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5. Accountability

Evaluation of the International Business Development Program in Germany

(June 2007)

(PDF Version, 1.44 MB) ^*

Table of Contents

• Executive Summary
• Acronyms
• 1.0 Introduction and Context
  • 1.1 Background to the Evaluation
  • 1.2 Description of the IBD Program
  • 1.3 Evaluation Context
• 2.0 Evaluation Methodology
  • 2.1 Evaluation Design
  • 2.2 Limitations of the Evaluation
  • 2.3 Rigour of the Evaluation
• 3.0 Key Findings
  • 3.1 Relevance and Contribution to Results Achievement
  • 3.2 Governance and Management Issues
  • 3.3 Success and Results Achieved
  • 3.4 Cost Effectiveness
• 4.0 Key Conclusions and Recommendations
  • 4.1 Conclusions
  • 4.2 Recommendations
• Annex A: Management Response

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Executive Summary

Objectives and Context

This report represents the findings of a formative evaluation of the International Business Development (IBD) Program in Germany. The Evaluation covered the operations of the Commercial Section at the Embassy in Berlin, the services delivered by the Consulates in Hamburg, Munich, and Düsseldorf, and the Honorary Consul in Stuttgart. While covering all the operations, the focus was on the Program as a whole, not the individual performance of the Posts.

The IBD Program in Germany represents important variations on the IBD model and lessons for operations in other mature markets. In emerging markets, trade dominates the commercial relations with Canada, with the primary clients of the IBD Program being Canadian exporting firms.

In the case of Germany, trade, investment, and science and technology all play critical roles-with trade decreasing in importance in recent years. Germany also acts as a platform for accessing the European Union by Canadian investors, with Canadian investment in Germany outstripping German investment in Canada. Germany hosts major trade shows where the focus of the sales is global, not the German market. With these differences in the scope of commercial relations come a differing group of IBD clients, extending beyond Canadian exporters, and a need for more innovative IBD services.

The Evaluation focussed on assessing the relevance, effectiveness, and efficiency of the current operations. The work was conducted between August and November 2006 and involved extensive file and document reviews, interviews with stakeholders within Canada, a three week trip to Germany covering over 125 interviews, and a survey of Canadian exporting firms.

Findings

Relevance

The Evaluation confirmed the relevance of maintaining and expanding Canada's linkages with Germany. The size of the German economy and its importance in areas such as global investment and innovation make it a key partner for Canada and Canada's global priorities.

Substantial ties already exist between Canada and Germany in trade, investment flows, and S&T linkages in both directions. However, Canada's overall position has been declining in recent years with its relative share in areas such as exports to Germany and investments from Germany declining.

A variety of factors outside the influence of the Program are contributing to this decline. On the German side, these include the reunification of Germany, new entrants into the EU, and the US strength in attracting investment. On the Canadian side, the shifting nature of the relationships with Germany has had a strong influence with Canadians now seeing Germany as an investment platform to tap other markets-decreasing the importance of direct exports from Canada.

Internal factors within the IBD Program also influence the performance, however. Despite the importance of Germany, there is a lack of a common vision for what Canada wants to achieve with its commercial relationship with Germany. The lack of clarity exists across key stakeholders, undermining the performance of the IBD Program. There is not agreement on priorities for the market, results being targeted, or how opportunities can best be tapped. There are also no mechanisms for coordinating efforts within HQ, and with other government departments (OGDs).

This has a number of consequences. For example, the IBD Program is subject to pressures from individual stakeholders-within DFAIT and outside-to undertake programming which has limited commercial prospects. In addition, IBD staff must develop their own support networks in Canada, with varying degrees of success.

The IBD Program has taken a number of positive steps to prioritize sectors, reduce the number of sectors, and develop sector strategies that meld the three streams-trade, investment, and S&T. The support of the Head of Mission (HOM) through outreach and outcalls has also helped further their efforts. All of these are important for enhanced commercial success.

While progress is being made, obstacles are evident that continue to lessen the effectiveness of the programming, spreading it in too many directions and sectors. For example, the Prime Post sector approach has been interpreted to mean that each officer needs to have a sector to coordinate. This increases the number of sectors, and decreases the funding available to each.

The choice of sectors is also influenced by factors outside of opportunities, Canadian capabilities, or Canadian interest. Some are dictated by HQ priorities. Others by the availability of outside funding from OGDs. Several sectors are driven by IBD staff skills and interests of specialists at the Posts. The consequence is that some sectors have limited potential for advancement or achieving results and limited ability exists to build a synergy within the overall portfolio.

There continues to be a heavy emphasis on trade promotion, despite its declining importance in the overall commercial picture with Germany. In addition, the S&T program focuses on a wide range of interventions to promote general linkages between Canada and Germany. This network building is resource intensive and the link to supporting IBD priorities is often not evident. The clearest gains being made are seen on the investment side.

Governance and Management Issues

Germany is one of four missions worldwide that has a structure that includes a Minister between the Ambassador and the Minister Counsellor, IBD. The Consulates report to the Minister Counsellor on IBD operations but the three Consuls report to the Minister directly for administrative purposes such as travel and hospitality. In addition, there are heads of the investment and S&T streams in Berlin and hierarchies within the Consuls.

With an overall governance structure that is very hierarchical and top heavy, decision making has become complex and lengthy. Classifications of positions and responsibilities are sometimes mismatched. The separation of the reporting lines by the three streams reinforces the stovepiped operations making it more difficult to build a synergy among the three streams. There is also a lack of clarity in some positions.

These internal organizational factors are further complicated by a lack of clarity of the roles and responsibilities among the IBD Program in Germany, Headquarters, and OGDs. In particular, the IBD staff are facing two challenges in implementing programming.

First, to effectively select sectors and implement programming requires a solid understanding of the opportunities in Germany, the capabilities of Canadian firms in these areas, and the interest of the firms in the German market. Without all three elements, IBD support can not be effective. While the IBD staff have done an excellent job of identifying opportunities in Germany, limited information is often available on the Canadian capabilities and interest to match the opportunity.

Second, the lack of an effective system of backstopping by HQ, with firms, associations, and OGDs, has forced the IBD staff to develop their own networks in Canada with a wide range of groups. This need to do their own outreach in Canada limits the results that can be obtained.

For some sectors, these voids are filled by existing sector networks as seen in automotive and agri-food. In others, limited support is currently available. In all of these existing networks, DFAIT plays a minimal role currently.

The changes taking place within DFAIT under the current reorganization are intended to address these types of issues. It is unclear at this point, however, whether the changes being planned will more clearly define the function of HQ and its value added in supporting the Posts. Many of the current plans are causing confusion at the Posts and with OGDs.

It is also uncertain whether the changes within HQ will support the principles of the Global Commerce strategy such as optimizing networks, supporting the interface between opportunities and potential in an integrated way, and lessening the distinctions between the three streams. The result could potentially be more fragmentation within HQ and overlap with OGDs-continuing to leave the Posts without the type of support required to effectively capitalize on opportunities.

The IBD Program is also facing a lack of information to support its planning, managing, and performance assessment. This manifests itself in the availability of information, its accuracy, and the systems in place to support a results based focus. For example, trade information necessary for the selection and monitoring of sectors is difficult to obtain at the levels required. Results tracking is primarily focussed on activities since limited information is available beyond this. While TRIO is a good contact management system, it was not intended to be a performance measurement system.

Results Achieved

Determining the results emerging from the IBD Program is extremely difficult for two reasons. First, methods to articulate and track results are not in place-a common problem across IBD programming. Second, the nature of the programming in Germany extends far beyond Canadian companies and trade promotion, making it difficult to measure spin-off benefits from the support provided. This added complexity requires new ways of defining results and tracking progress which are currently not available.

Despite this, some trends can be seen in the results being achieved. The clearest targeted results are in the investment area. Tracking contacts tells little about the progress in investment but progress through the stages of the investment process from initial contact to ultimate investment in Canada provides a clearer benchmark. The investment results emerging from the process developed by the team to nurture these relations have been strong. For example, as of 2005, the four year average of investment was $200 million in directly influenced investment per year.

The broad based nature of the S&T programming makes it more difficult to track results. The programming aims at building linkages on three levels: government to government on policy, regulations, and scientific matters; scientific exchanges among universities, individuals, and companies; and commercial linkages including commercialized R&D. The intangible result often cited from the work is the level of goodwill generated between the two countries. How this is converted into greater S&T linkages in support of IBD objectives is less clear. The results tracked include outcalls, signed cooperation agreements, and missions. Little tracking is done of the results emerging from these activities, however.

The trade priorities have shifted over time towards more proactive programming with the decline in reactive clients. The client groups range from individuals such as artists to large scale corporations. Overall, the average exporter to Germany has been declining in size over time with the average level of exports also declining. As well, some of the initiatives being pursued by the Posts are very resource intensive with limited potential spin-off commercial benefits that must be factored in any results assessment.

Of the eight sectors being pursued under trade, agri-food is the only one that has clearly defined the results being targeted and tracks them beyond an activity level. This includes tracking elements such as the expansion of the number of exporters into the market, increases in the range of products, and number of German importing agencies accessing Canadian products.

A survey of exporters was undertaken that confirmed the small scale of the exporters being assisted and their focus on Germany as an entry into the European market. The services being accessed support the objectives of the IBD Program, namely assisting Canadian companies to acquire the information, contacts and other support necessary to actively pursue international business opportunities. What is less clear is the extent to which the services are assisting firms with their medium objectives of expanding operations within Germany.

Cost Effectiveness

The development of the six core services was an important innovation within DFAIT-more clearly defining service niches. In a mature market such as Germany, however, this framework no longer provides the flexibility required to obtain results.

The programming in Germany has developed new innovations for servicing a range of client groups. In addition, strategies have been developed to bring the three streams (trade, investment and science and technology) into alignment for common objectives and synergies. These have provided strong results to date and represent important lessons for future programming in similar markets.

The relationships between the Posts and OGDs remain strong. There is a basic partnership approach in place which allows the Posts to work with OGDs-particularly those located within Germany-for common objectives. Overall, all sides feel this relationship is working well.

The number of sectors that continue to be pursued, and the primary funding sources available to support this work, results in an under-resourcing of sector work and a less effective Prime Post approach. The primary source of funding is the Client Service Fund (CSF). While travel and hospitality are allocated to IBD work, in reality this funding must also cover consular work and representation. In some cases, consular can use up travel funding quickly, making it less possible for staff to cover their sector throughout Germany. In addition, the travel and hospitality funding is outside of the control of the Minister Counsellor who has not been able to have input into this allocation until very recently. This has been controlled by the Minister.

The availability of outside funding also dictates priorities pursued and the relative funding available for those priorities. For example, agri-food receives substantial funding from Agriculture and Agri-Food Canada (AAFC), and the cultural industry is supported by Heritage Canada. This sets up an inequality among the sectors not based on needs or potential for results within the market.

The resources of the IBD Program are further diffused by the consular work undertaken at the Posts. To date, the impact of consular services on the IBD Program has been underestimated. More resources are required to handle the consular work than officially estimated, with Düsseldorf and Munich losing the equivalent of one of four CBS to consular activities.

The influence of consular goes further than this, however. Consular work takes precedence over sector work given its more rigid performance standards-making it difficult for the Vice Consuls to develop and execute well planned sector interventions. Consular work also impacts the structure of the Consulates, requiring Vice Consuls in each location to handle the workload. All of these factors represent losses to the IBD Program.

The concentration in Berlin of resources is also not optimal. Few commercial opportunities are seen in Berlin, yet over half of the IBD staff are located there along with a substantial amount of the resources. The decentralized nature of Germany, with powerful Laender governments, calls for a greater local presence. Other countries have begun to tackle this issue, moving resources out of Berlin and even further concentrating them in a few locations.

The IBD Program has been focussing on building sector teams that meld the three streams in closer working relationships. This is proving a sound approach and one that can be effective in the German context. The Program is also beginning to experiment with some regional approaches, bringing the sector team concept to working within the EU context. This is a key element within the new Europe Commerce Strategy and the lessons which emerge in Germany in automotive and renewable resources should be useful for determining success factors on a regional basis.

The nature of the German market requires the building of longer term relationships within sectors in order to be successful. The LES are the strength of the current programming, providing important links into German commercial interests and continuity of programming. These characteristics of the market, however, dictate a redefinition of roles between LES and CBS to ensure that both are providing value added to the process.

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Recommendations

#1: Vision and Priority Setting

The Global Operations Branch should take the lead in developing a consensus on the strategic direction and vision for the IBD program in Germany. This needs to ensure a number of key elements are in place in order to be effective:

• Clearly defined and agreed priorities for the market
• Mechanisms for coordination and communications by a range of stakeholders
• Clearly defined roles and responsibilities
• Targets for results and clear expectations for what needs to be accomplished and methods for tracking results
• Alignment of resources within a plan

#2: Improved Information for Decision Making

The IBD Program is facing a series of information constraints that must be tackled to allow more effective management and decision making by the Program.

• The Current and Structural Analysis Division within the Office of the Chief Economist at DFAIT undertakes analysis and has expertise on the use of trade and other statistics. The IBD staff are not currently familiar with what is available through this division, despite the fact that the IBD staff see a need to develop more solid information. The role of this Division could be expanded to allow better backstopping of IBD staff in the field and facilitate the access by IBD staff to appropriate information as requested. The inclusion of two new FTEs to this group would allow the development and maintenance of country specific data and analysis in support of IBD programming. It would also allow the training of IBD staff in the use of existing information and data available that could assist in their planning, implementation, and results tracking efforts.
• The usefulness of TRIO information could be enhanced with the development and application of data entry conventions and standards in order to standardize the data sets. The discrepancies seen among the Posts in Germany highlight the variation in entry quality, which will be further magnified as TRIO is expanded to an increasing number of countries.
• There remains too much emphasis on tracking activities to judge performance and not on the results emerging from those activities. The performance measurement system currently being developed within DFAIT could provide a method to facilitate the tracking of results. This system needs to be flexible enough to capture the results from all three streams, however, and must be coordinated with TRIO.

#3: Service Levels

While the six core services provide a good basis for defining minimum service levels for reactive services for Canadian firms, there is a need to better define service levels for proactive programming in all three streams and reinforce the message that proactive work is important. Lessons emerging from Germany can provide valuable input into this exercise, including ways to begin to meld the streams more closely in service delivery.

The lessons from Germany can also provide important information on new areas for IBD support. Specifically, three areas could warrant more consideration and increased support within IBD overall: CDIA; trade events that are global and regional in nature; and regional initiatives. All of these support the approaches articulated in the Global Commerce Strategy. The specific approaches to supporting CDIA, trade events, and regional initiatives would vary by the nature of the market and the potential results that could emerge in a specific context.

#4: Governance and Structure at the Post

The divisions between the three streams at the Post should be further eliminated, with the overall governance structure becoming flatter. This can be accomplished through a number of changes:

• The location of the Minister Counsellor should be studied more closely. Moving the position from Berlin to either Düsseldorf or Munich would allow the Minister Counsellor to be closer to the commercial activities. This move would have other implications, however, on the overall IBD operation. The pros and cons should be studied and a determination made of whether the centre of IBD programming should shift from Berlin.
• The current structure with two separate Heads of Investment and S&T should be amalgamated into one position and remain at Berlin. This will allow the resources to be freed to have more functional specialists located at the Posts that can be providing support to the sectors.
• In a resource rich environment, the Hamburg Consulate makes sense in terms of geographic coverage of the country. However, given the constraints on the Program, there are few compelling reasons for keeping it open. It currently faces low demand from Canadian firms and has priority sectors with weak potential.

#5: Breaking Down Silos at HQ

DFAIT should ensure that the current HQ reorganization breaks down the silos between trade, investment, and S&T-not reinforces them. During the current reorganization, HQ needs to move in the direction of a more integrated model that will provide consistent and value added support to the Posts. This should include the development of methods to support the new TCs that need to develop skill sets that combine the three streams into a more dynamic approach to building Canadian linkages. This new understanding of the skill sets of TCs needs to be reflected at both the management and staff levels. As well, HQ needs to clearly outline how the Posts are to interact with the various groups in HQ and the points of contact to obtain support in each of the Branches, ensuring as well that no overlap in functions exists between Branches.

#6: Rationalizing Sector Responsibilities

DFAIT should more clearly define the role it should play in sector support and build on the existing networks and expertise available elsewhere. One approach does not fit all sectors given the existing infrastructure for support. Some sectors currently have strong networks as seen in automotive and agri-food. An approach by DFAIT of building all expertise in-house is not constructive given the need to have greater collaboration with OGDs, sector associations, and firms, as well as the rotational nature of the DFAIT staffing. Leadership for sectors should be based where the knowledge exists, not dictated by positions.

As part of the sector work, Posts and HQ should consider the role of international trade events in business development. Where warranted (e.g., within a priority sector with clear expectations of commercial results), a coordinated effort by HQ, missions, and OGDs could include more active participation in major trade events that take place in Germany.

#7: Focus IBD Resources on IBD Programming at Consulates

The consular functions at the Consulates should be closed in a staged approach and moved to Berlin. In the short term, this means retaining the local consular staff as the interface with the public at the Consulates but moving the approval processes for passports and other documentation from the Vice Consuls to the Berlin Consular section. In the medium term, the transportation and communications network in Germany allows a complete centralization of consular services in Berlin. This can be staged as the consular LES retire, are transferred to IBD functions, or move to Berlin to continue consular work. It is recognized that emergencies will continue to require support from IBD staff even after the move is completed.

