Industry Committee on Oct. 19th, 2011

[Ted Hsu, Liberal, Kingston and the Islands, ON]

But if you couldn't get the tax credit for equipment and capital expenditures and could only get it for labour costs, do you think it would make a difference, regardless of complexity?

[Morgan Elliott]

One of the hats I wear at RIM, in addition to government relations, is managing the SR and ED team within RIM. I have quite strong views on this.

In the Jenkins report, in addition to focusing on the labour component only, it also suggested raising the cap a little. It makes things less complicated. Anything that makes reporting and auditing easier for business is always welcome. It simplifies the process.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

I'm hearing that it doesn't matter too much that equipment is going to lose its credit.

[Morgan Elliott]

It does matter, but if a process is put in place that simplifies the filing and administration of SR and ED, business would more than welcome it.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Okay. The second question will be to Mr. Bergeron.

You mentioned there was a survey of entrepreneurs and that the challenge most often cited for lack of investment in ICT was insufficient access to financing. I know the BDC understands this and that it's why you're going to focus on this particular aspect. But how did this develop in the first place?

Why did conventional sources of financing not realize there was a need for small and medium size enterprises to get financing to invest in ICT? Why did this need arise? Is there a problem within our culture?

[Michel Bergeron]

No, I don't think the issue is about a lack of understanding on the supply side of financing. The reality of investment is such that these are all intangible assets; there is no collateral value you can associate with them. So most businesses basically end up financing this out of their working capital, which prevents them from investing in other types of investments.

For traditional banks, it's very difficult to provide financing without adequate collateral. This is an area that BDC is very familiar with. So we either do partially or fully unsecured financing. Because of the benefits associated with ICT investment, we believe it's worth supporting businesses to access this financing.

The survey cites the fact that access to financing is difficult. It's a matter of fact in their perception about accessing the financing. It is accessible in some cases, but oftentimes they basically have to draw on their operating lines to access it, which prevents them from using it for normal operating needs.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Is it fair to say that it's the usual problem, that the “money” doesn't understand the business well enough to fully value the intangible assets? And that applies to all types of things, not just ICT adoption, right?

[Michel Bergeron]

I would say this is a living example of the increasing challenges that bankers face in supporting and financing a knowledge-based economy. How you attach collateral value to patents, IP, distribution networks, or a brand is very difficult. It's beyond what we've traditionally been doing.

So we have to venture out into new markets. Oftentimes, some of the banks are not comfortable in that business. This is an area that BDC is trying to venture into just to make sure that we do provide financing to the knowledge-based sector.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Okay, good. That makes sense to me because I think there are lots of examples in the investment world where investors don't, for example, properly value the worth of a brand and miss out on opportunities.

For my third question, I guess it was Mr. Elliott who talked about Australia, where a very progressive government rolled out a country-wide broadband strategy. I'm just reading this very brief description in the report you brought along, but I again wonder how they dealt with this issue of financing.

I also wonder how they deal with the lack of expertise that you identified in your survey, Mr. Bergeron, the lack of qualified people to help small and medium size enterprises adopt ICT.

Does anybody know how Australia dealt with those issues?

[Morgan Elliott]

Well, they're still in the process of doing the rollout and it's like a field of dreams. If you build it, they will come. When you put those types of resources into building the core infrastructure, then you get the follow on and you get the tertiary benefits and then you get the spinoff benefits.

It's a multi-billion dollar rollout they're doing in terms the investment in their country. Once that starts flowing, the expertise will come.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

For my last question, I was just intrigued by something that Mr. Beatty said about amendments that needed to be made to the copyright bill. I just wonder if there is a specific one you might care to mention.

[Perrin Beatty]

There are a number of them, Mr. Hsu, and we'd be glad to give you a list of the ones that are of interest to us.

As an example, the bill deals with websites that are designed to promote file sharing. It is so restrictive that it doesn't deal with websites that facilitate file sharing and the violation of intellectual property. The intent was clear but the wording was not sufficiently precise to cover the range of instances that are of concern. It's this sort of thing.

The amendments we're proposing are technical in nature, but they're substantive. And as a result, what we've said is that yes, we believe it's important to act, but until we have a chance to see it, we can't make a decision on whether the bill should go ahead in its final form.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Beatty.

Mr. Hsu, I'm sorry but that's all the time we have.

That concludes the round of seven-minute questions. Now we'll go on to the second round. I just want to remind our members that we have Mr. Deturbide, via teleconference.

Now we'll move on to Mr. Richardson, for five minutes.

[Lee Richardson, Conservative, Calgary Centre, AB]

Thank you, Mr. Chairman.

