Council for the Americas organized over 60 programs throughout the country. We brought more than 5,000 participants to those events.
To further promote our business opportunities with the region, we now are working on a number of additional programs. With CIDA's support, we are going to implement the CCA's Bolivar program reference centre. This is going to be an opportunity for us to expand our networking capability within Latin American and Caribbean countries.
The main objective of this program is to promote the matching of small and medium-sized enterprises throughout the Americas by linking the CCA with over 60 points of reference in the academic and business communities throughout the region we cover.
Another initiative, which is still in its early stages at this moment, relates to executive academic training through exchanges with the region. This is along similar lines as the successful program that was run by York University's east-west enterprise exchange program. This initiative will consist of a concentrated executive development curriculum at the post-graduate level for up to two to three weeks.
We are going to bring executives from the region to spend some time at one particular academic institution, as well as spending some time with a particular company in Canada. In other words, we will help to develop the executives on both sides to lead the charge with respect to Canada's initiatives in the Caribbean and Latin America. All of these initiatives specifically complement the Canadian Council for....
Time's up? I just wanted to say that I was asked to provide you with some thoughts about the questions that were posed to me.
I would just like to say here, with regard to the programs the Canadian government has available for Canadian companies that are pursuing business with the region, that we believe the government programs in general enhance the capability of more Canadian companies doing more business in the region, particularly the small and medium-sized companies.
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We also are very pleased with the last initiative by Minister MacLaren to form the new international business centre in Ottawa, which is going to enhance the direct business opportunities identified by our trade commissioners abroad to specific Canadian firms that are capable of filling the overseas requirements.
We have in Canada an enormous wealth of information in all levels of government: federal and provincial. With an organization such as ours, this amount of information just needs perhaps to be rationalized and better known. We know the region is doing quite well, and it is improving substantially every year.
Let me see what else I could tell you.
The Chairman: I'm sorry, but we do have another panel waiting. I don't mean to rush you through, Madam Ostrovski, but did you have a written statement that perhaps you could leave with the members of the committee?
Ms Ostrovski: I wrote some things. It's just that I was just making additional notes. The only thing I would like to have the opportunity to share with you is how we could first improve the level of communication among the government departments, the different levels of government and ourselves. We would like to recommend that the EDC should continue working to improve its products, instruments and services and the volume of mechanisms in order to help Canadian companies, particularly SME companies, to do more business with the region. That's because capital access is still very difficult for most of the small and medium-sized enterprises.
We also would like to basically touch upon the multiple visa for business people. It is a little bit difficult for a lot of us to go there and come from there to Canada.
That's basically it.
The Chairman: Thank you very much. I'm sorry to have rushed you, but we appreciate it very much. We appreciate everybody's evidence this morning. You've been very helpful to us for formulating our ideas.
Mr. Coutts will be certainly be in touch with you about your evidence. If there's anything we need, such as further information, I hope you'll be able to help us. We'll be in contact with you as we write the report.
Thank you very much for coming and helping us this morning.
Ms Ostrovski: Thank you.
The Chairman: We'll adjourn for five minutes.
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PAUSE
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[Translation]
The Chairman: Order please.
The theme of this morning's second session is the Education of Exporters.
We have with us Mr. Jean Précourt and Mr. Keith Scott from the Certified General Accountants' Association of Canada, as well as Mr. Donald Hillhouse from Business Centurions Centres Inc.
I regret to inform you that professor Gilles Paquet from the University of Ottawa is unable to join us this morning because his mother is seriously ill.
I'm going to begin by inviting Mr. Précourt to take the floor.
Mr. Jean Précourt (Chairman and CEO, Certified General Accountants' Association of Canada): Mr. Chairman, I would like to thank you and the members of this committee for providing the Certified General Accountants' Association of Canada with this opportunity to discuss its views on enhancing the export capability of small and medium sized enterprises.
The Certified General Accountants's Association of Canada is a self-regulating professional body that represents over 47,000 certified general accountants and CGA students in Canada, Bermuda, the nations of the Caribbean, and the Pacific Rim.
In total, CGAs represent one quarter of the accounting profession in Canada. CGAs are employed at the senior levels of financial management and accounting in industry, commerce, governement and in public practice.
The Association has also enjoyed great success in marketing the CGA program overseas. The program is well established in the Caribbean and continues to expand into the nations of the Pacific Rim.
Since 1992, CGA-Canada has offered its educational program at seven universities and the People's Republic of China.
In late 1994, senior members of the Association participated in Team Canada, a trade mission headed by the Prime Minister of Canada to the People's Republic of China. At the conclusion of this mission, we also participated in special meetings with the Republic of Vietnam as it seeks to educate its accounting profession to western standards.
The substantial gains we are making in international accounting education demonstrate the great respect the CGA program has in the world accounting community and the role our designation will have in training professional accountants.
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[English]
As accountants serving Canadian small and medium-sized enterprises, we are fully aware that many have not taken full advantage of the opportunities to expand their operations on the global markets. The perspective offered here today is based on CGA Canada's experience at the national and international levels.
I would like to start by stating that free, fair and open trade is essential to the growth of small and medium-sized enterprises in Canada. Canada must continue to pursue an aggressive external trade policy to ensure that access to export markets is not undermined by technical barriers, regulations and other trade-distorting measures.
CGA Canada believes that Canada's trade policy should focus on the full and effective implementation of the new World Trade Organization; on expanding the North American Free Trade Agreement to create a free trade area of the Americas; on expanding trade in the Pacific Rim to take advantage of a market that will, by the year 2000, contain over 70% of the world's population and consume over 40% of the world's production; and on improving the Agreement on Internal Trade in order to continue to eliminate the unfair interprovincial barriers to trade in goods and services.
CGA Canada recognizes that establishing trade rules alone will not be sufficient to expand the export capability to small and medium-sized enterprises. We must adopt an aggressive trading mentality and a strong outward orientation to take advantage of export markets.
Presently Canadian small and medium-sized enterprises do not play a significant role in export markets. A goal for Canadians should be to double the number of Canadian exporting firms by the year 2005. In order to reach this goal, the private sector needs to work with the federal and provincial governments to do the following.
