Global Value Chains

and

Air Transport Policy

David T. Fung

ACDEG Group

Western Aviation Summit

Winnipeg, Manitoba, Canada

May 2, 2013 1

2013.05.02

2013.05.02 2

Globalization Reality

Todd Evans, Director of Corporate Research, EDC

Globe & Mail April 11, 2012e

2013.05.02 3

Growth of Canadian Globalization - 2009

(C$ billion)

0

50

100

150

200

250

300

350

400

450

500

Foreign Affiliate Revenue Export of Goods and Services

4

Presentation

• The ACDEG Group

• Driving Forces in Global Value Chains

• Canadian participation in Evolving

Markets and Supply Chains

• Innovative transportation policies to

encourage competition and global access

• Summary

2013.05.02

5

ACDEG Businesses

Energy

Environment

Efficiency

2013.05.02

6

ACDEG Characteristics

Risks seekers

--

Unwanted >>> Value

2013.05.02

7

Partnerships and Joint Ventures

• Waste gas to electrical power

• Renewable energy

• Recycling packaging wastes

• Forestry wastes to bio-fuels

• Wood pulps to paper products

• Specialty chemicals distribution

• Products fabrication and branding

• Marine Equipment

• Agri-food and seafood

2013.05.02

2013.05.02

8

Distribution Innovation

Unit

Trains of

Sulphuric

Acid

2013.05.02

9

Economic Distance of Acid Distribution

Source: NorFalco LLC

300 km

extended

to

2,000

km

10

Shanghai WEI-Gang Energy Co., Ltd.

2013.05.02

11

Courtesy of Halifax Port Authority and Atlantic Institute for Market Studies

Container Cranes for Tuen Mun Port (Hong Kong)

2013.05.02

2013.05.02

12

Courtesy of Halifax Port Authority and Atlantic Institute for Market Studies

Fireboats in Hong Kong

2013.05.02

13

Courtesy of Halifax Port Authority and Atlantic Institute for Market Studies

Container Barges

14

Manufacturing

• Drywall Finishing Tools

2013.05.02

15

Consumer and Industrial Hardware

2013.05.02

2013.05.02

16

Small solar

and wind

turbine

powered

lamp

standards

Courtesy of Anthony Ivanoff

2013.05.02

17

Energy Equipment Packages

Leading designer and manufacturer of

Transverse Flux Permanent Magnet (TFPM)

Generators & Motors

TFPM –Transverse Flux

Permanent Magnet

Source: Cycle Capital Management

2013.05.02 18

Eocycle’ TFPM generator technology offers significant cost

reduction when compared to the best PM alternative:

Overall smaller generator volume → 50% less

Overall lighter generator → 25% less

Less permanent magnets → 35% less

Lower quality permanent magnets → Easier supply – lower price

Significant copper reduction → 75% less

Those estimates are based on replacing the highest quality RFPM generator combined with a single stage - 1:10

gearbox (see next slide).

2013.05.02

19

Large wind

Eocycle TFPM competitive advantage

Source: Cycle Capital management

20

New Products from Recycled Plastics

Plastics Pallets

German

Recycling

Plants

2013.05.02

2013.05.02

21

Wet Mechanical Preparation

Central separation of composites -

Pulping and

washing

the raw materials

22

A Virtual Specialty Chemicals Business

• Markets in North America

• Sourcing from China and Europe

• Quality control at ports of shipment

• Marketing and logistics from Montreal

• Technical support from Toronto

• Financing from Vancouver

2013.05.02

23

Global Supply Chain and Marketing

Pulp and Paper

Wood Pulps

Paper Board and Tissues

2013.05.02

24

Decorative and Consumer Products

2013.05.02

25

Sustainable Aquaculture

Location

Biofans

Management

Biotech

Manufacturing

2013.05.02

26

Economy of Scale

Aquaculture Production

(000 MT)

34,000

1800

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

China Canada

Sources: USDA (2008); Canadian Aquaculture Industry Alliance (2006) 2013.05.02

27

2011 GDP Ranking (Purchasing Power Parity Basis)

Source: CIA World Fact Book 2013.05.02

GD

P (

US

$ T

rillio

n)

28

2011 Trading Country Ranking

Source: CIA World Fact Book 2013.05.02

GD

P (

US

$ T

rillio

n)

Source: CIA World Fact Book

29

2011 Real GDP Growth Rate (%)

Source: CIA World Fact Book 2013.05.02

GD

P G

row

th R

ate

(%

)

Source: CIA World Fact Book

2013.05.02

30

China Imports Growth

(% of U.S. Imports)

Sources: Statistics Canada, PRC Ministry of Commerce, U.S. Census Bureau, CIA World Fact

31

Retails Sales Growth - China

(2005-2010)

U.S. Retail Sales Growth in 2010 = 6.6%

2013.05.02

32

Automobiles Sales in China (1978-2010)

0

2

4

6

8

10

12

14

16

18

20

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Au

tom

ob

iles S

ale

s (

mil

lio

n)

