Roadmap to Recovery Innovation, Investment, & Growth

1. Roadmap to Recovery Innovation, Investment, & Growth Durham Economic Prosperity Conference November 5th, 2010

2. Moving Forward Together

3. Strengths • Regional • Skilled labour • Airport with Canada Customs & Deep-water port (Canadian Port Authority) • Strong agricultural base & abundant land • 3 state-of-the-art educational & research institutions • World-class medical facility • Nuclear power • State-of the-art auto manufacturing & abundant production capacity • Quality of life, recreation, green space, nature, extensive waterfront • Provincial • Proximity to customers, suppliers, world-class innovation infrastructure • Strong federal and provincial support for innovation and next generation technologies • National • Competitively low business tax rates • Comparatively low levels of government debt • Comparatively strong financial sector

4. Weaknesses • Regional • Road system • Job creation does not keep pace with population growth • Loss of industrial base • Provincial • Uncertain, slow, costly, and at times impractical regulatory system • Reliable access to cost competitive energy? • Lack of a clear transportation plan • Lack of clear economic development objectives • Weak connections between innovation infrastructure & business needs • National • Lack of a clear long-term economic/industrial strategy • Partisanship trumps policy • Highly leveraged consumer sector • Manufacturing and exporting sector highly integrated with the United States

5. Threats • A Sustainable Recovery? • Global financial and currency risks • Unwinding stimulus • Obstacles to Recovery • Strong and volatile Canadian dollar • Weak cash flow = limited availability and higher cost of business financing • Overcapacity in many industrial markets, corporate consolidation & loss of product mandates • Unfair trading practices, protective restrictions in export markets (Buy American) & aggressive use of investment incentives in the United States • Increasing mandatory overheads – fees, taxes & regulatory compliance costs • Thickening border – security, customs, regulations, fees, administration • Game Changers • Changing customer requirements & expectations • Shift in market power & economic growth to emerging economies (China, Asia, Latin America) • Corporate restructuring & supply chain reorganization • An aging population – Skill shortages, increased demand for health care & retirement income with fewer people working & investing • Energy constraints & environmental priorities

6. Opportunities • Challenges = New Business Opportunities • Changing customer requirements & expectations • Shift in market power & economic growth to emerging economies (China, Asia, Latin America) • New procurement & supply chain requirements = auto, energy, infrastructure, aerospace • An aging population = Productivity, products, services • Energy opportunities = energy efficiency, new processes, nuclear & alternative energy, oil sands – technologies, services, and manufacturing supply chain • Environmental priorities = clean technologies & services • Technology Priorities • Energy – Smart grid, energy efficiency • Manufacturing – Auto, agri-food, aerospace, automation, design & engineering, resource processing • Environment – Clean technologies & services • Health care – Medical technologies & services • New business opportunities in Ontario, across Canada, North America, and around the world.

7. Critical Questions • Is manufacturing disappearing? • What are the growth sectors? • What do businesses/industries need to do to succeed and grow? • What can Durham Region do to promote economic growth, generate high paying jobs, and sustain a high quality community?

8. Manufacturing in Canada • Companies that produce things = A $540 billion business ($650 billion in 2008) • 13% of Canada’s GDP (16% in 2005) • 10% of workforce = 1.75 million Canadians (2.4 million in 2005) • A highly diversified sector • Manufacturing accounts for two-thirds of Canada’s exports • Highly integrated with the US market • Approximately 50% of Canadian production is exported into or through the United States • About 40% of manufacturing inputs are imported from the United States • 75% of business sector R&D • 85% of new product commercialization • Canada’s leader in GHG emission reduction (10% reduction since 1990) • The business of manufacturing = A $1.6 trillion business • Every dollar of output in manufacturing drives $3.25 of total economic activity

9. Jobs Depend on Manufacturing

10. Manufacturers’ New Orders & Sales

11. Canada’s Merchandise Trade

12. Manufacturing Sales(August 2009 – August 2010)

13. Manufacturing Sales by Sector(August 2009 – August 2010)

14. Manufacturing Sales by Sector(August 2009 – August 2010)

15. Business as Usual is not an Option • Leadership – New strategies & effective implementation • Become an integral part of customer/supplier success • Focus on solutions, not products • New market development – Finding new customers in new supply chains • Innovation – New & improved solutions, products, services, production and business processes • Logistics & Supply Chain solutions – Agile, just-when-needed solutions • Cash Flow – Cash management & financing • LEAN cost reduction – Focus on what customers value & eliminate waste in business & production processes • Achieving results through people – skills and workforce capabilities

16. Innovation Strategies for Manufacturing • Innovation is a business strategy – and ultimately an investment decision • Drivers of Change • Challenges = Global competition & commoditization, structural changes • Opportunities = New markets, customers, structural changes • Objective = Differentiate products as customer solutions • What Manufacturers Need To Do • Identify problems to solve for customers • Develop & design specialized solutions for customers • New and improved products, services, technologies, services • Work with partners = researchers, suppliers, customers, integrators, services • Resources = Productive Assets • Knowledge (R&D, Intellectual Property, Knowledge from Extended Networks) • People (Competencies, Techniques, Leadership & Work Practices) • Technology (Materials, Machinery, Equipment, Software) • Money

17. Cash Flow Drives Investment in Research & Development

18. Cash Flow Drives Investment in New Machinery & Equipment

19. Technology Investment as a Share of Cash Flow

20. Policy Options

21. Public Policy Priorities • A manufacturing strategy to boost productivity & growth • Encourage productive investments • Follow though on commitments to lower corporate income tax rates • Make 2-year write-off for M&E investments permanent • Make SR&ED refundable and improve eligibility requirements • Introduce a training tax credit creditable against EI premiums • Introduce a tax credit for regulatory compliance • Help businesses find new customers and identify new opportunities to participate in technology development initiatives around the world • Support the development, commercialization, and adoption of new and improved products and processes • Strengthen technology transfer to business • Maintain an innovative workforce – math, science, engineering, technical and workplace competencies, transitional training • Improve the availability of financing for innovation and business growth • Improve the business infrastructure – logistics, Lean regulation

22. Regional Strategic Priorities • Community Leadership – Business, labour, government, innovation & logistics support infrastructure • An economic development plan built on current strengths and taking advantage of opportunities over the next three to five years • Prioritize – Focus on what can be done at a regional level to make a difference regionally, provincially, nationally • Don’t try to pick winners – Focus on improving the business environment and assisting businesses and citizens in taking advantage of new opportunities • Develop a clear understanding of business needs • Support local entrepreneurship – New and established industries • Communicate – Community objectives, capabilities, assets, and support services • Collaborate – Businesses, labour, governments, education, innovation & logistics support infrastructure – to attract and retain investment • Build connections – New procurement, technology opportunities, best practices, partnerships – regional, provincial, national, global • Establish benchmarks and measure progress