First, they must improve the information systems so that small and medium-sized enterprises have better information about business opportunities abroad. If Canadian companies are to compete in export markets, they must have access to sophisticated information, ranging from product standards and regulatory requirements to information about distribution techniques and networks.
An enormous amount of valuable trade and market information is collected from Canada's missions abroad. However, it is often awkward for small and medium-sized enterprises to access the information in a timely manner. Consequently export opportunities are lost to Canadian firms.
The government must work with the private sector to improve the electronic transmission of information from Canadian missions abroad. The government should also work with Canadian trade associations across the country so that the market for such strategic business information is developed in Canada.
[Translation]
Second, small and medium-sized enterprises must take advantage of networking opportunities in order to increase competitiveness in the global market place. Networking makes possible comparative to advantages of scale, scope and speed all of which enhance international competitiveness.
The cooperation and collaboration among small and medium-sized enterprises can take place in a variety of areas including research and development, marketing, financing, new product development, administration and training and exporting.
CGA-Canada is pleased to announce that it is playing an active part in the Business Networks Coalition, led by the Canadian Chambre of Commerce, which will shortly launch a National Business Newtwork Demonstration Project, to help facilitate the networking process in Canada among small and medium-sized enterprises.
Third, Canada must build and expand strategic international alliances with other countries, helping the private sector to pursue cooperative research and development, joint manufacturing, licensing arrangements, investment, and technology transfer.
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Such alliances allow companies to reduce their risks, share research and development costs, achieve economies of scale, and access markets, scales and resources. They also provide small and medium-sized businesses with a means of entering foreign markets whereas small and medium-sized enterprises may not have the resources to buy or build foreign subsidiaries.
A recent example of a Strategic International Alliance is the Canada-Japan Forum 2000 which is developing a stronger and more effective bilateral partnership between the two nations. Another example is the Canada-China Business Council which is especially well placed to provide business facilitation services to Canadian compagnies interested in the rapidly growing China market.
The government should maintain existing strategic alliances and promote new ones with potential trading partners in order to enhance network linkages and information exchange, and to enlarge international business development opportunities for Canadian firms.
[English]
Small and medium-sized enterprises must do a better job of tapping into international financial institutions.
Project approvals by international financial institutions such as the World Bank during the next eight-year period could be worth as much as $725 billion. Canadian firms must have better access to this expanding source of export dollars.
A well coordinated strategy is needed to deal with obtaining and disseminating information on procurement opportunities to Canadian industries by improving understanding of the bidding procedures, placing Canadians within international financial institutions, leveraging aid programs and encouraging the use of co-financing with Canadian exporters.
Given the added financial risk associated with exporting, incentives must be developed to give additional encouragement to SMEs.
The government, through the Export Development Corporation and the Canadian Commercial Corporation, in cooperation with private sector financial institutions, has launched three major initiatives that the CGA of Canada believes will improve financing for small business exporters.
The progress payment program, recently introduced by the Canadian Commercial Corporation, is designed to make pre-shipment export financing more accessible to small and medium-sized enterprises. The Export Development Corporation has proposed a program to encourage financial institutions to extend operating lines of credit against the foreign accounts receivable of their small business customers.
The Export Development Corporation and the banks have also reached an agreement on a small and medium-sized enterprise risk-sharing framework targeted at small and medium-sized exporters, with annual export sales of less than $10 million. This program will allow Canadian banks to provide medium-term buyer financing with a partial EDC guarantee for certain types of transactions in a large number of developing countries.
The proposal made by the Industry Canada small business working committee in 1994 that the government provide a refundable export market development tax credit to encourage small and medium-sized enterprises to target export markets by offering tax relief based on the costs of researching and developing foreign markets should be explored and implemented if it is found to be effective. Moreover, greater efforts must be made to promote the under-utilized tax credit for scientific research and experimental development.
[Translation]
Finally, small and medium-sized enterprises need to use state of the art technology and management practices. Currently, many Canadian small and medium-sized enterprises operate with few or no professionals. This may be due to low awareness of the positive impact highly qualified professionals can have on a firm's output and bottom line. It may also reflect a misperception that the services of professionals such as engineers and accountants are not affordable to small and medium-sized enterprises. As accounting and financial professionals, certified general accountants can offer small and medium-sized enterprises valuable expertise that translates to business sucess at home and abroad.
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CGAs owe this to the CGA educational program which incorporates the newest developments in accounting, auditing, finance and taxation while utilizing the latest advancements in information technology.
Moreover, the CGA educational program goes well beyond the accounting discipline and requires that CGAs master the essentials of: effective communication, management and leadership skills, interpretative, judgemental and analytical skills, the computer as a management and accounting tool, management of change in the technologies, processes, and structures of organizations and the use of complex information systems in decision making.
[English]
As professionals, CGAs are well prepared to work in the international marketplace. Small and medium-sized enterprises can significantly enhance their exportability by hiring professionals as managers and consultants. They also need to ensure that their personnel are trained in international business.
CGA Canada is supportive of some of the measures that have been taken to address this problem. Many business schools in Canada are now including international studies in their programs. In addition, the forum for international trade training provides formal training to individuals and firms wishing to operate in the international marketplace. It is important that these programs be given a high profile and that FITT, in particular, receive the government's full and continued support. Moreover, new ways must be found to further increase awareness among small and medium-sized enterprises of the opportunities offered by the international marketplace.
Young people, the entrepreneurs of the next generation, should also be educated earlier about the international marketplace and encouraged to develop the skill and knowledge they will need to succeed in this environment.
Another way that small and medium-sized enterprises can enhance their export capability is by tapping into a rich base of international knowledge that can be found within the population of Canadian immigrants. Many Canadian immigrants are skilled professionals and bring with them a wealth of business contacts, a knowledge of market distribution systems, language and cultural skills that are required to do business successfully in the export markets. Canadian firms have been slow to develop contact with new Canadians and to tap into their expertise.