China Grew While North America Diddled

2010 Canadian Vehicle Sales

2010 USA Vehicle Sales

2013.05.02 Source: Automobile Association of China

2013.05.02

33

Canadian Exports to South Korea

Source: Statistics Canada

Ex

po

rts

(C

$ M

illi

on

)

2013.05.02

34

Canadian Exports to China

Source: Statistics Canada

Ex

po

rts

(C

$ M

illi

on

)

2013.05.02

35

Canadian Exports to U.S.A. as % of Total

Source: Statistics Canada

36

Driving Forces in

Global Value Chains

• Labour and skills availability

– Education and training

• Innovations

– Technologies and business models

• Infrastructure

• Resources

– Natural and recovered

• Global Partnerships and markets

2013.05.02

2013.05.02

37

Economics of

Advanced Technology Industries

Fabrication

Courtesy of

38

The Apple I-Pod

Assembly

1.5 Cents

25 Cents

Distribution

&Retail

50 Cents

Parts 23.5 Cents

2013.05.02

39

Worldwide Sourcing

– Industrial Electronic Equipment

Industrial Electronic

Equipment

Printed Circuit

Boards

2013.05.02

40

Victoria’s Secrets Lingerie

• 2005

– 65% by marine

– 35% by air

• 2009

– 10% by marine

– 90% by air

Source: Boston Consulting Group

2013.05.02

41

Canadian

Auto Parts

Export to

China

Source: Statistics Canada

2013.05.02

42

Value Chain

Flexible business models

Producing in China for global markets

In China

Sourcing QC

Manufacturing

Inventory Post

Production

In Hong Kong

Financing Research Transport

IT

Marketing Distribution

In Home Market

Strategic development Design

Sales

Global Vision

Courtesy of HKTDC 2013.05.02

43

Managing Risks for Canadian

Manufacturers and Exporters

• Risks

– Currency volatility

– Commodities price volatility

– Skilled labour availability

– Regulatory changes

• Risks management through

diversification

2013.05.02

44

Risks Management through

Diversification

• Natural currency hedging

• Geographically distributed skilled labour

availability and costs

• Technologies exposure beyond Canada

• Alternative materials and process

options

• Minimize impact of localized “Black

Swans”

2013.05.02

45

Strategic Opportunities for Canadian

Manufacturers and Exporters

• Leverage natural resources into high

value services and solutions

• Leverage fabrication competitiveness in

emerging economies to expand global

market share

• Adapt strategy, culture and skills to

manage rapidly growing emerging

economies

2013.05.02

46

Global Value Generation

Left to Rot

Recovery

Global value

2013.05.02

47

2013.05.02

48

15 of 62

Factories

in China

2013.05.02

49

e

2013.05.02

50

Investment and Management

of Global Ventures

- International talent flow

- Direct international flights

- Competitive air fares

- Flight frequencies

2013.05.02

51

Air Cargoes Service for Wealth Generation

- Access to global markets

- Access to global supply chains

- Access to high-valued niche markets

2013.05.02

52

2013.05.02

2013.05.02

53

High Liner Foods

World

Wide

Sourcing

2013.05.02

54

Clearwater Seafood

World

Wide

Sourcing

2013.05.02

55

Fish Can Fly Too!

2013.05.02 56

Hog Industry in China

(2012)

• Pork Production

- 80 million MT

- 1,000 million animals

Source: Chinese Ministry of Agriculture and Chinese National Bureau of Statistics

2013.05.02 57

Canadian Advantages

• Carcass Weight per Animal

- 77 kg (Species in China)

- 89 kg (Species in Canada)

2013.05.02 58

Pigs Can Fly

• 800 breeder sows per flight from

Canada by air

• 200,000 pigs for slaughter in

China

2013.05.02 59

Pigs Can Fly

• 1 Airbus A340 flight /day everyday

from Winnipeg International Airport

• 73 million pigs per year for

slaughter in China (8% of China’s

pork consumption)

• Annual export value – $930 million

60

Trans-oceanic Air Cargoes City-Pairs

Guangzhou - Chicago Printed Circuit

Boards, I-phones

2013.05.02

Guangzhou

Chicago

61

Trans-oceanic Air Cargoes City-Pairs

Chongqing - Winnipeg

????????

2013.05.02

Chongqing

Winnipeg

62

Air Cargoes Global Routes

Santiago – Winnipeg – Chongqing – Paris

Computers

2013.05.02

Chongqing

Winnipeg Paris

Fashion Garments

Cut Flowers

63

Policy Innovations to Meet Market Needs

• Define a reasonable scope to protect Air

Canada’s interests as a national carrier

• Open up the rest to international

competition

• Offer subsidized services to low-density

domestic destinations through tendering by

private carriers

• Encourage open sky global route air cargo

service

2013.05.02

64

Summary (1)

• Canada has a favorable manufacturing

environment

• Driving forces of global value chains

– Resistance is futile

• Risks management through diversification

of markets and supply chains

2013.05.02

65

Summary (2/2)

• Offer reasonable but limited scope of

protection to Air Canada as a national carrier

• Support low-density destinations with

subsidies through open competition

• Encourage open sky air cargo policies as an

economic development tool to help Canadian

businesses access global markets and supply

chains

2013.05.02