On October 5, 2011, pursuant to Standing Order 108(2) and the
motion adopted by the Committee on September 26, 2011, the House of Commons
Standing Committee on Industry, Science and Technology (hereafter “the
Committee”) began a study of
e-commerce and mobile payments in Canada. The Committee heard from 33 witnesses
over the course of the study, and the hearings concluded on November 21, 2011.
According to the Organisation for Economic Co-operation and
Development (OECD), e-commerce is defined as follows:
An e-commerce transaction is the sale or purchase
of goods or services, conducted over computer networks by methods specifically
designed for the purpose of receiving or placing of orders. The goods or
services are ordered by those methods, but the payment and the ultimate
delivery of the goods or services do not have to be conducted online. An e-commerce transaction can be between enterprises, households, individuals,
governments, and other public or private organisations.[1]
From a macro-economic standpoint, the growth of e-commerce can be
an important factor in increasing national productivity: e-commerce can be a
key driver of increasing sales while using fewer production resources such as
labour. From a
micro-economic standpoint, e-commerce could be a key element in enhancing a
company’s competitive advantage, and allow it to capture market share.
A thriving e-commerce market is also a key pillar of the digital
economy. The digital economy is increasingly becoming a priority policy area
for the Government of Canada, which launched a national consultation on a
digital economy strategy in May 2010.[2]
This report aims to
identify the key challenges and the existing core strengths of the e-commerce market
in Canada, and to propose recommendations to the Government of Canada as to how
to address some of these challenges. To that end, this report provides a
summary of the testimony presented to the Committee for the study of e-commerce
and mobile payments in Canada as well as a list of recommendations. Chapter
1 of this report presents the state of e-commerce in Canada, both from the
perspective of the consumer and of industry. Chapter 2 identifies the obstacles
to a more rapid and widespread adoption of e-commerce solutions by Canadian
businesses. Since the cost of processing payments was a challenge identified by
many witnesses, Chapter 3 focuses on this particular obstacle. Chapter 4 describes
the opportunities that e-commerce provides for Canadian businesses, in
particular small and medium-sized enterprises (SMEs). Finally, Chapter 5
provides the Committee’s recommendations to the Government of Canada.
An overview of past and present federal government initiatives and programs related
to e-commerce is provided in Appendix A.
If problems exist with respect to the development of e-commerce in
Canada, it is not as a result of consumers’ lack of enthusiasm for using the Internet.
According to Michael Geist (Canada Research Chair, Internet and E-commerce Law,
University of Ottawa), Canada is a global leader in Internet usage:
The Canadian consumer success story is well known.
We’re among the global leaders in internet use and online video consumption. For
several years Canada was the world’s largest per capita users of Facebook,
Netflix launched online only first in Canada and quickly grew to 1 million
subscribers, and digital music sales have grown faster in Canada than in the
United States for each of the past five consecutive years.[3]
Several witnesses referred to statistics showing the high level of Internet
usage and online purchases among Canadians. The objective of this section is to
provide an overview of these statistics.
Canadians are among the world’s fastest adopters of smart phones. We expect over 100% penetration by 2014, which means that electronic communication in Canada equals mobile communication, and that electronic commerce equals mobile commerce. Bernard Lord, President and Chief Executive Officer, Canadian Wireless Telecommunications Association, October 24, 2011 (1530) As a nation, Canadians consume more online content per capita than any nation in the world (...) Ian Mclean, President and Chief Executive Officer, Greater Kitchener Waterloo Chamber of Commerce, October 19, 2011 (1555) |
The
Canadian Internet Use Survey (CIUS) includes some data on e-commerce. This
survey was previously conducted on a biennial basis; data from this survey are
available for 2005, 2007 and 2009. In 2010, the CIUS was redesigned and became
a hybrid survey that measures both household Internet access and the individual
online behaviours of a selected household member.
A good approximation for the size of the potential market for
e-commerce in Canada is the percentage of Canadian households with Internet
access (see Table 1). More than half of connected households used more than one
type of device to go online, which is also an important driver of e-commerce,
given that potential customers have additional options for online
accessibility. Table 2 shows that 74% of users employed the internet for window
shopping or browsing for information on goods or services.
Table 1 – Percentage of Households with Home Internet Access, 2010
Region |
Percentage |
Canada |
79 |
Newfoundland and Labrador |
74 |
Prince Edward Island |
73 |
Nova Scotia |
77 |
New Brunswick |
70 |
Quebec |
73 |
Ontario |
81 |
Manitoba |
73 |
Saskatchewan |
76 |
Alberta |
83 |
British Columbia |
84 |
Note: The Canadian Internet Use Survey did not include the
three territories.
Source: Table prepared by the Library of Parliament using data
obtained from Statistics Canada, http://www.statcan.gc.ca/daily-quotidien/110525/t110525b1-eng.htm.
Table 2 – Online activities from any location, 2010 (% of
Internet users)
|
% |
E-mail |
93 |
Window shopping or browsing for
information on goods or services |
74 |
Electronic banking (e.g., paying
bills, viewing statements, transferring funds between accounts) |
68 |
Reading or watching the news |
68 |
Travel information or making
travel arrangements |
65 |
Visiting or interacting with
government websites |
65 |
Searching for medical or
health-related information |
64 |
Using social networking sites |
58 |
Researching community events |
54 |
Using an instant messenger |
47 |
Downloading or watching movies
or video clips online |
47 |
Obtaining or saving music (free
or paid downloads) |
46 |
Searching for employment |
37 |
Formal education, training or
school work |
37 |
Listening to the radio online |
37 |
Obtaining or saving software
(free or paid downloads) |
35 |
Playing online games |
33 |
Downloading or watching TV
online |
33 |
Researching investments |
27 |
Making telephone calls online |
24 |
Selling goods or services (e.g.,
through auction sites) |
19 |
Contributing content or
participating in discussion groups (e.g., blogging, message boards, posting
images) |
19 |
Source: http://www.statcan.gc.ca/daily-quotidien/111012/t111012a3-eng.htm.
Another important metric for Canadian businesses involved in
e-commerce is the number of Internet users who have placed electronic orders.
Data from the 2005, 2007 and 2009 CIUS on these Internet users are presented in
Figure 1. There was a large increase in the number of overall Internet users
and the number of Internet users who placed electronic orders (30% and 54%,
respectively) from 2005 to 2009.
Figure 1 – Internet Users vs. Internet Users who Have Placed Electronic Orders
Source: Figure prepared by the Library of Parliament using data
obtained from Statistics Canada, Table 358-0135.
Canadians are also increasingly purchasing online. About 39% of Internet users indicated they engaged in e-commerce in 2009, and the total value of these online purchases was $15 billion. To give you a sense of the magnitude, total retail sales by Canadian firms were $415 billion in that year. Helen McDonald, Senior Assistant Deputy Minister, Spectrum, Information Technologies and Telecommunications, Department of Industry, October 5, 2011 (1530) |
Table
3 shows the quantity and value of internet orders in Canada in 2010. Retail
e-commerce was a $15.3 billion market in Canada in 2010, almost double the
2005 level. The average value of internet orders per person was $1,362. Payment
via credit card represented 89.4% of electronic orders.[4]
According to the 2009 CIUS, the most common types of online orders
are for travel services; entertainment products (such as concert tickets);
books and magazines; and, clothing, jewellery, and accessories.
