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Good afternoon, ladies and gentlemen.
Welcome to the 66th meeting of the Standing Committee on Industry, Science, and Technology.
We are studying the adoption of digital technology by Canadian small and medium-sized enterprises.
Before we begin, I have a couple of housekeeping things.
First, I'd like to get a motion regarding our present budget for this study. We always make sure there are some margins so that we have enough to cover the study, and it's $6,300 for this particular study.
Can I get a motion in that regard?
Moved by Mr. Carmichael.
All in favour?
(Motion agreed to)
Also, I have the bad news that we now have two clocks again, and of course they are a little bit different. I will be going by the Blackberry time, which is 3:32 right now.
Finally, for Thursday's meeting, the clerk and I have received a communication that Minister Paradis, Minister Bernier, and the officials will only be available for the main estimates from 4:15 to 5:15, which means that our meeting will begin at 4:15.
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Thank you for the opportunity to be here. With me is Monique Moreau, who will assist with the questions at the end.
CFIB is a not-for-profit, non-partisan organization that represents more than 109,000 small and medium-sized businesses across Canada. Our members represent all sectors of the economy and are found in every region of the country.
There's no doubt that digital technology is of growing importance to small businesses across Canada. One of the greatest benefits has been the explosion of the Internet, as it helps to showcase small businesses' products or services as effectively as those of their larger competitors and attract clients from around the world. But there are barriers to their ability to effectively adopt digital technologies that we'd like to raise today.
You should have a slide deck presentation in front of you, which I'd like to walk you through over the next few minutes.
I believe there are two aspects to adopting digital technology. The first is how easily small businesses are able to access the infrastructure needed to effectively use digital technology, and then once they have access, how easily they are able to use that technology in growing their business.
As you can see on slide 2, high-speed Internet is the most widely used form of telecommunication technology by small firms, and will be the focus of our presentation.
As you can see on slide 3, almost two-thirds of small businesses are using the Internet to make purchases online, and almost one-third use online directories or social media to market their business. In fact, all aspects of Internet use, in our 2012 survey, increased substantially since 2009.
But the most impressive growth has been in the number of small firms that have a website. In 2009 about half of small businesses had a website. By 2012 more than 70% did, a 40% increase in just three years. As you would expect, the larger the business, the more likely it is to have a website, as you can see on slide 4. So while virtually all firms with more than 100 employees now have a website, almost 60% of firms with fewer than five employees have one, which is 50% higher than it was in 2009.
As you can see on slide 5, besides using the website to provide information about their business, almost half are actively updating their website on a regular basis, and 21% are actually selling online, which is more than double the 8% that were selling online in 2009. But to many this growth is still not fast enough.
We believe that small businesses do want to embrace digital technology, but there are some significant barriers mostly related to cost.
First, smaller firms want to be able to access high-quality, high-speed Internet services, but just as important is that these services must be made available at a reasonable cost. The best way for these types of costs to remain reasonable is for there to be proper competition in the marketplace.
When they were asked from whom they purchase their Internet services, there seem to be a fairly healthy number of Internet service providers to small businesses across Canada, as you can see on slide 6.
However, when you look at the use of ISPs by region, you quickly realize that access to high-speed Internet for smaller firms is dominated by one or two players in each region, usually the incumbent telephone or cable supplier from that region. With the exception of Quebec and Ontario, other suppliers are not as prevalent, as you can see on slide 7.
In addition, many of these firms charge small business owners more than they charge residents for essentially the same high-speed Internet services, despite evidence that residents tend to be bigger consumers of high-speed Internet than small businesses are. In fact, almost half of those surveyed in 2012 were dissatisfied with the competitive options available in their area, as you can see on slide 8. Of even greater concern is that 55% of rural-based small businesses were dissatisfied with their competitive options in their area.
When we look at data based on whether small businesses are located in an urban or rural environment, 42% of those in the rural areas stated they had only one choice in their area, as you can see on slide 9. Clearly the competitive options for Internet service provider services in many rural parts of Canada remain extremely limited.
Another barrier relates to how they use digital technology to grow their business. Many have said that small businesses are slower in selling their products online. Part of this stems from the fact that to sell online, you may have to think differently about how you run your business, for example, how you manage your inventory, how you accept payments, and how you interact with your customers. However, we also believe that much of this has to do with the cost of accepting electronic payments.
