Industry Committee on April 30th, 2013

[Paul Temple]

There have been changes to the SR and ED program, and the ability to claim certain tax incentives has been reduced. One of the points I want to make is that it's an ongoing process, and the availability of those types of tax credits are very helpful.

In some ways, we're a good case study; in others, maybe we're a bad one. We're a media company, so we're not retailing and we don't have some of those challenges. One of the main points I want to make has to do with the need for continual reinvestment. We're now competing. We're trying to get people. But it's difficult because we're getting to the size where there's some cachet in working for the Weather Network. We're competing with the Googles and Microsofts now. It's getting more and more difficult to get people. I know it's in the papers a lot now about foreign workers, but we'll take whoever we can get to help us develop our applications and redesign our websites and whatever else we have to do.

[Geoff Regan, Liberal, Halifax West, NS]

On the point of SR and ED, Mr. Smith, you actually raised the need for improvements to that program. Would you like to talk about what those should be?

[Scott Smith]

The SR and ED program is designed primarily for innovation, product innovation, research and development. It has some applicability to the discussion here with respect to ICT adoption. It's important for a lot of other research-based companies.

The changes in 2011 to the SR and ED program significantly reduced the amounts that can be deducted by larger companies. It's those larger companies that spend the most on research and development in this country. The improvements need to find a way for those companies to continue that R and D and to be supported in the same way as small businesses, which still have access to the SR and ED program.

[Geoff Regan, Liberal, Halifax West, NS]

Let me turn to Ms. Pohlmann and ask you about slide 8, which highlights the dissatisfaction of many of your members about the availability of competitive options for wired Internet providers in your area.

I don't think you had a slide on wireless Internet, but I'd like you to comment on both of those and what you think has to happen to improve them.

[Corinne Pohlmann]

On the wireless side, we didn't include questions on the wireless Internet in the survey that we did. We did ask about wireless telephones, but we didn't have time to include those results in the survey or this particular presentation. The satisfaction with access to wireless phone systems is a little bit better in terms of the competitive options available, because they do tend to cross-pollinate across the country. You have Telus in eastern Canada and you have Bell in western Canada when it comes to mobility and wireless phones. But I don't have any information on wireless Internet access.

To improve these competitive options there are a few things involved. There are some things that we believe the CRTC has done, for example, to make it more difficult for competitive firms to perhaps grow their businesses and expand into new markets and rural areas—for example, some of its rulings no longer allowing competitors to purchase access to the incumbent's lines at a wholesale plus fair-cost amount. That ruling of a couple of years ago, we think, has actually diminished the number of competitors in the marketplace because they no longer have a controlled cost access to those lines. Companies like Bell and Telus can now charge those competitors a lot more to access and rent those lines. That's our understanding. I have a very rudimentary understanding of these things, but that's our understanding.

We have been supporting some of the competitive companies and trying to maybe go back to that system. We believe that competition in this area is still quite limited, especially for small and medium-sized companies, which may not always necessarily have access to cable networks either, because they're in industrial parks and cable companies don't go into industrial parks, for example. They are in bigger cities, where it's not so bad, but in smaller communities it can be very difficult.

Some of those rules we need to look at a little more closely to see if they really are helping to increase competition or actually making competition worse for this particular market segment, that is, small and medium-sized companies.

[Geoff Regan, Liberal, Halifax West, NS]

With your top recommendation, in which you call for more competitive options for telecom services, especially for rural areas, are you saying that's how we will achieve that or are there other things we need to do to encourage more competitive options?

[Corinne Pohlmann]

It's difficult to ask a smaller company that's providing Internet service to create and build whole new lines. We're a big country in lots of different ways and so we need to make sure that they have access to the lines that already exist, many of which were built through government programs and subsidies with bigger companies at one time.

Those are some of the things we'd like to see maybe explored a little bit more to encourage the growth of those smaller ISPs in some of those other markets that may not be as big. I think that's a key one for us.

[Geoff Regan, Liberal, Halifax West, NS]

We've heard a lot from retailers about the cost of credit card charges. They are being charged for using credit cards—and, of course, you are very familiar with this issue. You talk about the issue of electronic payments, mobile payments, as part of that. Would you comment on that and what impact that has and what it does in making SMEs reticent to get involved?

[Corinne Pohlmann]

The cost of accepting credit cards has been going up, and just went up again on April 1. These are definitely barriers for small firms to adopt.

The advent of mobile payments in the Canadian marketplaces worries a lot of small business owners because the last time we saw a new product enter the Canadian marketplace was when premium cards were introduced. We saw rates skyrocket at that point.

Right now it's fairly stable, but we worry about when this becomes a much bigger part of our day-to-day life. Mobile payments usually mean that you have another player now involved in the payments network, in this case telecommunications companies, in addition to the banks and the processors and the credit card companies.

We find it really difficult to believe that this new player is not going to want a piece of the pie as well. The only way to get that is to expand the pie. Right now they're sharing it, but we believe that down the road that may extend further. We do worry about that and making sure that the credit card code of conduct is expanded to include some of the rules that these mobile payment companies have to abide by is really important.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Regan.

We're moving to five-minute rounds now.

Mr. Carmichael.

[John Carmichael, Conservative, Don Valley West, ON]

Thank you, Chair.

Good afternoon to our witnesses.

Mr. Smith, I'd like to go back to some of your earlier comments regarding the online retail percentages relative to Canada. Do you have U.S. comparatives as well?

You talked about 3.4% of retail right now being online and that it's going to move to 5.4% by 2016. How does that compare to U.S. numbers? Do you have those handy?