Table 3 – Electronic commerce, number and value of orders (2010)
Number of
orders |
|
Total number
(millions) |
113.8 |
Average number per person |
10.2 |
Value of
orders |
|
Total value ($
billions) |
15.3 |
Average value
per person ($) |
1,362 |
Source: http://www.statcan.gc.ca/daily-quotidien/111012/t111012a2-eng.htm.
In terms of international positioning, we are a little hampered by the delay in our data, and if we compare 2007 in Canada to 2010 or 2011 in another country, we’re going to look a little backward. Helen McDonald, Senior Assistant Deputy Minister, Spectrum, Information Technologies and Telecommunications, Department of Industry, October 5, 2011 (1705) For businesses and government, good decision-making is premised on good numbers, and I don’t think we have good numbers in this regard for Canada. Jacob Glick, Canada Policy Counsel, Google Inc, October 31, 2011 (1620) |
Some witnesses alluded to a lack of data, which prevents adequate
monitoring and benchmarking with other countries, on Canadian businesses’
e-commerce adoption and deployment.
Notwithstanding
this concern, witnesses indicated that Canadian businesses have generally
underinvested in information and communications technology (ICT) solutions, including
e-commerce platforms, relative to their U.S. counterparts. Similarly to
consumers, Canadian businesses have access to, and make regular use of, the Internet.
This section provides a statistical overview of these aspects.
The difficulty of encouraging more Canadian businesses to make the transition to e-commerce and the low overall take-up rate of digital technologies by Canadian businesses are closely linked. Investment per worker by Canadian businesses in information and communication technologies is 60% of investment per worker by American businesses. Helen McDonald, Senior Assistant Deputy Minister, Spectrum, Information Technologies and Telecommunications, Department of Industry,
October 5, 2011 (1535) When it comes to ICT, Canada has room to improve. Our businesses invest $2,400 less per employee, per year in computers, software, and training than their American counterparts do. This is a gap we need to close. Michel Bergeron, Vice-President, Corporate Relations, Business Development Bank of Canada,
October 19, 2011 (1550) |
First is the trend, and here a striking 93% of Canadian SMEs are connected to the Internet. They do not use it for everything, though. Most of the use they make of it, about 70% to 75%, is for banking and buying provisions. Far fewer use it to sell their goods and services online; in fact, only 18% of those surveyed did so. Even fewer, 15%, use it for marketing purposes. Michel Bergeron, Vice-President, Corporate Relations, Business Development Bank of Canada, October 19, 2011 (1550) |
According
to research from the Canadian Federation of Independent Business (CFIB), 89% of
small businesses have an internet connection.[5] Similarly, a study sponsored by the Business Development Bank of Canada (BDC) found
that 93% of SMEs have an internet connection[6].
For businesses with between 5 and 19 employees, this proportion is 90%;
for businesses with between 20 and 99 employees, this proportion is 98%;
100% of businesses with between 100 and 499 employees have an internet
connection.[7] By
2011, 10% of companies in Canada did not use a high speed connection.[8]
With respect to the reasons for the lack of a high-speed internet connection,
50.6% of SMEs cited unavailability in their region, and 33.8% of SMEs indicated that a high-speed
connection was not required for their type of internet usage.[9]
Although
the percentage of SMEs using the internet stands at more than 90%, the
percentage of SMEs using their own web site as a business platform is 70%.[10] This percentage varies greatly with the size of the business; larger businesses
have a much higher probability of having their own web site. With the
proliferation of mobile devices (e.g., BlackBerrys and iPhones) the proportion
of SMEs having a mobile-friendly web site in the context of e-commerce is also
an important consideration. In 2011, only 8.2% of all SMEs indicated that they
had a mobile-friendly web site.[11]
(...) only 16% were selling through the Internet. While this was asked back in 2008, the same BDC-CEFRIO survey from last week did not indicate much growth since then, as only 18% in that survey were engaging in online sales. Corinne Pohlmann, Vice-President, National Affairs, Canadian Federation of Independent Business, October 26, 2011 (1550) |
Although 71% of connected Canadian SMEs reported making online
purchases, only 18% reported making online sales.[12] Even among larger SMEs (between 100 and 499 employees), only 30% reported
online sales. Among Canadian SMEs selling online, 72.5% indicated that the
share of their online sales represented 25% or less of total sales.[13]
|
Yet, despite the growth on the consumption side, we punch well below our weight in creating global online companies (...) Michael Geist, Canada Research Chair, Internet and E-commerce Law, University of Ottawa, October 17, 2011 (1530) |
The
Canadian Chamber of Commerce provided the Committee with a report entitled Powering
up the Network, which surveyed small businesses’ use of e-commerce in
Canada. Results from this survey show that 96% of companies have a web site
they use for business purposes. However, only 27% of respondents were able to
accept online payments, 31% provided the opportunity for online ordering and
tracking, and 51% are sending and receiving electronic invoices.[14]
(…) unfortunately, Canadian businesses are reluctant to move to the cloud. Recent Angus-Reid polls suggest that only 47% of Canadian businesses are using cloud services, compared with 70% in the U.S., 68% in the UK. John Weigelt, National Technology Officer, Microsoft Canada Co., October 24, 2011 (1550) And about 20% of the Canada-U.S. ICT investment gap is due to differences in industrial structure between the two countries. There is a higher share of output in ICT-intensive industries in the U.S. and a higher proportion of small firms in Canada, which tend to invest less in ICT. Mathew Wilson, Vice-President, National Policy, Canadian Manufacturers and Exporters,
October 17, 2011 (1540) |
Data
presented in the previous section and provided to the Committee by witnesses
suggest that selling products online is not yet popular among Canadian SMEs.
Witnesses also mentioned to the Committee that the underdevelopment of online
sales by SMEs mirrors the fact that Canadian businesses generally tend to
invest less in ICT solutions than do their U.S. counterparts. For businesses,
the launch of an e-commerce platform often requires investment in software.
Figure 2 illustrates the growth of software investment for both Canada and the
United States. In the second quarter of 2011, business investment in software
in the United States was 4.0 times higher than in 1995, whereas it was 3.3
times higher in Canada.
Figure 2 – Inflation-Adjusted Business Investment in Software, Canada versus
United States
(1995 = 100)
Source: Figure prepared by the Library of Parliament using
data obtained from Statistics Canada, Table 380-0011; U.S. Department of
Commerce, Bureau of Economic Analysis, Table 5.5.4U.
Figure 3 shows the evolution of inflation-adjusted business investment
in non-residential structure and equipment in Canada and the United States.
Results in Figure 3 stand in contrast with the data depicted in Figure 2. Total
business investment in non-residential structure and equipment (including
software) in Canada has outpaced similar investments in the United States. This
result is not totally surprising since the boom in commodity prices starting in
2004 generated massive investments in natural resources’ extraction in Canada.
These investments are typically highly capital intensive, which translates into
elevated levels of non-residential structure and equipment investment.
Meanwhile, the U.S. economy had elevated levels of residential investment up to
2006.