[Translation]
In conclusion, I would like to point out that the ability of small and medium-sized enterprises to compete in export markets is crucial to our national economy in general, and to our various regions and communities, in particular. An increase in exports translates into more jobs and a higher standard of living for all Canadians. In fact, every $1 billion in export translates into about 11,000 jobs.
Export markets are also crucial if we want to build small and medium-sized enterprises into ``threshold firms'', that is, firms with $40 to $400 million in sales and a high degree of exports, that can become leading multinationals in their respective businesses.
Factors such as market information, improved business training and education, and networking and strategic alliances, are critical to Canada's success in export markets.
CGA Canada's recommendations contained in our submission today are intended to create a ``Team Canada'' approach to trade by working with the private sector, federal and provincial governments to ensure that Canadian businesses have the resources to seek out and take advantage of new markets.
I thank you for your attention.
The Chairman: Thank you very much, Mr. Précourt.
[English]
Now it is Mr. Hillhouse from the Business Centurions Centres.
Mr. Donald Hillhouse (President, Business Centurions Centres Inc.): Thank you.
I was just musing about what my grandfather would be thinking, because he sat in Parliament for almost 20 years nearly 100 years ago. He had a small business in the Maritimes and his markets were Prince Edward Island, Cape Breton, part of the Gaspé and New Brunswick. He produced Hickey and Nicholson twist, which is a chewing and pipe tobacco, and that was a big enough market for fishermen and lumbermen.
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Today, of course, we have a totally different situation. I'm sort of interested, and I'm sure he would be, in what I've heard tonight - or at least, up to now. It seems like tonight, I got up so early.
The Chairman: Thank you for coming.
Mr. Hillhouse: The centurians started four years ago. It started because our chairman and founder, George Fells, who was in the venture capital field, felt very uncomfortable that so many small businesses would go to venture capitalists and be turned down because they fell below the threshold of looking for less than $2 million or $3 million.
On the other hand, our other founder, John Armitage, is in the executive search field and he had hundreds of résumés in his office from executives who were being affected by the downsizing or restructuring of the economy. Many of these people were either not going to get back into corporate life, or felt they'd had enough of it, and they had some capital.
We thought we could put the two together, the demand on one side for capital, and on the other side a need to keep busy and use the skills and experience that people pick up over their careers.
They picked on me to come in the middle, because I left corporate life 15 years ago. I was with John Labatt in their food group, which has since been totally ravaged. Anyway, I had my own personal experience investing and working in small businesses.
The three of us got together within Toronto, because that's where we're focused at the moment. We put together a network of 25 people, not so different from me. We all have our own personal interests and we have the common denominator of wanting to make something happen. We felt very strongly that we could put some of these people into situations and on the basis of their experience and skills we could leverage that experience by attracting independent investors and even institutional investors.
The gap has always been - and it's supported by Professor Riding, who did a report at Carleton University - that there are probably 100,000 Canadians who invest over $100,000 a year; but one of the limiting factors is always that with an emerging company they lack confidence that the entrepreneur or the person who has the business has the skill to make that business grow. As a result, they have difficulty raising equity. They have to raise equity because the banks, including the Business Development Bank, etc., will send them back to the investment market, saying, ``If you get some equity in here we'll take another look at you''.
Our sense is that if you put an executive - and I hate the word ``executive'' - if you put a skilled business builder, somebody who's been there, in alongside an emerging business, he can give them an awful lot of help. There are thousands of them out there. They are the biggest hidden resource in this country, in my opinion. With all regard to the unemployed, that segment of the unemployed or under-utilized people who've got skills and professional backgrounds and experience, let's get them into play.
We've been asked to come here today to talk about export. Our contention is that you start from the bottom up. It's all well and good to identify the markets. It's obvious, there are 6 billion people out there.
But I've had personal experience. I was with the Bata Shoe Company, which 30 years ago had 76 countries in which they operated. They didn't go blindly into those operations; they knew where they were going. They did good research and, wherever possible, they tried to get people who had experience in those markets to assist them. I think that has stayed with me for a good many years. I worked in the United States for five years and I have a good sense, I think, of the differences between the United States and Canada, in spite of the NAFTA.
Our contention is that our centurians can be extremely useful and helpful in assisting these small businesses get off the ground.
The fundamental problem with small businesses is that they don't have the time and they certainly don't have the money to deflect from their domestic business. They'd like to be able to do it, but they need all the help they can get, so we naturally support all of the kinds of recommendations that would provide these people with that means of getting better information. But at the end of the day they still need people to help them get it off the ground.
Those centurians can act in a number of ways. They can act as a director, a consultant, a mentor; they can do it part-time, full-time. The average centurion has $250,000 to invest, and our sense is that you can easily leverage that up to 10 or 20 times that. These people have raised money, they've been responsible for various government programs, and they are knowledgeable.
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In our appendices, one of which tells you who we are and what we do - it has everything you'd ever want to know - we've included a list of about 12 centurions, just picked out of our inventory of perhaps 150, who have real experience. They've been in the Middle East. After the war, one fellow set up a steel fabricating plant. We've had people who've operated in China and in Latin America - all these markets I had heard of previously. Practically all of them have been connected in some way or other with American companies and have real experience, and I think at the end of the day that is is extremely important.
Centurions are frequently the victims of restructuring. Many of them are too young. Our mean age right now is about 45 years. Their educational backgrounds almost invariably include post-graduate work; they're skilled people. They have the experience and maturity, they have experience in a variety of industries, including the new age or new economy - electronics, computer, knowledge-based businesses - and they have a great variety of skills, such as finance, investments, marketing, manufacturing, etc.
We think this could be a significant solution to some SMEs' problems. The amount of money that can be invested by a centurion ranges somewhere from $50,000 to over $1 million. Now, we have a lot of trouble at the lower end because a centurion is supposed to be somebody who's had at least 100 people working for him or her, has had an impact on that kind of organization, and has at least $100,000 to invest. But we've found that a number of situations are occurring now where you don't need $100,000 to put that little bit of extra credibility or commitment into a situation to which an independent investor will be attracted.