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Acronyms

AAFC

- Agriculture and Agri-Food Canada

CBS

- Canada-based Staff

CDIA

- Canadian Direct Investment Abroad

CMHC

- Canada Mortgage and Housing Corporation

CSF

- Client Service Fund

DFAIT

- Department of Foreign Affairs and International Trade

EAC

- Evaluation Advisory Committee

EU

- European Union

FDI

- Foreign Direct Investment

FTEs

- Full Time Equivalents

HC

- Heritage Canada

HOM

- Head of Mission

HQ

- Headquarters (DFAIT)

HS

- Harmonized System

IBD

- International Business Development

IBOC

- International Business Opportunities Centre

IC

- Industry Canada

ICT

- Information and Communications Technology

IIT

- Investment, Innovation, and Sectors Branch

ISTPP

- International Science and Technology Partnership Program

LES

- Locally Engaged Staff

NAFTA

- North American Free Trade Agreement

NRCan

- Natural Resources Canada

OGD

- Other Government Departments and Agencies

PAA

- Program Activity Architecture

PEA

- Current and Structural Analysis Division, Office of the Chief Economist

PERPA

- Political, Economic Reporting, and Public Affairs

PMF

- Performance Measurement Framework

PMP

- Performance Management Program

PMS

- Performance Measurement System

PSU

- Post Support Unit

R&D

- Research and Development

ROs

- Regional Offices

S&T

- Science and Technology

SMEs

- Small and medium enterprises

TC

- Trade Commissioner

TCS

- Trade Commissioner Service

TORs

- Terms of Reference

VTC

- Virtual Trade Commissioner

WIN

- World Information Network for Exports

WMM

- Global Operations Branch

WOE

- Europe Division

ZIE

- Evaluation Division, Office of the Inspector General

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1.0 Introduction And Context

• 1.1 Background to the Evaluation
• 1.2 Description of the IBD Program
• 1.3 Evaluation Context

1.1 Background to the Evaluation

This report presents the findings of a formative evaluation of the International Business Development (IBD) Program delivered by Canadian missions in Germany. The Evaluation is the third in a series focussing on assessing the overall design, management, and delivery of the IBD Program. The first two evaluations covered the IBD operations in Mexico and China.

The desire to proceed with this Evaluation was expressed during the Inspector General's annual consultations with the Chief Trade Commissioner/Assistant Deputy Minister, Global Operations Branch. The selection of Germany reflected the mature nature of its commercial relations with Canada. The evaluations in Mexico and China provided insights into emerging markets and commercial relations primarily driven by trade. Germany provided an opportunity to review more complex commercial relationships built on trade, investment, and science and technology (S&T) linkages. As a result, it was anticipated that this Evaluation would be of value to the IBD Program Management in Germany, as well as the Department as a whole, in looking at mature market development.

The Evaluation Division (ZIE) within the Office of the Inspector General of the Department of Foreign Affairs and International Trade (DFAIT) conducted the Evaluation under the strategic direction of an Evaluation Advisory Committee. The Evaluation covered the operations of the Commercial Section within the Embassy in Berlin, the services delivered by the Consulates in Düsseldorf, Munich, and Hamburg, and the Honorary Consul in Stuttgart. The review also included the support role played by various divisions within DFAIT. The emphasis was on assessing the overall efficiency and effectiveness of the IBD Program in Germany as a whole rather than evaluating operations at the individual mission level. As such, the Evaluation focussed on strategic issues, key trends, challenges, and lessons-not the performance of individual posts.

The following report provides an overview of the findings. The rest of Section 1.0 outlines the IBD Program in general and more specifically in Germany. Section 2.0 presents the methodology for the Evaluation, including its limitations. Section 3.0 focusses on the results of the Evaluation in terms of the relevance of the programming, governance and management, results achieved, and cost effectiveness. Section 4.0 provides an overview of the conclusions and recommendations.

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1.2 Description of the IBD Program

1.2.1 IBD Programs in General

DFAIT is charged with promoting Canada's productivity and prosperity through innovative policies, programs, and partnerships designed to increase the international competitiveness of Canada. The Department meets this challenge by emphasizing:

• Enhancing Access to Markets: by negotiating and ensuring policy instruments to open markets and reducing risk with a strategy that presents clear negotiating priorities;
• Positioning for Commercial Success: by promoting Canada as a partner of choice for commerce, with an emphasis on sectors where we have a competitive advantage; and
• Connecting and Working with Business: by encouraging Canadian companies' involvement in the global marketplace and by fostering a culture of risk taking and entrepreneurship.

The IBD Program is the primary means for achieving the latter two results. It focuses on promoting trade, investment, and science & technology development between Canada and countries around the world. Assistance is provided through the Trade Commissioner Service (TCS) stationed at missions abroad and at regional offices (ROs) located across Canada.

The overall goals of the IBD program are:

1. To support the expansion of the Canadian exporter community and the diversification of export products;
2. To stimulate and retain foreign investment or re-investment in Canada;
3. To foster science and technology exchanges between Canada and other countries;
4. To advocate and protect the interests of Canadian business and industry abroad; and
5. To provide market access advice and assistance.

The Business Planning Framework for 2006-07 outlines the priorities and targeted results at a Departmental level. These results support the medium term outcomes for business clients as articulated in the Department's Program Activity Architecture (PAA):

• Providing support services to qualified Canadian businesses who are currently operating abroad or who have recently demonstrated the capacity to do so; and
• Promoting international sales of Canadian goods, services, and technology.

In a vast majority of markets, the primary focus is trade promotion, not investments and S&T given the nature of the commercial relations between the country and Canada. The trade promotion activities primarily support the delivery of six core services and complimentary areas of programming including:

• On-going gathering of market information and intelligence;
• Responding to inquiries about the market and providing market advice and guidance to new entrants;
• Identifying trade, investment, and technology leads and putting them forward for matching with partners in Canada;
• Supporting business missions to and from Canada sponsored by DFAIT, Other Government Departments (OGDs) or provinces; and,
• Following market access issues, resolution of trade irritants, facilitation of the understanding of trade regulations and trade-related legal matters.

The IBD clients in these markets also tend to fall into two categories-Canadian exporting firms and partner clients. The first group is comprised of companies registered in Canada. These companies are primarily small and medium sized enterprises (SMEs). A priority is also placed on new business groups such as Canadian youth, aboriginal, and women entrepreneurs. Foreign subsidiaries and persons representing such companies can also be included as a client.

Canadian firms will have already researched and selected their target markets before receiving assistance at the missions (i.e., firms should be export ready). They are also at varying stages of exporting within the market, with requirements for varying services.

The missions also provide services to co-delivery agents or partners (i.e., OGDs) involved in influencing the primary target clients to adopt new approaches or change their behaviour in foreign markets. The IBD Program refers to this second group as partner clients. While these organizations may receive services from IBD staff, they are viewed as intermediaries rather than 'clients' per se. The partners assist and/or complement DFAIT's efforts to stimulate changes among commercial operators in Canada and overseas. The support provided to partners is targeted at increasing the organizations' results with the client firms with whom they interact.

For Missions that are involved in investment promotion, many have adapted the six core services model to assist in implementing investment strategies and delivering investment activities in the market. Potential investors into Canada progress from a "target" (i.e., being a key local contact identified as having the potential for investing abroad or being a facilitator towards an eventual outward investment) to a "lead" (identified as having the desire and capacity to expand or diversify through investment abroad) to a "prospect" (a company that has expressed an interest in investing and has specified Canada or placed Canada on the destination short-list).

S&T linkages vary across missions, with only a limited number engaging in active support in this area. S&T linkages are seen as important both in terms of developing strategic alliances and developing capacity within the country in the S&T field. Promoting collaborations between innovators in Canada in the S&T field (including the private sector and institutions) and their foreign counterparts involves activities in both Canada and at the Missions. Only a small number of Missions abroad, however, have this as a priority (mostly OECD countries) given its specialized nature.

1.2.2 IBD Program in Germany

1.2.2.1 Overview of Programming

As will be indicated throughout this report, Germany's IBD Program represents important variations on the IBD model. In the case of Germany, the three streams-trade, investment, and S&T-are far more dynamic than seen in emerging market situations. The following Figure shows the extensive nature of the commercial relationships.

Building S&T linkages has been a priority of the IBD Program, given the importance of Germany in innovation internationally. Canada and Germany have had a bilateral collaboration agreement in place since 1971. The IBD Program has an active component for S&T linkages which is focussing on increasing the "level of cooperation and the commercially relevant results of research and development (R&D) between and Germany in important technology sectors".⁽¹⁾ The programming takes a broad approach to building linkages, working with a wide range of groups in Canada and Germany including scientists, institutes, organizations, government agencies, and private firms. Information is not available to measure the dimensions of the linkages between the countries at this point, however.

The investment flows in both directions have been substantial. Germany is the third largest source of Foreign Direct Investment (FDI) in the world, and the seventh largest investor in Canada. For promoting investment, the clients of the IBD Program are the German investors, with some support also being given in the process to the Canadian provinces and municipalities engaged in the investment promotion opportunity. Unique packages of services are developed for the German companies, depending on where they are in the investment process.

Canadian investments in Germany have also been substantial with investment increasing 183% between 1999 and 2004-and surpassing the cumulative levels of German FDI in Canada. The importance of Canadian Direct Investment Abroad (CDIA) is increasingly being recognized within Canada as a key component of the Canadian economy. For example, there is an emerging consensus that there is a complementary relationship between trade and investment-when CDIA to any country increases, Canada's trade to the same country increases.⁽²⁾

CDIA has not been a priority to date for the IBD Program in general within DFAIT. The IBD Program in Germany, during the coming year, will be undertaking a pilot for DFAIT to test an approach to promoting CDIA-something which will look at identifying the value added that the Posts can provide to the process.

The trade relationships between Canada and Germany are also extensive, with Germany's exports to Canada substantially exceeding Canadian exports to Germany. The support to Canadian firms in exporting has focussed on providing the six core services as well as more proactively promoting sector development. These latter activities have been gaining in importance as the requests from Canadian firms for assistance have declined. Strategies are being developed for expanding trade opportunities based on more proactive techniques. This means that while the primary client here remains the Canadian firms, more work is being in areas such as outcalls to build the network within Germany, and working with German firms to identify market opportunities and match these to Canadian exports.

Globalization is increasingly knitting together the world's economies through trade, financial flows, technology, and migration. In recent decades, trade has grown faster than GDP, and investment has outpaced trade. And, measured by either trade or investment, Canada has one of the most open economies.....But the world is not static, and competitive forces are constantly shifting.

Kevin Lynch, April-May 2006. "Canada's Success is No Accident, and It Isn't a Given". Policy Options, Institute for Research on Public Policy.

The IBD Program in Germany has been slowly moving towards greater integration of the three streams-a move which is critical to enhance the effectiveness of the programming. In complex markets such as Germany, all three increasingly go hand in hand. For example, Canada's competitive niche for attracting investment in the automotive sector from Germany is partially built on its innovation capabilities. International trade and FDI are also important channels for S&T diffusion. To effectively capitalize on the opportunities often requires a melding of the streams and a determination of how best the efforts can complement each other.

The IBD Program in Germany also has unique features in terms of other types of spinoffs and benefits generated outside of Germany from its programming. This is seen primarily in three areas.

First, many of the large trade events held in Germany-and for which the IBD Program provides support-are key international trade events. While they physically are located in Germany, the trade events are serving the international market with suppliers and buyers converging. In many cases, the majority of sales of Canadian firms at these events are to purchasers outside of Germany. Canadian Trade Commissioners (TCs) from around the world also attend these events as a method to build contacts in their priority sectors and better support their clients. The Germany IBD Program facilitates the trade and investment results in these other markets, albeit it is impossible to quantify the magnitude. Given the geographic nature of the Program, however, these are not considered results from Germany IBD efforts.

Second, the Canadian firms that have invested in Germany are using this as a platform to serve the European Union (EU). This is an area which the IBD Program has been promoting in terms of the CDIA and the pilot should enhance the prospects here. For the firms established in Germany already, the services to date have been limited but the Program is currently considering how they might provide value added to expansions of the Canadian firms in Germany and the EU. This will be further explored by the Program. Currently, the focus with Canadian firms in Germany is more on troubleshooting or facilitating contacts with government officials.

Third, the IBD Program is also starting to experiment with the development of regional programs. Funding has just been received from the CSF to look at regional initiatives in two sectors.

• The automotive sector initiative will link the Posts in Germany, Austria, and Switzerland with the Posts in Atlanta and Detroit. By working together, this approach seeks to influence the flow of automotive FDI and R&D from Europe into North American Free Trade Agreement (NAFTA) and the flow of CDIA into the EU to the benefit of Canada.
• The renewable resources sector in Canada is the focus of the second initiative and includes wind power, biodiesel or bioethanol. The idea is to create a forum for Trade Commissioners based in Europe to better coordinate their activities and offer Canadian clients a uniform and better informed service. The participants here are: Berlin; the Hague; Stockholm; Copenhagen; Vienna; Helsinki; and Olso.

1.2.2.2 Overview of Organization and Resources

The organization of the IBD Program delivery in Germany also has a number of unique features. The following figure provides an overview of the accountability and reporting relationships within the IBD Program.

Germany is one of four missions worldwide that has a structure which includes a Minister. Only Tokyo, Paris, Washington, and Berlin have a Minister between the Minister Counsellors and the Ambassador. With the presence of the Minister, the responsibilities for the IBD Program become more complex. The Minister Counsellor responsible for IBD reports directly to the Minister and not to the Head of Mission (HOM). The IBD staff in Berlin and the Consulates report to the Minister Counsellor on IBD operations but the three Consuls report to the Minister directly for administrative purposes. For example, the Minister allocates and approves their travel.

The three Consulates located in Munich, Düsseldorf, and Hamburg reflect the decentralized nature of Germany. Germany is highly decentralized both economically and politically with their state governments (Laenders) having a high degree of autonomy. This decentralized structure has meant that many countries have diplomatic presence at the Laender level. In addition, three Canadian provinces are located in Munich-Quebec, Ontario, and Alberta. Two are co-located with the Embassy (Ontario and Alberta).

The IBD Program also operates under a Prime Post System. Under this model, sector specialists are assigned for each priority sector and cover all of Germany-not just the Post within which they are located. This is different from the approaches at most missions around the world where the Trade Commissioners cover a range of sectors in their geographic territory.

The rationale for the Prime Post approach revolves around two main arguments that have been made by the IBD Program. First, given the sophisticated nature of the German market, there is a need to have sector specialists who can gain a solid understanding of the sector and market and build the necessary networks. It is felt that if people were focussing geographically, they would not be able to build the sector expertise and contacts that would produce results. Second, the number of investment and S&T specialists does not allow assignment of one specialist per Post. It is felt that a more efficient approach is to have them cover all of Germany and go where the opportunities take them.

The Prime Post system does require certain adjustments. For example, there is a need for: increased travel budgets; increased Post coordination; and the development of a "virtual" single Post. This team approach would ensure that roles are complementary and not competitive. It would also be enhanced by a flatter governance structure that would ensure the best coverage and coordination of effort for priority sectors.

The resources for the Program flow from Global Operations Branch through the Europe Division (WOE). In total, there are 25 Full Time Equivalent (FTEs) in the IBD Program. The official distribution of the positions is shown on the following Table covering Canada Based Staff (CBS) and Locally Engaged Staff (LES).

Given the Prime Post Structure, the Client Service Fund (CSF) funding for the Embassy and consulates is divided by sector. It should be noted that the CSF funding does not include the special allocations given for the regional initiatives that are being undertaken in the automotive and renewable resources sectors.

In addition to the sources of funding listed on Table 1, the Posts receive additional resources:

• Agriculture and Agri-Food Canada (AAFC) provides over $200,000 in funding to support the activities of their staff in Munich.
• Trade Routes program of Heritage Canada (HC) provides $30,000 of funding for cultural industry promotion. Additional funding is also provided by DFAIT HQ for promotion of aboriginal arts.
• The Investment and S&T staff receive funding for travel to Canada from a variety of sources within Canada including Industry Canada (IC). This includes support to participate in conferences and doing outreach in Canada.
• Some sector associations such as the apparel and the health industry receive funding from Industry Canada to promote products in the German market. These groups receive services from the IBD Program to support their efforts.

1.3 Evaluation Context

1.3.1 Objectives of the Evaluation

The objectives of the Evaluation were:

1. To provide senior departmental managers with a structured assessment of the processes and systems used to plan, resource, coordinate, implement, and report on program performance within the IBD Program in Germany;
2. To profile, analyse, and document the progress made in the achievement of program objectives and expected results; and
3. To identify best practices and lessons learned which can eventually be replicated in other locations.

The Evaluation comes at a time when DFAIT is in the process of change. The lessons here should assist in that process and highlight both the strengths and weaknesses seen within the current IBD approaches. It is also intended to provide insights into what is required to support mature markets and how best to approach those markets.

1.3.2 Evaluation Questions

The Evaluation focussed on the following generic evaluation issues: relevance; success; and cost-effectiveness (value for money). In addition, the Evaluation reviewed a series of questions that were particularly relevant to the IBD program in Germany.

• How are clients served in different markets within the same country? Is there adequate sectoral coverage from each of the German missions? Is a substantial presence required elsewhere? Are adjustments required in the allocation of resources within and among the missions or the geographic bureau? Should all missions be active in every sector? Where are the missions of other OECD nations located?
• What is and/or should be the level of coordination among posts within Germany and between Germany and other EU based missions? What is the current level of coordination domestically and internationally in terms of outcalls, matchmaking, recruiting, etc.?
• Are the respective roles and responsibilities among the various divisions at HQ, regional offices in Canada, the IBD Program Manager, Consulates, trade personnel, OGDs, etc. clear and well understood?
• What are the linkages between the economic and commercial sections of the Embassy? How are interventions in trade policy, market access and advocacy files contributing to the achievement of IBD results? To what extent are the missions able to leverage Public Affairs initiatives to support IBD interests?
• What are competitor country strategies in Germany (USA, Britain, France, others) and how does the Canadian IBD strategy compare?