[Scott Smith]

I think I do.

[John Carmichael, Conservative, Don Valley West, ON]

In the interest of time, while you're looking we'll keep moving along.

I wonder if you could talk about Canadian versus U.S. adoption of technology and websites and their use by small business. How are we comparing or contrasting? You talked about Canada lagging. We hear that from time to time. I don't know if I've heard comparable numbers that would tell me how far behind we really are—or are we?

[Scott Smith]

I don't have a direct comparison to the U.S. so I can't give you the ranking. I could look it up and give you that information. I don't have that off the top of my head.

[John Carmichael, Conservative, Don Valley West, ON]

Okay. Somebody talked earlier about the witnesses we had the other day from Industry Canada. They said about 41% of businesses in Canada had websites in 2007. That moved to 70% in 2011. As I understand, the numbers today are around 90%. I think that's accurate.

As a former business person and former member of the CFIB, I would perhaps address this next question to them. At the time I relied on our website to inform our customers in the past of the business we were involved in, what products we offered, the features and benefits—all the good things. It wasn't related to the global supply chain.

I wonder if you would talk about local business. You talked about having 109,000 members. I get your surveys and I love your surveys. I'd like them to be a little more detailed and in-depth, and I'd like to see the names as well, because I'd like to talk to some of your members. The reality is that you have franchisees, you have distributors, you have those who are truly smaller in business. They have their websites, but they're not part of the global supply chain. When you start looking at SMEs, how do you differentiate between the two levels of business, between those who want to do business globally and those who are strictly local providers?

[Corinne Pohlmann]

It's harder and harder to differentiate. You're absolutely right, as the vast majority of our members want to serve their local markets and that's where they're happy. It may be a service business too, so it's really just about interaction with people. They really just want to be able to use the website to make sure people understand what their services are and how to contact them.

However, in those same local communities could be that little start-up, with four or five employees, that is looking to sell overseas or across another province, whatever the case may be. I think that's what's great about the digital revolution, if you want to call it that, because it has really allowed those smaller companies now to perhaps reach markets they never could before. I don't think it's as easy to differentiate as we once thought it was, and that's maybe a good thing. But I think it's about making sure that they have the tools and that we understand that the costs for them are going to be relatively high, compared to larger companies, to get into these markets. So how do we make sure we're minimizing that in the best way possible so they can get that step forward and get into those global markets if they are so inclined?

[John Carmichael, Conservative, Don Valley West, ON]

I agree with you on that. I had the opportunity a couple of weeks ago to do an announcement during Small Business Week with one of your team. It was just that. The small local business producer had put their product out on the Internet and they had customers coming in from around the world—very specialized, very select. But it was quite interesting to see how that worked.

Were you going to jump in?

[Scott Smith]

I was going to give you the statistic you were asking for. It's 5% in 2010 for the U.S., and 7.1%. So it's about 2.5% more in each case. They're significantly ahead of us.

[John Carmichael, Conservative, Don Valley West, ON]

I'm not sure how you quantify the “significantly” other than the market is so large perhaps.

[Scott Smith]

Only if you look at it on a per capita basis. In other words, 5% of the retail market in 2010 in the U.S. was online. In Canada, in 2010, it was only 3.4%. In 2016, the projection is 7.1% in the U.S., whereas in Canada it's only 5%.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Smith and Mr. Carmichael.

Monsieur Lapointe, for five minutes.

[François Lapointe, NDP, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you, Mr. Chair.

Mr. Smith, a period of five minutes is not enough for all the expertise we have before us. This is a little cruel, but if I hurry you along a little, it will be because we do not have enough time.

Page 11 of the document provided by the Canadian Federation of Independent Business jumps out at me in some fundamental ways. Recent efforts by the current government have focused on lowering income taxes for very large companies and, to a smaller extent, for smaller companies. For SMEs, it comes as no surprise that what can really help them is direct assistance. The capital cost allowance really helped SMEs. But programs that require them to stop baking bread or cleaning clothes in order to sit down with BDC people and find out which programs may help and may meet the criteria are not so easy for small companies. Direct assistance is what helps them.

Do you have any data about big companies by comparison? Perhaps Mr. Smith can answer. It seems to me that there is little direct assistance.

So what is the proportion of indirect assistance used by large companies as opposed to small ones?

In terms of the SR&ED program, more than 75% of the small businesses that were able to use it by virtue of some of their activities have been unable to do so for two years. The regional chambers of commerce confirm that fact. Medium-sized businesses do not do too badly, but people all tell me the same thing: they have to invest up to 30% of the amount they are looking for. For example, if they want $100,000, they have to invest $30,000 in administration to justify the $100,000 they are looking for. If they do not, they get no assistance. We find that situation all over eastern Quebec; is it anything like what people have told you elsewhere in Canada?

[Scott Smith]

That's a fairly convoluted question.

The SR and ED program is basically not available to large companies now. The changes in the SR and ED program have basically eliminated large companies from participating to a large degree. There is still some incentive, but unfortunately it's not significant enough for them to make the investments that they need to make to continue research and development in Canada. They're going to do it for other reasons now.

[François Lapointe, NDP, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

In terms of that trend with small businesses, have you heard comments, do you have figures along those lines? Where I live, more than 75% of the projects that used to be accepted have not been accepted for 18 months or two years now. I get those figures from all the chambers of commerce and tax experts in eastern Quebec. It is a fact.

[Scott Smith]

I'm not aware of that discrepancy. Small companies still do have access to the SR and ED program. The challenge for a lot of them is meeting the criteria.