In a study we did for the 2011 payments review, we found the most important obstacle to accepting electronic payments was that the cost of implementing the system did not justify the investment, as you can see on slide 10. In particular, it's the cost associated with processing electronic payments that discourages many from moving in this direction. With the recent introduction of mobile payments in Canada, which will add new players to the payments industry, there's even greater fear that these costs will go up even further.
Another factor for many is concerns with online security, as they feel there's a potential risk of losing customer or business data or having sensitive personal or financial information stolen, for which they become liable. This is especially worrisome for smaller firms that cannot always afford to protect their systems with more sophisticated software.
Finally, another cost factor that discourages many smaller firms from adopting digital technology is the cost of the hardware and software needed to properly take advantage of the latest advances. In 2009 and 2010, the federal government introduced a temporary accelerated capital cost allowance that allowed businesses to deduct 100% of the cost of computers and software in the year purchased. As you can see on slide 11, this was the most used form of government support aimed at encouraging innovation. We found in another survey that more than 60% felt that this measure was beneficial to their business. We believe that such a measure should be looked at again to encourage adoption of new technologies especially among smaller firms.
In conclusion, small businesses want to embrace digital technology to a greater degree but face certain cost barriers that combine to discourage them from adopting technology as quickly as we might like in Canada.
Some ideas to help overcome some of the cost barriers are on slide 12. It includes encouraging more competitive options for high-speed Internet services, updating the code of conduct for the credit card industry, encouraging the creation of more affordable and secure electronic payment methods, and reintroducing the 100% CCA for computers and software to encourage investment among smaller firms.
Thank you very much.
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Good afternoon. My name is Paul Temple and I'm the senior vice-president of regulatory and strategic affairs at Pelmorex Media Inc.
When I was first asked to appear here, it was more along the lines of a case study, so I'm going to just basically tell you our story.
Pelmorex is a multiplatform, multimedia leader in weather and weather-related products, best known to Canadians through our Weather Network and MétéoMédia brands. We're a privately owned Canadian company with offices and broadcast facilities in Montreal and Oakville. We currently employ just under 500 employees in Canada.
In addition to a creative and talented on-air broadcasting team, Pelmorex employs a variety of skilled professionals, including meteorologists, software developers, and geographic information systems and location-based specialists. All these jobs are focused on serving Canadians.
Within the last year we have expanded domestically and internationally. In Canada, we launched the Travelers Network, an Internet-based service dedicated to helping users get from point A to point B quickly and efficiently. Internationally, we purchased El Tiempo, Spain's leading multi-platform weather-related information service. In the U.S. we purchased Beat the Traffic, a service which provides local traffic and commuter information.
While our roots have been in the conventional medium of analog television, Pelmorex was very quick to adopt digital technology and our company's growth in the past few years reflects that.
In 1995, during the very early days of the Internet, we launched our websites, theweathernetwork.com and meteomedia.com, one of the first few Canadian companies to do so. Within 10 years, we had launched additional websites specifically designed to be accessed by mobile devices as well as desktop applications to allow for instant access to weather information on PCs and Apple computers.
We were one of the first to launch a smart phone application specifically for BlackBerry in 2006. After that a rapid succession of applications was developed and launched for iPhone, Android, and Microsoft smart phones. In the space of seven years, we have designed and launched over 40 different smart phone and tablet applications and upgrades.
Today we're working on multiple applications designed for Internet-connected TVs. Almost all of this work is done internally within Pelmorex. Every one of our products was designed to provide Canadian consumers our services in their choice of English or French.
In 2010, we built and launched the national alert aggregation and dissemination system, which acts as Canada's backbone system to collect and distribute public safety and threat to life messages from Environment Canada as well as provincial and territorial emergency management officials. In the past 10 months, we have received, authenticated, and distributed Canada-wide almost 31,000 public safety messages.
Because we were an early adapter and embraced digital technology, today we are a leader in Canada in expanding beyond our borders. We will serve 2.4 billion webpages to Canadians this year.
In 2012, our popular iPhone and iPad weather applications were consistently ranked among the top three applications, beating companies like Facebook, Skype, Twitter, Shazam, and Pinterest.
In the digital world there are no borders. Today, foreign-based weather companies in Atlanta or Stockholm can just as easily serve Canadians from their websites, smart phones, and tablets. For this reason, we need to be the best at what we do, attract skilled employees, and invest to take advantage of digital technology.
