Doing business with Canadas Defence Sector A.N. Cooligan Senior Trade Commissioner and Commercial Counsellor Embassy of Canada, Berlin A presentation to:

Doing business with Canada’s Defence Sector

A.N. CooliganSenior Trade Commissioner and Commercial CounsellorEmbassy of Canada, Berlin

A presentation to:

Düsseldorf, GermanyNovember 30, 2011

British Columbia (BC)Alberta (AB)Saskatchewan (SK)Manitoba (MB)Ontario (ON)Québec (QC)New Brunswick (NB)Nova Scotia (NS)Prince Edward Island (PEI)Newfoundland and Labrador (NL)Yukon Territory (YT)North West Territories (NWT)Nunavut (NU)

~10 Millionen Quadratkilometer

Muttersprache: * English (57.8%)* French (22.1%)* Chinese (3.3%)* Deutsch (1.5%)

Einwohner: * 34,3 Millionen* 90% wohnen innerhalb 160km von der USA Grenze

Current Federal Government

o Prime Minister Stephen Harper (Calgary Southwest, AB)o Minister for Defence Peter MacKay (Central Nova, NS)o Minister for Foreign Affairs John Baird (Ottawa West, ON)o Minister for International Trade Edward Fast (Abbotsford, BC)

TOTAL NUMBER OF FEDERAL SEATS 308

Conservative Party 166

New Democratic Party 103

Liberal Party 34

Bloc Québécois 4

Green Party 1

Aktuelle RegierungPrioritäten: Arbeitsplatzbeschaffung & Wirtschaftswachstum

o Kontinuierliche Senkung der Unternehmenssteuer (ab 2012 die geringste der G7 Staaten)

o Abschluss des Freihandelsabkommens mit EU (2012) & Indien (2013)

o Eliminate manufacturing tariffs by 2015 to become 1st country in G20 that is tariff-free zone for manufacturers

o Expand Canada Excellence Research Chairs Program at Canadian universities & increase funding

o Support Clean Energy initiatives

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Wirtschafto 2010 BIP: 1,12€ Billionen

o Ungefähr 30% des BIP aus Exporteno Exporte

o USA 75% o GB 4,1%, China 3,3%, Japan 2,3%, Mexiko 1,3%

o Importe o USA: 50%o China 11%, Mexiko 5,5%, Japan 3,3%, Deutschland 2,8%

o Dollaro Nov 2011: 1$ CAN = 0,97$ USDo Nov 2011: 1$ CAN = 0,72€

o Arbeitslosenrate: 7,3% (October, 2011)

*Basierend auf Wechselkurs von 1,4

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Fastest growing economy in G7

Canada1.7%

U.S.1.5%

U.K.1.5%

France1.2%

Germany0.5%

Japan0.5%

Italy0.2%

Source: Statistics Canada and other national data sources.

On average, Canada’s economy grew 3x faster over the last decade than Germany’s

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~ € 27 Milliarden Handel und Investitionen

*based on exchange rate of 1.4

Kanada – Deutschland Gesamtwert der bilateralen wirtschaftlichen Beziehungen

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Wert der bilateralen wirtschaftlichen Beziehungen

Kanadische Exporte nach Deutschland (2010) € 2,7 Milliarden

Deutsche Exporte nach Kanada (2010) € 7,8 Milliarden

Deutsche Direktinvestitionen in Kanada (2009) € 9,7 Milliarden

Kanadische Direktinvestitionen in Deutschland (2009) € 6,7 Milliarden

Source: Statistics Canada

~ 27€ Milliarden

*Zahlen basieren auf Wechselkurs von 1,4

Kanada – Deutschland

450 Deutsche Firmen in Kanada 60,000 Angestellte

100 Kanadische Firmen in Deutschland 22,000 Angestellte

Kanada – DeutschlandWechselseitige Arbeitsplatzbeschaffung durch Kapitalanlagen

Source: Canadian Embassy, Berlin

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Global Defence Contexto Global defence sales exceeded US $1.5 Trillion in 2009o Defence expenditures are 2.7% of World’s GDPo Top 10 largest military spenders account for 74% of the world’s

military spendingo Canada’s $19.8 Billion (2009) military expenditures ranks Canada

in 6th place among NATO countries (15 Milliarden €)o Defence is “managed trade”o Canada spends 1.5% of GDP on defenceo US represents 43% of the world’s spending, 4% GDP