Data from Figure 2 and Figure 3 together suggest that a much larger
proportion of new annual business investment in the United States is devoted to
software investment than it is in Canada. This assessment is confirmed by data
presented in Figure 4. In 1995, 6.6% of total business investment in
non-residential structure and equipment in Canada were dedicated to software
while it was 8% in the United States. In the first two quarters of 2011, these
proportions were 10.3% for Canada and 18.9% for the United States indicating
that the gap has widened between the two countries. This difference could be
explained in part by differences in the structure of the two countries’
economies.
For example, a national economy in which primary industries represent a larger
share of gross domestic product could be expected to have a lower share of
total business investment dedicated to software. Nevertheless, the trend
depicted in Figure 4 suggests that Canadian businesses have a lower propensity
to invest in software as compared to their U.S. counterparts.
Figure 3 – Inflation-Adjusted Business Investment in
Non-residential Structure and Equipment, Canada versus United States
(1995 =
100)
Source: Figure prepared by the Library of Parliament using data
obtained from Statistics Canada, Table 380-0011; U.S. Department of Commerce,
Bureau of Economic Analysis, Table 5.5.4U.
Figure 4 – Share of Software Investment in Total Business
Investment in Non-residential Structure and Equipment
(1995 = 100)
Source: Figure prepared by the Library of Parliament using
data obtained from Statistics Canada, Table 380-0011; U.S. Department of
Commerce, Bureau of Economic Analysis, Table 5.5.4U.
This relatively low investment in software could have an impact on
the development of e-commerce in Canada relative to its development in the
United States. In this regard, a witness indicated to the Committee that Canada
lags behind the United States with respect to e-commerce penetration: only 1%
of our retail expenditures are from online transactions in Canada compared to
8% in the United States.[15]
(...) Canada is, quite frankly, the leader in contactless globally -- now the time is ripe to take NFC and then use that acceptance footprint to move mobile payments into the future. Don Leboeuf (Vice-President and Head, Customer Delivery, MasterCard Canada),
November 2, 2011 (1640) This committee has considered what e-commerce might look like in the future, but it’s important to recognize that here in Canada today, we have a successful example of Internet-based commerce that can serve as a model for the expansion of e-commerce in other areas of the economy. (...) Online banking is the most widely used form of Internet commerce in Canada, with over two-thirds of Canadians reporting that they used online banking in 2010. Terry Campbell (President and Chief Executive Officer, Canadian Bankers Association),
November 16, 2011 (1545) Canadians spend over 40 hours online each month, by some measures, and while Canadian e-commerce stats are nothing to write home or to Parliament about, as the case may be, Canadians have embraced certain forms of e-commerce, like online banking, at world-leading levels. Jacob Glick, Canada Policy Counsel, Google Inc., October 31, 2011 (1550) |
Notwithstanding
the preceding data, it is important not to generalize Canadian businesses’ lacklustre
performance regarding ICT investment and adoption. For example, the Committee
heard testimony that Canada is a leader when it comes to near-field communications
technology deployment (e.g., “contactless” card payments); as such, Canada is
also extremely well positioned to become a world leader in point-of-sale mobile
payments.[16] Similarly, witnesses told the Committee that Canada has always been a global
leader in online banking deployment and adoption.
So why are small business owners embracing the Internet but being slow to sell their products online? Much of it has to do with cost. Corinne Pohlmann, Vice-President, National Affairs, Canadian Federation of Independent Business, October 26, 2011 (1550) |
Two
surveys on ICT adoption by Canadian SMEs were published in 2011.
One was sponsored by CFIB and the other by the Business Development Bank of
Canada (BDC). Both organizations provided testimony and relayed information
pertaining to these two surveys to the Committee.
According to a 2011 survey of 8,209 (SMEs) sponsored by the CFIB,
the cost of implementing an e-commerce platform was the most important obstacle
to accepting electronic payments. Table 4 illustrates the results of the CFIB
survey.
Table 4 – Obstacles to Accepting Electronic Payments
(Percentage of Respondents Citing the Obstacles Listed)
- Cost of implementing system does not justify
investment
|
|
- This is not a common payment type accepted in my
sector
|
|
- Do not want to change business process with
respect to accepting payments
|
|
- Concerned with online security
|
|
- Do not want to give out banking account
information to payer
|
|
- Don’t know where to start
|
|
- Customers do not want to give out banking
account information
|
|
- Difficult to perform reconciliation of payments
|
|
- Existing payments solutions do not fit the needs
of my business
|
|
|
|
Source:
CFIB, Evidence presented to the Committee, original source: CFIB, Changing
the Way We Pay: Getting the Transition Right for SMEs, October 2011, p. 7, http://www.cfib-fcei.ca/cfib-documents/rr3239.pdf.
Echoing other comments presented to the Committee, the CFIB report
expands on the cost factor as an obstacle to accepting electronic payments:
Cost is a big setback. Over half of business owners state that this
is why they do not accept electronic payments from customers. Currently, the
cost of renting or leasing electronic payment equipment, including set-up and
operating costs, remains high. Charges associated with processing electronic
payments are high with the exception of debit card payments. If these costs
continue hurting businesses’ bottom lines, even current benefits of electronic
payments may not be sufficient to influence a full switch from manual payment.[17]
Online security was also mentioned by 26% of respondents in the
CFIB survey as an important obstacle to accepting electronic payments.
According to the CFIB representative who appeared before the Committee, SMEs
feel there is a potential risk of losing customer or business data, or having
sensitive personal or financial information stolen for which they themselves
may become liable. This is a particular concern for smaller firms that cannot
afford to protect their systems with sophisticated software.[18]
Questions on the main obstacles preventing Canadian SMEs from
investing in ICT, and more specifically, from selling their products online,
were also included in the BDC survey: 23.2% of respondents mentioned inadequate
access to funding and 18.7% mentioned lack of competent or specialized
personnel as being obstacles preventing them from adopting ICT solutions. Michel
Bergeron from BDC expanded on the difficulty for small businesses to access
financing. He pointed out that the reality of investing in ICT is that much of
these are intangible assets, and therefore, there is no collateral associated
with it. Businesses would typically use their working capital for this type of
investment which reduces liquidity available for other endeavours.[19]
|
Actually, you already mentioned the obstacles. Usually, the problem has to do with money, especially a lack thereof. The budgets that small and medium-sized businesses have at their disposal are limited, especially in retail. We are talking about a margin of 3% or less. In grocery stores, it is around 1%. So there is very little money in the bank, so to speak, to invest in new technologies that have a very high level of risk attached. The second challenge is what is known as economies of scale. It costs businesses that are a lot smaller a lot more. The third obstacle has to do with labour. It is hard to find people who want to work for a small business, especially in the area of technology. Most university graduates want to work for big international companies. Those are the three biggest challenges that small merchants face today. Diane Brisebois, President and Chief Executive Officer, Retail Council of Canada,
November 16, 2011 (1710) |
Regarding
the main obstacles preventing SMEs from selling online, 59.5% of respondents
indicated that their product is not appropriate for this type of sale in the
BDC survey. The remaining respondents (i.e., respondents whose products are
suitable for online sales) cited a lack of resources, the need to establish
contacts with clients, and the cost factor as the most important obstacles.[20]
A report from the OECD notes that SMEs are concerned about the
costs of establishing and maintaining e-commerce systems since these companies are
generally under budget constraints and are less sure of the expected returns on
the investment.
