QUEBEC INC.
The province’s economy is up and running. Slowly. Many industries are operating far below potential. What challenges are they facing? Frédéric Tomesco spoke to five Quebec business experts to help identify some lessons from the pandemic.
“People want more space,” Ashcroft said. “COVID has been a big reassessment. People are looking a lot at quality of life, spending time with their families and working from home. We’re seeing all these changes in our life being closely reflected in the real estate market.”
Dagenais said he thinks the hot market will begin to cool in the coming months as more homes come on the market. The lockdown has caused many people to take stock of their lives, he noted, and may cause more people to make the kind of big life changes that trigger a need to move: separating from a partner or moving in together, having a baby, or inviting elderly family members to move in, for example.
“For real estate brokers, there will be a lot of activity,” he said.
And while buyers right now may be a mix of desperate souls who had already sold or given up a lease just before COVID-19 hit, along with those confident enough to make big changes in turbulent times, in the coming months it is possible there will be a wave of homeowners who are forced to sell in order to recover from the economic hit of losing work or closing a business due to the pandemic.
On Tuesday, the Canada Mortgage and Housing Corporation predicted real estate prices in Canada’s big cities will fall over the next couple of years due to large drops in income and employment.
In Montreal, employment declined by 18 per cent. Dagenais noted that while the federal government’s mortgage payment deferral programs and special unemployment benefits have softened the financial impact of COVID, at some point these programs will end.
“There’s no gift from the banks, it’s just a deferred payment and the interest keeps accumulating,” Dagenais said. “At some point, the bank will say it’s time to pay. I have the feeling that in September, October we should see an increase of sellers.”
Yet, even if prices decline in the short term here, the CMHC forecasts a relatively quick rebound. By 2022, home values are expected to increase again, and could even exceed pre-pandemic levels.
Sacha Brosseau, who launched the new Berkshire Hathaway Home Services Quebec real estate brand in the midst of the shutdown, said he remains confident the housing market can recover from the shock of COVID-19.
“From a real estate standpoint, all that COVID did was put everything on pause,” Brosseau said. “It was like one big pause button. I am very optimistic about the future of Quebec in real estate, and also very optimistic that everyone will get out of this in a positive way.” 1
When in doubt, automate.
For many companies that were grappling with a labour scarcity until the pandemic struck, a digital transformation is just what the doctor ordered, according to Guy Leblanc, chief executive officer of Investissement Québec.
Often called Industry 4.0, the shift toward automation involves the use of machine-to-machine communication. In a so-called “smart” factory, machines can self-analyze and detect issues without the need for unskilled workers to intervene.
“This crisis has made a lot of companies realize that investing in automation is no longer a choice, it’s a matter of survival,” Leblanc said in a phone interview. “They have to undergo a digital transformation. If there is a positive side to COVID-19, it’s that the crisis is going to serve as an accelerator.”
The push may help Quebec close a productivity gap with its biggest rival. Quebec companies on average are 15 per cent less productive than their Ontario counterparts, Investissement Québec data shows.
The need to automate extends to Quebec retailers, many of which have seen online orders swell as customers stayed home en masse during the lockdown. Until the pandemic hit, many retailers derived only 10 per cent of revenue from online orders, according to Investissement Québec.
“This figure needs to increase, and it needs to increase substantially,” Leblanc said. “Online is where the growth is going to happen.”
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Climbing the ‘wall of debt’
As the economy inches toward cruising speed, many entrepreneurs are focusing on the need to cut debt and shore up the balance sheet.
Small businesses across Quebec have racked up about $148,000 on average in new debt since the health crisis began, according to a new poll prepared with the Canadian Federation of Independent Business. The national average is
Industry’s ‘digital transformation’
just north of $152,000.
Fonds de solidarité FTQ, the labour-sponsored fund that is one of Quebec’s largest institutional investors, says more than 1,300 of its partner companies accepted its offer of a six-month deferral on loan payments since the program was created in late March.
“There’s a wall of debt ahead,” says Gaétan Morin, chief executive officer of the Fonds. “An institution like ours is going to be needed to help recapitalize these companies. The crisis is going to end someday, and we need to give these companies the tools to grow again, to resume exporting, to resume research and development.” 3
Home truths
Are you ready for “near-shoring ”?
Quebecers caught a glimpse of the new manufacturing normal this spring, when companies ranging from sports gear maker Bauer to clothing retailer Tristan started making personal protective equipment virtually overnight to help the province overcome a shortage of masks, visors, gowns and other medical supplies.
The transformation was indicative of a trend toward more local production, according to Mcgill University management strategy professor Karl Moore. The way Moore tells it, many governments and companies are now reconsidering their decision to hire suppliers in far-flung locales such as China or Vietnam.
“We have to be more careful who we depend on,” Moore said in a phone interview. “Do you want to be reliant on a country far away, in case something like COVID-19 happens again? That’s an issue many companies are wrestling with.” To reduce risks associated with prolonged health-related disruptions, some Quebec manufacturers are even drawing up plans for a second supply chain, according to Janie Béïque, executive vice-president of investments at the Fonds de solidarité.
“They don’t want to put all their eggs in the same basket,” she said. “Maybe some companies went to extremes to get the lowest price possible for their supplies.” 4
Inching toward mobile office
As many employees warm to the concept of working from home, some companies have started to rethink their need for office space. They’ve also begun tallying up the savings associated with a smaller real estate footprint.
Management professor Caroline Coulombe cites the case of the Société de transport de Montréal, which is moving toward a “hoteling ” or “mobile office” model — a system under which some types of workers no longer have permanent desks, and instead need to reserve office space and lockers — to encourage remote work. The STM is aiming to deploy the strategy between 2021 and 2025, said Coulombe, who teaches at the Université du Québec à Montréal.
“It’s all linked to concerns over the possibility of a second wave flaring up,” Coulombe said. “Will there be a reconfinement? Companies want to be more flexible. This is no longer a trend, but a strategic choice dictated by the context.” 5
‘Black swan’ season is here COVID-19 is also redefining the notion of risk, and putting socalled “black swans” — unpredictable events with potentially severe consequences — back on company agendas.
“You’d better have plans for a black swan,” Mcgill’s Moore said. “Companies are going to think a lot more about risk. Boards need to ask themselves what they will do if something like COVID -19 happens again. You will see more scenario planning — what happens if the supply chain is shut down?”
Executives and managers “are much more aware of crisis management,” UQAM’S Coulombe said. “In many of the infrastructure projects that I’m studying, there is an openness to studying and improving scenarios for extreme events.”
COVID-19 “is not a crisis with a beginning and an end,” Investissement Québec’s Leblanc said. “Someday it will be repeated. Will it be as intense? Will it be in six months or in six years? We don’t know, but we do know companies will need to be ready for it.”
We have to be more careful who we depend on. Do you want to be reliant on a country far away, in case something like COVID-19 happens again? That’s an issue many companies are wrestling with. Maybe globalization is more negative than we thought. Karl Moore, Mcgill University