Thank you very much for inviting ITAC to this forum. We are pleased to submit our position on this issue.
To frame the discussion, we represent the information technology companies in Canada. Our members are multinationals, but 75% of our members are SMEs across the country. There are 30,000 ICT companies across Canada. We generate about $155 billion in revenue, and 5% of GDP. We're the largest private sector R and D provider in the country today, by a factor of five; we do about $5 billion of R and D. The second largest is pharma. The last estimate for the total export that goes into the ICT sector was around $21 billion, and it's still quite extensively over-rotated towards the U.S. Some 64% of our exports are in the U.S. and 12% in the EU. The other countries are much smaller. The service side of ICT makes up about 86% of our export.
When you see this kind of backdrop, there is the underlying thesis that for most of the technology—I'm talking about Canadian companies—to be successful, they must have a global footprint. The Canadian market in its totality is extremely small, with 35 million people. These SMEs traditionally do not know how to do business outside of the north-south Canada-U.S. border. They typically don't go to Asia or to east Europe. Those markets are foreign to them. The GMAP lays out a foundation for Canadian SMEs to grow their business in broader emerging markets.
There are a couple of main challenges that our members face, and I will bring in two sets of examples here. In my past life, I ran public and private companies globally. I've seen how the other markets play out, so I'm going to weave that into the discussion.
The major issues facing Canadian companies, what I call “in terms of adding muscles quickly”, are really in three sources. One is access to market. Other than the U.S., the access to market continues to be fairly low for Canadian companies. This is where the GMAP could play a significant role by having the proper trade commissioner services on the ground, not only providing intelligence, but also connecting a B2B connection. If you don't connect the demand side and supply side, it ends up being just a photo op. You need to connect the demand side and the supply side.
The second issue that most companies face is access to capital. On the capital side, the Canadian SMEs are struggling, after initial friends and family funding. That means that they now have product and it has been commercialized; they have one customer, and they need to scale.
From then on, the funding cycle is not there in Canada because nobody is funding Canadian companies until they become cashflow positive. There's a huge “dead man zone” opening up for SMEs to build out the organization and exports. This is where we need to work with EDC and other government agencies. Whether it's an IRAP...they need to come together to support that level of SMEs to scale their businesses.
The third issue that the SMEs face is access to talent. In our industry particularly, the talent is the resource that we base our products on. It is a knowledge-based economy that we're creating. When you're creating a knowledge economy, it will move where the conditions are right. It is not tethered to the ground, so it's not tethered to the resources. They will move where the conditions are right. We need to create the right conditions to attract the right talent in the country.
When I look at the global markets action plan, the fundamentals are very good in terms of outlining the broader strategies. It responds to most of the needs that we lay out in the ICT sector. The target markets are way too large. They need to be narrowed down and focused, as the previous witness mentioned. You can't have 76 priorities. You need to pick five, maybe ten, but you can't go to 76 priorities. We need to narrow down where we focus on.
We need to try to build economic diplomacy by working in back offices and connecting people to the right places, rather than having broader trade missions. When we take businesses from here to a foreign country, ITAC sets up proper business arrangements on the other side through the trade commissioner service. There is a business-to-business dialogue to create a transaction, rather than having a broader trade mission.
TCS is absolutely critical in achieving our success. From an ITAC point of view they are providing a very good service on the ground, but they are underfunded. They do not have sufficient resources to do what is necessary to help our businesses. In our budget submissions to the government we have previously recommended that this funding be changed
Canada's business incubators need to be encouraged to connect to foreign countries to create the free flow of goods and services and human capital back and forth. That is absolutely critical to our success.
Finally, the whole EDC and IRAP support needs to be added to the overall strategy to move this forward.
On the GMAP side, we think enhancing the Canadian competitive edge is laid out at the end of the document. It's fairly well articulated, but it needs to lay out what we are going to do specifically to help Canadian companies be successful in a global market because we have an importer/exporter distinction. Most of our companies are importers as well as exporters. If you're trying to punish them as importers because of tariffs and everything else, they cannot in turn export. As somebody said, they cannot have their feet nailed to the ground then you give them a back rub and say go and export, because we're dealing with the global supply chain. Both the import and the export need to be dealt with in a comprehensive fashion.
I'll stop there. I'm not going to go through the presentation. You have the details and those are the highlights.