Industry Committee on April 25th, 2013

[The Chair, Conservative, David Sweet]

Good afternoon, ladies and gentlemen.

Welcome to the 65th meeting of the Standing Committee on Industry, Science and Technology, where we're dealing with the adoption of digital technology by Canadian small and medium-sized enterprises.

Just as an aside before I introduce the witnesses, we have good news; we only have one clock in the room now, rather than two, so we don't have to worry about different times. I think it's actually synchronized today with our BlackBerrys. You can target that clock for 5 p.m. That's the time we'll be meeting until, and then, of course, we'll have bells at 5:15.

[Dan Harris, NDP, Scarborough Southwest, ON]

It's only taken the government six years to get the clock right.

[Voices]

Oh, oh!

[The Chair, Conservative, David Sweet]

On that note, I'd like to introduce Alain Beaudoin, acting assistant deputy minister of spectrum, information technologies, and telecommunications, Department of Industry. With him are Raquel Peters, director of policy and liaison, small business, tourism, and marketplace services, as well as Josie Brocca, acting director, digital adoption directorate, spectrum, information technologies, and telecommunications.

Mr. Beaudoin, please go ahead. You have approximately 7 to 10 minutes.

[Alain Beaudoin, Acting Assistant Deputy Minister, Spectrum, Information Technologies and Telecommunications, Department of Industry]

Thank you, Mr. Chair.

We are pleased to be appearing before the committee once again.

Your committee is about to undertake a study on the importance of digital technology for small and medium-sized enterprises in Canada. I would like to take this opportunity to discuss the context in which SMEs operate, as well as provide you with some statistics we hope will support your efforts and help move this study forward.

To turn to slide 2, when we are talking about small and medium-sized firms, or SMEs, we are referring to firms with 500 employees or fewer. I don't intend to walk you through all of the data on this slide, but I would like to highlight three points. First, SMEs make up 99.8% of the firms in Canada with employees. Second, they employ two-thirds of the private sector workforce. Finally, they account for 40% of the GDP.

We'll turn to slide 3. As with any firm, digital technologies are becoming an increasingly important element of an SME's success. They are transforming the way business is conducted and how businesses operate.

Newer and easier-to-use technologies and applications are constantly hitting the marketplace, making digital adoption possible for more firms. For example, digital technologies are helping companies manage systems such as their supply chains or vehicle fleets, which in return is helping to improve their productivity. Through e-commerce and social media, SMEs are opening new markets domestically and around the world. Finally, faster processing speeds, greater connectivity, and applications like cloud computing are helping to spur innovations across a range of industries, leading to the creation of new products and services.

Let's now turn to slide 4. As you can imagine, there are many types of technologies being used by SMEs today. I'd like to highlight five examples that reflect, to some degree, various levels of complexity.

First is having a web presence. This is important, for example, for a tourism operator who needs to ensure that they are found on the web, as most bookings are now taking place online.

Second would be engaging in e-commerce and being able to sell your products online, which increases your customer base.

A third one would be using business systems, such as human resources, finance, or supply chain management systems.

A fourth one would be applying digital controls, whether for automation, remote sensing, or other types of similar activities.

Finally, the last would be using cloud and high-performance computing to manage and analyze large amounts of data.

There are many good examples of Canadian companies that are using digital technologies. Let me highlight a few examples.

The Tim Hortons website, for example, was voted one of the top 50 Canadian sites by a group of experts. Also, BeyondtheRack.com, which is a Montreal-based company, is one of Canada's fastest-growing e-commerce companies. For example, it hit $6 million in its first year. Three years later, it was already at $100 million in terms of revenues. Finally, a company called Select Technology Corporation from Nova Scotia is using the CANARIE network to test concepts that will allow businesses to better monitor network traffic, handle big data, and offer better services to their clients.

Let's turn to slide 5. What is interesting is that these success stories are increasingly no longer the exception. What we see is that there has been a steady increase in investment over time, from $11.3 billion in 1990 to $33.7 billion in 2012. However, while that investment has been steadily increasingly, overall Canadian investment in ICT per worker has traditionally lagged behind U.S. investment levels. For example, in 2012 Canadian ICT investment per worker was 58% of the investment in the United States.

Now let's turn to slide 6.

One of the challenges we face is the lack of a single source of data on the adoption of technologies by SMEs. So our information comes from a number of sources. The latest national survey Statistics Canada conducted in 2007 indicated that less than half of the businesses had a website and that 8% of them sold online. However, in 2011, CEFRIO, a Quebec-based organization, found that 70% of Canadian SMEs had a web presence and that 18% of them sold online. The same study also found that one in four SMEs were investing in business and management systems.

Although those two sets of data cannot be directly compared, they show that SMEs are adopting ICTs and improving over time. The good news is that, next June, Statistics Canada will publish new data on the adoption of digital technologies. We will then be able to see how much progress has been made since 2007.

We will make sure to send the new data to the committee clerk once it has been made public.

Let's turn now to slide 7.