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2.0 Evaluation Methodology

• 2.1 Evaluation Design
• 2.2 Limitations of the Evaluation
• 2.3 Rigour of the Evaluation

2.1 Evaluation Design

The Evaluation was undertaken by the Evaluation Division between August and November 2006. A Terms of Reference (TORs) was developed in conjunction with the Evaluation Advisory Committee (EAC). The EAC provided input into key issues that would be covered, and those that should remain outside of the Evaluation. The methodology of the Evaluation built on the previous two IBD evaluations in Mexico and China, adding and changing aspects to address the differences in the German market.

The emphasis of the Evaluation was on program operations during the fiscal years 2003-04, 2004-05, and 2005-06. Important changes made during the 2006-2007 period are also incorporated here to show how the Program is streamlining its operations, particularly in terms of its focus and approach to sectors.

The following outlines the basic approach to the Evaluation.

2.1.1 Document, File, and Data Review

A background study was undertaken before the Evaluation began in order to gather information on the profile of the commercial relationships between Canada and Germany. This document summarized important trends such as the trade, investment, and S&T patterns between the two countries. It also provided a preliminary listing of the services provided to Canadian firms by the four Posts.

This report was supplemented by reviewing the information available on various databases including: World Information Network for Exports (WIN Exports); TRIO; Client Service Fund projects; the Virtual Trade Commissioner (VTC); and the International Business Opportunities Centre (IBOC). Other services were also reviewed such as the market studies and information provided on InfoExport.

A wide range of Program documents were reviewed for the Evaluation including, but not limited to: IBD Business Plans; Yearly Progress Reports; sector strategies; performance reports; internal briefs; mission reports; success stories; letters of appreciation from clients; internal correspondence; presentations; and other information provided by the four Posts and Headquarters.

Overall DFAIT documents were reviewed such as the draft Global Commerce Strategy and the European Commerce Strategy in order to place the IBD Program into the broader DFAIT context. Documentation was also received from other government agencies such as Industry Canada, Heritage Canada, and Agriculture and Agri-Food Canada that provided information on sector activities within Germany, results being achieved, and approaches for market development.

Given the importance of Germany in the world and within the EU, other studies were also consulted in order to gain a better understanding of the German and Canadian linkages. This included documents that provided an overview of Canadian competitiveness in general.

2.1.2 Key Stakeholder Interviews

Interviews were conducted with DFAIT staff at Headquarters in a wide range of divisions and the TCS Regional Offices. Other groups were also consulted including officials from other government departments in Canada, officers of industry and bilateral associations, and provincial government representatives involved in trade and investment. In person interviews were held in Ottawa. Others were conducted by phone.

2.1.3 Field Mission to Germany

The four member Evaluation Team undertook a mission to Germany between September 22 and October 14, 2006. The Team travelled together to the four Posts and visited the Honorary Consul in Stuttgart. During the visits, the Team divided into two groups of two evaluators each to undertake the interviews. In total, over 125 interviews were held during the three weeks.

Intensive discussions were conducted with IBD staff, personnel from other government departments and provincial governments (both co-located at the missions and those outside the mission), and personnel from other sections of the Embassy.

German companies in a range of sectors were visited, including firms that had received services from the IBD Program in all three streams of focus and those that were contacts of the missions. Some Canadian client companies were also interviewed that had operations in Germany. Other groups associated with S&T, such as the competence networks and national government agencies, were interviewed to discuss the current and potential collaborations with Canada. The Team met with Laender level agencies including Ministries and Chambers of Commerce to discuss their programs in promoting trade, investment and S&T, and their relationships with Canada.

Discussions also took place with trade representatives of foreign governments including France, United Kingdom, and the United States. This provided information on the approaches being taken by other countries, their structure and focus, and the type of support being provided in Germany.

2.1.4 Client Survey of Canadian Exporters

A telephone survey was conducted of Canadian business clients. The sample consisted of all corporate clients listed on the VTC as either active or interested in Germany. This represented 1,830 companies of which 147 completed the questionnaire providing a margin of error of +/- 6.7%.

The purpose of the survey was to determine the importance, satisfaction with and impact of the services received by Canadian company clients at the missions. It also attempted to provide insights into how Canadian companies approach the German market-as a standalone market or as part of the EU-and the significance of trade events in their approach to the market.

2.2 Limitations of the Evaluation

The largest challenge facing the Evaluation Team was the lack of data on results from the Program. These issues will be raised again in the evaluation report and are seen on a number of levels.

• The Posts in Germany have been gradually transferring to the TRIO system, which means that over the period covered by the Evaluation, entries have been made on both WIN and TRIO. Munich was first in the transition, starting with the TRIO system two years ago. Düsseldorf began one year ago, and Hamburg and Berlin began in May 2006. This made comparisons over the years or between Posts difficult since the transfer has been staged.
• The integrity of the WIN and TRIO information is also uncertain since data quality varies by the individual Trade Commissioner entering the information.
• The VTC database for the Canadian client survey sample proved problematic. Of the overall number of firms listed on the VTC as either active or interested in the German market, over 56% were not eligible to complete the survey. Even with the eligible group, many had received no services directly from the Posts but had simply accessed information from the VTC. The use of the VTC also meant that no feedback could be obtained from Canadians involved in investment or S&T activities, only exporters.
• Most information available is on activities such as service requests. The heavy focus on tracking reactive services provides limited insights into the type of programming being undertaken within Germany, however. This is a systemic problem facing all of the IBD Programs and becomes more acute when dealing with a market such as Germany where only a small amount of the programming is responding to Canadian company requests for service.
• Results are also not technically captured in TRIO since it is a client management system and not a performance management system. This means that even on the trade side, the only results being tracked are at best activities which tell little about the quality of services. The fact that TRIO was not originally designed for investment and S&T activities also constrains the analysis.
• These problems extend beyond the internal DFAIT systems and include other areas such as the inability to obtain accurate trade statistics for Canadian exports into Germany. Many products are transhipped through Rotterdam or other ports and Statistics Canada counts this as the destination, not the final destination in Germany.

The second challenge facing the Evaluation revolved around the ability to organize the mission in a manner that allowed the Team to cover the four Posts and ensure two things: consistency in the approach being taken across the Team members; and the ability to share observations as the mission progressed. The first constraint was handled by developing interview protocols to be followed by the Team members and by shifting Team composition at each location. The decision to have all members travel to each Post was a reflection of the second concern. This decision provided the opportunity for the Team members to discuss issues on an on-going basis and compare findings. This resulted in a consensus being developed by the end of the mission.

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2.3 Rigour of the Evaluation

The comprehensive nature of the approach taken to this Evaluation has allowed a high degree of rigour and triangulation of the information and analysis. A wide range of documents and data were reviewed, a cross-section of stakeholders interviewed, and a Canadian firm survey undertaken. This ensured that the information being gathered by the Team could be compared and any findings and conclusions be based on multiple lines of evidence.

The previous two evaluations of IBD Programs also provided a perspective on issues which were unique to Germany and those which were more systemic to the IBD program as a whole. While this report does not undertake direct comparisons, what became clear during the Evaluation was that some issues have been seen consistently across the IBD evaluations while others relate to Germany being a mature market. A distinction is made in this report between the uniqueness of being a mature market and problems that may face all IBD programs.

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3.0 Key Findings

• 3.1 Relevance and Contribution to Results Achievement
• 3.2 Governance and Management Issues
• 3.3 Success and Results Achieved
• 3.4 Cost Effectiveness

3.1 Relevance and Contribution to Results Achievement

Finding # 1: Vision, Mandate, and Strategy

A need exists to develop a clear vision for what Canada wants to achieve with its commercial relationship with Germany. Currently, a lack of clarity exists across key stakeholders which undermines the ability of the IBD Program in Germany to maximize its performance.

The intensive and dynamic nature of the commercial relationships between Canada and Germany means that there is a greater need to have a clear framework for moving forward and capitalizing on opportunities. The key stakeholders must be in agreement on: the approach to the market; how to coordinate their efforts; and common results to be achieved.

In an ideal environment, to maximize results, it is important that a number of elements be present in a Program:

• Clearly defined and agreed priorities for the market;
• Mechanisms for coordination and communication by stakeholders to maximize results;
• Clearly defined roles and responsibilities known and accepted by all the stakeholders;
• Targets for results and clear expectations of what needs to be accomplished; and
• Alignment of resources within a plan.

While the ideal rarely exists, in the case of the Germany IBD Program, few, if any, of these elements are in place to support the Program as will be discussed in this evaluation report.

The base for a solid program should be an agreed vision. From the interviews conducted in both DFAIT Headquarters (HQ) and the Posts, this appears lacking. HQ sees Germany as a mature market, needing limited guidance or an agreed framework within which to operate. In fact, the self-sufficiency of the IBD Program in Germany is seen as a positive aspect, with the Posts requiring limited support from HQ to effectively do their jobs. DFAIT HQ also has no clear mechanism for building a consensus among stakeholders on the priorities within the market, leaving the Posts to develop links back to Canada with a wide range of groups.

For the operation in Germany, on the other hand, this lack of guidance from HQ on priorities or strategies is making HQ increasingly irrelevant to their operations. There was even uncertainty what potential role HQ could play in providing guidance and a strategic focus. The Program liaises directly with a wide range of other groups in Canada in order to fulfil its mandate.

This lack of a joint vision means no agreement exists on what the priorities are for the German market, how those priorities will be implemented, and the methods for coordinating the efforts and making joint decisions. The lack of a forum within which these issues can be discussed further exacerbates the situation.

What impact does this have on the overall IBD Program in Germany? There are a series of consequences for the Program.

• Many of the contacts by individual staff in Germany with Canada are with OGDs such as Industry Canada. These groups provide support and a framework within which sector priorities and approaches can be developed. While some of the networks are highly effective, some tend to reinforce the separation between trade, investment and S&T and rarely have DFAIT playing an active role. The quality of the networks also varies by sector, with some providing solid support, while others have more limited support. This means that some staff receive more support for their sector than others.
• The IBD Program is open to pressure for undertaking specialized programming or supporting specific sectors sponsored by divisions within HQ or OGDs that may have limited potential for reaching results. These sectors require valuable IBD staff resources to implement, however. No mechanisms are in place to get an overall reading from HQ on whether the programming is an appropriate overall priority, so the IBD Program feels it has no option but to accept the varying priorities from individual divisions. This makes building a synergy across programming more difficult, and lessens the overall impact.
• It also makes building a strategic focus at the Program level more difficult. The Program has been developing new approaches to setting priorities and these are being incorporated into their yearly Business Plans and sector strategies. For example, they have been streamlining sectors and trying to better integrate the three streams. Little feedback has been received by the Posts from HQ on the Plans, however, so it is unclear whether HQ is in agreement with these strategies. The feedback that is received by the Posts from HQ is often negative-such as questioning the veracity of some of the results reported or conveying the message that results are disappointing. In addition, instead of having clear objectives for a country, with a clarity of how elements fit within this, the sector work has also become more personalized by staff. The need to rationalize why a sector is important should be accepted at the corporate level to ensure that the right sectors are being selected. Instead, it has tended to make some staff fearful of their jobs and uncertain of their performance.

While the draft Global Commerce Strategy and the Europe Commerce Strategy will eventually provide an overarching strategy within which to work, translating this to the country level will prove more challenging. The need exists to have a shared vision for a Program as complex as Germany, mechanisms for developing and coordinating the approach, and clearly articulated results to track progress.

Finding # 2: Program Priorities

The IBD Program has made a number of positive steps in the last year to prioritize sectors, reduce the number of sectors, and develop sector strategies that incorporate the three streams in an integrated approach. While some progress is being made, a series of obstacles continue to lessen the effectiveness and relevance of the programming-spreading the Program in too many directions and sectors.

For the Business Plan 2006-07, a number of changes were introduced in an effort to streamline and focus the programming. First, in an attempt to move away from having trade events dictate sectors, the IBD staff were asked to put forward arguments for the relevance of their sectors and develop sector strategies. In developing the strategies, they were encouraged to consult with other groups such as Industry Canada, associations, provincial representatives, and other contacts. This was the first year for the sector strategies. The CSF was then allocated based on the strategies-not events that needed to be funded.

Second, each strategy needed to integrate trade, investment, and S&T promotion to better help officers understand the streams and how they relate. To reinforce the sector approach, one IBD officer was put in charge of the sector and its coordination across the three streams. It was also anticipated that one stream would be predominant in each sector. So for example, consumer products is driven by trade; nanotechnology by S&T; and automotive by investment.

The following Table shows the resulting priority sectors and the shifts over the last few years. As can be seen, the number of sectors has declined slightly. While not on the table, the focus within the sectors has also been narrowed as of 2006-07.

There is agreement that the job of focussing the Program has proven difficult, with only limited progress being made. The issues revolve around two limitations facing the Program.

First, the sector and Prime Post approach means that each officer should have a sector to coordinate. The number of sectors, therefore, needs to match the number of staff. With this approach there can be limited possibilities for matching the number of sectors with the amount of resources available to do the job properly. The number of sectors is fixed in the short term.

The single most important issue that needs to be addressed in Canadian commerce is focus.

Picking priority areas is simple in theory, but difficult in practice. The "picking" must be done with care and expertise, based on evidence and analysis.

Conference Board of Canada - Picking a Path to Prosperity: A Strategy for Global Best Commerce

Second, the choice of sectors is guided by a wide range of factors-many having nothing to do with the potential for results. The intention of developing the strategies was that sectors could be selected based on answers to three questions. What are the German opportunities? Is Canada in a position to take advantage of these opportunities? Is there sufficient interest on the Canadian side?

This link between the opportunities in Germany, Canadian capabilities, and Canadian interest is seen to be key to selecting sectors-and widely recognized within DFAIT as such. The priority setting, however, did not follow this but reflected a series of other inflexibilities within the system. For example, some sectors such as agri-food and arts and culture were continued based on the availability of outside funding. Others, such as wood and consumer products, have been historical sectors with long term involvement by specific IBD officers. Aerospace and aboriginal arts (within consumer products) are examples of sectors driven by priorities from HQ. Still others are driven by staff skills and interests of specialists such as renewable resources.

Does this mean the Program has the wrong sectors? Not necessarily. Some sectors such as automotive and agri-food are based on solid plans developed with industry and have clear potential for achieving the targeted results. New niches are also being identified by some of the TCs such as seat assembly in automotive, organic products, and designer fashions.

In other cases, however, there are clearly limited opportunities in the short term. The wood sector, for example, has market potential in Germany and clear Canadian capabilities. However, the Canadian wood industry does not have Germany as a priority market for many products and as a result there is limited interest by Canadians in the market. This has been the case for a number of years with limited potential results emerging from IBD support despite the best efforts of the Program.

To move to a more strategic approach to sector selection will require a range of changes including the support that is available to the Program. For example, for many sectors, the Trade Commissioners are able to identify and respond to business opportunities in the region but lack information on the Canadian side. Is this an area of Canadian strength? Will Canadian firms respond to the opportunity? There is also a lack of backstopping in Canada to identify the Canadian companies to match the German market, to recognize the flexibility required in delivering services, or to provide information needed to do the job more effectively.

Finding # 3: Importance of Germany and Potential for Trade, Investment, & S&T

The Evaluation confirmed the relevance of maintaining and expanding Canada's linkages with Germany. The size of the German economy and its importance in areas such as investment and innovation make it a key partner for Canada and Canada's global priorities. However, some of the current resource allocations and approaches may not be achieving the greatest payoff for Canada.

Germany remains an important commercial partner for Canada given its position within the global economy. Germany is the third largest economy in the world, the leading global exporter, and ranked number two for importing. Germany is the largest trading partner of 18 of the 25 member states of the EU making it a strong platform for accessing the EU market. It is the third largest source of FDI globally. Germany's S&T sector is one of the most sophisticated in the world with a plethora of organizations and functions and a key source of global technology.

As described above, the ties between Canada and Germany are strong with substantial trade, investment, and S&T linkages taking place in both directions. However, Canada's overall position in trade and investment has been declining in recent years, with its relative share falling from already low levels. This decline can be partially attributed to a variety of factors outside the control of the IBD Program.

On the German side, the reunification of Germany and the new entrants into the EU have influenced both the trade and investment patterns of Germany-diverting them away, in some sectors, from Canada. Germany has also been increasing its trade and investment with parts of the former Soviet Union further eroding some of the traditional markets for Canadian products (e.g., lumber).

On the investment front, the US is a major competitor for Canada in attracting German investors. The access to the NAFTA region is a draw, with Canada needing to demonstrate a distinct competitive advantage over the US in order to win the investment battle. This is particularly true since Canada is sometimes perceived as having a number of obstacles for investors including non-transparent regulations (e.g., provincial variations that are complex to decipher), limited access to financing, and Canadian and provincial content requirements.

On the Canadian side, a series of factors influence the commercial patterns. The nature of the relationship between Canadian firms and the German market is changing in many cases. Over the last decade, Canadian investment in Germany has outstripped traditional export sales. This means that firms are increasingly using operations in Germany as a platform for the German and EU markets. Canadian affiliate sales in the EU in 2003 were $71 billion, compared to $31 billion in exports to the EU.