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Canadian Defence Contexto Canada First Defence Policy – € 370 Milliarden bis zum 2028

Pillar Amount (CAD B)

% Comments

Personnel $250 51% 70,000 troops and 30,000 reservists by 2028

Equipment $60 12% Land vehicles, aircraft, ships, weapons, communications, etc.

Infrastructure $40 8% Rebuilding & maintaining

Readiness $140 29% Spares, maintenance, training

Total 20 years CAD $490

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Canada’s Defence and Security Industrial Baseo The Canadian defence and security sector is a highly skilled,

knowledge based industryo Comprises over 1,000 companieso Employs more than 90,000 peopleo Generates revenues in excess of $10 billion in annual sales.o Approximately 85% of these firms are small and medium

enterprises (SMEs).o Exports account for about half the annual turnover, or $5 billion

per yearo Approximately 85% destined for the US market.

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Business Drivers - Defenceo Canadian defence industrial baseo Government R&D programs:

o Strategic Aerospace Defence Initiative (SADI)o Defence Research and Development Canada (DRDC)o Scientific Research and Experimental Development (SRED)

o Defence Procurement Environment: IRB and ITARo Industrial Regional Benefits (IRB)o International Traffic in Arms Regulations (ITAR)

o FDI in Canada and beyond: Potential for Growtho Global product mandateo Potential for export – G2G saleso Export Development Corporation (EDC)o Canadian Commercial Corporation (CCC)

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Royal Canadian Navy: 3 BasesRoyal Canadian Air Force: 13 bases Canadian Army:10 bases

DRDC SuffieldWeapons Effects

VehiclesAutonomous SystemsMilitary Engineering

Chemical & Biological Defence

DRDC TorontoHuman Factors

Decision SupportCommand Effectiveness

Operational MedicineSimulation & Modeling

DRDC OttawaRadar, EW

Space SystemsInformation Operations

CommunicationsSynthetic Environment

DRDC ValcartierElectro-optics

Combat SystemsCommand & Control

Information ManagementSystems of Systems

DRDC AtlanticUnderwater Sensing

MaterialsAir Vehicles

Marine VehiclesSignature Management

DRDC Centres

Centre for Operational Research and Analysis

Operational ResearchScientific and Technical

Intelligence

Centre for Security Science

Military Personnel Research and

Analysis

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€ 25 Milliarden

Current Canadian Defence Programso Medium Support Vehicle System – 1,500

truckso Light Armoured Vehicles III Upgradeo Tactical Armoured Patrol Vehicle (500) &

Close Combat Vehicle (108)o Joint Support Shipso Joint Strike Fighter – F-35 Fightero Arctic & Offshore shipso >$15-$20 billion in new programs

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Government R&D Programs: Strategic Aerospace and Defence Initiative (SADI)o SADI Program Objectives:

o Encourage strategic R&D that will result in innovation and excellence in new products and services

o Enhance the competitiveness of Canadian aerospace and defence companies; and

o Foster collaboration between research institutes, universities, colleges, and the private sector

o SADI was launched April 2, 2007.o Typically contributes 30 percent of a project's eligible costso Conditionally repayable contributions, rather than loanso Eligible costs relate to direct labour, material, and equipment expenditures.o Has so far funded 21 projects

o SADI is expected to invest nearly $1.1 billion (€.8 Milliarden), with funding to reach a maximum of $240-310 million per year (€ 225 Millionen pro Jahr) from 2011-2014.