The OECD report also points out the following:
Some SMEs cannot afford to adopt sophisticated ICT
solutions (e.g. a web site with a secure environment for credit card
transactions). Some small businesses, especially micro-enterprises with 1-9
employees or the self-employed, may adopt a simple web site without any
e-commerce function if the cost of basic Internet use is well within their
marketing budget.[21]
According to the OECD report, e-commerce maintenance and upgrades
can also be very costly. This is particularly true in cases where firms wish to
set up sophisticated and customized virtual shops. Web site maintenance may be
the most costly element of ongoing expenses. Other on-going costs include telephony,
Internet service provider (ISP) charges and web site hosting. In particular,
Internet access prices are a key determinant of Internet and e-commerce use by
individuals and businesses.[22]
For firms with low sales volumes that are willing to offer a more
generic (i.e., not customized) online shopping experience to their customers,
numerous low-cost software options now exist on the market. According to
consulting firm Gartner,[23] by
eliminating custom-development efforts for commodity functions (such as
shopping cart management, searches, product merchandising and management) and
replacing these with commercial, off-the-shelf, or open-source e-commerce
applications, businesses can realize considerable savings on the costs of conducting
e-commerce.
Similarly, the Business Development Bank of Canada notes on its web
site that direct costs for large companies looking to deploy in-house
e-business initiatives are high.[24] However, outsourcing such initiatives for smaller firms may be an interesting
option from a cost standpoint. A common way for smaller companies to begin
e-commerce operations is to buy an all-in-one package that includes hosting,
site design and e‑commerce applications.[25] Outsourcing still allows for some degree of customization and control over a web
site's operations.
Witnesses such as Professor Geist told the Committee about the
importance of access to foreign capital for Canadian businesses, especially in
the telecommunications sector:
Capital is difficult to obtain for some of the
Canadian-owned new entrants. If we want to have the robust competition and the
sorts of things that we've heard from the manufacturers arguing for open access
(to capital), we need to open the doors to some of the international giants.
They can provide a more robust and competitive environment.[26]
Additionally, Mr. Jason Kee (Entertainment Software Association of
Canada (representing members of Canada’s video gaming industry)) spoke of how
the video game industry is increasingly using e-commerce to sell its content on
console-based network sites such as PlayStation Network and Xbox Live.
Specifically, downloads, as a percentage of total sales were 5% in 2009, 20% in
2011, and are projected to be 50% by 2013.[27] As
regards foreign investment, he provided the following testimony:
Essentially, our industry
has been built on the investments made by companies like Electronic Arts from
the United States or UbiSoft from France, which essentially poured millions of
dollars into the studios here that employ thousands of people in these
high-paying jobs and basically develop world-class content that is distributed
around the world. These investments then, in turn, led to the formation of
studios, where people would go off and form their own independent studios and
be their own independent Canadian businesses, which has really built the
ecosystem that we see today. It's one of the reasons among many that we actually
see the clustering effect. It's also because you do have these investments that
were made, and that you kind of have an acorn. It's like a tree that basically
grows and spreads out from those initial investments.[28]
It should be noted that on March 14, 2012, the Minister of Industry
announced that the Telecommunications Act will be amended to “lift
foreign investment restrictions for telecom companies that hold less than a 10 percent
share of the total Canadian telecommunications market.” [29] All provisions of the Investment Canada Act still remain in force, as do
the foreign investment restrictions of the Broadcasting Act.[30]
(...) there are two issues here. There’s the cost of doing business in Canada. It’s very expensive both on the payment side and on the shipping side. The shipping side could be resolved. Canada post is making an effort. They have set up a subsidiary that actually does channel some sales back and forth between U.S. and Canada, but on the payment side, there’s not much happening. Samer Forzley, Managing Director, Market Drum, Ottawa Centre for Regional Innovation,
October 17, 2011 (1600) |
Canada’s
large geography and low population density provide many challenges for many
industries, and in particular, e-commerce. In general, Canada’s population of
34.6 million people[31] is sometimes viewed as not being large enough to render some business lines
profitable. According to Wendy Cukier, “the economies of scale, quite honestly,
for many of the big consumer-oriented businesses, simply are lacking in Canada,
and that is a big challenge.”[32] Gordon
Reed of UPS compared the costs to ship in Canada and the United States and
stated “if I look at our cost to serve in Canada versus the United States, it
is significantly lower in the United States. The density is there.”[33] In this vein, many witnesses also discussed the high cost of logistic services
(shipping, storage, etc.) as compared to the United States, as further causes
of Canada’s poor e-commerce performance.[34]
The witnesses also claimed these high costs are for both shipping within
Canada, as well as to foreign destinations. Consequently, these costs are
passed along to the consumer.
Samer Forzley (Managing Director, Market Drum, Ottawa Centre for
Regional Innovation) suggested there is not yet a critical mass of online
merchants to create a robust merchant market,[35] which results in a lack of supply chain development — if there aren’t enough
merchants, there’s no reason for suppliers or ancillary service providers
(payment processors, storage and shipping companies) to enter the mix; if a
sector has a weak supply chain, new companies are less likely to enter the
market.
Several witnesses were quick to accept that part of the problem of
low e-commerce adoption stems from the fact that Canada has a
disproportionately large number of SMEs; these firms, especially those with
fewer than 20 employees are less likely to procure adequate ICT, let alone
engage in online sales. Furthermore, during an appearance before the Committee
on September 28, 2011, Richard Dicerni, (Deputy Minister of Industry Canada)
explained that “one of the key aspects that explains the difference in
productivity between Canada and the United States is the lack of ICT adoption
by small and medium-sized businesses.”[36] Both the Information
Technology Association of Canada and the Canadian Chamber of Commerce told the
Committee that despite the many proven benefits of ICT adoption and e-commerce
(lower operating costs, access to larger markets, better supply and customer-value
chain management), too many Canadian SMEs have yet to embrace ICT.[37]
This situation suggests the Canadian online market may be in a
“catch-22” situation: high costs and lack of merchant clusters have kept
businesses offline; in turn, Canadians do not have the prices and product
availability they desire, so they do their online shopping with foreign-based
companies.[38] Further complicating the problem, according to Samer Forzley, is that eventually,
successful Canadian companies look to move to other jurisdictions like the
United States.[39]
Although Canada does have consumer protection laws at the
provincial and federal level, they are not uniform across the country,
especially as they relate to new concepts like e-commerce, social media, etc.
Jacques St. Amant (Université du Québec à Montréal) told the Committee that
current consumer protection governance is no longer viable, and that Canada
will need to make the rules clear for all stakeholders.[40] This, in turn, will encourage e-commerce, given consumers and suppliers will be
more confident in a governance structure that is clear and uniform across
Canada.