At the moment we're probably sitting with $30 million to $50 million of investment leverage. We have at the moment over 100 SMEs that are looking for help. We're afraid to open the doors because most of the people in our group are like me: they've had business careers, they're senior citizens, or close to it, and the issue really is to try to get all this together.
We've had inquiries from across the country: from Montreal, Vancouver, Calgary, Halifax, St. John's - you name it - SMEs interested in trying to connect with us. But that is a big, big task for us. One of the recommendations we're going to make is that it may be possible to find our way into some kind of network that would enable us to duplicate or replicate what we're doing and really get a lot of momentum going.
As for the multicultural issue, sometimes this is viewed as a problem, like downsizing. In fact, we do think it represents an opportunity for export. Any centurions coming, as they do, from multinational or so-called transnational companies have acquired knowledge and sensitivity to the different ways of doing business, the traditions and cultures, etc., in other countries. Not only do they have the contacts across many cultures, but they also recognize the value of having people who are from a cultural or ethnic background doing business in the country of their origin.
Investors want confidence that SMEs can deliver the promises made in their business plans. I see three or four business plans a week, and every one of them is flawed. It's a dream, it's a mission, it's something that's out there, it's a wishful thought. You need people to go through those business plans and bang them into shape, make them realistic and doable. I contend that you need some experience on that side to make that happen.
The question of credibility is key in terms of raising money. You may have the biggest idea in the world, you may be very successful on the domestic or local scene, but to get it across the border or overseas is another matter. With the greatest respect to courses and seminars and brochures, etc., nothing takes the place of a person who's actually been there and seen it happen and has those contacts in those countries.
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An SME that is aggressively seeking an investment that is tied to export opportunities does not have the proven market knowledge and therefore lacks this credibility. Conversely, with that expertise present investment possibilities are greatly enhanced.
A note on the United States: While it could be argued that any Canadian company that does not sell in the U.S. is not tapping its domestic market properly, the U.S., despite its geographic, historic and linguistic proximity, is still a different market and not easy to penetrate. I worked in five major regions in the United States, the southwest, the midwest, the south, the northeast, and I believe it's a much more regionalized market even than Canada.
Another fact is that practically every SME that comes to us is - I'm not sure I should say this, I have a friend from Peace River here - an awful lot more interested in trying to figure out how to get into Ohio and Pennsylvania and New York state than they are in getting into Kelowna or Cranbrook or Fredericton. I say this with the greatest respect.
There's this great need to have, particularly in emerging companies, access to those markets that are closest to them and where there are a lot of similarities but enough differences that you need somebody who's been there to help them.
A final note: Recognizing the rich tapestry of talent that BCC centurians, by their activities, are identifying, coaching and refocusing into the SME market, we ask the committee to use its good efforts to see that these activities are recognized and supported. To date we have not been able to attract federal support, and our activities have been necessarily limited to the Greater Toronto area. We believe, however, after four years of operation that our service should be given some encouragement to help us achieve our potential.
We have been financed essentially by the founders, by five companies who have made a very modest token investment to give us some credibility four years ago. These included the Toronto-Dominion Bank, my old company John Labatt, Inco, Noranda and Newcourt Credit - which emerged from the Confederation fiasco, but it happily is doing quite well - along with the Ontario Development Corporation. It was very modest. The bulk of the financing has come from our own people. About 80% of what we do is voluntary. We don't turn anybody down because, as I say, our mission is to put something back.
Most of the fellows are like me. We're lucky. We were the guys who got out in 1950 and had ten or twelve jobs. We're people who have kids who are having the difficulties we're all aware of. So that's what we're about, and we think there are a lot of other people in other communities in Canada who might like to get together with us. We would encourage any suggestions or ideas on how we can go about doing that.
Thank you very much.
The Chairman: Thank you very much, Mr. Hillhouse. That sounds like a very interesting and very different proposal. Certainly, I think all the members of the committee would agree with me that one of the things we intend to do with this report is publicize issues of the nature you've just drawn to our attention so that your availability and your existence will be known to a much broader audience. That's certainly a very important part of what the committee's function is about.
Mr. Paré.
[Translation]
Mr. Paré: Mr. Précourt, in your document, you didn't talk very much about research and development. Mr. Hillhouse didn't talk about it much either. It seems to me that this matter is not getting all the attention it deserves, especially since the most economically powerful countries like Germany, Japan and the United States, are those who invest most in research and development.
Moreover, amongst the OCDE countries, Canada is in 14th place, with an R & D investment that amounts to 1.51% of GDP.
Another extremely important factor is the amount of research and development investment shared by the public sector and the private sector. I found no obvious recommendation on the role that you might play in encouraging companies to increase their investment in research and development.
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In Japan, public investment in R & D is approximately 20%. In other words, 80% of R & D investment is by the private sector. In Canada, the split is roughly 50-50. How can we encourage the private sector to invest more in R & D? Can you play a role in this education process?
Mr. Précourt: Budgets and tax deductions for R & D can play a major role.
Research and Development is the path of the future. We focus a great deal on exporting goods outside the country, but we often forget about services. The future of countries like Canada lies not only in selling goods. We need R & D to develop software, and we must be able to export this software.
I agree when you say that we must have research and development. We must also sell brain power, not just commodities, because there are countries where labour costs are much lower than they are in Canada.
The market may not always be so good for Canadians, but knowledge and expertise... We need only think of all the past success we've had with computer software in Quebec and in Canada. We were exporting our expertise in engineering. However, we must do reserach in order to have expertise to export.
Thus, budgets can do a great deal to raise awareness. Given our provincial and Canadian deficits, government cannot pay for everything.
I think that that research and development should be part of companies' vision and business plan if they want to survive. This is not always an easy issue. Quite often, funds are not used or they are not used properly. We have not yet found a recommendation to cover all these points. Further, I agree with your argument that government should stress R & D and brain power. These should be our funding priorities.
