SECTION 3.0 INDUSTRY & MARKET ASSESSMENT
The following section will provide comprehensive facts regarding the environmental industry in Canada, both mainstream and Territorial. Also included is information regarding the market to be serviced by Terra Engineering along with an analysis of the competitive environment.
Section 3.1 Defining the Industry
It is important to define and identify the industry in which Terra Engineering will operate and how it is classified in the Canadian Industry. This information was extracted from Statistics Canada data.
Environment companies are defined as:
all companies operating in Canada that are involved in the whole or in part in the production of environmental goods, the provision of environmental services and the undertaking of environment-related construction activities.
Environmental goods and services are goods and services that are used or can potentially be used to measure, prevent, limit or correct environmental damage (both natural or by human activity) to water, air, soil as well as problems related to waste, noise and ecosystems. They also include clean or resource-efficient (eco-efficient) technologies that decrease material inputs, reduce energy consumption, recover valuable by-products, reduce emissions and/or minimize waste disposal problems.
The environment industry is classified as an industry composed of establishments operating in a variety of industries that produce environmental goods and services.
3.2 Overview of the Canadian Environment Industry
The environmental industry is an evolving industrial sector compromised of companies and organizations that provide environmental technologies or goods and services which:
Reduce human health risks and ecological damage;
Improve eco-efficiencies and cost-effectiveness in processes; and
Address environmental issues and problems.
The environmental industry represents a set of enabling tools with environmental applications across all industries, including the primary resource, manufacturing and services sectors, and serving as a catalyst to sustainable development.
The following statistical information was gathered by Statistics Canada in 2011. This information is the most recent available and comes from an Environmental Survey of Business Sectors. The environment industry as it has developed in Canada, has evolved a number of characteristics and dynamics, which are:
Canada's environmental industry in 2011, represented over 9,500 firms and public establishments. Firms in this industry range from one-person operations to large, multi-national firms with less than 500 employees. In 2011, these establishments accounted for 97% of environmental industry firms, 79% of revenues, 77% of exports and 71% of employment. However, most firms employ fewer than 50 people. In 2011, Canadian environmental firms averaged 26 employees, with a total average revenue of $3.9 million.
The Canadian environmental industry employs a highly skill and productive workforce. More than 221,000 workers (1.6% of total national employment) were employed in over 9,500 companies and public establishments in 2011. It was the 3 rd largest employment sector following pulp and paper and the chemical industry in 2011. Business employment growth in this industry increased 18.5% from 2009 to 2011, far above national employment growth of 5.2% over the same period.
(C) Regional Distribution
Firms are often located near natural resource industries or industrial markets serviced by these industries. Across Canada, the environment industry is broadly represented with 32% of firms in Ontario, 30% in the Western Provinces, 25% in Quebec, 12% in Atlantic Canada and 1% in the North Territories.
Regional distribution, based on industry revenues in 2011, shows Ontario companies accounted for about 42% of revenues, the Western Provinces 30%, Quebec 23%, and Atlantic Canada 5%.
(D) Business Information
The number of business establishments reporting environmental revenues in 2011 reached 6,294, up 10% from 2009.
Quebec, Alberta, British Columbia and Nova Scotia accounted for three quarters of all new environmental businesses created from 2009 to 2011, partly reflecting the presence of vibrant emerging clusters in water, fuel cells and alternative fuel systems, and marine technologies and geomatics, respectively. The number of firms in Ontario regressed due to mergers and market consolidation. The Atlantic Provinces experienced relatively steep rises in the rate of business formation over the same period.
(E) Domestic Activity
The environmental industry in Canada is quite clearly a high growth sector. The Canadian environmental market is valued at $25.8 billion, representing roughly 2.2% of Canadian GDP. Total domestic supply of environmental goods and services in 2011 was composed of commercial sales of $14.3 billion, business own account production of $2.9 billion, government production of $5.2 billion and imports of $3.5 billion in 2011.