The importance of encouraging digital literacy as a means to
increase consumer protection was also cited during the study. Terry Campbell
summed up much of the issue as follows:
But on digital literacy, I think there is a role
all players — the banking industry, this committee, the government — need
to play to foster awareness in the Canadian population about the importance of
security. It's very often through the customer's computer system that the bad
guys get in. With greater awareness comes greater comfort and greater
confidence in being able to use the systems, and that will go a
long way.[41]
In almost every poll or study taken on the barriers to e-commerce — and I've looked at quite a few of these online over the past few days — the principal concerns raised have been privacy and security of personal information. Consumers want some assurance that their information is going to be protected. Businesses want that assurance as well, and they want to know whether they're meeting adequate standards to protect that information and to protect themselves against possible liability. Michael Deturbide, Professor and Associate Dean, Academic, Schulich School of Law, Dalhousie University, 19 October 2011 (1530) |
The issue of consumer safety (with respect to personal information
and secure transactions) is a fundamental issue in e-commerce; without it,
there cannot be a marketplace, and this theme was made clear by many witnesses.[42] Professor Deturbide (Dalhousie University) stated that “One estimate is that
over 35% of Internet users will not give their credit card information online
because of security concerns. That's a large chunk of people who are just not
engaging in e-commerce and who could be.”[43]
To combat such sentiment, and to further the development of
e-commerce, the Government of Canada has stated that it aims to ensure the
Canadian e-commerce market is safe and secure, because it believes that in
order to have a robust electronic marketplace, Canadians need to be confident
that it is a safe place to shop, that consumer protections are in place, and
that personal information is secure.[44] The federal government asserts that these goals will be met, in
part, through recent amendments to the Personal Information Protection and
Electronic Documents Act (PIPEDA), updated anti-spam legislation,[45] and changes to copyright legislation.
Broadband internet is the infrastructure of e‑commerce. The
term “broadband” refers to internet download speeds of at least 1.5 Mbps
(megabits per second), a speed which “encourages e-commerce,” according to
Helen MacDonald of Industry Canada.[46] Figure 5,
below, shows Canada’s broadband availability by region.
Figure 5 - Broadband availability by province and territory,
percentage of households, 2010
Source: Created by the Library of Parliament,
with data from CRTC Broadband Report, November 2011 — Table 2.1.1
Broadband availability by technology and province/territory, 2010 http://www.crtc.gc.ca/eng/publications/reports/broadband/
bbreport1111.htm#t2.1.1
According to data from the Canadian Radio-television and Telecommunications
Commission (CRTC), in 2010, national residential broadband availability was 98%;
for rural households, it was 96%.[47] When
looking specifically at higher speed Internet service, the availability in
rural areas declines sharply relative to urban areas. For example, at speeds of
5 Mbps and above, availability is still close to 100% in urban areas, while it
is in the neighbourhood of 50% in rural areas.[48] To
help address this disparity, the Government of Canada launched Broadband
Canada, a $100 million dollar program aimed at improving broadband
availability for underserved regions of Canada; this program is discussed in
Appendix A of this report.
Several Committee members and witnesses commented on the importance
of broadband access. Professor Geist spoke of the importance of affordable
broadband, and how Canada was not a leader in terms of the price and quality of
service available.
For example, on the issue of data usage limits, he stated: “It represents a
significant impediment on both sides: businesses are unable to take advantage
of the technology and consumers have to pay more.” [49] The Canadian Chamber of Commerce commented on how Canada’s e-commerce
infrastructure was no longer “world class,” and how “ICT infrastructure is now
a 21st century pillar. It must be given at least as high a priority as
traditional infrastructure. We can't afford to be left behind.”[50] Jason
Kee stated the following:
Government policies that encourage more
affordable, accessible, and faster broadband will be not only vital for the
future growth of our industry, but it [they] also has [have] the additional
value of fostering job growth within our industry. At the same time, it will
foster consumer interest in the online games industry and digital delivery
platforms, helping in turn to drive demand for further broadband
infrastructure.[51]
It doesn't make sense, if I want to serve the area around Ottawa or around Calgary, that I also have to spend on the 94% of the population I don't want to serve. I don't want to serve downtown Calgary. I don't want to serve downtown Toronto. I want to serve the rural regions, but I have to buy that spectrum, warehouse or inventory it, and incur that cost, to capture the spectrum for the 6% of the population that I want to serve. John Maduri, Chief Executive Officer, Xplornet, October 31, 2011 (1630) |
John
Maduri of Xplornet suggested that rural broadband access could be important to
Canada’s economic prosperity, given that much of Canada’s primary industries
exist in rural regions. He went on to state the recent launch of
Xplornet’s newest satellite with next-generation technology should provide
improved and more affordable broadband access to Canada’s rural and remote
regions.[52] However, Mr. Maduri suggested that spectrum auction rules have to be
changed so that peripheral low-density areas adjacent to urban areas are not
part of the same license as core urban areas — he suggested that bundling
together high-density urban areas and low-density areas under the same license
results in rural areas being chronically underserved by current license
holders.[53]
It should be noted that on March 14, 2012, the Minister of Industry
announced some of the key conditions of the upcoming 700 MHz spectrum auction;
specifically, he noted that Canada’s radio spectrum would be divided into 14
zones, each comprised of several “blocks.” Additionally, licence holders could
be obliged to deliver advanced wireless services to rural Canada.[54]
Many witnesses discussed the importance of education and training
for improving the development, deployment, and adoption of e-commerce. Digital
literacy must begin early, as was expressed by John Weigelt of Microsoft, who
talked about how even children using computers must be taught the importance of
concepts such as computer ethics and cyber bullying.[55] Karna
Gupta (President and CEO, Information Technology Association of Canada) stated
the following with regard to encouraging young Canadians to study the various
disciplines needed for a career in ICT:
The big part of this is that it has to start at a
very early stage, down to the high school level at grade 10, because there is
not enough awareness and training that kids can go into ICT as a career. So
when you look at the ICT community today, it is a fairly small community and
there are a significant number of job gaps. Most of the kids are still not
properly trained in this area.[56]
So they need to have hands-on working experience as they go through their schooling, which is absolutely critical in today's world, as well as multi-disciplinary teaching. Kids come out with a single-threaded education. It is no good to a business. They need to understand the business side of the education as well. How do you take a product to the market? What does developing a product mean? How do you launch a product? These are critical skills that need to be weaved even into technical training. Without that, the individual coming out is not quite complete and the businesses often tend to go where they can get that knowledge. So the training piece not only needs to be a compulsory part of the program but also needs to be expanded into the other dimension of multi-disciplinary training. It is critical for business today to survive. Karna Gupta, President and Chief Executive Officer, Information Technology Association of Canada,
October 19, 2011 (1645) |
Wendy Cukier of Ryerson University also stated that the technical
skills, while crucial, are still not enough; Canada must also ensure that
management, entrepreneurship, and creative skills are encouraged and developed.[57] Further to
this point, Karna Gupta stated that young Canadians need more “hands-on”
training in these areas to not only acquire these skills, but to ensure they
have a comprehensive education that will allow them to help commercialize the
innovations they help develop.[58] To this end, Budget 2011 announced an
additional $60 million over three years to help encourage enrollment in the key disciplines driving the digital
economy: Science, Technology, Engineering, and Mathematics — collectively these
subjects are referred to as “STEM.”[59] This
initiative complements the $80 million-dollar, three-year Digital
Technology Adoption Pilot Program (DTAPP), which will be administered through
the Industrial Research Assistance Program (IRAP).[60]
CANARIE (Canada’s Advanced Research and Innovation Network), which
was created by the Government of Canada in the 1990s to ensure researchers were
able to collaborate and share large data sets over a secure fibre optic network,
received high praise from several witnesses.[61] Additionally, this
organization funds research projects in several areas related to innovation.