Small and medium enterprises account for the majority (99.87%) of Canadian companies and employ over half (64%) of the labour force as of 2005.

But only 1.4% of small firms (less than 100 employees) export....There is evidence that exposure to increased competition, foreign know-how and technologies that comes through export participation has a beneficial effect on a firm's productivity. Purely domestic small firms may be missing out on this productivity potential.

Statistics Canada. 2006. Canadexport.

Reflecting this trend is also the shifting nature of the export sales. Between 1993 and 2003, according to Statistics Canada's Exporter Registry, the number of exporting firms to Germany increased from 839 to 2,271 (an increase of 170%). However, the increase in the volume of exports during this period barely kept pace with inflation. The exports per firm declined substantially. This also reflects the character of the firms. Approximately 80% of the firms exporting to Germany are Canadian owned, with the remaining being foreign owned operations in Canada. Approximately 80% of the firms are small and medium enterprises (less than 250 employees). The average Canadian company exporting to Germany is selling less than $1 million per year, compared with $3.5 million for the foreign owned companies.

Overall, Canada has also seen a decline in its competitiveness. The recent ranking of Canada in the World Economic Forum's Global Competitiveness Index shows that Canadian competitiveness is slipping globally.⁽⁵⁾ In 2005, Canada was ranked 13^th in the world; in 2006 this fell to 16^th.

In addition, the differences in the depth of the S&T structures between Germany and Canada make the match between the two countries more difficult to manage. Germany has a highly sophisticated network of scientific and research institutions and a strong link to the industrial base. The four major research organizations cover the range from basic research to applied research. Canada's structures are much less sophisticated.

Canada should still be a good target for attracting German S&T linkages. For example, Canada has an S&T cost advantage over both the US and Germany (approximately 10.9% and 9% respectively).⁽⁶⁾ However, other factors limit the extent to which German companies undertake and commission research and development in Canada. For example, the focus on commercialization in Germany is higher than in Canada. Most Canadian S&T is done in the public sector (government and university labs), while in Germany S&T is done in private industrial firms.

How do these factors influence the IBD program? Where is the largest incremental payoff likely to be?

Currently, there are substantial resources going into trade promotion-with 64% of the IBD staff being assigned to trade. There are eight sectors within the Program that have trade as the primary focus. While the increasing melding of the streams is making it more difficult to distinguish the resources being allocated to various activities, a substantial amount of the Program funding continues to support trade-currently estimated at approximately 38% for trade, compared with investment at 35% and S&T at 27%.⁽⁷⁾

The emphasis on trade in a mature market, however, appears to be over-resourced given the results that are emerging from the work as will be discussed later. While some sectors are showing potential, others are producing limited results currently and this trend will likely continue in the short term. It is difficult to know whether this relates to the selection of sectors, the approach to the sectors, or the general character of the markets. Trade has not been the primary driver of the commercial relationship and will likely not be in the future. Given the broad range of opportunities within the market it is hard to rationalize the continued heavy emphasis on trade promotion per se.

Investment is making stronger gains and has clear potential. The approach to investment is clearly thought out and strategic-focussing on the needs of the German companies. The Program has streamlined the sectors and are currently focussing on opportunities in three areas: automotive; machinery (specifically oil and gas equipment); and life sciences.

The difficulty in investment is seen in the reinvestment area. Approximately 70% of the new investment in Canada by Germany is reinvestment by existing groups. The IBD Program has begun to target this reinvestment by having the Consuls do outcalls on target companies in Germany. What is lacking currently is a system in Canada that could monitor investments at risk in Canada, report on vulnerable operations, and identify where new opportunities might exist. The Regional Offices could potentially play this role but do not currently. To effectively influence reinvestment requires a coordinated effort between Canada and the IBD staff in Germany.

The S&T Program focuses on a series of levels of intervention to promote greater linkages between Canada and Germany. Work is done to support the bilateral relations between Canada and Germany and the agreement in place between the two countries. From the interviews with the Federal Ministry of Education and Research, however, they would like to keep these relationships at a broad level focussing on collaboration in areas such as avian flu. This partly reflects their mandate which separates them from commercialization activities. They also see Canada as a potential competitor, and, therefore, are not interested in promoting more substantial commercialization spin-offs.

Effort within the Program is also placed on building networks among scientists and groups in Canada and Germany. This network building is resource intensive, with a wide range of contacts being generated. Most of these areas are focussed on pre-commercialization, with limited prospects in the short term for commercial benefits. The heavy emphasis on government and university groups in Canada makes the exchanges more scientist to scientist than commercial R&D collaborations. In addition, many of the contacts in Germany are made by individual IBD staff with limited means to institutionalize the relationships with the Embassy for continued follow-up and relationship building.

The explicit question is the gap between an aspiration to develop a leading capability in clean energy technologies, and the current reality. This is a significant challenge that has clearly been identified....

The much broader issue is the difficulty of knowledge transfer from researchers in universities to innovators in industry. A central conclusion from the evidence is that Canada has built significant strength in many fields of research and there is optimism that we are gaining ground in several of the newer areas. We do less well in converting strength in basic science into sustained commercial success.

2006. "State of Science and Technology in Canada: Summary and Main Findings." Council of Canadian Academies

The lack of seed funding on the Canadian side for projects also limits the opportunities for partnership with key groups such as the Fraunhofer Society that could lead to commercialization opportunities. While Canada has launched new programs such as the International S&T Partnerships Program (ISTPP), they have not included Germany. This is despite the fact that Germany has more value added technology than China, India, or Brazil. It also has enforcement of intellectual property rights-something which is highly problematic in the latter three countries. While ISTPP focuses on emerging countries, no similar mechanisms are available for highly developed S&T partner countries.

Some of the work being undertaken in the sectors of renewable energies and advanced materials and nanotechnology is becoming more focussed on building commercial opportunities and producing positive IBD results. This could have more potential for the future in terms of commercial spin-offs.

3.2 Governance and Management Issues

Finding # 4: Governance and Accountability Structure

The organizational and accountability structure does not facilitate the effective delivery of the IBD Program. Three main problems are being seen. First, the governance structure is top heavy. Second, the matrix structure that is in place is difficult to coordinate. Third, weak intra-embassy coordination makes a more difficult environment within which the IBD Program operates.

As mentioned previously, the organizational structure has unique features. The Consulates report to the Minister Counsellor on IBD programming, but to the Minister on their overall programming since this extends beyond IBD. This structure has two benefits. First, it allows the HOM to play a greater support role to the programming streams. The IBD has benefited from this by having active support and outreach from the HOM. Second, the Minister also acts as an additional resource to support programming. The new Minister, in particular, has begun to make changes that will improve the coordination of programming within the Embassy and assist in overcoming some of the issues that have faced the IBD Program to date.

Looking at the overall structure of the IBD Program delivery, a number of things are clear, however.

The structure is very hierarchal and top heavy. The ratio of managers to workers is inverted causing decision making to be complex and lengthy in many cases. This was cited by a wide range of staff as being a factor in decreasing efficiency overall. It also increases the time required for reporting on activities, makes decision making less transparent, and makes building synergies among the Team more difficult.

• The classifications of positions and their responsibilities are sometimes mismatched. The EX positions are located in Berlin heading S&T and Investment and not at the Consulates. In some cases, the highest classifications are with people with less responsibility. For example, the EX-1 position heading the S&T division supervises 2.5 staff, while the FS-4 position in Munich is supervising 7.5 staff.
• The separation of the three streams into different reporting lines also tends to work against the increased focus on bringing them into synergy with each other. These silos, with investment and S&T in Berlin and trade elsewhere, make the coordination and integration more difficult.
• There is also a lack of clarity in some positions in terms of responsibilities. For example, the fact that the Consuls report to the Minister on items such as travel and hospitality (without input to date from the Minister Counsellor) means that key elements of the IBD budget have not been coordinated or used strategically. Yet, the operational responsibility for results for IBD continues to lie with the Minister Counsellor.⁽⁸⁾ In other cases, a CBS employee is asked to supervise the LES who is acting as his mentor.
• The top heavy nature of the structure means that staff are also spending more time on administration. This is making the lack of administrative support more critical. For example, in Berlin, approximately 30-40% of the time of the investment officers is taken up with administration, enquiries, Embassy and HQ backstopping, and reporting. This decreases their effectiveness.

Multi-Post systems have always been a challenge to coordinate and Germany is no exception. Several years ago, the Posts operated on their own with limited interaction or guidance from Berlin. The intra-Post coordination has been improving in recent years through a series of new innovations. These include: yearly inter-Post meetings with the provinces where new strategic directions are discussed; monthly video conferences among the Posts; and greater emphasis on combining the three streams. This latter element has included tasking the Consuls in the three locations with doing investment outcalls including retention calls. Berlin is providing them with the lists of companies and the Consuls are undertaking the calls and reporting back. What remains complicated, as noted above, is the relationship back to HQ with the various groups.

The formal intra-Embassy linkages have been weak. The Executive Committee at the Embassy in Berlin to date has focussed more on upcoming activities than strategic approaches the Embassy could take. No LES Committee is in place to act as a vehicle for local staff to express their opinions and concerns. The coordination that does take place, such as between Immigration and IBD, is more informal and personality driven.

These types of issues have resulted in a number of problems. For example, within the last several years, economic reporting has been transferred from the IBD Program to PERPA. With the transfer, the IBD Program no longer has input into the economic reporting that is done. There is no formal process to arrive at the reporting program for the year. As a result, the IBD Program is not receiving the type of information that would be useful to them for supporting their Program efforts. To ensure that there is a demand within the Embassy for economic information, it is important that the reporting should be based on annual plans that have inputs from the other divisions and that are agreed to by the primary users. These also need to be directly linked to the priorities of the Mission and, specifically, the IBD Program.

Another example is the suggestion that all the divisions within the Embassy take turns setting and coordinating the Ambassador's agenda. The political section had suggested that the other sections take the lead on the various programs for the Ambassador and have shifting responsibilities on a rotational basis.

However, two positive signs have been noted. First, the Minister is introducing a Management Committee that should begin to provide methods for more intra-Embassy coordination. Second, the Minister Counsellor has been taking an increasingly proactive role in terms of the interface of the Program with the Head of Mission. The IBD Program is establishing methods for more effectively engaging the Ambassador by deciding where his interventions would strategically have the most impact. This appears to be a good approach and one which should capitalize on the contributions of the Ambassador to the Program.

Finding # 5: Clarity of the Roles and Responsibilities

An important issue, identified in the Evaluation, was the lack of clear roles and responsibilities among the IBD Program in Germany, HQ, and OGDs. While part of the problem can be attributed to the recent reorganization in DFAIT, many of the issues were present before the split and re-unification of the Department. The solutions currently being developed need to ensure that they are assisting the IBD Program, not making the delivery of the Program more complex.

The Global Commerce Strategy calls for a series of approaches to be adopted to:

• Encourage Canadian companies' involvement in the global marketplace; and
• Foster a culture of risk taking and entrepreneurship.

The strategy includes is an increased focus on expanding the capacity of Government to intermediate between global opportunities and Canadian potential and optimize the value of networks and partners across the country. Underlying the Strategy is the recognition of the importance of linking investment, innovation, and trade strategies to address global opportunities.

The reorganization taking place within DFAIT is aimed at supporting these objectives. At this point, it is not clear, however, how all of the changes will unfold and the impact they will have on day to day operations. The roles of various groups in both the Global Operations Branch (WMM) and the Investment, Innovation, and Sectors Branch (IIT) are currently being defined.

What we know at this point is that the IBD Program is facing two challenges in implementing its programming which staff identified during the Evaluation. First, to effectively select and implement plans to support a sector (regardless of the stream) requires a basic understanding of all aspects of the sector triangle-opportunities, capabilities, and interests.

The IBD staff have done an excellent job of identifying some opportunities. Where there are problems is the ability to find out whether the interest and capabilities match these opportunities. What are the specific niches within a sector where Canadians are competitive? Is there interest in the German market by Canadian companies or are priorities in other locations? Are Canadian firms willing to actively pursue opportunities? These are seen by the Posts as being critical to the success of their programming but are lacking in many cases currently.

Second, the IBD Program needs a system of support from HQ which is constructive and provides value added in order to maximize the opportunities. Individuals are currently having to develop their own networks of support in Canada with a wide range of groups, primarily outside DFAIT. This includes, in some cases, having to do what would qualify as outreach in Canada. The lack of backstopping mechanisms with firms and OGDs in Canada limits the results that can be obtained by the Program.

In some sectors such as agri-food and automotive, effective systems are already in place for handling both of these elements on a sectoral basis including determining the sector approaches and providing support to the Posts in these areas. Two case studies outline the highly successful strategies of automotive and agri-food. Automotive is an industry driven approach, while agri-food is guided by a Federal Provincial Market Development Council. In both sectors, there are a number of key factors which make the coordination mechanisms effective. These are:

• On-going agreed mechanisms for coordination and consensus building across Government, industry, and associations;
• Clear priorities and strategies for specific markets with all groups supporting these and coordinating their efforts;
• Active and supportive interactions with key Posts;
• Targets for yearly results and methods for tracking performance; and
• Allocation of resources to allow development of the market opportunities.

In other sectors such as wood, life sciences, and information and communications technology (ICT), partial networks are in place to provide support to the IBD staff through Industry Canada. Some sectors have more limited existing networks. In all of these existing networks, DFAIT plays a minimal role currently.

With the changes taking place within DFAIT, it is important to clearly define the function of HQ and its value added in supporting the Posts. It is also important to build on the principles within the Global Commerce Strategy of optimizing networks (not duplicating efforts), supporting the interface between opportunities and potential in an integrated fashion, and lessening the distinctions between investment, trade, and innovation.

From the interviews conducted in HQ it is unclear whether the changes being made will support these principles. While it is too soon in the reorganization process to know exactly how some issues will be resolved, a number of current plans raise some questions which need to be considered. For example, the division of responsibilities between two branches-Global Operations Branch and Investment, Innovation, and Sectors Branch-continues to make coordination across the streams complex. There is a difference of opinion on the roles of both Branches in developing strategies with Posts, with each group indicating that they will provide the strategic focus. The split between the two Branches is particularly problematic in cases where the IBD staff, such as in Germany, are trying to meld trade, investment, and S&T.

The reorganization within DFAIT is also raising some confusion from the Posts and OGDs. For example, the current plans have the Global Operations Branch and the Innovation and Partnership Bureau being organized on a geographic basis, while the Invest in Canada Bureau and the Business Sectors Bureau are organizing sectorally. How does a Post interface with these groups on a specific issue?

A look at the current plans begins to highlight some of the areas that need to be resolved. These do not require a new reorganization but a clarification of roles and development of methods to build greater linkages across programming. One example is sector support-something which is critical to the Posts. The Business Sectors Bureau indicates that it will be focussing on matching domestic supply with foreign demand and sees itself as being the single sectoral entry point into DFAIT. However, the Invest in Canada Bureau will be targeting specific sectors for proactive investment promotion in various countries. In Germany there are a number of examples of sector approaches that cross all three streams. The development of the wireless sector is a good example and involves a melding of trade, investment, and innovations in its approach. Does this mean that the IBD staff person handling this needs to delink their integrated global strategy into portions related to investment versus trade in order to interact with HQ? These type of issues need to be clarified.

A broader question is the interface with OGDs. DFAIT may have a role to play in supporting sectors but how can this best be achieved given the existing networks and systems in OGDs, associations, etc.? As mentioned above, some of these are well established and effective-but outside the structure of DFAIT and dealing directly with Posts. In addition, the rotational nature of the staff within DFAIT's Business Sectors Bureau also raises questions about the ability to build up sector expertise in-house that can be maintained.

The reorganization currently underway is making important changes in how DFAIT operates. What is called for here is to ensure that during this process, roles are clarified and methods to decrease the silos are discussed and integrated. In all of this, it will be important to consider how best HQ as a whole can be relevant to the needs of the Missions not HQ. What is the value added of DFAIT? How can the operations facilitate this? How can further stovepiping be prevented-and in fact reversed? What role will DFAIT play vis a vis the interface to OGDs and companies and associations?

These types of issues need to be discussed and decided on an inter-departmental basis to ensure that Posts are provided with the type of support required including strategic direction, backstopping, and information on a timely basis.

Finding # 6: Information for Decision Making

There is currently a lack of information to support the IBD Program in planning, managing, and assessing their approaches and performance.

Agri-food Examples of Differing Trade Statistics
Linseed Imports from Canada to Germany 2004:

• World Trade Atlas - Cdn $1.4 million
• German statistics - 32.99 million euros

Stephan Rung, Düsseldorf Consulate

Currently, the IBD staff and HQ lack the information they require at the planning, implementation, and results measurement levels. This manifests itself in the availability of information, its accuracy, and the systems in place to support a results based focus.

Trade statistics pose a particular problem. To establish where current potential niches for Canadians exist and track performance of sectors requires access to sound trade information. Currently, many of the exports from Canada to Germany are not being reflected in the trade statistics. Statistics Canada information is based on the port of destination. This means that products that go first to Rotterdam or other transhipment area are not counted as exports to Germany. A similar problem is seen with the World Trade Atlas figures. These statistics register imports to Germany by the place where products are landed.

The German statistics, however, are more useful because they show the imports into Germany by certificate of origin, even if customs was cleared in Belgium or Netherlands. The results from different sources were compared for agri-food sector and it showed one-third more exports from Canada than the Canadian figures. For individual products, the figures can vary substantially more as shown for linseed. According to the Current and Structural Analysis Division (PEA) of DFAIT, this use of import statistics is a common practice since in almost all countries the import information is more detailed and accurate than export information. This traditionally relates to the use of import duties or controls that required more detailed tracking.

