Industry Committee on Nov. 21st, 2011

[Dan Kelly]

We welcome any competition to this business whatsoever. The PayPal fees, to be fair, sound good on the surface, but a plain-Jane VISA fee for our small members could be around 1.7%. There are additional fees built in. If you're using an Amex card, then PayPal is a pretty good deal. There's no question about that.

The only thing that's happened since the code of conduct on the fee side--

[The Chair, Conservative, David Sweet]

Mr. Kelly, I'm sorry. That's all the time we have and I apologize for that.

Try to squeeze it in with another answer, if you can.

Mr. Caron, you have five minutes.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much, Mr. Chairman.

My first question is for Mr. Kelly.

I briefly looked at the research you've conducted at the Canadian Federation of Independent Business. For all kinds of reasons, it seems that sometimes there is some reluctance to adopt information and communications technologies quickly.

Does your research show in a quantifiable way the benefits of using new information and communications technologies, particularly e-commerce? Let's suppose, for example, that for every dollar of investment you can save two dollars in management costs or in new contracts.

Are there quantifiable methods?

[Dan Kelly]

I'm afraid we don't have that kind of debt.

There have been some academic studies of this kind of thing. For a lot of our members, the small businesses, it's whether they can afford any dollars right now to make these kinds of investments. It is very challenging for many of them. We certainly have not done any cost-benefit analysis of this kind of technology adaptation.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Do you get the impression that, for your members, this is more an investment than an expenditure, that is to say that, if it's economic for them, it represents an investment rather than a necessary expense?

[Dan Kelly]

Again, it's difficult to generalize for the entire small business population. There are sectors of the economy that are absolutely seeing the benefits of this very early. By adopting these kinds of technologies, they're able to make that money back and to benefit from it for the future. It is difficult to generalize. When you look at this, you also have to include within our membership the small businesses like the local dry cleaner and the local restaurant. There are some products that are very easy to move into an e-commerce setting. There are others that are more intrinsically linked to an in-person transaction. Some of them are still finding creative ways to use e-commerce for those kinds of more localized and mainstream businesses. I'm afraid I don't have any kind of rule of thumb to suggest for the small business community as a whole.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you.

Mr. MacMullin, you talked about trust in using e-commerce and services such as PayPal. I probably could have put the question as well to the Canadian Bankers Association, which testified earlier, or to the representatives of the credit card companies. There is a specific security problem, and it's called phishing.

To what extent can that affect PayPal and, more particularly, consumers' trust? Is it a very difficult obstacle to overcome? What measures are you taking to overcome it, and—I don't know whether you can answer this—how are your competitors doing it?

[Darrell MacMullin]

Thank you, Mr. Caron.

There are a number of things that PayPal does to protect our customers. Phishing and spoof emails and scams have been going on for many years. PayPal was actually an early victim of that, probably an early target, given our global nature and our scale. We have over 103 million active users around the world.

One of the things we've been really good at is fighting and detecting fraud in our system. By nature of the way our system works, as soon as someone attempts to access your account or there's some suspicious activity going on within your account, we may let that happen to monitor what's actually going on. From a consumer standpoint, though, we make sure that none of your financial information is ever transmitted as part of that. We also have very strict buyer and seller protection policies in place for any unauthorized use of your account, so if by chance you do fall victim to a spoof email and someone attempts to do a transaction, you're 100% covered against any unauthorized use of your account.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

There are about 30 or 45 seconds left.

Do you sense that the measures you're taking are inspiring consumers' trust? Or do you think there is a level of scepticism that will be impossible to overcome and that will impede the expansion of e-commerce?

[Darrell MacMullin]

This is one of the reasons people are skeptical about doing transactions online. Part of it is comprehension, and there we do a lot for our customers in teaching them, for instance, that we will never send them an email asking them to log into their account or to update their information. If you ever get an email like that from PayPal, you know right away it's a spoof.

There's a lot of that sort of comprehension that we attempt to do with our customers. Along with protecting them, there is proactive education to help people understand what they can do to protect themselves.

[The Chair, Conservative, David Sweet]

Now we'll move on to Mr. Braid. If you have questions for Mr. Cohn before he goes, you might want to ask them now.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

That's a perfect setup, Mr. Chair. Thank you.

Mr. Cohn, I really appreciated your presentation. The importance of collaboration really resonates with me. I'm from Kitchener—Waterloo, and we often say collaboration is one of the reasons we have such a successful ecosystem for innovation and for high-tech.

In your presentation, you said a lack of commercialization expertise was one of the challenges in Canada. Could you describe what you mean by commercialization expertise? What are the elements of commercialization expertise, and how can we increase that expertise?

[Sorin Cohn]

Commercialization expertise includes all elements or knowledge of the market and the customers, understanding what the customers need, understanding how they can be satisfied and, equally important, understanding the ways that one can reach the right customers in the process. This is not quite as developed in Canada as it is in other countries.

As to enhancing the level of expertise in commercialization, one of the major recommendations we are making is to educate people in business management. Education in business management, including marketing and relationship management, should become compulsory for all science and technology students and should be an option for all other students. We should also nurture, even in high school, what I call the commercialization competencies: confidence, competitiveness, and knowledge of the world. High school is when people's character is being created and developed.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

You also briefly mentioned the Jenkins panel report. Could you speak to the recommendations within the report that you think deserve support?