The president of CANARIE, Jim Roche, told the Committee of the organization’s
contributions to the development of Canada’s digital society, having “funded
projects to help develop and accelerate adoption of advanced
e-business applications and services;” also, it has leveraged over $240 million
dollars of private investment for research and collaboration.[62] The
Canadian Manufacturers and Exporters expressed support for CANARIE, and told
the Committee that “CANARIE, Canada's Advanced Research and Innovation Network,
which provides more than 19,000 kilometres of ultra high-speed fibre optic
cables, is a crucial enabler of Canadian innovation.”[63] Michael Geist, who is a member of CANARIE’s board, stated the importance of
ensuring that the organization’s mandate and funding is renewed, as otherwise:
“we're just going to have to build it again — our education networks
and others are so dependent upon it.”[64]
If I look at the survey results in terms of barriers to e-commerce adoption, regulatory barriers are not identified at all. Michel Bergeron, Vice-President, Corporate Relations, Business Development Bank of Canada,
October 19, 2011 (1635) |
Regulatory burden was not identified as a major barrier to the
adoption of
e-commerce by Canadian business. Michel Bergeron notably discussed the results
of a BDC survey which showed that regulatory barriers were not identified as discouraging
e‑commerce adoption.[65]
Professor
Deturbide (Dalhousie University) stated that “sometimes legislative
intervention is required to ensure adequate data protection mechanisms are in
place, otherwise there may be little incentive to remedy the problem.”[66] For his part, Ian McLean (President and CEO, Greater Kitchener Waterloo
Chamber of Commerce) expressed that if regulations are necessary, they must be
clear and easy to follow:
We share the view that the Internet and digital
economy are key drivers of growth and productivity in Canada's economy. Some
argue that the success in this area may largely be a result of fewer
regulations in this area, as opposed to our creating more regulation. While
regulation may be necessary, it should be clear, understandable, and fair,
especially for small businesses.[67]
(…) in many cases merchants pay significantly lower fees for accepting debit card transactions than for accepting credit cards. A credit card fee for a merchant may be up to 3% of the total purchase price, whereas for debit in this country, it’s usually fixed at about 12 cents, regardless of the size of the purchase. However, in many cases consumers aren’t aware of that, and consumers aren’t aware that merchants maybe paying higher fees. Because of the rules imposed by Visa and MasterCard, in our view, merchants really don’t have the ability to steer consumers to different types of payments. We suspect that if they had that ability, not only might it make merchant fees that are set by the credit card companies more competitive, it might also make these other methods of payment more of an option for consumers. Matthew Kellison, Acting Assistant Deputy Commissioner, Civil Matters Branch, Competition Bureau,
October 5, 2011 (1655) |
Witnesses
spoke of the relatively high cost of electronic payment processing services in
Canada. For some retail market segments, such as consumer electronics,
operating margins are so slim that the prospect of having to pay extra fees to
allow for online payments has deterred many businesses from engaging in
e-commerce.[68] The goal of this chapter is to discuss payment methods in the context of the
development of e-commerce and mobile payment systems.
Payment processors provide merchants with processing services for
their credit card and debit card transactions.[69] These services link merchants to payment card networks, such as those overseen
by payment card network operators (e.g., Visa, MasterCard and Interac). Through
payment card networks, payment processors connect with cardholders’
card-issuing financial institutions, which authorize and make payments on
behalf of cardholders. These payments are transferred from card-issuing
institutions to payment processors, which deposit them in merchants’ accounts.
From PayPal's perspective, we don't charge any contract fee, or any annual or monthly fee. In fact, if you set up a PayPal account and never do any transactions, you never pay any fee at all to us. We're very transparent in our transaction fees. There's a sliding scale from 1.9% to 2.9%, plus 30 cents a transaction, and we've made that as simple as possible for merchants to understand, because it is a net rate as well. So it doesn't matter if you're using a basic credit card, a premium credit card with loyalty points, a Visa, a MasterCard or an American Express card, whether you're processing a China UnionPay card, a Switch Solo card from the UK, or a bank transfer from Germany. Darrell MacMullin, Managing Director,
PayPal Canada, November 21, 2011 (1555) |
To
provide these services, acquirers charge merchants a fee, known as the merchant
discount fee, which is set at a level designed to cover payment processors’
costs (labour, buildings, equipment, etc.) and various fees paid by payment
processors to payment card network operators and card-issuing institutions. For
credit card transactions, the largest of these fees is the interchange fee,
which is set by payment-card network operators and paid to card-issuing
institutions. Payment processors may also be required to pay other fees to
network operators, such as foreign card fees and assessment fees.
As shown in Figure 6, the most widely used internet payment processors
by SMEs were PayPal (28.8%), Moneris (21.2%), Global Payments (7.3%) and
Desjardins (7.2%).
Figure 6 - Most Widely Used Internet Payment Solutions by
SMEs that Sell Online
Source: Use of ICT by Canadian SMEs. A Survey of Over 2,000
companies. CEFRIO, October 2011, p.84, http://www.cefrio.qc.ca/fileadmin/documents/Publication/NetPME_2011_
Use_of_ICT-angl_HW_01.pdf.
PayPal’s business model is to charge a “one-fee-covers-everything”
amount to its clients. According to PayPal, its business model allows small
businesses to minimize capital costs since no investment in software (e.g.,
shopping cart and invoice service software) is necessary on the part of the
online seller.
Fees charged by PayPal to merchants are publicly available and are
shown in Table 5. The standard rate charged by PayPal for receiving payments
(either debit or credit) for goods and services is 2.9% plus 30 cents per
transaction. Volume discounts apply such that for purchase payments exceeding
$125,000 per month, the rate charged to merchants drops to 1.9%.
Table 5 – Transaction Fees Charged by PayPal to Merchants
- Purchase Payments Received (Monthly)
|
|
- $0.00 CAD to $3,000.00 CAD
|
|
- $3,000.01 CAD to $12,000.00 CAD
|
|
- $12,000.01 CAD to $125,000.00 CAD
|
|
|
|
Source: PayPal, https://www.paypal.com/ca/cgi-bin/webscr?cmd=_display-receiving-fees-outside&countries=.
The biggest problem we’ve had with electronic payments has been the cost, particularly the costs imposed by the banks, and Visa and MasterCard. Dan Kelly, Senior Vice President, Legislative Affairs, Canadian Federation of Independent Business,
November 21, 2011 (1550) Canadians on the personal side and business side give up a lot less in payments than their counterparts south of the border. Through all of this debate, the one thing that we do know is that Interac has been at the heart of that low-cost, efficient payment system for a very long time. Kirkland Morris, Vice President, Enterprise Strategy, Interac Association,
November 16, 2011 (1610) |
Debit
cards are generally preferred by merchants over credit cards as a mode of
payment for point-of-sale transactions.