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Government R&D Programs: Defence Research and Development Canada (DRDC)o DRDC is an agency of the Canadian Department of National Defence (DND) which

provides science and technology (S&T) to the Canadian Forces.o Operates seven research centres across Canada, each with a unique combination of

expertise and facilities to carry out world class science and technology research.o Research capabilities are grouped into 3 main domains: Physical, Human and

Infrastructure, with 11 core areas.o Applied Research Program (ARP) – typically 5 year project period and range from

$3 to $6 million.o Defence Industrial Research Program (DIR) :

o supports transition projects from the laboratory to the experimental phase, proof of concept

o 50% funding levelo Technology Demonstration Program (TDP):

o Demonstrates the military utility of emerging concepts and technologieso Current portfolio comprises more than 40 active projects with an average of

$10 million per project

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DRDC - Partnershipso Collaborative partnerships with both the private and

public sectors. Partnerships include:o Contributions in-kind towards a common objective; o Joint applications for external funding from national and

international granting agencies; o Shared cost initiatives in pursuing a common science

and technology objective; and o Exchanges of personnel at the cost of the parent

employer

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DRDC – Partnershipso Partnerships with Germany

o Interaction between radiological contamination and surfaces and the effects on decontamination - Bundeswehr Research Institute for Protective Technologies and NBC-Protection – WIS Münster and DRCD-Ottawa (2010-2015)

o Propagation effects and background clutter in the littoral – Wehrtechnische Dienstelle für Schiffe und Marinewaffen, Maritime Technologie und Forschung, Eckernforde and DRDC Atlantic (2010-2013);

o Underwater Gated Viewing System 3D imaging and scene reconstruction – Fraunhofer IOSB, Ettlingen, und Wehrtechnische Dienstelle für Schiffe und Marinewaffen, Maritime Technologie und Forschung, Eckernforde and DRDC Valcartier (2010-2013)

o Investigations into the mechanism of action of Chemical Warfare Agents and medical counter measures – Ministry of Defence Medical Staff 1, Bonn and Bundeswehr of Pharmacology and Toxicology, Munich and DRDC Suffield (2010-2015)

o Advanced Magnetic Fields (Wehrtechnische Dienstelle für Schiffe und Marinewaffen, Maritime Technologie und Forschung, Eckernforde and DRDC Atlantic

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Government R&D Programs:Scientific Research and Experimental Development (SRED) Programo Canada offers one of the most favourable tax treatments for R&D among the G7.o Canada provides a system of tax credits and accelerated tax deductions for a wide-

variety of R&D expenditures.o Eligible costs include: salaries, overhead, capital equipment, and materials.o These tax-based incentives permit firms to significantly reduce R&D costs through

direct investment or sub-contracting in Canada.o Foreign companies qualify for the Canadian SR&ED tax benefits

o Through a Canadian subsidiary of a foreign parento Through a Canadian-controlled private corporation

o Federal tax credits are complemented with additional provincial R&D tax credits.o Combined federal and provincial tax credits range:

o For large Public or Foreign-controlled Corporation from 20% to 36%o For Small Canadian-controlled Private Corporations from 35% to 60%

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Canadian Defence Procurement Environment: Industrial Regional Benefits (IRB).o Canadian government does not have a ‘buy domestic’ policy preference and seeks

out more competition from foreign firms to maximize return on expenditures.o IRB Policy provides the framework for using federal government procurement to

lever long-term industrial and regional development.o An IRB is a contractual commitment by prime contractor to place work in Canada as

a result of successfully bidding on a Canadian defence program. (100% of contract value)

o IRBs are mandatory for projects over $100 million (usually Major Crown Projects), discretionary in the $2-100 million range, and are not applied to small projects.

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Canadian Defence Procurement Environment: International Traffic in Arms Regulations (ITAR).o ITAR is a set of U.S. government regulations controlling the export and import of

defence-related goods and services on the United States Munitions List.o ITAR regulations dictate that information and material pertaining to defence and

military related technologies may only be shared with U.S. citizens unless authorization from the US Department of State is received or a special exemption is used.

o Article 126.5 - Canada enjoys exemptions for certain less sensitive goods controlled under ITAR, meaning these items can be exported to Canada licence free provided certain requirements are met.

o Canada enjoys “an exemption for temporary imports of defence articles originating in Canada for use in the United States, an exemption for temporary and permanent exports of defence articles to Canada, and a limited defence service exemption”.

