Electronic Commerce and the eEconomy in Canada

1
Electronic Commerce and the e-Economy in Canada

• 7th World Congress on the Management of
  e-Business
• Halifax, Canada
• July 14-16, 2006

2
ICTs and the Economy
a new wave of innovation, primarily based on
information and communication technologies (ICT),
is surging through the OECD A New Economy? The
Changing Role of Innovation and Information
Technology in Growth, OECD, 2000
3
ICT Intensive Economies Have Led Growth
Growth of DGP across OECD countries
Source The Sources of Economic Growth in OECD
Countries, OECD, 2003
4
ICTs contribute to Multi-Factor Productivity
Growth
Source The Sources of Economic Growth in OECD
Countries, OECD, 2003
5
ICTs Drive Productivity Growth
Contribution of ICT capital to total economy
productivity growth (percentage points)

• ICTs continued to drive productivity growth in
  Canada and U.S. even after 2000 (dot.com
  slowdown)
• About one third of Canadas productivity growth
  was due to ICT capital investment in 1995-2003.

2.4
Other factors
1.8
1.2
1.2
ICT capital
Percentage points
Source OECD, Productivity Database, September
2005.
6
ICTs Are Powerful Economy-wide Enablers

• Forestry
• Largest user of high-tech machinery and equipment
  in Canada - 30B in capital improvements since
  1990
• Leads most manufacturing sectors in productivity
  growth and is more productive than the forestry
  sector in the US
• Pharma/Bio
• Second to ICT sector in RD Expenditures relies
  on ICTs for research e.g. use of GRID computing
  to speed up research
• Finance
• 6 largest banks have invested 25B in ICT since
  1996 - 3.9 Billion in 2003
• Over 85 of retail banking transactions in Canada
  are done electronically (debit card, telephone,
  online, hand held wireless)
• Agriculture
• Efficiency gains and protection of both the
  industry and Canadians' health (ex. early
  detection of BSE source) through the
  implementation of ICT enabled traceability and
  tracking systems 
• Retail
• ECCNet provides an industry-wide platform for
  supply chain management in the grocery and retail
  pharmacy sector.

7
ICTs Improve Productivity at Firm Level

• Use of computers by staff improves productivity
• If 10 more of staff use computers, productivity
  will increase by 1.3
• A company that has incorporated a series of ICT
  factors would have productivity levels 12 higher
  than a company that has not adopted any ICT
  factors (OECD, 2006).
• Computer networks and labour productivity are
  linked
• Firm-level analysis confirms computer networks
  have positive and significant links with labour
  productivity in both U.S. and Japan (Atrostic
  Nguyen, 2005).
• Connectivity increases revenue and business
  creation
• SMEs with broadband have over twice the revenue
  of those without (CIBC, 2004)
• SMEs using Internet solutions improve their
  bottom line
• Revenues up 7, costs down 9.5 (CeBI, 2004)

Sources CIBC Study Secrets of Small Business
Success 2004) Canadian e-Business Initiative,
Net Impact Canada IV , (2004), B.K. Atrostic and
S. Nguyen, Computer investment, computer
networks and productivity, Discussion paper, CES
05-01, U.S. Census Bureau, Center for Economic
Studies (2005) OECD, Does ICT Use Matter for
Firm Productivity? May 2006
8
Historically, technological innovation

• Steam Engine
• Started First industrial Revolution mechanized
  factory-based mass production
• Railroad, Postal and Telegraph communications
• Changed the way goods and services were produced
  and distributed as well as the mobility of
  people, creating the first national economies
• Electricity
• Propelled the growth of industrialized economies
  by the enhancement of production capacities and
  productivities and the proliferation of a vast
  array of household goods and services
• Internet and ICT Networks
• Alters market structure and industrial
  organizations, similar to the previous impact of
  railways and electricity

has fuelled rapid economic growth
In Canada and throughout the world, ICTs have
emerged as significant drivers of economic and
social change, such as the printing press and
steam engines did in the past. ICTs are enabling
general purpose technologies. Lipsey et al,
Economic Transformations General Purpose
Technologies and Long Term Economic Growth, 2005
9
Emergence of the e-Economy
10
We are in the Network Age
Millions of Users
Everything we ever said about the Internet is
happening -Andrew S. Grove, Intel Corporation
Sources http//www.nua.com/surveys,
Computer Economics, June 2002
11
Internet is Superseding Traditional Media
Source The Canadian Inter_at_ctive Reid Report, 1st
Quarter, Spring 2005
12
Bringing People Online
of Population Online 2005
69
49
42
Canada
Japan
United
Sweden
United
Australia
Finland
Germany
Italy
France
States
Kingdom
Source Internet World Statistics. November 17,
2005.
13
As Well as Businesses
Businesses with Internet Access and Web Site,
2003 (as a percentage of all firms)
Source OECD, Information Technology Outlook 2004
14
Canadians are Online
79 percent of online Canadians have high-speed
or high-speed-lite Internet service at home
Source The Canadian inter_at_ctive Reid Report, 3rd
quarter, Oct 2005
15
e-Commerce is Exceeding Expectations
Worldwide e-Commerce (Billions U.S.)
Note E-Commerce spending represents the annual
sum of dollars associated with clicking an order
button on the Internet, representing a commitment
to transfer funds in exchange for goods or
services. Source International Data
Corporation, 2006
16
Canada Is No Exception
Value of Canadas Total Internet Sales 1999-2005
(Billions)