In addition, the Harmonized System (HS) level at which the Statistics Canada information is readily available does not provide sufficient detail on specific products going into the German market. Many of the products being targeted for export promotion are niche products. Tracking the actual levels of exports for these is problematic without making a special arrangement with Statistics Canada. In some cases, the IBD staff are able to get the figures through other routes. For example, the information on specific wood products is sourced from Canada Mortgage and Housing Corporation (CMHC) which pays Statistics Canada to generate the figures at the HS 10 digit level. A similar arrangement is in place by AAFC. However, even these arrangements have not consistently provided the information required since Statistics Canada has limited staff capacity to service the requests. DFAIT could undertake similar requests with Statistics Canada to source key information at a level that would provide adequate detail for decision making. However, this would require an agreement on the information needed and sources of funding.

In addition, IBD staff are often unaware of information that is available within the system, do not have easy access to the information, or are not fully utilizing it. A series of factors contribute to this.

First, the IBD staff at Posts are not given appropriate training on data analysis-with training being generally limited to HQ. Appropriate training, customized to the needs of the Posts, could help to build awareness of the information and how it can be utilized in decision making. Even if data were available, it would be difficult for IBD staff, without training, to know how to effectively utilize the information.

Second, data exist currently within the system that has been accessed by specific Posts of HQ divisions. These are often not widely known or available, however. Third, information is available that IBD staff at the Posts do not realize exists. PEA could undertake analysis for use of officers in the field including country analyses or research on special issues, however, the needs would have to be more clearly identified.

Another issue raised by IBD staff was the adequacy-or existence-of a results management system. There was a feeling that there needed to be a better determination of what results were being targeted, both quantitatively and qualitatively. This extends beyond the current emphasis on activities such as the number of outcalls and tries to move towards the quality of the outcalls. The Munich Post did an exercise where it tried to identify the indicators to assess their performance and possible data sources. It proved difficult beyond an activity level.

What staff are concerned about in the short term is the fact that there is limited information that they can collect that demonstrates the types of results they are achieving, and that allows them to know the extent of the results and whether their strategies are working. As a consequence, they feel the reports on performance become anecdotal and not convincing. Even when they have solid results to report, such as in specific investment figures, they are questioned by HQ on the results that are documented.

Officers are also fearful that TRIO will be used as a performance measurement system-something it was not intended to be. TRIO was designed as a contact management system, yet managers are using TRIO numbers to track activities and determine "productivity" of staff. If this happens, it sends the wrong signals to staff to basically make more TRIO entries but not worry about whether they contribute to any concrete results.

The lack of a results management system is a common problem for all Posts. A performance measurement system (PMS) is currently being developed by HQ which could provide a method to overcome these issues and provide staff with support in becoming more results focussed. The difficulty will be if the introduction of the PMS adds substantially more time to officers' workloads with additional data entry, in a parallel system. The transition to TRIO took a lot of effort-with the system not being completely functional yet, including data entry standards not being normalized. The PMS needs to link to TRIO in order to not duplicate efforts.

The final issue revolves around what was discussed previously-the need for better information in some sectors on the Canadian side of the equation. This includes: specific sectoral niches where Canadians have a competitive advantage; knowledge of the players in Canada in the sector (companies and associations) and the sector relationships; and the capabilities and interest of the Canadian firms in the German market.

3.3 Success and Results Achieved

Finding # 7: Results Approach

Determining the results emerging from the IBD Program is extremely difficult. This is not necessarily due to a lack of results. Instead, it reflects the nature of the programming-which extends far beyond Canadian companies and trade promotion-and the lack of methods to articulate and track these results. Despite this, some trends can be seen in the results being achieved which reflect on what appears to be working and not working in the three streams.

The clearest targeted results can be seen in the investment area. Here, the staff are working with two client groups-the German companies that are potential investors, and the provinces and municipalities that are the potential locations for the investment in Canada. During the last year they have also shifted their sectoral focus, moving out of areas where limited investment was possible such as agri-food towards new sectors. The current three priority areas are: automotive; life sciences; and machinery, specifically oil and gas equipment.

While it may be important on the trade side to count the number of contacts, in investment it tells very little about performance. Working with a German company that eventually invests in Canada may take three or four years. It takes on-going involvement and nurturing of the relationship. The result that is important is the progress being made through the various stages of the process as the client moves closer to the actual investment. This progress is characterized as: initial contact with the company; becoming a lead; becoming a prospect⁽⁹⁾; making introductions in Canada; and ultimately the investments being made in Canada. For example, in 2005/06, the Team identified 21 new investment prospects. The Team also does retention calls that are now being tracked. TRIO is capable of tracking these stages so some insights over time should be seen in terms of the progress of a company through the stages over the next few years.

What Works for Successful Investment?

• Face to face meetings with German companies in Canada, Germany and the US
• Continuous and sustainable relationship building
• Intensive hand holding - the German company is the client
• Follow-up and deliver what is promised
• One stop contact who brings in others as needed
• Domestic calls on existing investors

From interviews with Investment Team and German Companies

What was clear from the interviews with staff and clients was that the approach developed by the investment team is highly effective and appreciated by the German clients. The feedback from the provinces was also extremely positive on the approach being taken. The IBD staff find contacts in Germany and try to persuade them to consider Canada. They then develop a pool of leads and work with partner clients in Canada to promote the process. (Their primary base is 10 municipalities.) This approach includes having contact with the municipalities and attending the conferences in Canada on municipal economic development.

The success of the approach can be seen in terms of the ultimate results. As of 2005, the four year average of investment was $200 million in directly influenced investments per year. The 2005-06 figures indicated 22 successful investments worth Cdn$105 million.

These kind of results are impressive and trackable. They do not list the overall FDI by Germany in Canada but only that for which the team has been providing support. There has been criticism from Ottawa on the figures they supply on investments facilitated-with Ottawa questioning whether they actually played a role. The investment group is now more closely tracking their participation which is well documented.

The broad based nature of the S&T work means that the client groups include government, academe including individual scientists, research institutions, and companies in both Canada and Germany. Given these client groups, the intent of the approach needs to be clarified. The Program Strategy for technology and innovation stresses the fact that to increase Canada's competitiveness in innovation requires targeted assistance to companies to: improve commercialization performance; exploit commercial opportunities; secure access to global supply chains of technologies and ideas; and enhance the perceptions of Canadian capabilities abroad.

All of these elements have clear links to the IBD program objectives in general. However, what is not clear is the link to the activities on which the S&T programming is focussed. These cover all three areas of S&T intervention: government to government linkages on policy, regulations, and scientific matters; scientific exchanges among universities, individuals, and companies; and commercial linkages including commercialization of R&D.⁽¹⁰⁾ A number of the interviews indicated that this broad based approach allowed an enormous amount of goodwill to be generated by the S&T work-and this was its principle result. The question is how this goodwill between countries can be converted into more concrete benefits for Canada.

Some of the primary means for measuring the results under S&T are in outcalls, signed cooperation agreements, and missions. For example, S&T has over 500 projects since the joint agreement with Germany put in place in 1971. In 2005/06, 69 S&T memorandum of understanding or cooperation documents were signed. In 2004/05, 23 missions were held between Canada and Germany. It is unclear from this reporting the stages of cooperation these agreements represent (e.g., scientific exchanges, commercial opportunities, etc.), the potential outcomes of the missions or their anticipated results.

Two specific sectors are being pursued: renewable resources; and advanced materials and nanotechnology. Case studies on specific sectoral interventions, i.e., wind energy, hydrogen and fuel cells, biogas and bio, showed that the achievements included potential investments, technology partnerships to the establishment of Canadian subsidiaries in Germany, the attribution of contracts to Canadian companies, the signing of cooperation agreements to build factories in Canada and other potential outlets. How these interventions are tracked on a broader basis beyond activities is unclear, however.

The trade priorities for the 2006-07 Business Plan focus on 8 sectors. From the information provided and interviews the following summarizes the sectors, their primary focus, and some comments on the sector characteristics. The target clients are Canadian firms in most cases, and the range of clients is broad from individuals (e.g., aboriginal arts) to large scale enterprises (e.g., Bombardier for aerospace). The potential of the sector also varies, reflecting the discussion above regarding the selection of sectors and the factors that influence those decisions.

The trade area has steadily moved towards more proactive programming-reflecting both the nature of the market and the decline in service requests from Canadians. It is difficult to determine why the requests have gone down, although it is likely related to the factors discussed above in terms of the varying strategies by Canadians for operating in the German market that extend far beyond bilateral trade.

The decline could also reflect the improved InfoExport site for Germany. One of the objectives was to improve the site to allow more "self-service" by Canadian firms-in essence, decreasing the reactive requests by companies that can easily be handled by the website. Improvements were made in a wide range of areas including the listings of service providers and interpreters, events information including contacts, and an investment page. A range of market information documents has been created including market insight articles on key sectors. The insights act as a method of indicating new developments in the sectors.

Various existing data sources were reviewed as part of the Evaluation in an attempt to establish results emerging from the work of the IBD Program. As mentioned previously, the data sources proved problematic and provide an extremely limited picture of the results being achieved. They are also very activity focussed. This can be seen on the following figure which provides an overview of the core services delivered over the last several years by all the Posts. Over 3,000 services have been delivered to firms during this period. Munich and Berlin saw the highest demand, with Hamburg fielding only 9% of the requests. On a per staff basis, Hamburg handled approximately 60% of the volume of the Munich staff.

Looking at the services delivered over time provides limited insights into either the demand for services or the focus of Program delivery. This is due to a series of factors. First, the transition from WIN to TRIO caused disruptions in entry of information so the year to year comparisons do not necessarily reflect the services delivered according to the interviews. In addition, the introduction was staged across Posts with Berlin only starting entries in mid-2006. Second, the increasingly proactive approaches being used for the programming are difficult to track outside of the six core service categories above. This means that much of the proactive work such as meeting German companies and investigating German opportunities are entered against the six core service categories-even if the fit is imperfect.

Third, TRIO was not intended originally for investment and S&T but is now being used to capture these results at the Posts. This means that the services above cover all three streams, not just trade.⁽¹¹⁾ Fourth, there are clearly discrepancies among the Posts in terms of how data are entered, what gets categorized where, and what types of activities qualify for entry.

The trade area is also dealing with some clients groups that are highly resource intensive, with finite potential payoffs in terms of sales. This particularly applies to some of the cultural industries and aboriginal art. They are dealing with small companies, and in some cases, individuals. In the cultural area, there are a large number of companies and geographic spread making the work more labour intensive.

Aboriginal Art at Ludwig Beck Store - 2004

Seven Canadian aboriginal artists spent four weeks at the Department Store. The artists were from Ontario, Alberta and Quebec and were selected by DFAIT HQ and the Munich Post. A majority of the artists were new to the German market, although not necessarily international markets.

Total contributions for project were approximately $29,250 with funding coming from: HQ for $12,000; Aboriginal Business Canada $7,000; Indian and Northern Affairs, $2,000; and Post CSF for $8,250. Ontario, Alberta, and Quebec contributed the airfares. In addition, the TC in charge of the exhibit spent several months on the project.

The total sales of the artists were $80,000-which basically represented the stock they had brought with them. One follow-up visit has been made by one of the artists as well.

Munich Post - Report on Promotion

These characteristics must be considered when reviewing results since they influence workload and potential commercial benefits that emerge. The work with aboriginal artists in 2004 is an example where HQ was encouraging the Post to undertake an exhibit. The arts and crafts industry in Germany is highly competitive with strong competition from the US producers as well as low cost imitations and indigenous products from Asia and other countries. Currently, 15% of the Canadian aboriginal arts and crafts exporters are active in the German market.

The Munich Post arranged with a German Department Store, Ludwig Beck, to set aside a space on the main floor for an exhibit for seven individual artists. While much goodwill was generated, the overall value for money of the event could be questioned on a Program level. This is particularly true when compared with other opportunities for promotion. For example, an event undertaken at KaDeWe by the agri-food group resulted in 345 new products from Canada being imported and a direct increase in exports from Canada of $1 million in 2007.

Trade promotion remains the most difficult to track results beyond an activity level. The primary focus for the results tracking has been indicators such as: requests; missions; trade events; outcalls; and leads developed. These are the results that are reported in the yearly annual reports. For example, in 2005/06 the Annual Report indicated there were 846 outcalls (excluding investment), 21 trade fairs attended, and 29 missions to and from Canada.

Examples of Agri-food & Beverages Results

• Expansion of inventory of in-market buying connections and number of German import agencies accessing Canadian products
• Expansion in the number of Canadian exporters active in the market
• Increases range of products
• Use of trade events as pan-EU platform for contact development

AAFC interviews and documents

There is also a focus on results such as increasing awareness within Canada of the German market, often tracked by the number of market studies downloaded or increased participation of Canadians in trade shows. In some cases, increases in the number of Canadian firms operating in German are also targeted, although information is rarely reported. The only sector that has a more fully developed results system is agri-food and beverage. Here, there is a coordinated effort to agree on results, contribute to them, and track progress.

In the following section, the results from the Canadian survey are outlined, showing some of the benefits that are emerging from the perspective of Canadian companies engaged or interested in engaging in Germany.

Other areas of support such as spin-offs from trade events are impossible to track. Given the international nature of the trade events in Germany, many serve other markets as well. This was confirmed in the survey undertaken of Canadian exporters for the Evaluation. The firms were asked how important these events were to their business objectives. About 65% of all clients surveyed saw these events as being very important or critical for their company. This was particularly true for companies with revenues less than $1 million worldwide. The vast majority (90%) of those who attended trade fairs, events or conferences in Germany were pursuing business opportunities in markets outside of Germany such as other parts of Europe, Asia, Latin America, or Africa. Approximately one-third of those attending events since January 2004 had made sales as a result, with 49% developing networks that may lead to future sales.

When the Canadian exporters were asked how important it was to have the TCS represented at these events in Germany, approximately two-thirds (63%) of the clients felt it was critical or very important. The primary reasons were to promote Canada as a brand (51%), promote Canadian industry (12%), or support Canadian companies (11%). Few firms saw the TCS' role at these events as making connections (10%), assisting networking (6%), or gathering information (6%).

The events also have spin-offs for other Trade Commissioners' work. A good example of this is MEDICA-the world's largest medical fair. This year the IBD Program in Düsseldorf assisted in coordinating the participation of Trade Commissioners from 10 countries including Spain, Syria, Thailand, and India. The Germany IBD staff developed a questionnaire asking about their objectives, what they hope to achieve in the visit, how many companies from local markets they met at the event, and any results emerging from the event. This was a first attempt to try to gather information on benefits for other TCS markets.

The IBD questionnaire of the other TCs revealed a number of interesting benefits from their participation. More than half of the TCs met 20 or more Canadian companies, of which 50% were new to them. The TCs also met between 3 and 48 companies from their own market area that were displaying at MEDICA. Those making the most of their own market contacts indicated that they would not have been able to meet the companies had they not attended MEDICA. They also felt that potential trade leads had been identified, local distributors in their markets were increased, and a better knowledge of the local and Canadian markets were obtained.

These global trade events need to be distinguished from the more traditional trade fairs seen in most countries that focus primarily on local markets. Clearly, the global events have broader potential and this is reflected in the funding being provided for participation in certain events by groups such as AAFC and IC. The success of the participation, however, appears to continue to rely, not necessarily on funding per se, but on the extent of interest in Canada to tap the opportunities and the importance of the event for the sector. The automotive sector in Canada, for example, has targeted a very limited number of international shows and consciously has decided not to participate in others. This is despite the fact that all the shows are "international." Why? They have assessed the options and decided that they need to be strategic and support the events with the best fit between Canadian capabilities and interests and the focus of the event. These kind of strategic approaches to global trade events assist in maximizing the results that emerge and ensuring that the IBD participation supports the Canadian industry priorities.

Finding # 8: Feedback and Benefits to Export Clients

The survey of Canadian exporters confirmed the small scale of the exporters being assisted and their focus on Germany as an entry into the European market. The services being accessed are in keeping with the objectives of the IBD Program to assist Canadian companies to acquire the information, contacts and other support necessary to actively pursue international business opportunities. The short term results appear to support these objectives. What is less clear is the extent to which the services are assisting firms to position themselves and expand their operations in Germany (the medium term objective).

Unlike the previous two IBD evaluations where the Canadian exporter survey sample was selected from WIN entries of companies that had received IBD services, this was not an option for the Germany Evaluation given the transition to TRIO. As a result, the sample for the survey came from the listings in the VTC, with client firms being either active or interested in the German market. This constraint has limited the information emerging from the survey. For example, approximately 37% of the companies completing the survey did not have contact with the IBD staff in any of the Posts. For those firms that did have contact, it tended to be less than 4 service requests made by the firms. Hamburg saw particularly low demand, with only 7% of the firms receiving services having contact with that Consulate. This means that some of the results are based on a relatively small sample of firms receiving services and should be taken as indicative and not definitive.

One of the priorities for the IBD Program is to assist small and medium enterprises to access markets. The survey undertaken of Canadian exporters confirms that these target groups are being supported. The vast majority (70.7%) of the firms surveyed, which had received services, had worldwide revenues less than $5 million, with only 7.6% having sales over $25 million annually. In fact, almost 50% of the firms had worldwide revenues less than $1 million, with 9% below $100,000 in worldwide revenue.

