October 23, 2017
Good afternoon Mr. Chair and members of the Committee.
Thank you for inviting me here to speak on behalf of Canada’s 90,000 manufacturers and exporters and our association’s 2,500 direct members to discuss E-Commerce and its impact and opportunities for Canadian SMEs.
Canadian Manufacturers & Exporters is Canada’s largest industry and trade association with offices in every province, and is the chair of the Canadian Manufacturing Coalition, which represents 55 sectoral manufacturing associations. More than 85% of our members are small and medium-sized enterprises representing every industrial sector, every export sector, and all regions of the country. Manufacturing is the single largest business sector in Canada and across the NAFTA region.
In Canada, manufacturing sales surpassed $600 billion in 2016 for the 3rd consecutive year directly accounting for 11% of Canada’s total economic output, while employing over 1.7 million Canadians directly in highly productive, value-added, high paying jobs. Manufacturers are also directly responsible for the majority of Canada’s exports. In 2015 and 2016 manufactured goods exports reached nearly $350 billion, an all-time record high, accounting for almost 70% of all Canadian exports. Nearly 80 per cent of these exports go to our NAFTA partners.
While the sector is critical to Canada’s current and future prosperity, manufacturing in Canada and around the world is going through tremendous changes including major shifts in economic and market conditions, acceleration in the creation and adoption of new technologies, and changing political and policy priorities.
In addition to these shifts, manufacturing itself has become much more globalized for production and customer bases and the lines between manufacturing, services and technologies are rapidly blurring. This is challenges for manufacturers as the production processes they use, the goods they produce and the skills of their workforce is undergoing constant change. However, these technologies are also providing new and significant opportunities.
We see four core areas that are changing in manufacturing as a result of technology and e-commerce: retail consumer sales, B2B, product design and commercialization, and production. Retail consumer sales often get the most headlines and attention. Canadians are buying more and more of their goods online – everything from groceries to music to computers. From an SME business perspective, this provides great opportunities as well as challenges. Obviously, it means that there is more competition at home from retails based all around the world and selling products through websites like Amazon or E-Bay. But it also means that Canadians SMEs have access to billions of consumers around the world and the opportunity to dramatically increase sales and exports.
B2B transactions are not well covered but are very similar to the retail environment. Companies today have access to a world of companies who can provide highly specialized services, technology and equipment to help them grow their companies. They also are faced with increased competition at home and opportunities globally to sell similar services. Companies like Amazon are now looking at setting up exclusive B2B portals to mirror the consumer retails sites. Leveraging e-commerce sales, including through platforms like these, is becoming a requirement for participating in global value chains.
The third area where e-commerce is having a potential impact is around product design and commercialization. Companies today are leveraging technologies to create new innovative product and processes through real-time multi-location research and design and testing. These technologies are rapidly speeding up product development time and time to market for new products. Access to e-commerce platforms makes it cheaper and easier to learn about and purchase these technologies from both domestic and overseas suppliers.
The final area of note for manufacturers and exporters is on process control. Today, technology allows a company – or a service provider – to operate an entire plant and all the machinery and equipment within it from anywhere in the world. Some companies are working toward complete automation of production in this manner to reduce the cost of production labour to shift those resources to higher skill, higher value-added activities, such as R&D. Overarching all these issues is Canada’s ongoing challenge with productivity and competitiveness. Because of declining business investment, skills shortages, a poor record on innovation and commercialization, and a range of other issues, Canadian manufacturers are struggling to compete globally.
E-commerce and online trade offer a potential solution: Studies show that companies that shift towards greater online sales enjoy significant productivity gains as a result. But there is a Catch-22 here. To be successful at leveraging e-commerce opportunities, our businesses will have to be as competitive as possible. In other words, we need to improve our productivity in order to realize the productivity gains from e-commerce.
With all these changes and challenges companies are frankly struggling to keep up and remain globally competitive. At the same time, these changes are providing massive new opportunities, but they cannot take advantage of them without a better, more modern framework. Some of the most critical issues are as follows:
- Companies need to invest in more advanced technologies to take advantage of the e-commerce opportunities, yet in Canada our investment levels in new technologies continues to fall behind global competitors. US manufacturers for example invest more the 8 times a similar size Canadian manufacturer. The government must do more to help companies invest in technologies and software, including through enhanced depreciation rates through the ACCA program.
- Canada needs better digital infrastructure. It is often too expensive and simply not up the necessary speeds for modern manufacturing to operate in a digital e-commerce world. We cannot stress this issue enough. Internet data and mobile phone fees are among the very highest in the industrialized world. Our businesses cannot hope to be competitive for as long as that remains true.
- Trade agreements must be modernized to include digital trade and e-commerce. The TPP, which is being re-launched without the US, has a chapter on these issues which is supported by industry. This chapter should be made part of the modernized NAFTA, and other FTAs moving forward to provide stronger trade protections for SMEs and secure flow of data.
- SME’s need help understanding the opportunities that e-commerce provides both at home and abroad and should be encouraged to participate both for B2B and B2C activities.
- Canada should do a better job in promoting goods that are designed, engineered, and made in Canada. Our people, products and technologies are world class and consumers around the world will buy them – if they know about them. We need a “Made in Canada” branding that can be used to promote Canadian made goods to consumers at home and abroad.
Thank you again for inviting CME to participate in your study. I look forward to the questions and discussion.
ABOUT CANADIAN MANUFACTURERS & EXPORTERS
Since 1871, Canadian Manufacturers & Exporters has been helping manufacturers grow at home and, compete around the world. Our focus is to ensure manufacturers are recognized as engines for growth in the economy, with Canada acknowledged as both a global leader and innovator in advanced manufacturing and a global leader in exporting. CME is a member-driven association that directly represents more than 2,500 leading companies who account for an estimated 82 per cent of manufacturing output and 90 per cent of Canada’s exports.
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