• Source Survey of Electronic Commerce and
  Technology 2005, Daily April 20 2006, Statistics
  Canada

17
Creating New Businesses Markets
Net Income 778 million (2004)
Revenues 1.35 billion (1st 6 months of 2004)
18
Twin Engines of the e-Economy

• Advanced ICT Networks
• Diffusion of e-Business / ICT-based Innovation

19
The e-Economy Runs on Broadband
Several applications, such as broadband and
e-commerce are still in their early stages and
may have a large potential for future
growth. Meeting of the OECD Council at
Ministerial Level, Seizing the benefits of ICT in
a digital Economy, 2003
platform and service deployment and availability
20
Broadband Use Continues to Grow
Broadband as of Internet Users
millions
Source ITU and Internet WorldStats
21
Broadband the Norm for Business
Private Firms Using High Speed Internet
Source Survey of Electronic Commerce and
Technology 2005, Daily April 20 2006, Statistics
Canada

• Firms using broadband technology are more likely
  to adopt other advanced information and
  communication technologies (ICTs)

22
The Importance of e-Business

• Business Success
• Reduced costs
• Increased transaction speed and reliability
• Better managed customer relations
• Improved management capabilities
• Developed or improved collaborative capabilities
• Access to global markets

• Sector Competitiveness
• Increased efficiency of supply-chains,
  e-logistics
• Greater Consumer Welfare
• Choice
• Competition
• Increased Productivity
• Better standard of living

Source OECD, Restructuring value chains
Impact of the Internet, EBIP, WPIE 2002
23
Benefits to Small Medium-size Business
e-Business Impact on Revenue

• Firms that adopted realized substantial benefits
• Revenues increased 7
• Costs decreased 9.5
• Sales and administrative expenses decreased 7.5

Source Canadian e-Business Initiative, Net
Impact Study Canada, September 2004.
24
Policy Concerns

• Uneven rollout of broadband
• Rate of diffusion of e-business, e-solutions
• Threats to the network

25
Online Trust and Confidence a Concern
100
100
Consumers
Business
80
80
55
60
60
46
43
43
40
40
20
20
0
0
Concerned with
Concerned With
Concerned with
Concerned With
Security
Privacy
Security
Privacy
Not willing to give my credit card information
over the Internet to purchase from a well-known
store I mind companies using information about
me even if I know about it and can stop it.
of businesses identifying barrier as
significant to adoption of e-business
Source Ekos, May 2005
Source Ekos, January 2005
26
Broadband Access Still Uneven
Served Community 2117 (39) Unserved Community
2441 (45) Planned/Funded
868 (16) Total 5426
As of June 2005
27
Some Canadians left behind in network economy

• Rural and remote broadband gap exists
• Approximately 2,000 rural, remote and Aboriginal
  communities remain unserved, impacting 1.4
  million Canadians
• Most will never be reached by market initiatives
• Some Canadians face barriers accessing ICTs
• A large segment of population (app. 28) face
  barriers accessing computers and using ICTs (low
  income, people with disabilities, elderly, new
  immigrants)
• Many working-age Canadians lack basic skills to
  use ICTs
• Close to 9 million (42) working-age adults are
  below the proficiency level for modern,
  knowledge-based economy (prose literacy level
  3).
• Almost 8 million (38) working age adults have
  below average literacy and ICT skills
• Respondents with high literacy and high computer
  use had from 5 to 6 times the odds of being top
  income earners than respondents with low literacy
  and low computer use.

Source OECD and Statistics Canada, Adult
Literacy and Life Skills Survey, (2005)
Source Statistics Canada, Veenhof, Clermont and
Sciadas, Literacy and Digital Technologies, 2005.
28
e-Business Uptake Slow
Online Business Activities in Canada - 2000-2004
Percentage of firms
Source Statistics Canada, Survey of Electronic
Commerce and Technology, April 2006
29
Low Adoption Rates of Advanced Online Activities

• Firms engaged in e-commerce unchanged since 2001
  at 7 (Survey of Electronic Commerce and
  Technology, Statistics Canada, 2006 )

30
SMEs in Particular Lagging
E-business Adoption in Canada, 2004 by Size of
Firm
Source Statistics Canada, Survey of Electronic
Commerce and Technology, April 2005Note SMEs
Small and Medium-size Enterprises
31
e-Commerce Uneven Across Sectors