The majority (73%) of firms surveyed are interested in Germany given its role in the larger European Union market. The interest in the market is for exporting with nearly all the firms (97%) indicating this. Of those surveyed, only 37% were currently active in the German market, however. Two-thirds (67%) of those currently exporting to Germany started prior to January 2004.

A series of questions were asked in the client survey regarding results from the assistance provided by the Posts. As mentioned, the targeted short term results related to whether companies had acquired the information, contacts and other support necessary to actively pursue international business opportunities. Three levels of results were reviewed: the importance of the services to the company; level of direct impact of services; and the degree to which benefits were seen by the firms. These latter two areas begin to provide some information on whether medium term results are beginning to be seen in terms of the Canadian firms positioning themselves to expand or diversify their international business operations in target markets.

Those companies receiving services were asked to rank the services in order of importance. Table 4 summarizes the responses. Leads on business opportunities were ranked highest in terms of being critical or very important, followed by identification of key contacts. It is interesting to note that two of the core services were not listed as being important by most firms-namely troubleshooting assistance and market prospect assessments. This likely reflects the mature nature of the German market compared to emerging markets. In Germany, information is more accessible and processes and requirements-while complex-are more transparent.

Source: Survey of Canadian Exporters

The highest perceived impact of IBD services on business success in Germany was the identification of key contacts with 41% saying this service had a high impact. This was followed by leads on business opportunities and face to face briefings. About one-quarter (23%) of those who received leads on business opportunities, however, indicated that the service had no impact on their business. This was true for the VTC website (26%), facilitation of business missions (26%), and information on local companies (24%).

Source: Survey of Canadian Exporters

The firms were also asked about the potential benefits from the services received from the Posts. The greatest benefits were seen in the areas that would be expected such as improved decision making, improved efficiency in marketing, and enhancing the company's image and credibility within Germany. The benefits are summarized in Table 6 and support the short term objectives of the Program.

Source: Survey of Canadian Exporters

The firms that had received services from the Posts were asked what results they achieved since January 2004. Over 50% of the firms indicated that they had made sales in the German market. Approximately 8% of the firms making sales had total revenue generated of over $5 million, 10% had sales between $500,001 and $5 million, and the rest were below $500,000.

Approximately 40% of the firms generating revenue in Germany indicated that it would have been not at all likely or not very likely to have achieved the same financial results without the services provided by Canadian missions. About 19% felt certain they would have achieved the same financial results regardless of the IBD program support. These results are not unusual since the IBD Program is seen as a contributing factor to financial performance in the market, and not necessarily the sole determining factor by firms.

Besides sales, other outcomes were seen such as: 10% of the firms completing licensing agreements; approximately 8% undertaking equity investments or joint ventures; 14% forming distributorships for their products;15% identifying a sourcing or supply arrangement; 6.5% entering into technology transfer agreements or joint research and development activities; and 37% engaging in continued negotiations.

Finally, how satisfied were clients with the services received? About two thirds of the clients stated they were somewhat or very satisfied with the assistance. The aspects of the service that received the highest ratings were appropriateness of the information provided (65%), accuracy of the information (65%), timeliness of acknowledging the request (63%), the turnaround time to deliver the service (62%), the overall quality of assistance (61%), and the knowledge of the subject requested (60%). The majority of the clients had no suggestions for improvements in the services. The ratings by Post varied somewhat as shown on the following Figure with low dissatisfaction rates in all cases.

3.4 Cost Effectiveness

Finding # 9: Six Core Services

The development of the six core services has had an important influence on the IBD Program in general in DFAIT by more clearly defining service niches, as well as services that were no longer appropriate. In the context of a market such as Germany, however, they no longer provide the flexibility required to obtain results. This is particularly true in investment and S&T where there is limited fit between the six core services and the approaches needed. The approach required is based on being flexible and proactive-positioning Canada within a highly competitive environment.

Over six years ago, the large number of Canadian clients, and their increasing diversity, triggered a need to redefine how the TCS delivered services at the Missions. This resulted in a renewal of the TCS, known as the "New Approach", and a clarification of the TCS' clients and policies. The TCS moved away from direct provision of services such as logistics to being providers of high value-added services and advice centered on their knowledge of local markets and sectors. As part of this, the development of the six core services for support to Canadian companies and partner client organizations (e.g., provinces) was an important innovation within DFAIT. The focus of the TCS was intended to be the provision of the six core services responding to requests from Canadian firms, along with proactive work such as: developing leads; advocacy work; and network development.

The six core services have been an effective tool in dealing with emerging markets that are dynamic and are based on fast growth, and increasing wealth and opportunities that allow the entry of new products. The focus in these markets is primarily trade. Canadian firms often require more support to enter the markets and demand services that easily fall within the six core services.

In the case of Germany, however, the basic parameters do not fit what is required to effectively operate in the market. Clients are not simply Canadian firms but also German companies and other groups. The programming has a declining level of requests for services, with proactive programming being the key to success in the future. It also has critical programming in investment and S&T that do not fit easily into the six core services model-despite the contention of some in HQ. In Germany, the market is more sophisticated with high levels of technology, and higher end products. Companies are sophisticated and building relationships with them is complex. This requires far more proactive work in identifying niches and how to capitalize on them.

The investment group estimated that the 6 core services are about 10% of what they do. Basically, the attitude is to provide whatever services will get a German company to Canada and investing. This goes beyond the six core services, and needs to be in order to be effective. For S&T, the percentage is likely even smaller since a large proportion of the efforts are building networks and linkages within Germany and undertaking proactive programs.

This is even true with the handling of trade promotion. Traditionally, there has been a strong emphasis on trade events as the primary tool. This drove many of the activities in the past. In recent years, there have been increasing opportunities to develop more sophisticated trade strategies that move beyond trade and look at building relationships in a sector.

An example of this is seen with the work done with Siemens Wireless Division. ICT, and specifically wireless, is a trade promotion sector for the IBD Program in Germany. To develop its potential, a new approach was taken which involved working with a German company as the "client." Here, a strategy was developed with Siemens that was based on building a spectrum of relationships between Siemens and Canadian companies over a period of time. It is these types of approaches that are required in building opportunities, yet extend beyond the current recognized client group or service packages.

Melding Trade, Investment, and S&T - Case Study of Siemens Wireless

Three years ago, Siemens Wireless Division was beginning to look at sourcing external innovations for the first time. Previously, they had done everything in-house. They were focussing on US, UK, France, and Israel. At that point, they had no contact with or interest in Canada.

Building awareness - The Trade Commissioner in charge of the wireless sector in Munich approached Siemens and asked them to attend a conference showcasing Canadian technology. The initial exposure at the conference made the firm realize that Canadian companies had solid technology and some interesting approaches. Siemens then decided to explore what they could do with Canada, initially focussing on sales of products in Canada and sourcing of technology from Canada.

Canada Day at Siemens - The TC then convinced Siemens to hold a Canada Day and invited four Canadian companies to their campus for presentations. Siemens agreed and invited other German companies involved in wireless such as T-Mobile. The meeting was opened by the Ambassador who emphasized the long history of wireless in Canada and the incentives available for investors. The Siemens people gave a presentation, followed by the four companies. Then there was a networking opportunity. Out of the four companies present, Siemens decided to begin negotiations with two of them. Specifically, they were interested in sourcing and reselling their products in Europe.

Siemens trip to Canada - The TC then suggested one year ago that Siemens go to Canada to obtain a better perspective on the products available. Three company representatives went to Toronto, Calgary, and Vancouver for one week. Working with the wireless organizations and provincial groups across the country, the TC developed a list of 150 companies interested in meeting Siemens. He then filtered the firms further based on compatibility to Siemens needs and sent the resulting profiles to Siemens for review. A total of 60 companies was selected for inclusion, and 50 firms participated.

Siemens declared the trip "outstanding" since it made them realize the extent of wireless companies in Canada with good products. They were able to also see the differences between the specializations in each region including products, markets, and venture capital. Most companies in Canada had less than 100 employees, with a few large scale enterprises. Few of the companies were focussed on Europe as a market despite the fact that three of the biggest companies are located here (Erickson, Siemens, and Nokia). Siemens did followups with 20 of the companies including visiting Canada again and having firms come to Germany. They then began to realize the possibilities for partnering with Canadian firms to enter the Canadian market, as well as looking at options for using Canadian technology in the European market. They are currently working with one Canadian firm and continuing to explore possibilities with others.

R&D in Canada and Collaboration on Olympics - They then started looking at a third strategy for collaboration with Canada. The TC introduced two other ideas for collaboration-undertaking R&D in Canada and participating with Vancouver on the Olympics in 2010. The Vancouver wireless companies were focussed on applications not services so this was a good fit with Siemens. Vancouver is creating a hub at the Olympics for business applications where new ideas will be showcased. The Wireless Innovations Network of BC is now developing a Business Plan. Siemens is considering becoming a founding member, providing both capital and human resources.

The key success factor was the consistent message regarding Canada with the TC, the government, companies and associations-all pushing in the same direction. In addition, the TC acts as the focal point bringing in other resources from the Posts, such as the investment group, as needed.

Information from Siemens, Munich Consulate and Industry Canada

Finding # 10: Relationships with Other Government Departments in Germany

The relationships with the OGDs in Germany are also different than the typical IBD model that is based on client-partner interactions. Here, there are partnerships between the Posts and the OGDs aimed at supporting the same objectives. They appear to be working effectively.

With many of the OGDs which have representatives abroad, the relationship with the Posts is based on a partnership approach, not service provision by the Posts. This is due partially to the existence of four provinces with active operations in Germany-Ontario, Quebec, Alberta, and British Columbia. In addition, a range of OGDs have direct relationships with the Posts around sector interventions. AAFC has two representatives co-located in Düsseldorf. Other groups such as Industry Canada have on-going contacts with IBD staff around promotion of trade, investment, and S&T. Heritage Canada works directly with the IBD staff responsible for cultural industries.

The interviews with OGD representatives in Germany indicated that the coordination was effective and the working relationships provided opportunities for building synergies between the efforts. This is particularly the case in areas where there are common priorities such as ICT, life sciences, and renewable energy. Joint planning takes place on an event or sector basis, not more formally. The communication lines are based on practical considerations, rather than being hierarchal. This was particularly true with the Provinces co-located with the Consulate in Munich.

The co-location of the two AAFC staff in the Consulate in Düsseldorf appears effective from everyone's perspectives. The working relationship is strong and the AAFC staff are being increasing brought into the IBD Program planning. This year, they were requested to develop a sector strategy like all the other sectors did and received an allocation of CSF funding. This allocation was supported by the managers, despite the extensive funding available for the agri-food sector from AAFC. It was seen as a way to bring the agri-food sector closer into the IBD operations overall.

Cultural industry is the other sector which receives extensive financial support from OGDs, in this case Heritage Canada and DFAIT HQ. The difficulty here is that HC does not have a resource allocated to implement the programming and relies on an IBD staff person. In London and Paris, Trade Routes officers are in place and funded by HC. In Germany, the IBD Program is expected to fund the staff and implementation of the cultural program. If Germany is a priority market, then HC should take the same approach as AAFC and fund an individual to deliver the programming.

Finding # 11: Allocation of Financial Resources

The primary source of funding for the IBD Program is the CSF, which has specific rules from HQ. While travel and hospitality are also theoretically allocated by sector, the reality is that these funds must cover the IBD Program, consular work, and representation. Overall, given the number of sectors, the work is under-resourced for effectively taking a Prime Post approach.

The Business Plan for 2006-07 provides an initial summary of the funding available for supporting the work in each priority sector. It includes the CSF allocations, initial allocations for travel and hospitality by sector, and other funding from outside sources including OGDs, DFAIT and other programs. The following figure provides a summary of the funds, excluding outside sources.

In practice, the funding for sectors comes primarily from the CSF. CSF funds are used for travel expenses to operate under the Prime Post System of covering the entire country. While some of the travel and hospitality funds may be available to complement this, these funds have to cover other IBD work, consular, and representation. In the case of Munich, for example, the representation costs are much higher given the presence of the provincial offices and the need to co-fund events and other activities with these groups.

Spreading the available CSF funding across the 14 priority sectors represented (plus other areas such as subscriptions) means that there is limited funding for many sectors to do their work. This particularly impacts the extent of travel that TCs can undertake to build networks and follow leads in their sector. The health group, for example, has most of the CSF funding expended around the MEDICA event, leaving limited funds to travel and build networks outside this event. This is constraining the gains that could be made in Germany for Canadians products and innovations. To effectively implement a Prime Post approach requires adequate travel and hospitality funding; without this officers simply handle one sector in their region only.

The other complicating factors around resource allocation have to do with the decision making processes around the non-CSF budget allocations. Three issues make resourcing and priority setting more difficult.

• As mentioned previously, the Minister Counsellor has not had input into the travel and hospitality allocations to the three Consulates, which is decided by the Minister. This means that this portion of the IBD funding is beyond his control.
• Some of the sectors that end up with the most funding are the ones that receive funds from OGDs such as agri-food (an additional $200,000) and cultural industries (an additional $30,000).
• Costs for consular in a particular location can also use up the travel funding quickly, leaving the IBD Program to subsidize the consular costs and not implement the sector programming.

Finding # 12: Consular Impact on Resources

The impact of the consular work has been underestimated. Not only are more resources required to handle the consular work than estimated, but it has other impacts on the operation of the Consulates.

The consular services are officially estimated to take 20% of the time of the two Vice Consuls posted in Munich and Düsseldorf. According to interviews with both current and past Vice Consuls, staff in these positions feel they spend closer to 40% of their time on consular. If this is the case, when their time is added to the time required for the Consuls at both locations to provide support to the Vice Consuls, the IBD Program could be losing almost one of the four CBS positions in the two consulates to consular services.

The impact of the consular work does not end simply with the staff time, however. The consular work is subject to specific performance standards which are monitored and for which there are repercussions if not met. While the TCS has service standards as well-such as the five day response time for trade work-they are more flexible. This means that, in reality, consular work takes precedence over IBD work since the staff know that the standards must be met or it will impact their performance assessments and career.

In addition, consular is often unpredictable-sudden crises can emerge that need to be handled quickly. This makes it extremely difficult to undertake sector work in a timely fashion where you need to be setting programs of travel, events, and networking to effectively provide the sector support. IBD work is contingent on consular responsibilities in essence. The result is that only limited priority sectoral work can be done by the Vice Consuls-further limiting the support to IBD.

Consular also impacts the overall structure of the Consulates. With the Consular work in place, there is a need to have Vice Consuls in each location in order to handle the workload. Otherwise, the Consuls would have to take over this work. In 2005, HQ was indicating that they might remove the FS-1 position in Munich. The Consulate prepared a report outlining the impact this would have on the operations as a whole. According to their estimation, removing the FS-1 position, without decreasing consular work, would mean that only 10-20% of the time of the Consul in Munich would be available for IBD work-taking into account the existing commitments for PERPA and coordination with the provincial offices.

One option then is to reorganize the way consular work is done. While emergencies will always need support from Consulates, responsibility for other consular services could easily be shifted, with approvals being done in Berlin. For example, under the new passport system, it is possible to approve the passports in Berlin, and use local consular staff at the Consulates for the interaction with Canadians. This would free the resources of the IBD staff, allow more predictable programming, and more effective utilization of IBD staff. This option was discussed with Consular Operations in Berlin and they had no objection to centralizing consular resources. They also felt that any additional staff that would be required by Consular could be accommodated through the existing resource allocation mechanisms at the time of the submission of the country strategy.

This is also part of a broader issue about the need for a trade office versus a Consulate versus a Consulate General. Each has trade-offs that must be considered. For example, commercial offices allow a clear focus on market opportunities without the non-IBD work but are seen in Germany as being less of a commitment to the market and a Laender than having a Consulate. Consulates, with full services, provide support to Canadians in the region but have distinct trade-offs as described above in terms of the functioning of the overall post and the IBD work. A Consulate General in Munich would provide an opportunity for the federal government to go on an equal footing with the Quebec government. With this comes greater responsibilities and more representational duties, however, which decreases the share of resources for IBD support.

Finding # 13: Impact of Location on Delivery of Programming

The concentration of staff in Berlin is not optimal. Limited commercial activities take place in Berlin, and the decentralized nature of Germany calls for greater local presence.

The strategic centre for commercial activities in Germany is not Berlin but in the commercial centres outside of Berlin. As a federal state, Germany has a highly decentralized economy and government structure. The Laenders are not only big economically but have different approaches to building their economic and commercial relationships. For example, the North Rhine Westfalia is developing a strategic plan that will focus on 12 markets internationally (including Canada) with specific sectors of focus for each market. They are building the strategy with a broad range of other groups that will also be assisting in the implementation.

While they have some sector specialists at the Ministry, they decided it was not appropriate to have all expertise in-house but more important to develop networks where they would access the expertise needed. Working effectively with the Ministry then requires that the IBD Program build relationships with both Ministry staff and the key partners in the sector.

There is a need to have a regional presence in order to establish contacts and maintain a presence. The question is how is this best organized? Currently, over half of the IBD staff are located in Berlin. This includes all the staff formally assigned to investment and S&T. While other staff are supporting the investment efforts, in particular, the isolation of the groups geographically makes it more difficult to coordinate and reach the objective of the IBD Program of having a seamless relationship between trade, investment, and S&T.

Other countries are taking this issue one step further. Not only are they moving their commercial operations from Berlin but have been realizing that they need to concentrate their commercial operations in more limited locations. The British, France, and the US have put their trade representation in Düsseldorf. France, for example, previously had representation in Munich, Hamburg, Stuttgart, and Frankfurt. They decided to place their primary commercial focus on Düsseldorf since this was seen to be the best location from which to serve the French exporters. Their services are provided on a fee for service basis so are very responsive to the French SMEs.