I appreciate this panel. It's been very useful.

One of the recurring themes we've heard today and from previous witnesses--and I think it was noted by Mr. McLean--is what the Chamber of Commerce's report on e-business solutions describes as Canada falling from leader to laggard, or our getting behind in the field of digital infrastructure particularly.

Mr. McLean mentioned the data costs and uploading speeds, but a recurring concern is also the regulatory barriers. I think you've all touched on regulatory barriers. That's one of the things we'd like to get to here, obviously. And I'd like to know if there are specific examples you can raise.

Have any of you raised these issues? How would you bring them forward and where would you go with them? If you did have a specific example, it might be easier for the committee to grasp that process.

[Morgan Elliott]

There's a great example, and Mr. Braid has been very helpful in this matter. This doesn't apply only to RIM, but to a lot of small start-up tech companies in the Kitchener-Waterloo area. We heard earlier that security is paramount in terms of e-commerce.

It's a little-known agreement, but Canada is a signatory to the Wassenaar Arrangement. We have to apply to the Canadian government to export our technologies that have this encryption, which consists essentially of security locks.

So in terms of developing and opening new markets, I know that companies have been caught exporting materials and software they didn't even know were subject to regulation. So putting in general export permits would be a huge piece of red tape to help foster companies that are really leading in this area.

I will just give you an example of how ridiculous it sometimes becomes. I know of one small start-up company that has some resources overseas that they use for R and D. They need to apply for a permit to export their own software, even over the Internet for themselves.

[Lee Richardson, Conservative, Calgary Centre, AB]

Do you get this at BDC?

[Michel Bergeron]

The types of encounters we have with our customers are not about regulatory barriers. They're more about how to incorporate this within the business model. This is fundamentally more of a business-model decision.

[Lee Richardson, Conservative, Calgary Centre, AB]

And do they mention the...?

[Michel Bergeron]

If I look at the survey results on barriers to e-commerce adoption, regulatory barriers are not identified at all. The main element that is identified is the inappropriateness of their product or services being sold online, which is interesting because, in some cases, it is true. In other cases, it is just that they don't understand the opportunities that e-commerce could offer. It's more of a strategic discussion as opposed to a regulatory one.

[Pamela Darragh]

Our clients and entrepreneurs are generally not there yet. They're at the awareness stage and earlier stages. They have a presence online, but it's really more of a website that's a business card online. So they're just in their infancy in e-commerce, and they're not quite at the regulatory stages. So usually our conversations with them haven't touched on those topics.

[Lee Richardson, Conservative, Calgary Centre, AB]

I wanted to go there simply to get a sense of what you collectively might expect or wish from this committee or this government in terms of our e-commerce study and direction. If it isn't a regulatory framework of some kind, what are the best ways we can help? That's where I've been going with it.

[The Chair, Conservative, David Sweet]

Now we go to Mr. Thibeault for five minutes.

[Glenn Thibeault, NDP, Sudbury, ON]

Thank you, Mr. Chair.

Mr. Gupta, you made a very important statement. Mobility is an important aspect of e-commerce. As part of this study, one of the things that I've been trying to look at in more detail is mobile payments. I guess my friend Mr. Elliott likes to see everyone carrying around his mobile phone.

About a month ago, Google stepped up with its mobile wallet. I believe it's linked to MasterCard and Visa, so more and more folks are going to use their mobile phones to make their credit card purchases, wherever they are.

Do you see that coming to Canada in the near future? And do you believe that our wireless mobile infrastructure would allow for advanced services like this point-of-sale payment via cellphones or smart phones?

[Karna Gupta]

I believe that the mobile wallet is here. It is going to come to Canada, and it'll be used very heavily. Essentially there is a bunch of other things that need to happen. Your mobile phone carries your credentials now. So when you walk up to a grocery store and you don't have your debit card, you'll give them the mobile phone. They can give you the credentials, so the power shifts to the consumer's hand.

There are a bunch of issues from a technology point of view that need to be addressed, but the underlying infrastructure is there. I think the infrastructure that's getting deployed in Canada is robust, and I think the infrastructure will be there. There are regulatory issues. There are start-up companies in this economy that may require support through incubation, commercialization, and privatization. But as for usage and utilization, it is here, and we need to get on with it, because that is the future and every other country is doing it. Emerging countries are doing more mobile transactions today than we are doing in Canada.

[Glenn Thibeault, NDP, Sudbury, ON]

I know there's some hesitancy out there. There are the interchange fees, which we can all talk about from a credit card aspect. There is also fraud, identity theft, accurate tax reporting, and all of these things. How can we get a handle on this? What would you see as a way to get a handle on this mobile payment piece?