The Chairman: May I ask you a somewhat more technical question, Mr. Précourt? In your main remarks, you used the word tax credit or crédit d'impôt. However, in answer to Mr. Paré, you spoke about tax deductions. As an accountant, do you distinguish between the two? Is one more effective than the other?
Mr. Précourt: No. I think the two provide a similar type of incentive to the private sector.
The Chairman: Hence, from the point of view of samll and medium-sized businesses, there is no difference between a tax credit and a tax deduction.
[English]
Mr. Hillhouse: Mr. Paré, I notice I didn't mention in my quick submission that I don't think the problem in this country is raising money. I think the problem is allowing people to invest in such a way that some of their risk can be covered off in order that they can make more money. The more money we make, the more money we can invest, provided it's channelled. So I think there are a couple of things there.
I think we need a strategy as a country, which is outside of our province. And there is no doubt in my mind about the second issue: as far as credits are concerned, if we could wash out all the bad news from the scientific tax problems we had a few years ago and could get really good controls in place... The more you allow people to have money to invest and cover some risk, the more you're going to put into research and development. I think that's one of the things holding us back. I see a lot of small companies that would be there if they had the opportunity to attract some independent investors who believed they could get some benefit by taking that risk - and it is an enormous one. The money's there, but you need the incentives. What incentive is there right now? That's the question.
Incidentally, the people involved with Business Centurians are investors. We're all investors. If somebody comes in with a red-hot idea on software and I'm concerned about how strong he is and whether he's been pre-empted and all of these good things, I get cold feet and I walk away. But if I thought he had the opportunity to draw people towards covering some of that risk, there'd be a lot more money coming into research and development.
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The Chairman: Could I follow up on that? Are you saying there should be more tax incentives or are you saying, say, the capital gains tax is so high that if you do make a profit you're taxed so much it isn't worth taking the risk? What are telling us? Are you telling us both?
Mr. Hillhouse: I'm telling you both, I guess. The more money you put in the hands of the people who are smart enough to figure out whether it's a good deal or not, the more you're going to have happen.
The Chairman: Did you want to follow up on that specific point, Mr. Alcock?
Mr. Alcock: Yes. The R and D, the scientific tax credit programs and such, you don't think are sufficient to encourage investment?
Mr. Hillhouse: No, I think a lot of abuses created a negative sense that we shouldn't do more of it. I think we should wipe the slate clean and acknowledge the fact that there were a lot of investments that were perhaps not properly researched or studied. There may have been people who weren't as sincere or as straight-up as they ought to have been. If you can look after that side of it, we should get back in business and put as much help as we can in the way of supporting people who take the risk, to encourage these people to get on with their work.
That's simplistic. It's much more complicated, of course. But in general, the more you allow investors the opportunity to cover some of their risks, the more risks they're going to take. R and D is extremely risky for the number of products that come out of it. Maybe it's one in ten. So why would people put their money into it?
[Translation]
Mr. Paré: I'm somewhat surprised to hear Mr. Hillhouse say that R & D is very risky. I think it is the way of the future.
Businesses that want to succeed have no choice but to invest in R & D. While this may not be a safe investment, it is at the very least a necessary one. However, it may depend on one's point of view.
[English]
Mr. Hillhouse: No, you misread me. We're talking about small and medium-size businesses. They don't have the nest egg. They don't have the ability, the war chest.
Certainly I agree with you 100% it's the way of the future. It's where we ought to go. But I think I'm talking here about businesses with less than 100 people. Even if they emerge, they're not likely to do more than $20 million or $30 million. They're probably doing a lot less, more like $3 million or $4 million. They don't have that money. So they have to go to the equity markets. They can't borrow it. They can't get it from the government now. Where are they going get it? And there are people sitting out there with pots of money, people who will make an investment.
I just don't have any doubt about it. I'm sure it's the way to go.
[Translation]
The Chairman: Would you like to add something, Mr. Précourt?
Mr. Précourt: I would just like to add that this is a very valid point. We're talking here about small and medium-sized companies. The people behind these companies do not always have a long-term vision; they run their company on a day-to-day basis. They need professional advice at an affordable cost. Medium-sized businesses cannot afford to hire professionals at $400 an hour as is the case in some fields.
In order for these companies to develop, we must give them better access to professionals in the area of finance and R & D. We were talking about networking earlier. Similar companies could do R & D together. But here again, it takes someone who does not live on a day-to-day basis, someone who can bring these companies together to do this research and development work.
The Chairman: Thank you.
[English]
Mr. Lastewka: I was very impressed with both presentations. They sure add a lot of information for this committee.
I'd like to pose my question to Mr. Hillhouse. It's about the centurians organization.
Are you connected with any other similar organizations throughout Canada, or is this strictly in the GTA?
Mr. Hillhouse: No. Toronto is a village, in some respects. If you get together 25 guys who have done this for 30 or 40 years, with the permutations and combinations, you can get to a lot of people.
Our network has never had any publicity. We have no material that we send out. It's all done by word of mouth and by the simple fact that we've been in business for a long time. People know who we are collectively and they come to us.
The centurians come to us. They come to us from out-placement firms. I know every out-placement firm in Toronto, of which there are 44. I know the search companies. The corporate world has found out about us a little bit and they keep coming at us.
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On the SME side we go to the corporate banking centres: the Mississaugas, the Etobicokes.... In Montreal it would be Ville de Lasalle; it would be on the south shore. All of a sudden these deals start coming to us. We work with the Business Development Bank. We work with the venture capital people. We work with the brokers.
We try to be complementary to; we don't want to compete with. We simply want to work along with them, and it seems to work.
Mr. Lastewka: I've been working along the same path for a group in the Niagara area. You mentioned very explicitly that we have so much talent out there that's not being utilized but could be and somehow we need to harness it all together.
Mr. Hillhouse: There's going to be a lot more.
Mr. Lastewka: And there's going to be a lot more.
The Chairman: We'll come and visit you in the Niagara. Don't worry, Mr. Lastewka.