This idea of focussing resources in locations closest to the commercial opportunities is sound but would involve making changes in staffing and the organization of the Posts. Changes have been made previously in the structure and number of the Posts. Hamburg was closed and then reopened again 11 years ago. The staff in Bonn were moved to Berlin when the new Embassy opened.

The question is finding the right balance. This needs to take into account:

• Making as few changes as possible to improve efficiency so as to minimize the impact on staff;
• Finding the best approach to build synergy for programming and teams;
• Ensuring a gradualistic approach-e.g., as people retire or leave there can be a shift of positions to new locations;
• Ensuring value for money;
• Maintaining consistency and continuity of presence; and
• Maintaining a critical mass-e.g., it might be better to decrease locations but increase resources to match expectations.

Finding # 14: Coordination of Efforts - Posts and within EU

The principle of sector teams and the melding of the three streams are sound and can be effective in the German context. The current special regional programs being undertaken in automotive and renewable resources should provide valuable lessons on how regional approaches can be formulated more effectively in the future.

The strategy for delivery of programming changed with the 2006-07 Business Plan. In an attempt to meld the three streams more closely, it was agreed that all the sector strategies would include trade, investment, and S&T. In these strategies, the interface between the three areas was articulated. The coordinator of the sector was to be responsible for ensuring that all aspects were undertaken and that other Team members were brought in as appropriate.

In general, this approach makes sense as a way to breakdown the stovepipes and begin to look at possibilities from a more global and dynamic context. The extent to which the sectors are melding the three depends on two factors: the prospects within the sector; and the orientation of the specific officers.

Some sectors can more easily integrate the three streams as seen with the case study above on Siemens wireless. Some sectors have possibilities for trade primarily-such as consumer products and agri-food. Others, such as automotive, have limited trade possibilities. The key to integration is to identify where there are potential synergies and how they can be tapped if available.

This then relies on the ability of the coordinators to capitalize on the possibilities. Different models are being used with the approaches being developed on an individual basis. Some examples include the following.

• The coordination of the automotive sector is being handled by a staff member designated as "trade." A very close working relationship exists between the trade and investment team, however, which is highly effective. Joint meetings are held with the company as needed-something which is not encouraged by the IBD management but in fact is a very effective technique for ensuring seamless support. This Team approach appears to be providing solid results in terms of tapping the range of opportunities as they emerge.
• In other cases, such as agri-food, the Coordinators refer opportunities which are identified in investment and S&T to the appropriate individuals for follow-up. The approach here is less of a team effort than a general coordination function.
• In life sciences, possibilities for all three streams are evident and integrated into the work. The Coordinator takes the primary lead on trade and identifying possibilities in the other two areas. On the investment side, one investment officer is focussing on building a network of German leads in this area that can complement the work. S&T officers are brought in as needed to pursue these opportunities. The work is often in parallel but coordinated.

One of the cornerstones of the Europe Commerce Strategy is the establishment of priority sector teams that allow a pan-European approach to be taken to supporting sector development. This represents a big step forward from the current approach taken within Germany.

In Germany, coordination regionally is done on a more informal basis with IBD staff working with the TCS in other posts on specific exchanges of information or coordinating activities at events. The work mentioned previously at MEDICA is an example of this. Another is the informal links for the wood sector with Posts in the UK, Holland, Austria, and Switzerland.

AAFC has a formal Pan-European approach with staff covering multiple countries. For example seafood is handled out of Brussels and the staff in Düsseldorf also cover Vienna and Switzerland.

The two CSF proposals recently approved for regional initiatives should provide insights into how regional efforts can work more effectively. The approaches in automotive and renewable energy will test various ways of working together, and the ways to make them effective.

Lessons from AAFC, automotive, and renewable energy should provide valuable lessons on how these efforts can begin to expand beyond the boundaries of a country. They are all good sectors to test since they have strong teams in place and a vision of how the cooperation can unfold. Sectors without those strengths would be difficult to take regionally.

Finding # 15: Core Competencies for the German Market

The LES are the strength of the current programming, providing important links into the German commercial interests and continuity of programming. The nature of the German market requires long term relationships which are difficult to establish with a CBS posting. As a result, there is a need to better define roles of LES and CBS to ensure value added of both. The work packages of the FS-1s should also be better developed to set them up for success in their future careers.

The proactive nature of the German market means that the ability to effectively deal with German firms is critical. The German market has a number of requirements that make it more difficult to service.

• Many of the commercial structures are Mittelstand firms-middle sized companies, privately owned. These are the primary source of both investment into Canada and trade with Canada. However, given their structure, they are more difficult to penetrate including finding out necessary information about their performance and interests.
• German companies look for long term relationships in order to build trust. This is particularly true in areas such as investment which have long time horizons and the need for continuity of contact.
• It is also important to have strong German language skills to interact with firms.
• German companies want to deal with people who have some sector knowledge and expertise. This does not mean, however, that the IBD staff need to be sector specialists. Numerous companies said that the individuals needed to have a basic understanding of the sector, know what information was important and what was not important, and be able to convey this to the German companies.
• The complexity of the S&T structures requires extensive knowledge in order to navigate through the maze and find suitable partners.
• As part of the EU, the product requirements and regulations are often daunting and can appear as a barrier to Canadian firms with limited knowledge of the market. The ability to understand these areas, and convey them to Canadian firms, is critical in some sectors.
• German companies also require more proactive and creative methods of engagement. They do not want people calling on them for no reason, or preparing broad unfocused presentations.
• It is important to ensure an understanding of the potential interfaces between German opportunities and the Canadian capabilities and interests. Is there a good fit and potential for success in the relationship? Promoting products or approaches that have limited potential for Canadians to deliver is viewed very negatively in the German market. You need to deliver what you promise, and not promise what cannot be delivered.

To operate in this environment then requires a heavy reliance on LES and a sectoral focus. The LES have been doing an excellent job of building the required networks and the sectoral expertise-often with limited training. They have provided important knowledge and continuity to the programming to allow a build up of expertise and relationships. As a group, they are highly qualified and effective.

Other countries place a high priority on local staff to undertake the programming for similar reasons. The British, for example, normally have four LES to 1 expat. In their German operations, however, they have a ratio of 10 to 1.

The reliance on LES has two potential problems, however. First, the Canadian perspective is missing. For example, some staff questioned whether the Posts should be promoting investment out of Germany given the jobless rates within the country. Second, the structure of German labour laws makes it difficult to replace staff if new approaches or skill sets are needed. Currently, after two years, someone can be dismissed only due to performance issues. While the IBD staff appeared flexible in terms of the sectors they would undertake, in a number of cases the approaches to the priority sectors are dictated by their current skill sets.

This concept of having LES as the primary interface with the market and companies is not seen in many IBD operations around the world. In Germany, it is essential but raises the question of what role should CBS play? It is important in this market for the CBS to provide a management and strategic focus for the work by the TCs. Important skill sets for CBS include: the ability to manage staff; ability to identify strategic opportunities for synergies between initiatives and possibly regionally; providing the experience of delivering IBD services; providing the input to the Team on the strategies and priorities coming out of Canada; undertaking representational responsibilities; and assisting in backstopping the efforts of the team members. To fulfill these roles requires management and language skills.

These types of conditions make it more difficult to place FS1s into a market such as Germany. The FS1s posted there need a number of elements of support including: a clear role and job package; a system for mentorship; and the ability to undertake some training and forward planning before their assignment begins. This includes extensive language training.

They also need to be placed within a work environment that promotes their skills building, yet respects the dynamics within which they are working. While the consular work provides good professional experience, as noted above, it detracts from building the TC skill sets. Having staff supervise LES in situations where the LES is acting as their mentor is not appropriate from either the LES or CBS perspective. The competencies of the individual also must match their job descriptions.

Overall, most staff indicated that they had received a minimum amount of training, with most wanting more. The staff could not take advantage of the training programs available due to timing, funding, or the availability of appropriate training courses. Some training courses were also seen to be at too basic a level by the time staff received them to be of benefit. If DFAIT made standard training packages available through distance learning, then staff would be able to take advantage of the on-line courses. In addition, on-line courses tend to be more highly structured and of very high quality, ensuring that the content is consistent and conveyed.

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4.0 Key Conclusions And Recommendations

• 4.1 Conclusions
• 4.2 Recommendations

4.1 Conclusions

This Evaluation has provided an opportunity to review an IBD Program in a mature and complex market. Germany represents a country with enormous potential for commercial collaboration with Canada, reflecting a broad spectrum of opportunities in investment, science and technology, and trade. Tackling this market is difficult, however, and highlights the importance of having a range of approaches for the IBD staff to be successful.

The Evaluation has concluded that a number of key elements are working well and can act as models for Programs in similar markets. Specifically, a number of initiatives have been effective to date.

• The efforts to bring the trade, investment and S&T streams closer together have been sound and are starting to produce results. Examples are being seen of sectoral approaches where various elements are brought into play in order to tap opportunities identified. These are important initiatives since they represent a future direction for IBD programming as reflected in the Global Commerce Strategy. The artificial separation of the three streams no longer reflects the increasing importance of global value chains and the need to maximize competitiveness in all areas.
• The importance of taking a sector approach and building local expertise as the basis of the operation is also key to the success to date. The strong LES are the backbone of the operation, allowing the relationships to be built over time with German companies and sector expertise to guide identification of opportunities within Germany.
• The proactive nature of the market has dictated that the IBD Program move beyond the six core services. By doing this, the Program has also developed new innovative approaches to defining clients as well as service packages. The team looks at the potential within the market and develops a strategy for nurturing this potential. The most obvious example is seen within investment where the process that has been established integrates key lessons and success factors. Other examples are also being seen in trade and S&T. The flexibility and proactive approaches being taken in many cases position Canada as a solid partner for Germany. The programming now being piloted related to CDIA and regional approaches will add more information on how these new areas of intervention might be tackled and maximized.
• While difficult to quantify, results have also emerged from the work. The easiest to see are in investment where direct links can be made between interventions by the IBD staff and resulting investments in Canada. S&T initiatives have built a greater cooperation between the two countries, assisting Canadian scientists, universities, and companies to make linkages with new technology and R&D advances. For trade, small Canadian firms are being helped to acquire the information and contacts needed to pursue opportunities in Germany and the European market.

The issues that have emerged in the Evaluation fall within many of the support systems in place that influence the IBD Program delivery. These are essentially six areas.

• While the IBD Program in Germany has been attempting to clarify its approach and streamline its focus and sectors, it has been doing this within an environment which does not have a clear vision for what Canada wants from its commercial relationships. The basis for a solid Program must be an agreed vision, with stakeholders supporting the implementation of that vision. Currently, there is no agreement on areas such as the priorities within the German market, results being targeted, or how opportunities can be most effectively tapped. This has had a number of consequences including opening up the IBD Program to pressure for specialized programming that may have limited commercial potential, forcing IBD staff to develop individual linkages and support systems within Canada, and personalizing much of the sector work undertaken. HQ relates to the IBD Program not as an integrated unit, but as separate programming streams, often placing pressures on differing priorities.
• The roles and responsibilities of HQ with the Posts, Regional Offices, OGDs, industry and other stakeholders is unclear. This lack of clarity has become problematic in two areas in particular. First, while IBD staff may do an excellent job of identifying opportunities in Germany, these must be matched to Canadian capabilities and interest. Second, the IBD Program needs a system of support from HQ that is constructive and provides value added in pursuing opportunities. Both of these needs are currently not being met consistently. In some sectors, effective systems are in place for doing this that are led by OGDs or industry. In others, staff are left to find their own networks and information in Canada. The lack of clarity makes the work more resource intensive and less effective since IBD staff often need to do their own outreach in Canada in order to build networks of support.
• The IBD resources are limited and these resources are being slowly chipped away by a series of factors. Consular responsibilities are one of the most important. The Consular pressure creates a hybrid model where IBD staff resources deliver consular work-but not without a cost. The consular not only decreases the time available for IBD support (removing the equivalent of one full time Canadian position between Munich and Düsseldorf) but also impacts the structure of the Consulates. The Vice Consul positions are needed in order to handle the work load. In addition, their ability to undertake sector work is hampered by the unpredictability of the consular requirements and the rigour of consular performance standards. Resource issues are also seen in other areas. For example, to effectively support the Prime Post approach requires sufficient travel funds to cover the country. Yet, travel budgets have not been controlled by the IBD Minister Counsellor and have also covered consular and representation. This leaves insufficient funding to effectively implement the Prime Post approach. This raises another issue on the need to maintain the current number of consulates. The Canadian consulate in Hamburg has low demand currently for its services from Canadian firms and weak potential priority sectors. Other pressures include the use of IBD staff to implement priorities of OGDs, such as cultural industries, regardless of whether these are appropriate priority sectors.
• The organizational and accountability structure is not well matched to the effective delivery of programming. The governance structure is top heavy, resulting in over-management of staff resources. The Consuls do not report to the Minister Counsellor but to the Minister for administrative purposes. Yet the Minister Counsellor is held accountable for IBD programming. The focus of IBD resources in Berlin does not reflect the commercial reality of Germany and the need for greater local presence.
• Key information is not available on a timely basis to support sound decision making in planning, implementation, and performance measurement. This was an issue cited repeated by IBD staff. This manifests itself in a number of ways. For example, trade statistics are not available in a format that allows assessment of potential niches for Canadians or tracking performance of sectors strategies. Even if information is available, IBD staff do not have the training to use the information or easy access. Results management systems are not in place yet to allow effective determination and tracking of results-leaving results to either be activity based or anecdotal. These were all seen to be factors that limited the effectiveness of the Program.
• A need exists to recognize the importance of the German market in its own right and as a key entry to European markets. The emphasis within DFAIT on emerging markets, in particular, has lessened the attention on key mature markets. This includes the recognition that a mature market requires flexible, proactive and dynamic approaches in order to position Canada. This manifests itself in a wide range of areas. For example, the S&T specialized program funding is extended to countries such as China and India but not Germany-despite the intellectual property issues seen in the emerging markets. Yet, German institutes cite the lack of funding for Canadian groups as a limiting factor for further collaboration. Markets such as Germany provide broader opportunities including two way investment and S&T linkages that reflect future Canadian commercial interests.

4.2 Recommendations

Recommendation #1: Vision and Priority Setting

The Global Operations Branch should take the lead in developing a consensus on the strategic direction and vision for the IBD program in Germany. This needs to ensure a number of key elements are in place in order to be effective:

• Clearly defined and agreed priorities for the market
• Mechanisms for coordination and communications by a range of stakeholders
• Clearly defined roles and responsibilities
• Targets for results and clear expectations for what needs to be accomplished and methods for tracking results
• Alignment of resources within a plan

Recommendation #2: Improved Information for Decision Making

The IBD Program is facing a series of information constraints that must be tackled to allow more effective management and decision making by the Program.

• The Current and Structural Analysis Division within the Office of the Chief Economist at DFAIT undertakes analysis and has expertise on the use of trade and other statistics. The IBD staff are not currently familiar with what is available through this division, despite the fact that the IBD staff see a need to develop more solid information. The role of this Division could be expanded to allow better backstopping of IBD staff in the field and facilitate the access by IBD staff to appropriate information as requested. The inclusion of two new FTEs to this group would allow the development and maintenance of country specific data and analysis in support of IBD programming. It would also allow the training of IBD staff in the use of existing information and data available that could assist in their planning, implementation, and results tracking efforts.
• The usefulness of TRIO information could be enhanced with the development and application of data entry conventions and standards in order to standardize the data sets. The discrepancies seen among the Posts in Germany highlight the variation in entry quality, which will be further magnified as TRIO is expanded to an increasing number of countries.
• There remains too much emphasis on tracking activities to judge performance and not on the results emerging from those activities. The performance measurement system currently being developed within DFAIT could provide a method to facilitate the tracking of results. This system needs to be flexible enough to capture the results from all three streams, however, and must coordinate with TRIO.

Recommendation #3: Service Levels

While the six core services provide a good basis for defining minimum service levels for reactive services for Canadian firms, there is a need to better define service levels for proactive programming in all three streams and reinforce the message that proactive work is important. Lessons emerging from Germany can provide valuable input into this exercise, including ways to begin to meld the streams more closely in service delivery.

The lessons from Germany can also provide important information on new areas for IBD support. Specifically, three areas could warrant more consideration and increased support within IBD overall: CDIA; trade events that are global and regional in nature; and regional initiatives. All of these support the approaches articulated in the Global Commerce Strategy. The specific approaches to supporting CDIA, trade events, and regional initiatives would vary by the nature of the market and the potential results that could emerge in a specific context.

Recommendation #4: Governance and Structure at the Post

The divisions between the three streams at the Post should be further eliminated, with the overall governance structure becoming flatter. This can be accomplished through a number of changes:

• The location of the Minister Counsellor should be studied more closely. Moving the position from Berlin to either Düsseldorf or Munich would allow the Minister Counsellor to be closer to the commercial activities. This move would have other implications, however, on the overall IBD operation. The pros and cons should be studied and a determination made of whether the centre of IBD programming should shift from Berlin.
• The current structure with two separate Heads of Investment and S&T should be amalgamated into one position and remain at Berlin. This will allow the resources to be freed to have more functional specialists located at the Posts that can be providing support to the sectors.
• In a resource rich environment, the Hamburg Consulate makes sense in terms of geographic coverage of the country. However, given the constraints on the Program, there are few compelling reasons for keeping it open. It currently faces low demand from Canadian firms and has priority sectors with weak potential.