• Only six sectors account for 82 of all Canadian
  Internet sales
• These same six sectors account for only 41 of
  total GDP

GDP Share by Industry 2005
Source Survey of Electronic Commerce and
Technology, 2004, April 2005, Statistics Canada
Source Statistics Canadas National Accounts,
2006. GDP numbers are for 2004.
32
Canada Still Behind in B2C
Average Annual Amount Spent Online by Online
Buyers in Canada, the U.S. and the UK, 2005 (in
US )
Online Buyers in Select Countries, 2004, (as a
of Internet Users)
61.9
1,481
U,S.
61.0
54.0
UK (1)
1,433
47.3
392
Canada
47.2
Source eMarketer, July 2005 1) Interactive
Media in Retail Group
Source eMarketer, 2005 (1) Ministry of
Information and Communications (MIC) and National
Internet Development Agency of Korea (NIDA),
December 2004 Note ages 14 ages 12

• Only 42 of Canadian retailers operate a web site

33
Cost not the main barrier
Reasons Why Organizations Do Not Buy or Sell over
the Internet ( of firms)

• Source Statistics Canada, Survey on Electronic
  Commerce and Technology, 2000 2004

34
Policy Response

• Promoting connectivity
• Removing barriers to adoption of e-business
• Protecting the Internet as a platform for
  electronic commerce

35
Role of federal government

• To foster strong economic growth and prosperity
  for Canadians in a global context
• Pursue policies and measures to increase
  productivity growth and ensure Canadian firms can
  compete internationally
• To intervene when market outcomes do not meet the
  economic and social policy objectives
• Address barriers faced by SMEs in adopting ICTs
  that are not being addressed by market forces
• To provide national leadership
• Set vision for the nation
• Develop policy frameworks
• To provide conditions that will maximize the
  well-being of Canadians

Over 99 of Canadian firms are SMEs a lukewarm
SME response to ICT adoption and use may weaken
any efforts to bolster Canadas international
competitiveness Canadian e-Business Initiative,
Net Impact Canada IV Strategies for Increasing
SME Engagement in the e-Economy, 2003
36
Marketplace Frameworks

• Concerns about online privacy and security are
  rising
• Clear and consistent ground rules for the online
  environment critical to maintaining high levels
  of trust and confidence, specifically for
• The protection of personal information/privacy
• Managing and securing electronic identity
• Ensuring the safety, reliability and security of
  networks
• Combating cyber-crime and offensive and harmful
  content.
• Framework legislation must keep pace
• .A regime is required that
• Fosters dynamic competition and relies on
  competitive markets to drive innovation and
  efficiency wherever possible
• Intervenes minimally in cases where dynamic
  competition cannot be expected to develop
• Recognizes the impact of technological changes
  occurring in telecommunications.

37
Ground Rules for e-Commerce
GOAL A CLEAR, COMPLETE AND CONSISTENT SET OF
LAWS AND POLICIES FOR THE CONDUCT OF ELECTRONIC
COMMERCE THAT WILL PROMOTE BUSINESS CONFIDENCE
AND CONSUMER TRUST IN THE ONLINE MARKETPLACE.

• Privacy protection (PIPEDA)
• Identity management/ authentication
• Consumer Guidelines for Electronic Commerce
• Spam, spyware related threats

38
Remove Barriers to e-Business Diffusion
GOAL ACCELERATE THE ADOPTION AND USE OF ICTs
ACROSS ALL SECTORS AS A MEANS OF INCREASING
INNOVATION AND COMPETITIVENESS

• Private-public sector partnerships
• Sectoral action plans to accelerate e-business
• Address SME barriers
• Market Intelligence and benchmarking

• Canadians have not taken full advantage of
  online opportunities
• Canadian e-Business Initiative
• Fast Forward 5.0 Making Connectivity Work for
  Canada, September 2004

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Research DatabaseSurvey of Electronic Commerce
Technology (SECT)

• Capabilities
• Analysis of SECT microdata
• Allows researchers to follow individual firms and
  their technological development through time
• Potential to be linked to other datasets that
  exist within Statistics Canada
• Content
• To date, there are three versions of the
  database 2001-2003, 2002-2004, 2003-2005
• Each version contains between 4500 and 5000 firms
• All of the categorical variables that are
  included on the survey throughout the three-year
  period are included on the database
• Access
• Potential researchers are encouraged to put
  forward proposals to the Science, Innovation and
  Electronic Information Division for the use of
  the database
• Mark Uhrbach [phone] or Bryan van Tol
  [phone]

40
Electronic Commerce Branch
www.e-com.ic.gc.ca

• Policy Development and Implementation
• Research and Statistics
• International Development
• Strategies for e-Business Adoption and Diffusion