Domestic commercial sales of environmental goods and services reached $14.3 billion in 2011, having grown at an average rate of 14% per year from 2009 to 2011, well above the corresponding GDP growth rate of 4.5% per year.
As in other leading economy sectors, the trend towards value-added services is manifest. In 2011, services (including construction) accounted for 60% of total industry revenues with goods and equipment dropping from 46% in 2009 to 40% in 2011.
Statistics Canada estimates that the manufacturing sub-sector contributed about $5.7 billion to the industry's total 2011 production. Construction activities associated with the provision of environmental goods and services amounted to almost $2.3 billion, accounting for 16% of the value of domestic production.
With 26% of total business sales, the waste sector was the largest sub-component of the Canadian environment industry in 2011, followed by environmental construction at 16%, engineering at 14% and water supply and waste water treatment at 13%. However, the fastest growing environmental sectors in Canada since 2006, have been renewable energy, engineering, water, and analytics.
(F) Leading Sectors
Important sub-sectors of the industry include environmental consulting engineering, waste management, water supply and purification, and waste water treatment.
Canadian firms have gained international recognition for their expertise in developing water and waste water treatment technologies, handling liquid and solid wastes, manufacturing environmental equipment such as shredders, as well as for their environmental engineering and consulting expertise.
This industry is maturing, undergoing rationalizing and consolidation, and many small firms are merging to form larger, more integrated and internationally competitive entities.
(G) Cross-cutting Impacts
The environment industry is an enabling industry that exerts multiplier impacts across all sectors of the Canadian economy. The industry's ability to improve energy and process efficiency, sustainable resource management, and process monitoring and control will lead to important output and eco-efficiency gains for corporations. The industry's success in developing efficient solutions for its domestic clients will be critical not only to its own long-term international competitiveness, but also to the productivity and competitiveness of many other Canadian Industrial sectors.
(H) Sustainable Development
The federal government and its agencies have focused on strengthening the capabilities of the environmental industry so that it can more effectively deploy its critically important technologies. This helps to ensure that more Canadians enjoy clear air and water, and safer places to live, while creating jobs through domestic and international sales of Canadian environmental solutions.
A competitive, strategically focused Canadian environment industry can provide products and services that foster resource efficiency, high productivity and sustainable growth. On the success of this industry ride many aspirations for sustainable development, as it has the opportunity to serve as an engine for simultaneous economic growth, environmental protection and social stability both domestically and globally.
3.3 Evolving Market Drivers in the Environment Industry
Markets are created and driven by demand. The forces driving the demand for environmental products and series continue to undergo change. Companies in the industrialized world are increasingly moving towards integrated environmental and economic solutions that contribute to the core business objectives of increased profits, reduced liability, enhanced market share and overall improvement for shareholder value.
The pressures that lie behind the evolving environmental demand include:
I. Pollution prevention and eco-efficiency
II. Performance in managing complex environmental issues; and
III. Human health
Governments are similarly shifting their focus from regulatory driven pollution management to more voluntary approaches and pollution prevention, as a means to secure agreements from industry to limit releases of toxins and eliminate polluting activities. This is spurring an increasing emphasis on re-engineering industrial processes to reduce the amount of pollution produced at source, rather than at the end of the pipe. This creates strong incentives for environmental firms to develop new, more efficient and pollution prevention and conservation technologies. These cleaner production technologies and services which enable firms to improve their resource use efficiency while eliminating the production and release of toxins, are critical to sustainable development.
In its 2011 estimates for environmental protection spending by industry, Statistics Canada noted that investment in integrated pollution prevention processes was 141% higher than in 2009. Firms are realizing both the importance of being environmentally responsible, as well as the important cost savings in implementing production processes and technologies that reduce pollution at source. It is increasingly important for Canadian companies doing business internationally to be able to demonstrate that they are environmentally responsible.
Citizens, governments, lenders and investors concerned about possible liability actions, are placing increasing pressures on firms in all sectors to achieve higher standards of environmental performance. As a result, there is a growing demand for pollution control technologies and integrated processes that will help firms efficiently improve their environmental performance.