Regardless of what data we look at, we know that SMEs face more challenges than do larger firms, as they don't always have the skills or the scope to adopt digital technologies. Despite this, many understand the benefits and are taking advantage of digital technology adoption.

These SMEs recognize that integrating digital technologies into their operations and changing their business model will lead to greater efficiencies. They are aware that there are a variety of technologies available to them that can help to determine the solution that best meets their needs.

Lastly, those that have invested successfully have the right mix of experience and skills to undertake the adoption process.

Let's now turn to slide 8.

The government recognizes the importance of adopting digital technologies and has already taken a number of steps to facilitate the adoption of ICTs by SMEs. When we appeared before you last March, we provided an overview of what had already been accomplished to improve our networks, increase access to broadband services and ensure a healthy level of competition in industry. We also talked about the various legislative measures implemented to create conditions that help enhance the online marketplace.

Today, I would like to highlight other recent government initiatives that have helped create an environment conducive to a more substantial adoption of those technologies.

More specifically, the government implemented the Digital Technology Adoption Pilot Program. That initiative provides funding and advisory services in order to speed up the rate at which SMEs are adopting digital technologies. In addition, the Business Development Bank of Canada provides online tools and consulting services to help SMEs increase their web presence.

For instance, BDC created a $200-million envelope to help business owners acquire the equipment and software they need. I think that those two organizations have been invited to testify over the next few weeks. I am sure their testimony will be very useful to you.

Finally, I would like to point out that Budget 2013 includes some initiatives for encouraging skills development and training. For instance, the government announced the Canada Job Grant, which earmarks $500 million annually for better harmonization of Canadian companies' training and needs.

Let's turn to slide 9.

In conclusion, Mr. Chair, and as you have heard from us today, SMEs are adopting digital technologies, and there are some great success stories across Canada. However, as we saw, there is still room for improvement.

Digital technologies have evolved over time, and there are more solutions available for the SME market. Cloud computing, in particular, can provide a model that works well for these firms, as do mobile applications.

Finally, there's a role for everyone to play. Our previous slide highlighted the areas in which the government can help, but ultimately it is up to the private sector to continue investing and producing the digital solutions that Canadian SMEs need.

Thank you for inviting us back to this committee. We look forward to your questions.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Beaudoin.

We'll now move to our rounds of questions. The first round is seven minutes.

We'll go over to Mr. Carmichael for seven minutes.

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

Thank you, Mr. Chair.

Mr. Beaudoin and colleagues, welcome back. This is an interesting topic. I do recall some of your testimony from your last visit to this committee.

In the business that I came from in my previous career in the retail sector, it became clear a number of years ago, maybe 10 years ago, that with the advent of the Internet and the growth in technology in both the consumer realm and SMEs—in my case, it was an SME—customers were coming in the door as well prepared and as knowledgeable as our own people, or maybe better than our own people. The training and development of our staff became a major factor in our go-forward strategies to ensure that we were able to truly compete in a technological world.

I've looked at the numbers you've presented, and we've seen these before, but 41% had a web presence in 2007, versus 70% in 2011. I presume that has grown even further. As a quick question off the top, to what extent do broadband affordability and availability contribute to Canadian business ICT investment?

I'm thinking of my colleagues and me in my previous industry, where it was an impediment; it was a problem making sure that you had the right technology, but at a cost that was substantive.... With the broadband development and growth, I wonder if you could give us some thoughts on that.

[Alain Beaudoin]

Thank you for your question.

With regard to how many businesses, for example, have access to Internet connectivity, there was a study issued by the CRTC in 2012. It showed that businesses with Internet connectivity were at 87% in Canada, of which 85% had access to high-speed Internet. With regard to individual connectivity, this was similar as well.

From that perspective, more firms have access to that connectivity. It doesn't necessarily equate that they will have their own websites as well. In some ways, they will use these technologies differently. Not all firms necessarily need a website; they might use different mechanisms. For example, some firms might decide to use social media instead of having a particular website, in order to communicate with their clients, or in order to get out into the marketplace. There are various ways in which they can do it.

With regard to access overall to high-speed Internet, we think the numbers have improved dramatically in the last few years. As we mentioned at our last appearance, 99% of the population—and by default, firms as well—has access to a minimum speed of 1.5 megabytes. The speeds and the affordability have increased over the years, and there has been a downward pressure on cost, which makes it more available to firms as a whole.

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

Are you satisfied that at this stage, with some of the opportunities for financing and affordability that you mentioned in your presentation, SMEs have enough access to technology at a reasonable cost to make it affordable but also productive in their businesses?

[Alain Beaudoin]

When you look at the investments in infrastructure by the telecom service providers in the last few years, you see that the investments have been quite impressive, as a matter of fact. If you look at total expenditures, in terms of capital expenditures in 2011 it was $9.4 billion. That was up from $8.4 billion the year before. Significant investments are being made in wireless and wireline in order to provide better speed, lower prices, and better connectivity as a whole.

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

Thank you.

