Success in the new business environment depends on the right business model

In brief, that is the message that Henri-Paul Rousseau, President and Chief Executive Officer of the Caisse de dépôt et placement du Québec, conveyed to the members of the Board of Trade of Metropolitan Montréal at a business luncheon on the theme The Caisse and Economic Development.

"Québec's companies must cope with the new realities of the marketplace. Globalization expressing itself by the rapid rise of China, India and other emerging markets is intensifying international competition, increasing the price of natural resources and driving the loonie upward. In addition to these global shocks, we are faced with shocks specific to Québec. First, the aging population limits the government's financial leeway creating a succession challenge for businesses, in terms of manpower and ownership transfer. Second, the tax burden and the government's debt load adversely affect public finances, when investments in education, infrastructures and research are needed. And the final shock being the complexity of the world which surrounds us," Mr. Rousseau stated.

"To succeed in this complex business environment, where change is rapid and successive, Québec companies must approach globalization as they would a judo match. The essence of judo is that flexibility can conquer strength. In the realm of business, that means we must invest in the knowledge and quality of our manpower, adopt an open business model, rely on innovation and take advantage of research and creativity," Mr. Rousseau explained. He cited EXFO, Mechtronix, and Louis Garneau as examples of companies that have successfully adapted their business model to the new economic environment.

According to Mr. Rousseau, if other Québec business leaders want to pin the forces of globalization to the mat, they must use the one billion workers in emerging markets to their advantage: climb the value chain, identify niches in targeted markets, invest in research and innovation, fit effectively in the world supply chain, invest in the productivity and sell on an international scale. This strategy enables Québec companies to lower their costs and to concentrate on high-value-added activities. The corollary of this scenario is that those one billion workers are also new consumers and potential customers of the Québec Inc. In light of these new market realities and new business opportunities, the Caisse offers capital, information, networks and services to Québec companies that want to prosper in this new trend to globalization.

An outstanding track record

"The Caisse already makes capital available to Québec companies that want to accelerate their growth by taking advantage of globalization. Our Private Equity group, which is the preferred partner of Québec's mid-sized and large businesses, invested $5.4 billion in the province in 2006. This amount exceeds the previous record set in 2001 before the technology bubble burst. As a result of these major investments, the Caisse plays a leadership role in five segments of Québec's economy," Mr. Rousseau stated.

"The Caisse already makes capital available to Québec companies that want to accelerate their growth by taking advantage of globalization. Our Private Equity group, which is the preferred partner of Québec's mid-sized and large businesses, invested $5.4 billion in the province in 2006. This amount exceeds the previous record set in 2001 before the technology bubble burst. As a result of these major investments, the Caisse plays a leadership role in five segments of Québec's economy," Mr. Rousseau stated.

In the small-business segment, the Caisse is also relying on a partner: the Business Development Bank of Canada (BDC) and its Québec regional network. In 2003, BDC and the Caisse created and contributed equally to a $300-million investment fund for small businesses. This partnership was recently renewed with the creation of a second fund, on the same terms, with $330 million also destined for small-business financing.

The Caisse also plays a significant role in financing business transfers. Its Accès Relève product is designed to meet the challenge of transferring business ownership from one generation to the next. As with venture capital and small-business financing, Accès Relève includes a partnership component, in this case with National Bank and Royal Bank.

"The Caisse is very active in the mid-sized-business segment. It has created a team exclusively for this area and, in addition to providing capital, it offers companies market intelligence and shares its networks and contacts. Moreover, in recent months, the Caisse has taken two important initiatives. The first is the Québec Manufacturing Fund, which has $100 million to invest in manufacturers that want to optimize their industrial and business processes to accelerate their growth. We have also invested $100 million in a new fund set up by Novacap, a partner of long date that specializes in leveraged buyouts," Mr. Rousseau explained.

For the large-business segment, the Caisse continues to maintain special relationships with its major Québec partners. It is also involved in large, complex transactions, by providing distinctive financial products. Moreover, the Caisse's teams are forming and maintaining partnerships with major international financial organizations that offer investment opportunities for large Québec companies.

Sustainable prosperity

"The experience that the Caisse has gained has taught it that the success of a business is contingent on a business model adapted to global markets. This is a difficult but not impossible task. To share the lessons it is learning from globalization, the Caisse is involved in the formation of the Centre international sur la prospérité des entreprises du Québec. The Centre's mission will be to work closely and actively with the executives of Québec's mid-sized businesses so that they can accelerate their growth by taking advantage of globalization. To carry out this project, a task force has been formed by executives from leading Québec organizations," Mr. Rousseau stated.

The task force consists of Alban d’Amours, President of the Mouvement des caisses Desjardins, Daniel Denis, Partner at Secor, Richard B. Evans, President and Chief Executive Officer of Alcan Inc., Jean-René Halde, President of the Business Development Bank of Canada, Paul-Arthur Huot, President and Chief Executive Officer of PÔLE Québec Chaudière-Appalaches, Jacques Lamarre, President and Chief Executive Officer of SNC-Lavalin, Henri Massé, President of the Fédération des travailleurs du Québec, Henri-Paul Rousseau, President and Chief Executive Officer of the Caisse de dépôt et placement du Québec, Bruno Roy, Partner, McKinsey & Company, Marie-Agnès Thellier, President and Chief Executive Officer of the Cercle des présidents, and Louis Vachon, Chief Operating Officer of National Bank.

"The Caisse’s involvement in the task force is another tangible example of its contribution to Québec's economic development, with a view to sustainable prosperity. And this sustainable business prosperity is important to the Caisse. For Quebecers' true nest egg isn’t the Caisse; it's the prosperity of Québec's businesses," Mr. Rousseau concluded.

The Caisse de dépôt et placement du Québec is a financial institution that manages funds primarily for public and private pension and insurance plans. As at December 31, 2006, it held $143.5 billion of net assets. As one of the leading institutional fund managers in Canada, the Caisse invests in the main financial markets as well as in private equity and real estate.