Much of the popularity of Interac for point-of-sale transactions
has to do with the lower merchant discount rate associated with Interac
payments. According to one witness, there is a competition paradox in the debit
and credit card market:
(...) they always talk about more competition.
Interac has the monopoly. Funny, monopoly is cheaper than competition. It’s odd
how that’s working.[70]
Regulatory structures and voluntary codes have been put in place that effectively gives Interac a debit monopoly for transactions in Canada. Online debit in Canada is extremely limited, and there is no global interoperability for Intrac debit. (...) It doesn’t have to be this way. Don Leboeuf, Vice-President and Head, Customer Delivery, MasterCard Canada, November 2, 2011 (1545) [on co-badging] I think it’s terrible. (...) The problems here is that the customer who sees the advertising: if you use this product you’ll get five points instead of one, or you’ll get points, but if you use this other products you won’t. You create the demand at the consumer level because it’s not costing them more and you’re making the middle guy pay. Diane Brisebois, President and Chief Executive Officer, Retail Council of Canada,
November 16, 2011 (1725) |
Diane
Brisebois (President and Chief Executive Officer, Retail Council of Canada
(RCC)) also noted that even with all the improvement in technologies, costs are
going up. Dan Kelly from CFIB illustrated these higher merchant fees for credit
card transaction by using as an example MasterCard’s recent launch of World
Elite credit cards: fees on these types of cards are approaching the 3% mark
for merchants.
Terry Campbell (President and Chief Executive Officer, Canadian
Bankers Association) however urged the Committee to use caution when looking at
merchant fees, and when comparing credit and debit card fees for merchants. Mr.
Campbell argued that credit and debit are different products; banks are
extending credit when credit cards are used and, as such, a risk of default has
to be priced-in. Furthermore, Mr. Campbell also pointed out that the
benefits of a payment system that works well are very important for consumers,
retailers and businesses alike, so one has to be careful in considering only
the cost side. According to Mr. Campbell, consumers value rewards programs, and
the benefits arising from high security standards.
As it relates specifically to e-commerce, several witnesses noted
that payment options are extremely limited for online purchases. Although
Interac debit cards are starting to be accepted by a greater number of merchants
for online transactions, credit cards still hold a near monopoly with close to
90% of online transactions being conducted using this method of payment in 2010
in Canada.
We need to be cautious about the application of the code to new technologies. For example, if two of the provisions of the code were to apply beyond cards, to mobile payments, a customer might require three cellphones to enable three different payments of their choice -- that is one for Visa credit, one for Interac, and one for Visa debit. Michael Bradley, Head of Products, Visa Canada, November 2, 2011 (1535) |
With
respect to competition in the debit card industry, on the one hand, network
operators such as MasterCard and Visa would like to get into the debit card
market and be allowed to compete head-to-head with Interac on the same card
(so-called
“co-badging”). On the other hand, CFIB and the RCC are adamantly opposed to
such a move as they are afraid that this would result in higher fees for debit
transaction for merchants. In this regard, representatives of CFIB expressed
support for the Voluntary Code of Conduct (VCC) for the debit and credit card
industry in Canada. Although Visa and MasterCard were generally supportive of
the VCC, they indicated that debit card co-badging should be allowed under the
code. As per Visa and MasterCard’s assertions, this would promote competition
and give consumers more choice. Visa and MasterCard suggested that VCC
limitations on debit card co-badging prohibit them from competing head-to-head
with Interac for point-of-sale and online transactions. In written
correspondence to the Committee, MasterCard further stated: “when considering
the state of e-commerce in Canada, the Committee cannot overlook the fact that
Canada continues to lag behind the rest of the world in online debit because of
specific merchant lobbying to protect Interac.”[71]
It should be noted that all witnesses, despite sometimes having
specific reservations about particular clauses of the VCC in its current form,
expressed high praise for the Government of Canada’s VCC initiative. Although
the VCC, as its name indicates, is voluntary and largely stakeholder-led, it is
nevertheless supplemented by legislation:
It is a voluntary code but it is back-stopped by
the Payment Card Network Act, which the Minister of Finance can put in
legislation. So we treat the voluntary code quite seriously and we want to
adhere to it.[72]
Witnesses also noted the work on some of these complex issues by
the Task Force for the Payments System Review, which was launched by the
Minister of Finance in June 2010 (see Appendix A). The task force presented the
Minister with their final report, entitled Moving Canada into the Digital
Age, in December 2011.[73]
(...) Many small businesses are afraid of this, because they’ve seen the abuse that the Visa and MasterCard have imposed on small and medium-sized firms over the last number of years. We’re very open to and interested in how this is all going to roll out. (...) Our concern was about the attempt of Visa and MasterCard to piggyback on Interac’s debit card network across Canada, to use it essentially to expand its marketplace. Dan Kelly, Senior Vice-President, Legislative Affairs, Canadian Federation of Independent Business, November 21, 2011 (1600 and 1700) |
As
mentioned during the Committee hearings, point of sale “tap-and-go” payment
methods (also known as “contactless payment”), using near-field communication
technology are being rolled out quickly in Canada. Currently, “tap-and-go” is
mostly used with a chip-enabled credit card (such as MasterCard or Visa). One
of the advantages of this technology is that it is versatile and could be used
with a mobile phone acting as a substitute for traditional credit cards (“tap-and-go”
mobile phone payment). Since several payment products could reside on the same
phone, this raises the question of how to treat co-badging in the context of
mobile payments.
An alternate to the “tap and go” near-field communication point of
sale payment methods has also been introduced to the Canadian market. Paypal’s
“Here” system uses a triangle-shaped card reader that plugs directly into
mobile devices allowing consumers to make purchases directly at the point of
sale. The card reader itself is free for merchants, while the fees associated
with payment adhere to Paypal’s fixed cost structure.
Representatives of credit card companies who appeared before the
Committee pointed out that it would make no sense to have one mobile phone for
each type of payment; conversely, the CFIB indicated that infrastructure changes
can be made to comply with the code of conduct that would still allow the
adoption of mobile technologies.[74] CFIB further pointed out that they “are not suggesting for a second that anyone
needs to carry with them multiple different cellphones to be able to make
different types of payments.”[75]
The most prominent and compelling model to emerge is cloud computing. In very simple terms, cloud computing is a new model for accessing and delivering information technology and business services. Its relevance to policy is its potential to reduce the opportunity cost of investing in technology. Cloud computing helps to reduce costs, complexity, and management resources—several of the conventional barriers to IT adoption and use by SMEs. Chris Paterson, Director, Government Programs, IBM Canada,
October 24, 2011 (1545) |
Though
Canadian businesses may face obstacles to succeeding in e‑commerce, it
also offers them tremendous opportunities. An effective e-commerce platform can
render anyone in the world with an internet connection and the ability to
access postal services a potential customer. In fact, for some services (such
as online entertainment and the provision
of information), businesses do not produce anything that requires shipping.
This ability to reach customers beyond Canada’s borders helps businesses
alleviate the challenges associated with operating in a relatively small domestic
marketplace.
Not only can e-commerce be used by Canadian businesses to expand
their global footprint, but it can also be used to target niche markets.
Indeed, for a traditional “bricks-and-mortar” store, the market for a niche
product is often too small within a given geographical area to offer an
attractive opportunity. E-commerce may make this opportunity enticing to the
extent that niche markets could be scaled up across geographical areas.
