Toronto’s Great Lakes Brewery, like many bars, restaurants, and retailers, were particularly hard hit by the COVID-19 pandemic. Lockdown measures forced the brewery to close their operation and lay off 16 employees. But a shift towards e-commerce has helped them to recover; they are now delivering up to 250 orders per day and were able to hire back half of the staff they had previously laid off.
Investments in digital technology are critical to innovation—helping firms to create new or improved products, processes, or services; increasing productivity; and contributing to economic growth. As COVID-19 has shown us, digitization can also help firms to adapt to changing conditions and maintain operations in difficult or unusual circumstances.
But technology adoption does not come easily to Canadian organizations, which creates additional challenges in the current context. Why do Canadian firms lag on technology adoption? Are they willing to change their behaviour in extraordinary circumstances? And what can governments do to make it easier for businesses to adopt technologies that help them adapt, sustain operations, and ideally, create a platform for future innovation and growth?
Canada has long struggled with technology investments
Historically, Canadian firms across the economy have a poor track record when it comes to investing in digital technologies. Prior to the 2008-09 financial crisis, Canada was narrowing the gap for investments in information and communications technology (ICT) compared to the US. In 2000, ICT investment per job in Canada was 50 percent that of the US, but by 2008 had climbed to 68.4 percent of US levels. Following the recession, however, the trend reversed. By 2014, Canadian ICT investment per job was back to just 56.3 percent that of the US. In other words in the period after the recession, US ICT investment per job increased by 10 percent but fell by 10 percent in Canada. Sluggish ICT investment among Canadian firms after the recession has played a major role in limiting productivity growth overall.
Why are Canadian companies slow to embrace new technology? One explanation is that our proximity to and integration with the US economy has allowed Canadian firms to adopt business strategies that don’t emphasize the need to invest in tech to the same degree as those south of the border. There are two facets to this argument. On the one hand, Canadian subsidiaries of US multinationals have been able to take advantage of technology investments made at the headquarter level. On the other hand, many Canadian firms have filled niches as upstream suppliers of commodities and intermediate manufactured goods to US firms—a position that doesn’t necessitate innovation to the extent that is required in the US economy. Simply put, Canadian firms have been “only as innovative as they have needed to be.”