3.4 Industry Challenges
The environment industry is subject to ongoing and rapid change in its technology and markets. Environmental firms that wish to be competitive in both the domestic and international marketplace must be aware of these changing conditions and respond accordingly.
Canada has spurred considerable environmental R & D, especially in niche technologies, as well as many successful start-up companies in emerging clusters in promising niches. However, despite strong academic and institutional research support, the magnitude of private and public investment in technology commercialization still falls short of the real global opportunity.
While the industry continues to make a significant contribution to the Canadian economy and to sustainable development worldwide, some segments of this industry are in transition due to heightened competition, growing customer sophistication, pricing pressures, market share consolidation, and greater merger and acquisition activity.
Some of the key generic drivers of this industry include:
Market demand, demographic growth and the sustainability of natural resources and ecosystems are driving environmental growth and innovation
Market Drivers and Influences
The focus is shifting from pollution management towards pollution prevention as standards, incentives and voluntary initiatives become new drivers of the industry
Health and the Environment
The links between the environment and health are shaping public opinion
Global environmental problems such as ozone depletion, loss of bio-diversity, water quality and climate change can only be addressed through international actions.
Infrastructure and Urban Growth
Population growth and aging infrastructure are driving global demand for integrated solutions.
Competitiveness is a function of sustainable resource management and process efficiency.
Sustainable economic development is contingent upon environmental effects monitoring, risk assessment and communications.
3.5 Industry and Market Growth
While the bulk of the industry's revenues come from domestic markets, in recent years, the Canadian export market has grown almost twice as fast as the domestic market, a reflection of the Canadian environmental industry's increasing globalization.
Canadian firms have generated significant export earnings and gained international recognition for technological leadership in:
Water and waste water treatment technologies;
Liquid and solid waste management;
Environmental instrumentation, geomatics and analysis;
Energy efficiency and renewable energy;
Engineering and consulting services
As identified above, engineering and consulting services like Terra Engineering are becoming serious contributors to the industry, both domestically and internationally.
3.6 Ontario Territorial Governments and Their Environmental Needs
There are 126 Territory governments in Ontario with a total population of 72,265. Of the Territory governments there are 5 which are among the 20 largest communities in Canada. The names of these Territories are provided below.
I. Little Rock
III. Quincy's Bay
IV. Waking River
V. Benson Lake
As discussed above, Terra Engineering will be located in Harthsville which is the largest Territorial government in Canada. Throughout the early stages of the business' operations, Terra Engineering will focus heavily on the Territorial governments within Southern Ontario. Once the business establishes a solid client base and builds a reputation for quality service, Terra Engineering will expand into the Northern and Eastern Territories of Ontario. A
Terra Engineering's target market includes Territorial governments, organizations and businesses within Territorial governments of Ontario. Other clients interested in developing projects close to Territorial communities will also be targeted. The Canadian Environmental Assessment Ac as well as Ontario's environmental assessment process has proven the need for specialized services for Territorial communities. Out of this target market group, there are thousands of potential clients.
To successfully service the target markets identified above, it is important that Terra Engineering understands the needs of Ontario's Territorial governments, organizations and businesses. Therefore, the following information outlines the more pressing environmental issues that exist for this target market. They include:
Funding and financing organizations within the Territorial economic development sector require that environmental assessments/screenings must be completed to receive funds. Also, environmentally sound production processes must be in place for financing approval by these organizations;
Many Territorial governments may not have qualified environmental person (s) or departments in place to maintain and develop the environmental needs of their communities. Therefore, environmental services are being sought from independent consultants and companies;
Independent Territory business owner's entering resource industries such as mining, forestry, water treatment, oil and energy have identified a growing need for environmental consulting services. More specifically, it is not feasible to employ a full time expert in environmental services and techniques and therefore, contracts are often completed by private companies;
Territory community leaders have identified the need for Territorial environmental service groups to provide services to ensure their communities get the service it deserves;
There are regulatory gaps between Ontario's environmental legislation and Federal environmental legislation. The cost of waste disposal is increasing for territory communities. The combination of ineffective Federal environmental legislation, poor monitoring, increasingly stringent waste disposal guidelines and regulations for Territory communities, as well as increased waste disposal costs may lead to unregulated waste disposal on Territorial communities becoming a major issue. Territory communities will need assistance to develop alliances with Provincial forces as well as access to Federal services to ensure these communities do not become Ontario's dumping grounds.