By taking advantage of low-cost outsourcing options for web hosting
and site design services as well as “off-the-shelf” applications, a firm could
also increase its profit margin through e-commerce since existing overhead costs
could be spread over a greater volume of sales.
It is important to note that E-commerce in not just about selling
things online to internet customers; it is about using ICT and integrating
“e-business” strategies with business practices to become more efficient. The
BDC web site offers Canadian businesses information and access to services to
help companies understand the vast potential of e-commerce, as well as how
better to capitalize on it.[76]
For example, BDC explains the potential benefits of employing Customer
Relationship Management (CRM) systems to better understand the needs and
patterns of a business’s clients.[77] Though CRM is not limited to e-businesses, the very nature of online/network
enabled commerce requires the sharing of customer information with the business
(contact information, preferred products, price sensitivity, spending patterns,
etc.). Consequently, businesses can
use this information to better understand their customer base, as well as to
help gauge the market at large; in turn, firms can then tailor their business practices
to better align with market demand, which can lead to
increased sales.
(...) e-commerce has also dramatically changed the way products are brought into the market. Today companies are able to develop, design, test, market, and sell all manner of consumer products using e-commerce tools and tie various global supply chains together virtually. For example, cars and trucks—which a decade ago took five to seven years to bring to market—are now being brought to the showroom floor in two to three years. Corporate R and D, while still centrally controlled, is now conducted throughout various portals globally. The process, including tying suppliers and sub-assembly contractors, and R and D and design with product testing, can be completed almost entirely virtually and 24/7 with offices around the globe. Mathew Wilson, Vice-President, National Policy, Canadian Manufacturers and Exporters, October 17, 2011 (1540) |
The potential benefits of e-commerce are not limited to a business’s
revenue-generating operations (sales, marketing, consumer access, etc.), but
can also be realized in relation to its cost-generating internal processes. According
to the OECD,
ICT and e-commerce offer benefits for a wide range
of business processes. At firm level, ICT and its applications can make
communication within the firm faster and make the management of the firm’s
resources more efficient. Seamless transfer of information through shared
electronic files and networked computers increases the efficiency of business
processes such as documentation, data processing and other back-office
functions.[78]
The opportunity to save both time and money is one of the many
positives for Canadian businesses investing in e-commerce and ICT. Furthermore,
such potential can be applied to the earlier stages of a firm’s supply-chain
management, were firms willing to integrate e-commerce with suppliers and
business partners. The OECD states the following on this subject,
At inter-firm level, the Internet and e-commerce
have great potential for reducing transaction costs and increasing the speed
and reliability of transactions. They can also reduce inefficiencies resulting from
lack of co-ordination between firms in the value chain. Internet-based B2B
interaction and real-time communication can reduce information asymmetries
between buyers and suppliers and build closer relationships among trading partners.
In fact, adopters of e-commerce tend to reduce transaction costs, increase
transaction speed and reliability, and extract maximum value from transactions
in their value chains.[79]
Overall, the effective use of technology and networks can help a
business reduce costs, improve efficiency, ultimately leading to increased
productivity. In fact, studies have shown that, in general, adopters of
e-business strategies have experienced “the positive impacts of e-commerce on
their turnover and profitability and to a lesser extent on employment, most
notably when e-commerce is part of larger business strategies of firms.”[80]
Ultimately, a business chooses a particular strategy and
corresponding business practices after having considered both their costs and
benefits. A decision on whether to employ an e-commerce platform is no
different. In fact, the OECD report on e-commerce states that “most SMEs will
not adopt e-commerce if the benefits do not outweigh the costs of developing and
maintaining the system. The issue is costs relative to benefits expected, not
cost itself.”[81] It
becomes clear, therefore, that the better a business can identify and calculate
the potential benefits of e-commerce, the more encouraged it will be to use it.
During the course of this study, the Committee learned of the
potential benefits of e-commerce, as well as some of the key obstacles that
hinder its advancement in Canada. On the basis of its study, the Committee
makes the following recommendations to the Government of Canada.
RECOMMENDATION 1
The Committee recommends that the Government of Canada place an
emphasis on e-commerce in its forthcoming digital economy strategy.
RECOMMENDATION 2
The Committee recommends that the Government of Canada work with
industry to modernize payments systems to ensure an efficient, fair, safe,
competitive and world-leading payments system in Canada.
RECOMMENDATION 3
The Committee recommends that the Government of Canada work with
industry to increase the affordability, reliability and speed of broadband
internet available to Canadians.
RECOMMENDATION 4
The Committee recommends that the Government of Canada examine ways
to reduce “red tape” and costs of cross-border business and shipping for
businesses and consumers.
RECOMMENDATION 5
The Committee recommends that the Government of Canada examine ways
to increase disclosure and transparency related to all costs associated with
e-commerce, including cross-border transactions, with a view to ensuring that
businesses and consumers are aware of the total costs prior to purchase.
RECOMMENDATION 6
The Committee recommends that the Business Development Bank of
Canada make information and communications technology adoption a strategic
focus.
RECOMMENDATION 7
The Committee recommends that the Government of Canada take the
necessary measures to bring the Fighting Internet and Wireless Spam Act into force, which will help to increase consumer confidence in the
e-marketplace.
RECOMMENDATION 8
The Committee recommends that the Government of Canada work with
the provinces and industry to develop strategies to meet the skilled workers
shortage in information and communication technology industries.
RECOMMENDATION 9
The Committee recommends that the Government of Canada act on the
recommendation from the R&D Review panel, led by Tom Jenkins, to provide an
easily accessible directory or service containing all government programs
related to innovation and R&D to help firms access the tools and support
they need to increase innovation and adopt ICT.
RECOMMENDATION 10
The Committee recommends that, given the importance of internet
connectivity for businesses, the Government of Canada work with Internet
service providers to ensure and promote the availability of 24/7 technical
support to their clients to ensure their services are functioning as required,
and to ensure that clients have transparent and up-to-date access to their
account information.
RECOMMENDATION 11
The Committee recommends that the Government of Canada examine ways
to increase the quality of information available regarding ICT adoption and use
by Canadian SMEs, and the business impact of such adoption and use.
RECOMMENDATION 12
The Committee recommends that the Government of Canada ensure that with regard to online, mobile, and other
emerging transaction technologies, consumers and retailers are suitably protected
by a code of conduct.
RECOMMENDATION 13
The Committee recommends that the Government of Canada become a “model user” of e-commerce and online solutions
in its procurement practices and delivery of services to Canadians.
RECOMMENDATION 14
The Committee recommends that the Government of Canada ensure that its information technology systems, along with
the personal and private information of Canadians held therein, are secure from
potential security threats to avoid lengthy shutdowns of Government of Canada
online services.
RECOMMENDATION 15
The Committee recommends that the Government of Canada work with
industry and consumer groups to examine ways to address digital literacy by
simplifying the terms and conditions for e-commerce transactions, including
making the language of these service agreements more clear for consumers to understand.
RECOMMENDATION 16
The Committee recommends that
the Government of Canada take the view that financial literacy and digital
literacy are intertwined due to the widespread adoption of electronic and
mobile payments systems.