[Sorin Cohn]

First of all, there is a generic recommendation on the need for better coordination of the variety of federal programs aimed at supporting industry, especially research and development. There is a requirement for some way to structure these programs to make them more effective in their dealings with industry. That's number one. We very much support that. We are adding to that recommendation the need for the structures to become flexible. They need to be adjustable, depending on their performance and the changes in the market. Creating legislation for new structures that doesn't allow them to change in the next 50 years is not going to be helpful, because the global market is changing much faster.

Second, all of these organizations and programs should be accountable, and the accountability should be based on industry-value methods. Rather than judging government officials on how many companies they meet in a year, it's important to judge the effectiveness of the programs they have managed for those companies. Has the return on investment increased? Are those companies becoming more viable as a business—not next year, but three to five years afterwards? This is the time that counts in the life of a business.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

You also spoke about the importance of more strongly supporting the protection of intellectual property in Canada, and I wanted to ask how we do that. I presume that one of the important elements of that is our upcoming Copyright Modernization Act. Beyond that, what do you suggest is important for us to do in Canada?

[Sorin Cohn]

Another aspect is the expense and timing required for the IP to be protected. Today there is very little support for technology companies to protect their IP. There is no support from IRAP, and SR and ED does not cover that aspect of industrial evolution. That is very critical.

We asked Canadian companies whether they collaborated, and 53% said they did not have any collaborative agreements. That is a huge number. These companies are trying to be successful in the global market by themselves, and most of them will fail because they do not have the strength to be successful.

I worked for 25 years with Nortel Networks. Whenever we went into a new territory, we always made sure we had local partners to present a local face to the market. Small companies that do not do that are going to fail.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Cohn. Sorry, that's all the time we have.

We'll now go to Mr. Toone for five minutes.

[Philip Toone, NDP, Gaspésie—Îles-de-la-Madeleine, QC]

Thank you, Chair.

I'll repeat what my colleagues have said and thank you very much for your presentations. They were quite enlightening.

I come from a rural riding, and we have difficulty accessing a strong backbone infrastructure. We have a few companies that have set up satellite operations, including software developers. Telephone companies have call centre operations. But it's very limited.

Mr. Kee, to what extent does your association feel that having software designers living in regions and developing software in our regions contributes—or is that a hindrance? Is that a priority for members of your association?

[Jason Kee]

It's certainly not a hindrance. The challenge is that we are an industry that tends to cluster, and we tend to cluster in urban areas. There are a number of reasons for that, not the least of which is access to high-speed infrastructure. That is critical. But we also have very good Canadian success stories that are not in urban areas. The most notable is HB Studios in Lunenburg, Nova Scotia. They decided that they didn't want to go to Halifax. They wanted to stay in Lunenberg and build their studio there, and they did. They are world-renowned for some of the games they produce.

The challenge is getting over that chicken-and-egg problem. Your developers may be in rural areas, and in order for them to stay in rural areas there has to be access to the infrastructure that enables them to do their jobs remotely.

The beauty of a lot of the emerging platforms in the digital space--the app stores and the online platforms--is that they're ubiquitously accessible no matter where you are, provided you have access to the Internet. So it doesn't matter if you're developing your app in the middle of nowhere versus the middle of downtown Toronto; it's irrelevant. It's a matter of having the ability to submit that app for approval, regardless of where you are.

So access to broadband will facilitate developers actually staying in more rural areas, because there won't be the same drive for them to go to the urban areas.

[Philip Toone, NDP, Gaspésie—Îles-de-la-Madeleine, QC]

That's certainly a problem in our rural areas. Broadband is very hit and miss. In about half of the riding I come from, you can forget about having any access to the Internet whatsoever.

When it comes to your association—and maybe this is more a question for Mr. Kelly—what steps can we take to have better access to broadband in regions? In particular, there seems to be reticence on the part of telephone companies to actually start supplying broadband in a lot of our regions in Canada. There's a bit of an entrepreneurial spirit, where some people are now setting up microwave services that seem to be more accessible.

Do you have any input, any ideas, on that front? Are any of your members thinking of moving forward with setting up a different kind of infrastructure so that we can bypass the larger telcos, or are we really stuck with having to go with the telcos and their timetables, which seem to be glacial?

[Jason Kee]

My answer to that is very brief. Is it just about a coherent approach? No. It's something that we strongly encourage and support, and we support the development of plans to assist with that.

To be honest, I think first and foremost we need to start thinking about a coherent digital strategy that encompasses access to rural broadband in particular as a key element of the strategy. It's part and parcel of that.

Certainly, I have to give credit where credit is due. The Government of Canada has taken steps to provide funding specifically for rural broadband initiatives, but it's one piece of a much larger puzzle that we need to start working on.

[Dan Kelly]

I'm afraid I don't have any easier answers than that.

I do know that a variety of provinces are at the table as well, and that they are trying to do something similar to what the federal government has done to incent this kind of development. Almost 40% of our members say that they're not happy with the degree of competitive options they have for the provision of Internet across Canada, and that is pretty bad.

There is no question that you are quite right. This is an absolute impediment to the adoption of e-commerce in a more rural setting. I'm hoping that there will be some entrepreneurs and technology changes that will allow this to happen. I don't have any easy answers for how to get us there.

[Philip Toone, NDP, Gaspésie—Îles-de-la-Madeleine, QC]

All right.

[The Chair, Conservative, David Sweet]

We've run out of time, Mr. Toone, but I noticed Mr. Cohn wants to make a comment.

I'll give you a few seconds, if you can do it very briefly.