The historic inability of provincial and federal authorities to resolve environmental issues has the Territory governments and the industry to deal with on a project by project basis. The mining industry will continue to seek for mineral reserves to bring to market. Territory communities are increasingly vocal in gaining economic benefits from these activities, which seem to operate blind to those Rights. Between these two forces there lies common ground. The ability to provide guidance to both parties and attempt to provide mutually beneficial agreements is necessary. This is a risk management issue for mining companies and an issue of Nationhood for those Territory communities. Terra Engineering believes it can provide assistance to both parties;
Territorial governments are increasingly becoming more involved in the economy of Ontario as well as Canada. They are seeking to develop projects geared towards establishing true economies.
Overall, the awareness for Territorial governments, businesses and organizations to protect their resources has become an important priority area. Therefore, the need for environmentally specialized people with knowledge of Territorial communities to fulfill this growing need has become increasingly large.
3.7 Potential Clients
Terra Engineering has conducted initial research into potential clients it can service once established and from this has developed a list of potential client contacts. The people identified are personal and professional contacts of Mr. Johnson who can place Terra Engineering in direct contact with the type of clients the company is seeking.
Once a contract is completed to satisfaction for a client, the likelihood of attaining repeat business from that client is good. It is estimated that over 50% of clients that Terra Engineering successfully services, additional contracts will arise.
3.8 Competitive Environment
Within the mainstream environment industry in Ontario, the competitive environment is quite intense and the number of competitors is large. However, Terra Engineering is proposing to enter an industry which very few Territorial owned and operated companies exist and operate. Over the past decade or so, the need for Territorial owned and operated environmental services companies has increased dramatically and only now is the industry showing signs of meeting supply with demand for Territory governments, organizations and businesses in Canada.
Terra Engineering has identified a few Territorial owned and operated companies as its competition. However, like the construction industry, the environmental industry will utilize the existing competition to complete jobs faster, cheaper, and to attain larger contracts. The following companies which currently operate within the Territorial environment services industry are:
I. Terrance Tobber and Associates
II. Murphy and Associates
III. Dante and Associates
IV. Wood Clarence Associates
V. Charles Snider and Associates
VI. Canadian Geo Association
VII. Territorial One Engineering
As mentioned before, these people and companies may compete with or actually partner with Terra Engineering on any given project. The approach in dealing with these companies will be to establish good working relationships. Moreover, Terra Engineering will treat them as potential partners or sub-contractors.
Working relationships will be achieved by utilizing a careful and focused approach in demonstrating that alliances with these competitors will become important at some point. Each company's work will be reviewed to determine the type of projects they complete and the quality of the work. Meetings will be sought and held to discuss future opportunities. This will be an important relationship building exercise and may take some time to generate revenues from these contracts. Once relationships are established, Terra Engineering will not get too involved with any one company as this may put the company at risk of becoming too dependent on one company.
After conducting some initial research, Terra Engineering has identified a few key competitive advantages it has over its competitors. They include:
I. The technical knowledge is with the sole shareholder of the company;
II. Already established alliance with TAC Associates Limited which will allow the company to effectively compete on a wide range of contracts;
III. Experienced and qualified management team in place;
IV. Competitive pricing as the company will be utilizing a market entry based pricing strategy;
V. Central office location to the market (s) to be serviced;
VI. A vision of growth for Territorial communities in keeping with the Territorial mind set will enable the application of contemporary tools to determine traditional solutions.