In slide 5, you talked about Canada and the U.S. When you look at ICT investment, is there a correlation to the return that a Canadian investment would generate versus a U.S. investment? In other words, if you look at a Canadian SME, clearly our numbers would indicate that we're investing at a far lighter pace than what we see in the U.S. Are Canadian companies keeping pace with U.S. companies, or is there a correlation in the investment, or is it dollar for dollar? In other words, if we're only at 60%, we're only producing 60% of the results.

[Alain Beaudoin]

That's a very good question.

Obviously the adoption and use of ICTs have been linked to productivity. So that explains part of the productivity gap. For sure there are some incentives, or there are some reasons for firms to want to invest even more in digital technologies of all sorts, because doing so can lead to higher productivity, as I talked about.

On that front, it's something we want to better understand. That is why we've commissioned a study, which we expect will be finalized in the next couple of months, to try to better understand what's taking place from an ICT-investment perspective and to determine the reason for the gap.

I'll give you an example. We know there's a significant gap. The gap appears to take place when you look at software investments. Our firms appear to invest much less in software than do firms in the United States. When you look at hardware—computers, for example—we're actually above the United States. It seems that when you look at the software side of it, that is where there's a tremendous gap.

We will look at the reason for that. The more granularity and results we have on that front, the better we will understand the reasons behind that.

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

I appreciated your comment earlier on the number of SMEs and on how some don't require a full-blown website and all of the technological capability to give them the scale that others have. We've all been shopping at some point and have found that it's wonderful to have a store that might have two or three members in its chain that it can connect with for inventory for available product, but—

[The Chair, Conservative, David Sweet]

That's your time, Mr. Carmichael. Sorry to interrupt.

Now we go to Madame LeBlanc.

You have the floor for seven minutes.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Mr. Beaudoin, I would like to begin by thanking you for coming to testify before this committee. It's always very important to obtain this kind of information. I thought your presentation was very interesting.

You said that, in 2007, Statistics Canada conducted a more in-depth study on SMEs and the adoption of ICTs so as to provide an overview. We are now in 2013, and it has been a while since the last study was carried out. It's difficult to figure out what the trends are.

Why did the government abandon those studies and then decide that they were needed?

[Alain Beaudoin]

As I said, many studies have produced various assessments on the adoption and use of ICTs by businesses. We are talking about different companies, in a number of sectors.

Statistics Canada is completing an analysis whose results will be made public next June. That will allow us to make a comparison and note the progress made by companies in various sectors.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

I am still a bit worried about the fact that Statistics Canada is not being used. That agency has methodologies and experience in this area. If I still remember my statistics courses correctly, it is always important to use the same methodology when trying to make comparisons over time. Nevertheless, I am glad you could provide us with this comparison. I think it is very important.

Earlier, you talked about the productivity gap between Canada and the United States. You showed us a table with the total ICT investments per worker as a percentage of the United States. That was also very interesting.

What policies could the government implement to encourage small and medium-sized businesses to adopt technologies?

Awareness-raising initiatives and information were discussed, but could the government introduce some interesting incentives, specifically to close that productivity gap?

[Alain Beaudoin]

Thank you for the question.

I would like to highlight the current measures, whose goal is to increase the use and adoption of technologies by companies. For instance, I mentioned the Industrial Research Assistance Program, IRAP, whose goal is basically to increase the use and adoption of information technologies.

It is my understanding that the executive director will testify before the committee in a few weeks. The government launched this program in 2011 in order to focus specifically on the adoption and use of information and communications technologies, ICTs. The government is building on IRAP's success and effectiveness. Experts are also involved. In addition to the funding provided, experts in the technology industry are giving companies advice in order to help them find solutions specific to their needs and maximize their impact.

I also talked about BDC, which has some free online services. It provides advice for increasing the effectiveness of online technologies. So far, it has already provided companies with advice on over 20,000 occasions. The government and BDC have set aside $200 million to help companies purchase equipment. A program is in place to help them with that.

I have one last thing to mention. We also have CANARIE, which is our ultra high-speed Internet network used to connect universities, colleagues and so on. It uses its infrastructure in a way that enables small companies to use cloud and high-performance computing to accelerate innovation and commercialization.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

As part of your research, have you noted—and I think this has been mentioned—a particular sector of small and medium-sized enterprises that seems to be more reluctant to adopt new technologies or finds the adoption of those technologies to be too expensive and simply cannot afford it?

[Alain Beaudoin]

To answer your question, I do not think we have data specifically about this. However, the use and adoption of information technologies is less intensive in some sectors than in others. For instance, the intensity of use and adoption of information technologies is lower in certain sectors than it is in competing American sectors. In other cases, the situation is the opposite. However, it is true that the use of information technologies is less intensive in certain sectors. We have some data about that, and we can send it to you through the clerk if you like.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Do you have any general information about that? I'm not thinking about retail, but....

[Alain Beaudoin]

For instance, retail companies invest less than their American competitors. The manufacturing and construction industries are another example, even though the gap may be more narrow than it is in other sectors.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Okay.

[Alain Beaudoin]

For instance, in professional services—which is a very broad category—and in the administrative sector.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Okay.

Do you have ways to gather information about those sectors in order to determine why they are not adopting information technologies? Have any relevant surveys been conducted?