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FDI in Canada - Global Product Mandateso Growing a defence business in Canada means exports

o Domestic base is smallo Key benefits exporting from Canada

o Linkages with the US as largest export (85%)o Role of the CCC in government to governmento Possible EDC coverage & buyer financing

o Growing with the prime/integratoro Supplying to the prime who then exportso Providing the prime with Canadian kit for IRB credit

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Export Development Corporation (EDC)o Export Development Canada (EDC) is Canada's export credit agency, offering

financing, insurance and risk management solutions to help Canadian exporters and investors expand their international business.

o EDC provides financing support for three types of investments. o Greenfield Investment – development of a new facility or project o Brownfield Investment with CAPEX (capital expenditures) – purchase of an

existing business with plans to expand or modernize the facilityo Brownfield Investments without CAPEX (capital expenditures) – purchase

of an existing business with no plans to expand or modernize the facility but where the foreign acquisition either prevents closure of an exporting business or allows for initiation of exports by the business

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EDC – Cont’do Support for inbound foreign investment is provided where the investor is: - domiciled outside of Canada - invests at least 10% of the common equity in a greenfield development or purchasing at least 10% of the assets/equity of an existing Canadian entity - takes an active role in directing and/or managing the investment, including influencing either:

(i) the initiation of exports to affiliates, or (ii) integrating the Canadian company's exports within an existing global supply chain or global sales network with unrelated entities

o In addition once a foreign company is operating and exporting from Canada, EDC can also offer support to the company’s foreign buyers through loans, guarantees and lines of credit.

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Canadian Commercial Corporation (CCC)

o CCC is the Government of Canada’s international contracting and procurement agency. In this capacity, CCC is involved as either:o The Prime Contractor responsible to the international buyer for satisfying a

contracts’ terms and conditions; oro The Contracting Agent responsible to another Canadian Government Department

or Agency - or to another international Government - for awarding contracts on their behalf.

o CCC’s activities are mainly within the following sectors:o Contracting with the U.S. Department of Defense on behalf of Canadian

suppliers;o Contracting with International Buyers for Canadian Goods and/or Services within

the Defence, Security and/or Infrastructure markets;o Providing contracting services to other Governments, Canadian Government

Departments or agencies; ando Trade financing.

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Case of the CCC and GDLS-Co General Dynamics Land Systems –Canada (GDLS –C) has a global product mandate

to build LAVs in London, Ontarioo Sales of LAVs internationally are through the CCCo CCC provides the US DoD with sovereign guarantee and has a 55+ year track record

of performanceo GDLS-C sold $3.6 billion between Oct. 2009 and December 2010 via the CCCo Kongsberg makes Remote Weapons Stations for LAVs and announced a new facility

in London

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Canadian Companies in Germanyo AirBoss Defence (QB) CBRN,

extreme cold weathero L-3 MAPPS (QB), mission

control systemo Weatherhaven (BC), custom

shelterso Rutter (NFLD), enhanced

radar, waterside security, oil-spill detection, aboard Polastern 2

o Research in Motion, Blackberry (ON)

o Thales (ON), “Autonomy” headset (via Kiel)

o CAE (QB), simulation devices

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Meet Canadian companies and Defence Personnel at Business Events and keep us in your network

o CANSEC (CADSI), May 30-31, 2012, Ottawa, Ontarioo Eurosatory, June 11-15, 2012, Paris, Franceo SecureTech (CADSI), Oct 30-31, 2012o DSEi, Sept. 10-13, 2013, London, England

AND stay in touch: o Trade Commissioners in Berlin, Düsseldorf and Municho Military Attaché in Berlino Public Works and Government Services Procurement office in Koblenz

Vielen Dank für Ihre Aufmerksamkeit!

https://www.defenceandsecurity.ca/