Mr. Keith Scott (Senior Vice-President of Public Affairs and CGA International, Certified General Accountants' Association of Canada): I just want to add that with CGA we concentrated initially on getting the education program out to interest people and to bring up the level of management and accounting knowledge in other jurisdictions. Quite often you can get business interests and business ventures started, but they fall on the fact that people, certainly in the receiving countries, don't really have the business expertise that's necessary, and therefore the venture falls on hard times or goes under.
From using the educational lever initially, we've found that we've had a number of very interesting things growing out of that. Certainly in China, where we're quite well represented and we're in several regions of the country now, we have found that the universities we dealt with originally began to come to us outside of the education program and wanted to talk about the possibilities of consulting. We pointed out that although as an association we're not in the consulting business, certainly we have many members who are organized in firms or they operate as individual consultants.
You have to realize that the universities in China are administered by various government departments. The structure is quite different from that in Canada. The Government of China assigns business ventures - or business entities, if you will, state corporations - to the universities for consulting advice. You can see that, with us having the program in the universities and with them becoming familiar with us, now they need the consulting expertise. We now find that all of them are very interested in developing consulting contracts with our practitioners.
We have seven educational agreements, as our submission to you points out, but we also now have three consulting contracts, and likely we will have seven within a very short time.
Immediately following that, CGA firms had clients in very wide ranges of business across Canada: agribusiness, oil and gas, and virtually any industry segment you might wish to name.
The importance of that is that now, with the CGAs being introduced to Chinese counterparts who want to receive expertise from Canada - and Mr. Hillhouse certainly has proved that we could provide it, and certainly we can provide it from within CGA resources as well - we can now go on to the third step, which is the trade aspect, because now the clients of CGA practitioners want to use them as the introduction into China.
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So you can see there's a pyramid from education to consulting to trade. It's a very important aspect. It's networking with organizations such as our own, Mr. Hillhouse's and probably one or two others that were here earlier - the Council for the Americas, for example.
One of the very valuable things that hearings like this accomplish is to provide the liaison and the networking opportunity, because given that, we can take it from there. Although we had some government assistance through CIDA to get us started, I think all of the operations we have in China will become self-sufficient within two years.
As to the consulting and trade aspects, there is no public money required at all and there's a net return to Canada from that through the utilization of our people with knowledge and expertise.
I just wanted to elaborate a little bit on the value of these initial contacts and how they expand and multiply.
Thank you very much.
The Chairman: Thank you very much. It's very helpful to draw how those connections work out in practice.
Mr. Penson: I'm finding this whole discussion very interesting in view of the fact that I believe a number of small companies in Canada don't really realize the implications of some of the trade agreements Canada has signed in the last couple of years.
Two big trade agreements have opened a lot of opportunities for us. On the other side, they also act as a double-edged sword to some extent, because our tariffs internally are coming down, and that means we have increased competition at home. I believe there's a big number of small and medium-sized companies that haven't really realized the implications of that yet. Therefore they are going to have to be competitive, get out and scramble into the international market more and more in order to survive.
I wanted to ask Mr. Hillhouse a couple of questions.
You talked about the need to service your closest markets first. One of the things I've experienced is that internal trade barriers within our country are an inhibiting factor to doing that. I have a case where a cab company wants to drive CN employees from Grande Prairie, Alberta, up into Dawson Creek, B.C., which is about sixty miles, and yet they can't get a permit to do that.
There are lots of cases like this that are really inhibiting our chance to develop those economies of scale locally before we can take that next jump. I'm really encouraged to hear that there are people like you out there, Mr. Hillhouse, who are able, first of all, to help small companies to know whether they should be in the export business at all and whether they're prepared for it, and then if they think they want to make that jump, to help them look for the markets and really encourage them to prepare themselves for it.
Would you agree that there's a problem with some internal trade barriers that are hurting our small business?
Mr. Hillhouse: Well, I'm not an expert on trade barriers. The only one I remember was on beer, and I'd better not talk about that.
Some hon. members: Oh, oh!
Mr. Hillhouse: What we're really looking for are problem solvers. We have all kinds of problems. We need people who know how to crack them and pull together to get over these barriers, whether they be internal or external. That's about all I can comment.
The only thing I'd like to pick up on, because it's a very critical thing, is the question of young people. I'm on the board of the Association of Collegiate Entrepreneurs, which now has chapters at universities across the country. These are serving young Canadian university graduates who are recognizing that they may not be able to get a job at IBfM. As a consequence, they are starting to look at ways and means of starting their own businesses.
They are the brightest kids; they work like heck and they need all the help they can get. Again, it's a national treasure out there we should not forget about. I would urge all you parliamentarians to become familiar with what they're trying to accomplish.
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Essentially their network is trying to train them, and they could tie in with your group to find ways to get into a business. As soon as they find they want to get into business, they're going to find they're going to need markets, because our market is less than 2% of the world. In order to get into those markets, they need all the help they can get.
That's going to be a long-standing problem for us. So there's a direct connection between looking at these middle-aged guys in transition...and gals; we have lots of women who are working with us and on our board.
There are really two major aspects here: to concern yourself with that resource, sitting there and growing, and to look below that for the next generation, who are these young people, in their twenties, who need all the encouragement in the world to identify opportunities. Again the notion of R and D comes up, but markets are what it's all about. That's the number one objective Mr. Drucker will tell you about: that it's share of market that counts. If you don't have a market, you don't have a business. We have to step outside not only provincial lines but every other line we can think of, or we're going to be smothered.
Mr. Penson: Just to follow up on that, you've suggested your group has been unable to attract federal support for your activities. Can you give us some direction on what you would like to see?
Mr. Hillhouse: We're not complaining. We got caught up in an endeavour about three years ago. I think the change in government had a lot to do with it. A lot of initiatives and momentum were lost. I'm a senior citizen; I don't have time to sit around waiting for something to happen. So until it gets sorted out.... If it's sorted out, we'll be happy to come back and talk to whoever you like.
We got involved in what I guess you can call an exchange of information, about setting up.... I guess the idea was local pools of capital. Frankly, that was perhaps going the wrong way.