Recommendation #5: Breaking Down Silos at HQ

DFAIT should ensure that the current HQ reorganization breaks down the silos between trade, investment, and S&T-not reinforces them. During the current reorganization, HQ needs to move in the direction of a more integrated model that will provide consistent and value added support to the Posts. This should include the development of methods to support the new TCs that need to develop skill sets that combine the three streams into a more dynamic approach to building Canadian linkages. This new understanding of the skill sets of TCs needs to be reflected at both the management and staff levels. As well, HQ needs to clearly outline how the Posts are to interact with the various groups in HQ and the points of contact to obtain support in each of the Branches, ensuring as well that no overlap in functions exists between Branches.

Recommendation #6: Rationalizing Sector Responsibilities

DFAIT should more clearly define the role it should play in sector support and build on the existing networks and expertise available elsewhere. One approach does not fit all sectors given the existing infrastructure for support. Some sectors currently have strong networks as seen in automotive and agri-food. An approach by DFAIT of building all expertise in-house is not constructive given the need to have greater collaboration with OGDs, sector associations, and firms, as well as the rotational nature of DFAIT staffing. Leadership for sectors should be based where the knowledge exists, not dictated by positions.

As part of the sector work, Posts and HQ should consider the role of international trade events in business development. Where warranted (e.g., within a priority sector with clear expectations of commercial results), a coordinated effort by HQ, missions, and OGDs could include more active participation in major trade events that take place in Germany.

Recommendation #7: Focus IBD Resources on IBD Programming at Consulates

The consular functions at the Consulates should be closed in a staged approach and moved to Berlin. In the short term, this means retaining the local consular staff as the interface with the public at the Consulates but moving the approval processes for passports and other documentation from the Vice Consuls to the Berlin Consular section. In the medium term, the transportation and communications network in Germany allows a complete centralization of consular services in Berlin. This can be staged as the consular LES retire, are transferred to IBD functions, or move to Berlin to continue consular work. It is recognized that emergencies will continue to require support from IBD staff even after the move is completed.

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Annex A: Management Response

Thank you for your work in conducting the evaluation of the International Business Development (IBD) program in Germany. The report provides thoughtful observations on improving the focus and implementation of the program. This memorandum outlines our responses to the seven key recommendations, following consultations with Berlin and appropriate divisions at Headquarters.

The preparation of the IBD program evaluation in Germany coincided with the development of the Global Commerce Strategy (GCS), a major initiative that sets a new direction for delivering on our mandate to improve Canada's economic competitiveness. This offers a timely opportunity to realign our operations according to the GCS and undertake the changes necessary to address your recommendations. The Europe Market Plan, which emanates from the GCS, presents an innovative approach to pursuing market opportunities in Europe, including Germany. It provides clear direction to posts on roles, objectives and priorities, and includes guidelines on how best to deliver results related to the IBD program. As such, many of the actions that we are proposing in response to the current evaluation will be applied to all our European network.

Recommendation # 1: Vision and Priority Setting

The Global Operations Branch should take the lead in developing a consensus on the strategic direction and vision for the IBD program in Germany. This needs to ensure a number of key elements are in place in order to be effective:

1. Clearly defined and agreed priorities for the market
2. Mechanisms for coordination and communications by a range of stakeholders
3. Clearly defined roles and responsibilities
4. Targets for results and clear expectations for what needs to be accomplished and methods for tracking results
5. Alignment of resources within a plan

Management Response:

The Global Operations Branch (WMM) recognizes the need for clarity on vision and priority setting and has formalised internal processes to achieve this. Early in the business planning cycle, a business planning framework that identifies departmental priorities, sets expected key results, and indicates performance measures, is communicated to posts. This tool ensures that posts are fully aware of their roles and responsibilities in the development of sectoral priorities and that the IBD program operates in a coordinated, strategic manner. This then enables posts to take advantage of their country's unique aspects and opportunities, and address the challenges. The IBD plans are reviewed by the Europe Commercial Relations Division (WOE) which connects with key stakeholders, including other departments and divisions in the Investment, Innovations and Sectors (IIT) branch, and provides integrated advice and guidance to posts to ensure coherence and alignment of resources.

With regard to foreign direct investment, the Department launched a new strategy in 2006 which targets priority sectors for proactive promotion, and is in the process of clearly defining the types of services to be provided. The strategy identifies, by sector and company, clear priorities specific to the investment program in Germany.

With regard to science and technology (S&T) and innovation, a departmental strategy currently being drafted identifies Germany as a country of focus and proposes targeting sectors that are central to the IBD plan in Germany - environmental science and technologies, natural resources and energy, health and related life sciences and technologies, information and communication technologies.

Further focus is provided by the GCS Europe Market Plan which includes an innovative business model identifying five priority sectors for Europe. Corresponding sector teams have been established and have begun to identify and pursue specific opportunities in the Europe market. These teams will also serve to deepen communication with partners and integrate deliverables on a regional basis and across business lines. Our post in Germany leads the Renewable Energy team which has been active since March, and is a key member of the four other teams. Clear guidelines - "modus operandi" - have been prepared which define the objectives, roles, expected results and accountability of key contributors to the Market Plan, including Headquarter divisions, sector teams and regional offices.

Recommendation # 2: Improved Information for Decision Making

The IBD Program is facing a series of information constraints that must be tackled to allow more effective management and decision making by the Program.

1. The Current and Structural Analysis Division within the Office of the Chief Economist at Foreign Affairs and International Trade (DFAIT) undertakes analysis and has expertise on the use of trade and other statistics. The IBD staff are not currently familiar with what is available through this division, despite the fact that the IBD staff see a need to develop more solid information. The role of this Division could be expanded to allow better backstopping for IBD staff in the field and facilitate the access by IBD staff to appropriate information as requested. The inclusion of two new Full Time Equivalent positions (FTEs) to this group would allow the development and maintenance of country specific data and analysis in support of IBD programming. It would also allow the training of IBD staff in the use of existing information and data available that could assist in their planning, implementation, and results tracking efforts.
2. The usefulness of TRIO information could be enhanced with the development and application of data entry conventions and standards in order to standardize the data sets. The discrepancies seen among the posts in Germany highlight the variation in entry quality, which will be further magnified as TRIO is expanded to an increasing number of countries.
3. There remains too much emphasis on tracking activities to judge performance and not on the results emerging from those activities. The performance measurement system currently being developed within DFAIT could provide a method to facilitate the tracking of results. This system needs to be flexible enough to capture the results from all three streams, however, and must be coordinated with TRIO.

Management Response:

1. WMM agrees with the need for information to allow for better decision making and effective management. However, the Current and Structural Analysis Division within the Office of the Chief Economist is being restructured with a view to performing other functions and will be unable to provide the information and support proposed. In order to satisfy this need for information more broadly, WOE will survey a range of European posts to understand specific information needs and work to identify the most appropriate sources of this information. Results of this survey could be shared with other geographic regions and HQ divisions.
2. In response to a specific request from Berlin, the E-Services Division (WSE) has funded an initiative in Germany that will refine and promote its standard procedures, protocols and conventions for TRIO in order to improve data quality, entry and utilization. WSE will now develop conventions and guidelines applicable to all posts.
3. It is agreed that greater emphasis needs to be placed on the measurement and reporting of results rather than just activities and events. This is not unique to our missions in Germany. The ongoing work within DFAIT - led by Strategic Trade Planning and Performance Management Division (CBF) - on performance measurement and results reporting will be key to enabling missions to report on results. Extensive work has been done on developing results-based logic models and performance measurement tables covering IBD, Canadian Direct Investment Abroad (CDIA), S&T and investment. As noted in the evaluation report, the latter two business lines are actually eclipsing the relative importance of export promotion activity in the German market and these measurement frameworks will help to capture the results of the work in these prominent business lines. The performance measurement tables will enhance the suite of planning and reporting tools provided to missions by CBF and will be incorporated into the annual business planning cycle, as well as the Europe Market Plan. TRIO will continue to be the main vehicle through which activities and client services are reported by the missions in Germany (as elsewhere).

Recommendation # 3: Service Levels

1. While the six core services provide a good basis for defining minimum service levels for reactive services for Canadian firms, there is a need to better define service levels for proactive programming in all three streams and reinforce the message that proactive work is important. Lessons emerging from Germany can provide valuable input into this exercise, including ways to begin to meld the streams more closely in service delivery.
2. The lessons from Germany can also provide important information on new areas for IBD support. Specifically, three areas could warrant more consideration and increased support within IBD overall: CDIA; trade events that are global and regional in nature; and regional initiatives. All of these support the approaches articulated in the Global Commerce Strategy. The specific approaches to supporting CDIA, trade events, and regional initiatives would vary by the nature of the market and the potential results that could emerge in a specific context.

Management Response:

1. WMM agrees with the recommendation to further define service levels for new areas of work, in particular on CDIA, trade events that are global and regional in nature, and regional initiatives. An initiative is being undertaken by Trade Commssioner Service Renewal Divisionn (WTR) to modernize and simplify our core services offering, taking into account our expanded mandate (S&T, Foreign Direct Investment (FDI), CDIA), our regional presence in Canada, and changes to the global commerce environment. The results of the review, while not yet public, also touch on the level of services we offer clients. Germany was invited to participate in the consultations and lessons learned in Germany have informed this exercise.
2. On facilitating CDIA, the Department has recently developed guidelines on Horizons for trade commissioners around the world which outline client definition and services for these new clients. Training has been initiated at Headquarters for HQ staff and outgoing trade staff. Further tools and guidelines on facilitating CDIA will follow. This is supported by the Post Support Unit, and the new CDIA unit within Policy and Market Strategies Division (WSS). CDIA activities are also now captured as a separate section in the annual business planning process. The longer term goal is for WSS, WTR and the Foreign Service Institute (CFSD) to develop a course on CDIA that would be accessible to all Trade Commissioner Service staff, regardless of their location; e-learning delivery appears to be the option of choice.

Recommendation # 4: Governance and Structure at the Post

The divisions between the three streams at the Post should be further eliminated, with the overall governance structure becoming flatter. This can be accomplished through a number of changes:

1. The location of the Minister Counsellor should be studied more closely. Moving the position from Berlin to either Düsseldorf or Munich would allow the Minister Counsellor to be closer to the commercial activities. This move would have other implications, however, on the overall IBD operation. The pros and cons should be studied and a determination made of whether the centre of IBD programming should shift from Berlin.
2. The current structure with two separate Heads of Investment and S&T should be amalgamated into one position and remain at Berlin. This will allow the resources to be freed to have more functional specialists located at the Posts that can be providing support to the sectors.
3. In a resource rich environment, the Hamburg Consulate makes sense in terms of geographic coverage of the country. However, given the constraints on the Program, there are few compelling reasons for keeping it open. It currently faces low demand from Canadian firms and has priority sectors with weak potential.

Management Response:

1. WMM, IIS and the Embassy have serious concerns about transferring the Minister-Counsellor position from Berlin to another location. We believe that further study is required to better determine the impact of this recommendation on the IBD program and our presence in the capital. WMM will take the lead in reviewing this in consultation with IIS and the Embassy and will report back to the senior management with recommended action.

2. With guidance from HQ, the post has commenced the necessary actions so that the Trade, Investment and S&T units report to the Counsellor (Investment and Trade).

   As the DFAIT Innovation Strategy moves towards its implementation stage, the new reporting relationship will help to better integrate the S&T/Innovation, trade and investment functions in order to eliminate the stovepiping of tasks. This change in supervision will also require paying extremely close attention to the knowledge requirements for each business line and to increased demands resulting from the individual strategies.

   With regard to foreign direct investment, the departmental strategy identifies priorities which are separate from the trade development strategy. To achieve the desired results, it is important that officers have specialized investment knowledge and the related skill set. WMM will coordinate closely with the Investment and Innovation Bureaux to ensure that these specializations continue in the proposed new governance structure.

3. WMM has already transferred the Canada-based officer position from Hamburg to another location. The locally engaged staff in Hamburg now report to the Minister Counsellor in Berlin. Further changes in staff in Hamburg would affect the nature and delivery of consular service provided by our other posts in Germany. WMM will evaluate the best way to serve clients in that region and report to senior management with recommendations.

Recommendation # 5: Breaking Down Silos at HQ

1. DFAIT should ensure that the current HQ reorganization breaks down the silos between trade, investment, and S&T-not reinforces them. During the current reorganization, HQ needs to move in the direction of a more integrated model that will provide consistent and value added support to the Posts. This should include the development of methods to support the new Trade Commissioners (TCs) that need to develop skill sets that combine the three streams into a more dynamic approach to building Canadian linkages. This new understanding of the skill sets of TCs needs to be reflected at both the management and staff levels. As well, HQ needs to clearly outline how the Posts are to interact with the various groups in HQ and the points of contact to obtain support in each of the Branches, ensuring as well that no overlap in functions exists between Branches.

Management Response:

1. WMM agrees wholeheartedly with this recommendation and is already working closely with colleagues in investment, S&T and trade policy to ensure a consultative, coherent and coordinated approach to business development. A number of mechanisms, including regular meetings at the Assistant Deputy Minister and Director General levels, have been established to ensure integration of the three streams. Coordination is taking place at various levels in the establishment of priorities for trade missions, the development of an executive outreach strategy, input to Head of Mission/Senior Trade Commissioner Performance Management Agreements and HOM mandate letters, and the review of country strategies and IBD plans.

   The multi-country sector teams which have been established to implement the Europe Market Plan and which include representatives of all three business lines, will make a significant contribution to ensuring integration. Their effectiveness will be evaluated against those objectives and this model could be considered in other instances as desired. A pilot project is also being developed in the Investment, Innovation and Sectors Branch to integrate expertise in a particular sector that could contribute to eliminating the different silos.

Recommendation # 6: Rationalizing Sector Responsibilities

1. DFAIT should more clearly define the role it should play in sector support and build on the existing networks and expertise available elsewhere. One approach does not fit all sectors given the existing infrastructure for support. Some sectors currently have strong networks as seen in automotive and agri-food. An approach by DFAIT of building all expertise in-house is not constructive given the need to have greater collaboration with OGDs, sector associations, and firms, as well as the rotational nature of the DFAIT staffing. Leadership for sectors should be based where the knowledge exists, not dictated by positions.
2. As part of the sector work, Posts and HQ should consider the role of international trade events in business development. Where warranted (e.g., within a priority sector with clear expectations of commercial results), a coordinated effort by HQ, missions, and OGDs could include more active participation in major trade events that take place in Germany.

Management Response:

WMM agrees to more clearly define the role it should play in sector support. The Department has in fact initiated a process to do so and through the Europe Market Plan is in the process of more clearly establishing sector roles and priorities. Key for the department in this effort is the creation of the Business Sectors Bureau. Its aim is to better know and understand Canada's supply side capacity, Canadian competitive sectors and leading Canadian companies in an international context. The Business Sectors Bureau is an integral part of the European Sector Teams and will ensure a solid network of sectoral contacts in other government departments (OGDs) and other sector stakeholders, and to implement effective coordination.

Europe Market Plan's multi-post priority sector teams will improve cooperation with departments, and better coordinate participation in major international trade events in Germany and around the world. Germany is a member or leader on all five priority sector teams. The main objective of these teams is to pro-actively identify and pursue specific European opportunities for Canadian clients . In the team, the Business Sectors Bureau will enhance overall sector knowledge and ensure posts' action plans target a broader and identifiable objective across Europe which reflects the interests and capabilities of Canadian industry.

As a member of the European Sector Team, the Business Sectors Bureau will ensure effective coordination with appropriate partner departments and agencies. In addition, the DFAIT Innovation Strategy, which ranks Germany as its #3 priority innovation market for Canada, also defines sectoral priorities. The Strategy proposes to revise the existing Canada-Germany S&T treaty/relationship to make it more commercialization-oriented and bring in greater private sector participation. The Innovation Counsellor will need to develop a greater awareness of the players and emerging technologies emanating from Germany's innovation eco-system.

However the recommendation that a coordinated approach in more trade shows is desirable is complicated by the general absence of a consistent federal presence at such shows. The now defunct Brand Canada program was instrumental in developing consistent messaging and a Canadian "look" in German trade shows (Medica and BioFach in particular). Brand Canada facilitated a cooperative approach with sectoral departments (AAFC for example) that enabled the German posts to take a leading role that is not possible under current funding constraints. The multi-market sectoral teams may help by pooling resources toward signature shows.

Recommendation # 7: Focus IBD Resources on IBD Programming at Consulates

1. The consular functions at the Consulates should be closed in a staged approach and moved to Berlin. In the short term, this means retaining the local consular staff as the interface with the public at the Consulates but moving the approval processes for passports and other documentation from the Vice Consuls to the Berlin Consular section. In the medium term, the transportation and communications network in Germany allows a complete centralization of consular services in Berlin. This can be staged as the consular Locally Engaged Staff (LES) retire, are transferred to IBD functions, or move to Berlin to continue consular work. It is recognized that emergencies will continue to require support from IBD staff even after the move is completed.

Management Response:

1. We agree with the proposal to centralize consular functions in Berlin. The "public face" of our presence in Germany and elsewhere is an essential service expected by Canadians travelling abroad. The Post considers it can manage the impact on IBD staff by involving the Canada-based officer in the most urgent cases, but not in routine or day-to-day issues. The Embassy and Consulates, in consultation with the Evaluation Division (ZIE) and the Consular Affairs bureau (CND), will develop a memorandum of understanding which will define the nature of extreme urgency and spell out each mission's responsibilities when dealing with consular cases.

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Date Modified:

2012-11-04