Report: Canada Closes E-Biz Gap with U.S.

Canada experienced a spike in e-commerce activity in 2001 and progressed measurably in other e-business disciplines as well, according to a report released Monday by the Canadian E-Business Opportunities Roundtable.

The consortium's final report -- "Fast Forward 3.0: Maintaining the Momentum" -- showed Canada leading North America in Internet connectivity.

However, the report suggested that improvements remain to be made in such areas as e-business adoption among small and mid-sized enterprises (SMEs) and venture capital availability.

"It is unusual for a public-private-sector partnership to work as well as this one did," roundtable chairperson and iFormation Group CEO David Pecaut told the E-Commerce Times. "We have dramatically changed the e-business environment in Canada."

Overall, officials of the public-private-sector consortium gave Canada an "A minus" in e-business adoption.

The Canadian Connection

Despite leading the United States in Internet penetration in 2001 by a count of 60 percent to 52 percent, Canadian consumers continue to purchase online much less readily than do Americans, according to the report.

Just 17 percent of Canadians purchased online last year, compared with 27 percent of Americans, research firm IDC said.

But e-commerce in Canada showed tremendous year-over-year growth, according to IDC, totaling US$26.4 billion in 2001 -- an increase of 69 percent over the 2000 figure of $15.6 billion.

Productivity Gains

The roundtable's third and final report draws on the activities of five "e-Teams."

The teams focused on closing the venture capital gap with the United States; facilitating e-business adoption in small and mid-sized enterprises; attracting and retaining skilled e-business talent; accelerating government online; and promoting Canada's e-business brand globally.

Participants asserted that technology will drive wealth creation in Canada and that companies must embrace e-business to bolster productivity.

"Our peer nations in the G8 see e-business contributing more to our future productivity growth than any other single factor," said Pierre-Paul Allard, managing director of Cisco Systems Canada.

"By increasing productivity, Canada can pull ahead of our U.S. neighbors and take a global leadership position," Allard noted.

Tax Breaks

Since its inception in 1999, the consortium has recommended tax changes to improve the climate for e-business and innovation in Canada.

As a result, the 2000 federal capital gains inclusion rate dropped from 75 percent to 50 percent, which will help make corporate tax rates 5 points lower than U.S. rates by 2005, the report said.

"Canada's future prosperity depends on our ability to innovate in all sectors and in all regions of the country," said Minister Allan Rock.

"E-business is a critical tool to meet our innovation goals."

Seeding New Ventures

Roundtable members -- including representatives from Sears, IBM (NYSE: IBM) and the Canadian Chamber of Commerce -- agreed that challenges still loom for Canadian e-business.

"Canada has become a more attractive place to invest," Pecaut said. "But Canadian pension funds continue to significantly under-invest in venture capital."

In 2000, 11 percent of new venture capital raised in Canada came from pension funds committing capital to Canadian venture funds. But in 2001, that share fell to 3 percent, according to the report.

In comparison, pension funds accounted for 40 percent of new venture capital commitments in the United States.

Next Phase

What is more, Canadian small and mid-sized enterprises still lag behind their U.S. counterparts in terms of e-business adoption, according to Pecaut.

Going forward, a new body -- the Canadian e-Business Initiative (CeBI) -- will continue the Roundtable's public-private-sector promotion of e-business productivity, leadership and innovation.

"My goal for the CeBI is to ensure that a critical mass of SMEs understand the direct benefits to their bottom line from implementing e-business," said Nancy Hughes Anthony, president of the Canadian Chamber of Commerce and co-chair of the CeBI.