I'll use an analogy. I have a place down in Prince Edward County. If you want to raise money, all you have to do is go to a Tim Horton doughnut store in Belleville on a Saturday morning and get the local undertaker, the local lawyer, a few high-value people in town. They want to get hold of whatever's coming down the pipe, and they'll invest in it. If you can give them some credit on top of that to offset the risk, you're in business.
That's really where we come from.
As far as the government is concerned, we really haven't consciously asked, and it would be ridiculous to do so. It's encouragement and talking about it and getting some like-minded people together that gets the ball rolling. Let's see where it takes us.
Mr. Penson: It's the network -
Mr. Hillhouse: Exactly.
Mr. Penson: - that you're after, more than anything else.
Mr. Hillhouse: Yes, and let's see where it takes us.
I'm not going to go out to Vancouver to open a branch of Business Centurians and spend a week or a month of my life. I have a guy out there now who's the president of one of the senior companies in this country. He's spending half his time at Whistler, the other half walking around Stanley Park. He's bored, he wants to do things, and he has money. He says, let's do something; let's get together. I'm not going to spend a week of my life and $5,000 to go out and talk it over and find he's right or wrong.
These are the kinds of things we need. We need to get into that sort of an issue.
The Chairman: Mr. Précourt.
Mr. Précourt: I want to answer Mr. Penson on the agreement on internal trade.
CGA of Canada believes that agreement could be improved by eliminating the loophole that permits the signatories to avoid complying with the agreement. The concept of legitimate objectives must be narrowed and exceptions eliminated. All professional differences must be reconciled as soon as possible to speed the removal of unfair trade barriers. If you want to make sure our professionals and SMEs are able to compete on a worldwide basis, and if you cannot do that in your home country, you have a problem. I think the beginning of competition and exporting is within the provinces.
That's beginning. It is much easier for SMEs to start to export goods in Ontario or Manitoba or vice versa than to go overseas. I think your point is well taken.
Mr. Scott: There's one other point I'd like to make. It hasn't come up in the questioning or the presentations. One of the places where we've found a great deal of help has been within the embassies of Canada, and very particularly the trade missions. I know that the focus of this particular hearing is towards international trade. ``Know your markets'' is probably one of the most important dictums to which you can adhere.
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I would like to say, and have it recognized, that I really think the missions that I've been exposed to, bar none - certainly China, Vietnam, Indonesia, the Philippines, and a few others - do a superb job with the resources they have. That is an element of tax money that is really well spent and is necessary if Canada and Canadian exporters are going to be successful overseas. The investment that Canada makes in those is really worth while, and I would like to see it sustained, because they are most helpful and very necessary.
Mr. Lastewka: I thought he was going to respond to that last remark.
What I meant to ask earlier was this. Mr. Hillhouse made it very clear than many business plans are flawed. One of the biggest problems I have seen in my two years as an MP is that we have some bright inventors and some bright entrepreneurs who know very little about business plans.
My question is for the CGA group. What work are we doing in Canada to assist in this area? I too have been involved with one of the youth entrepreneurship sessions, where 18 to 20 young people are trained in entrepreneurship. Is any work being done with CGA groups across Canada to assist new youth, or simply new entrepreneurs or inventors, in the area of the presentation and make-up of a business plan? Or is it the case that every time someone needs help for a business plan they need to get charged an arm and a leg?
Mr. Hillhouse: Let me get just one thought across, which is very important and on which you may wish to build.
What we offer is due diligence of a practical nature. What the small and medium-sized business cannot afford is to undertake, with either a venture capital firm or a consultant, a full-blown development of a professional, bullet-proof business plan. That costs a lot of money. Rather than sitting around out-placement offices, these people, who have the skills and the time, can go out and do a major portion of that due diligence, particularly the technical aspect or the business aspect. Under all conditions we tell them that they must get professional legal and accounting advice. That is not within the purview of a centurian.
The biggest thing that stands in the way of small and medium-sized businesses getting that bullet-proof plan is being able to afford it. It costs a lot of money. If you go to a venture capitalist with an idea, he'll charge you $25,000 up front as a retainer to take his staffs' time to do it properly.
So this is the secret: if we can get over that hurdle, the practical aspect, and then get the professionals involved - as they must be, because there are contracts and all kinds of things that have to be checked out: the numbers have to be right, the tax implications must be known, and all these things.
I just wanted to throw that in. I hope you don't mind my doing that. That's what we want to build on.
Mr. Lastewka: My experience has been that in the business plan make-up and so forth, and due diligence, some initiatives are required. My personal example is that I've tried to get people from accounting firms to volunteer their time to get over at least the first hurdle. After having to twist an arm and a leg, I've had to start a group like that.
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I challenge the accounting groups and many CGAs, CMAs, and CAs. They need to do some helping in this area, because they're their future clients. I'm surprised they don't want to do more. They want to have the client come and put their $5,000 or $10,000 down in order to do it properly and help them. So I'm continuing to challenge accounting groups to do some preliminary work to get their future clients.
Mr. Scott: I don't have any empirical data with me today, but I can provide quite a number of anecdotal situations where a lot of our firms - their principals, members, individual consultants - are in fact going on the boards or the controlling groups of a lot of these small companies, working for little or no fee at all, with the idea that they would get a small equity position in the way of shares when the thing was publicly underwritten. In other words, they are willing to take a chance working with these groups, not charging them an arm and a leg, providing the expert advice. If it gets off the ground and is successful, they share in the participation. If not, the company will still have had as good a go as it could. I don't know the extent of it, but I know there is a fair bit of it, because I've talked to a lot of our membership in that regard.
Mr. Hillhouse: We have run into that. I would support that.
These fellows aren't the same as these guys I'm talking about. They've had their 25 years in business. They should have put a few shekels aside and they should be able to do something with them.
The Chairman: I wonder if I might ask a question that arose out of Mr. Précourt's evidence earlier. He spoke about the CGAs being involved in export of services.
Mr. Scott, you basically made the same point. If you get these Chinese contracts you spoke of, this would be an export of service. I know law firms are trying to develop the same thing.