An example might help. On our website, we were able to leverage our meteorological and forecasting models, geographical information systems, and web development skills to generate and provide weather forecasts for over 20,000 Canadian communities, with an additional 50,000 locations outside of Canada, a tenfold increase from where we were 10 years ago. Then we went one step further and today we provide Canadians with customized weather forecasts, on demand, for any postal code in Canada. We plan to take these same skills to our new acquisitions in Spain and the United States.
Apart from the obvious challenge of competing with every other weather information company in the world, we face the ongoing challenges of heavy demands for continual re-investment in technology. We need to be on every platform with the latest and greatest features.
To do that, we also need to attract skilled professionals: meteorologists, web and application developers, IT and GIS specialists. Strengthening government programs, such as the scientific research and experimental development tax incentive, as well as targeted programs to assist small and medium-sized companies to attract skilled workers would be beneficial.
I hope these comments are helpful, and I'm happy to answer your questions.
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Good afternoon and thank you for this opportunity to address this committee again.
My name is Scott Smith. I'm the director of intellectual property and innovation policy at the Canadian Chamber of Commerce, an organization I think you're all familiar with.
When I was here before you on March 7, talking about the Internet and broadband in Canada, I indicated that Canadian business is not online. While I think that's still true, I did use a statistic in response to a question about how many businesses have websites, and you've heard here today that this number was probably inaccurate. It's one I shouldn't have used as it was somewhat outdated, and I apologize for that. The most recent number I have corresponds with what the CFIB suggested, 70% of businesses in Canada now have websites, and we're talking specifically about SMEs, but I still find that a surprisingly low number.
The good news is Canadians have access, as I alluded to at our last meeting, and are making use of that access. A Chamber of Commerce survey indicated that 96% of businesses surveyed used the Internet for business purposes and Canada already serves 98% of its population with broadband access. We have a study that estimates that by 2050, 86% of the Canadian population will live in urban centres, where the bulk of digital infrastructure investment is being made. It's clear that Canadian consumers are overwhelmingly digital adopters. A good demonstration of the digital adoption by consumers is the growth of social media. The Calgary Herald noted on April 29 that “One in three anglophone Canadians says not a single day goes by without [their] checking into their social media feeds”. Like the evolution of search engines on the Internet, social media has become a part of the way we live.
Where Canada continues to lag is in the adoption of e-commerce and mobile application technology by business. When it comes to looking at how businesses are using their websites, 27% accept online payments and 31% of businesses provided the ability for online ordering and tracking of goods. When it comes to the adoption of e-business solutions for business-to-business online transactions, the results were mixed: 42% of businesses surveyed said they did use an automated electronic data exchange system to send orders to suppliers, 51% are receiving and sending electronic invoices, 46% are able to receive orders from customers, 65% send or receive product information, 46% send payment instructions to financial institutions, and 45% send and receive data to and from governments, so, for example, they file their taxes online.
A recent study of G-20 countries by the Boston Consulting Group indicates that Canada is behind in the adoption of technology by business and in the size of our Internet economy. They conclude this gap will widen over the coming years and that Canada will further lag behind its global competitors. The study estimates that by 2016 the global Internet economy will reach $4.2 trillion, and that will largely pass Canada by. For example, online retail in Canada in 2010 was only 3.4% of total retail. That's only expected to reach 5.4%, or $33 billion, by 2016.
It's no secret that productivity is directly linked to innovation and the adoption of technology. Countries like the United States, Britain, Australia, and Denmark are pouring resources into the digital economy and in some cases creating federal ministries to oversee opportunities and challenges. Canada's productivity gap compared to the United States remains problematic. While the business community understands the government's current financial constraints, there are pioneering ways to work together to advance the digital economy strategy. More can be done to stimulate the adoption of information and communication technologies. Many countries have recognized that investments in e-commerce and ICT result in increased productivity and growth in the overall economy, and Canada needs to be a leader in this area. The recognition of the growing digital learning divide between large and small business is one example of how the Government of Canada can provide an essential service in connecting small business to online training through service portals.
For Canadians to continue to enjoy a high quality of life and standard of living, we must improve our productivity and competitiveness through innovation. The Conference Board of Canada has noted that “innovation is the ability to turn knowledge into new and improved goods and services” and that Canada's performance on innovation over the past three decades rates a consistent D. That's simply not good enough. According to the “Connectivity Scorecard” report, overseen by the then University of Calgary business school dean, Leonard Waverman, Canada ranks eighth in useful connectivity, reflecting both the world-class networks available to Canadians, but also deficiencies in the adoption and usage of broadband, and investment in ICTs generally across the economy.
Clearly, Canadian business needs the right incentives, such as continued improvements to the SR and ED program to keep investing in next-generation infrastructure, if Canada is to rise to the very top of the international rankings and most effectively lever broadband for competitive advantage. Further addressing the availability of broadband is not sufficient without a focus on the adoption and usage of ICT.
Across the economy, as a larger user of information technology, the government can play a larger role by mandating online interactions for its partners, for citizens, and for suppliers. Already, tax returns can be filed online, and like any large user, by undertaking a commitment to online commerce and the related technology, government can defray costs for suppliers and provide valuable incentive to adopt technology. To this end, the government should design initiatives to drive demand and adoption among key user groups, such as small and medium-size enterprises, and set milestones to measure success.
We think Canada can become a global innovation leader. With the right plan, Canada can dominate the digital economy. By building on our strengths and working together with the federal government, Canadian business will be in the right position to realize the benefits of the digital technologies and achieve a competitive advantage internationally.
Of course, this was a stimulus measure during 2009 and 2010. We've done a lot of surveying on what was and wasn't effective for our members throughout that period. Aside from the freeze on EI premiums, which was by far the most well liked, this was one of the most well accepted by small businesses because it did lower the cost of that investment.
In fact, we do a monthly economic indicator called the business barometer. In that business barometer, through that period, especially in late 2010, we saw quite an uptick in investment in computers and technology. We think this had a direct impact on encouraging some of them to make these investments. It is a significant hit for a small firm to take on all at once.
We believe it should be expanded and should perhaps be reintroduced. I know it's not a cheap measure; I think it was about $350 million in the budget. Perhaps it can be targeted more towards smaller firms, because I believe that measure was available to all firms, if we really wanted to target their investing more in these types of equipment.
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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.
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?
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Yes. If you look at slide 10 of the deck I gave you, where we look at the obstacles to accepting electronic payments, the fourth one, at 26%, says “concerned with online security”.
We delved into this further. It's related to the fear that they become liable, of course, should there be customer information and so forth that gets stolen or is somehow not properly handled. I think that's part of it.
In addition to that, there's something called PPI compliance. Credit card companies have requirements now on businesses, when they accept credit card payments, that they must have a certain amount of security within their system. That can be very costly as well for businesses, depending on the volumes they transact.
All of these things add up as part of the online security issue, and add costs to the small business. It is an issue, I think, for much smaller firms, especially once they start seeing the e-commerce component of their business start expanding and they're starting to deal with higher volumes and more information, which they then become liable for.
Having the more sophisticated systems to make sure everything is protected is important. Again, that's where the costs come in. As I think Mr. Temple pointed out, it's an ongoing, growing investment that you have to make as you expand into this world. Obviously, having the resources to do that will be very important.
Just to go back to the last point about online security, that alone is the biggest hurdle most businesses face. It's a very scary thing, when you're not very Internet or digitally literate, to start even considering all the implications. Of course, the privacy requirements and then the requirements by credit cards and the banks for the type of security—the security certificates and going through all those hurdles—are actually far more cumbersome than even filling out government grant applications, which also can be cumbersome from time to time.
Earlier, Mr. Smith, you were talking about key milestones and the ability to measure success. If my colleague, Mr. , were here today, he would be very happy to hear you say that because he really feels it is important for us to actually measure success and measure the efficiency and efficacy of programs that we put in place.
Going back perhaps to the credit card rates that CFIB brought up, there is of course that requirement to honour all cards and the increasing fees that come into play, and when you add an online payment component to that.... Have you done any research on how much more cost that brings to small businesses?
I don't think it's out of order for me to raise relevant questions related to the line of questioning coming from the opposition. The opposition's typically questions government measures in certain areas. I certainly think, as we're evaluating the alternatives, that it's quite fair to put both alternatives on the table and to make sure we're clear on what those alternatives are.
You can't argue, as I'm reading off your budget document. So if you're saying it's a lie, you're basically calling your own budget document a lie. It's right there in black and white: page 3, under “Revenues”, “Corporate Tax Rate Restoration to 19.5%”. It's clear. It would raise $5.9 billion in 2011-12, $8.6 billion in 2012-13, $9.3 billion in 2013-14, and $9.9 billion in 2014-15. I'm actually quoting from the NDP budget document. In the end, it says “Be a part of it”. You know, some Canadians may not want to be a part of that. And I'm quoting from your own budget document, so....
Anyway, back to a line of questioning here, if I could....