In the experience of your two groups, is there something special we as a committee should be looking at as to the differences in encouraging service exports rather than goods exports? This is a new world we're going into. We're told service trade will shortly be almost equal to goods trade.
One thing in our experience with the committee, for example, is that we don't seem to have very good statistics on what service exports are from Canada. There is a whole host of issues around service exports that we don't understand very well. We don't understand. If I'm sitting in my lawyer's office in Toronto and somebody phones me from New York for an opinion, is that an export of a service?
What about the small and medium-size business perspective on this issue? Can you help us a bit, telling us where we should be looking and where we should be focusing?
Mr. Scott: The focus in the past, of course, has always been on trade. The minute we think of trade we think of tangibles, of something specific: one good moves here, a good comes this way. But the whole idea of what a service is is something relatively new. When you go to a lot of seminars, workshops, or whatever on exporting, even today in Canada it's still very heavily oriented toward trade. People are concerned about getting export credit because they have to set up production lines and that kind of thing.
But services don't necessarily involve that at all. Services are something that really exists in someone's head. They are knowledge. When one looks back at the amount of money Canada has spent on education and you look at the very high general level of education across the country, it's not hard to understand why Canada has the potential to be one of the foremost countries in the provision of goods and services.
Where we made our first great move was in consulting engineering. Look at the consulting engineering firms in Canada that have gone international and have very large projects. I guess what we're saying to you is that we can expand on that.
Software is another one, right in the Ottawa area here, and certainly in British Columbia and around Toronto. A tremendous amount of software development is going on. Again, that is a knowledge-intensive type of industry. It requires, as I say, expertise and knowledge.
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Accounting is the same sort of thing. It is something a person takes and then you provide opinions, the same as lawyers do. It's something we can build up, because the standards we adhere to in Canada, for example for financial reporting, are among the highest in the world.
I think you can see the good we could do if we could export this. What we are doing in China and what we want to do and have started to do in Vietnam as well is to bring accounting and reporting standards to help investors invest in companies.
A lot of Canadian investors and Canadian companies won't go near those markets because of the financial data they're getting back. Until you bring up the level of financial reporting capability in those jurisdictions, there's always going to be a reluctance for capital to cross borders and for Canadians to become truly export-oriented.
So, to my mind, we should really sit down and begin to determine just what the extent of this service capability is that we have - because we certainly do possess it - and what we can do with it.
We should also probably define it a little more accurately. Getting a definition of it is the first thing.
The Chairman: We've been told, for example, that foreign tourists in a hotel are an export, but how do we get a handle on it?
Mr. Hillhouse: You have two problems. One is a lot of these service organizations have been tapped out with the economic conditions in the last five or six years. A lot of consulting groups, architectural groups, etc. have had a really hard time.
The number two problem is that normally they're partnerships and they don't offer equity. They don't look for investment dollars, but that's really what they need. So they have to come around and sell a piece of their practice, if you will, and then you're back to the investment issue, which is that you have to provide the investor with some incentive to get involved. They have to give something in order to attract the money.
If you attract the money, because it is knowledge-based, you can't borrow money against a knowledge-based situation. It's almost impossible. You go to the bank and they ask what your equity is. If you say ``Well, it's up here'', they'll say forget it.
The Chairman: Talk to the law firms.
Mr. Hillhouse: Exactly.
[Translation]
Mr. Paré: Perhaps I should have asked my question during the first part of our hearing this morning. But since Mr. Précourt just mentioned Vietnam, I feel I can introduce this new dimension to the discussion.
We all believe that the presence in Canada of a good number of Canadians of foreign origin is, on the one hand, a very positive contribution to international trade. On the other hand, it also carries with it an element of vulnerability. Canadians of foreign origins often have dual citizenship. Let me give you a specific example.
A Canadian of Vietnamese origin with dual citizenship has been detained in Vietnam for two years after a commercial transaction. The Vietnamese authorities do not recognize his Canadian citizenship; they only recognize his Vietnamese citizenship and claim that Vietnamese law applies to him as if he was not Canadian.
Needless to say the problem is most serious in Asian countries which are only now starting to move towards a free market economy, which are often totalitarian regimes, where judicial systems are very different from ours and where citizens are not treated as they are here. Isn't this a major obstacle and how could it be minimized?
[English]
Mr. Hillhouse: Have them renounce their dual citizenship.
The Chairman: They can't. Some countries will not recognize it, such as the former Soviet Union and other countries. It is my understanding there are many countries where once you were born in that country you're a citizen for life.
Mr. Paré's observation is that certainly this is a risk many Canadians of dual nationality run when they go back to their country of origin. There's very little the government can do in those circumstances to protect them.
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Mr. Scott: It's a two-edged sword. For example, when CGA Canada contemplated going to Vietnam, we in fact spoke with a number of university professors teaching in the province of Quebec. We were given all of the contacts, and one of them actually went with us. He had no problem, because he could go in and out freely and he was obviously on the good side of the government.
I guess it depends on why the person left or what the circumstances were of their leaving Vietnam, in this case. We'd have to look at that and decide whether the person would want to accompany us there or not. There has to be some kind of screening.
As to what we could do as an organization, I don't think we could help you at this time, nor do we have any suggestions. All I'm saying is that we use immigrants for their knowledge, to help us over some of the barriers and shoals, and we find it very useful. But obviously in the case you cite there's another situation, and I don't know what the solution to that is.
The Chairman: Thank you very much.
On behalf of the members of the committee, I'd like to thank both of you for taking time out of your day to come and share your experiences and your important information with us. Believe me, it's made a tremendous contribution to our ability to understand things better and I know it will make a contribution to our report.
We certainly hope that, as a result of it, both organizations will benefit from their activities being known better to a wider group of Canadian citizens, through the report, when we publish it. Thank you very much.
Some Witnesses: Thank you.
The Chairman: We're adjourned until Tuesday, October 17, at 9 a.m., when we will have the panel on agriculture and food processing and on market information. At the end of that panel we're going to have a demonstration of high-tech wizardry on access to information, so come with your computers plugged in.
Thank you very much.