How much time do I have, Mr. Chair?
I'm looking forward to actually getting to some factual information here.
Let's talk about the payments task force, which did some great work. I know the CFIB was part of that. So were the Canadian Payments Association, PIAC, FCAC, and the Consumers' Association of Canada. They introduced that report. They gave it to the Minister of Finance. It was introduced in the House in December 2011.
The task force for the payments system review called for this legislation, which could potentially save the Canadian economy $32 billion in productivity gains through the modernization of Canada's payment system. Now according to the task force, Canadian payment regulation is being quickly outpaced by countries like Romania and Peru. This comes from that task force report. We're a G-8 country; they are not.
The task force also indicated “that unless Canada develops a modern digital payments system, Canadians will be unable to fully engage in the digital economy of the 21st Century”, of course “leading to a lower standard of living across the country and a loss in international competitiveness”. Since this was introduced in the House, nothing has come from this government to address the payment systems report.
I'll give you a “for instance” on this:
Small businesses are frustrated by the lack of digital alternatives to paper cheques. (Eighty per cent of small business payments are made by cheque because there is no accessible, reasonably priced electronic payment alternative.)
Industry has indicated that it “has not implemented change due in part to uncertainty and lack of coordination”, which the government should be leading on by example, both in terms of adopting new practices and coordinating efficiencies in the private sector.
So I'd like to ask this question of both the CFIB and to the Chamber: in your view or opinion, what role should government take to encourage small and medium-sized enterprises to digitize their payment and invoicing systems? Should the government solely be leading by example, or should it be playing an active role assisting SMEs in modernizing their payment and invoicing practices? I'll start from there.
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Absolutely. As I said, I think that mobile technologies as well as digital technologies have been great for small businesses because they have given them an avenue to the world and to customers, putting them almost on par with larger competitors. On the Internet everyone is sort of equal in some respects.
So I think that has really been important. When it comes to the payment side of things, we believe strongly that we should push for more new technologies, one of them being a better way to do business-to-business transactions electronically, which doesn't exist in this country yet. Well, it exists, but at a high price.
So I think we want to encourage companies to continue to grow and expand into new technologies that are obviously going to benefit small business, but we have to make sure that.... It's an interesting industry in that the credit card companies' market or people they're trying to cater to are really the banks. It's not the merchants and it's the consumers because the credit card companies are trying to get the banks to distribute their credit cards. So they become the people they're trying to attract to their product, not so much the merchants.
So the merchants almost become a secondary off-shoot and end up having to just accept the conditions the credit card companies are imposing on them. It's a bit of a skewed industry that way. So we would love to see new models out there that are going to compete with that and we would encourage that more and more, and we're hopeful that by looking at some of these new options that are out there, we can allow the same rules to be applied to new entrants and even the playing field a little more, so that it isn't so dominated by MasterCard and Visa and American Express and Discover and all those others.
I don't know if I answered your question.
I wanted to follow up on my friend Mr. Thibeault's comments with regards to the surcharge issue.
That area concerns me greatly because I come from business and as a retailer and service provider, if I had the choice to provide that surcharge on top of the bells that I'm going to provide to my customers, it's nothing more than an additional tax, and our government is totally focused on reducing taxes, not increasing them. I truly believe that the discussion has to occur between the merchants and the providers. To his point, if there are areas where we have to be involved in that discussion, that's fine, but competitive advantage and competitive alternatives should provide a solution in that discussion.
Could you comment on that? Again, the surcharge piece really worries me because that's going to hit the consumer, as he stated, and that to me is a real problem. That's where we've got to be very careful because then you're penalizing the people you're trying to support and supply.
Once again, Mr. Carmichael, your first question was exactly what I was going to ask. I've been part of the tour that has been launched looking at merchant fees, and that's exactly what all the merchants have said, that they are now charging prices that reflect what they are going to be paying in credit card fees.
If, then, someone is paying by cash, cheque, or Interac, they're actually paying more for products because the companies have to accept credit cards. They have to honour all cards, including the new high-rate cards, and the next level of premium cards could have percentages for merchants that could be up to 6%. That's a huge markup in cost.
I want to branch off a little bit, looking at digital adoption of technologies. There are some cities in the world that have brought in broadband Wi-Fi access across an entire city. That's something that could probably be very attractive to small businesses, because no matter where they were within that municipality, they would have instant access. If they were a mobile business, they would have access wherever they went.
Is that something CFIB has been looking at or has done any work on respecting how it could help your members?