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.”
Canada’s Digital Trajectory: Are we doing enough to support business tech adoption amidst COVID-19?
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.”
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Will this time be different?
The extent to which COVID-19 will change Canadian investment in technology is still unclear. However, both the incentives and the need to do so may be stronger in this economic downturn than in previous recessions. There are some indications that digital technology may be a necessary condition to succeed in the current climate, rather than a luxury option.
Consider the challenge facing the retail sector. Prior to the pandemic, many retail firms did not invest in digital technology, mostly because they didn’t view it as necessary. According to Statistics Canada’s Survey of Innovation and Business Strategy (SIBS), in 2017 only 33 percent of firms in the retail trade sector said they had adopted advanced technologies, the lowest rate among all industries. In the same survey, 46 percent of firms in the retail sector cited that technology investment were “not applicable to business activities,” compared to 37 percent across all firms. Similarly, a 2019 report by the Business Development Bank of Canada found that only 4/10 Canadian SMEs had an online presence.
When retail sales plunged 10 percent in March 2020—the largest monthly decline on record—and 40 percent of retailers closed their doors, it was clear that lagging on technology adoption was no longer an option. In light of both government restrictions and consumer aversion to in-person shopping, retailers that wanted to serve customers needed an online presence as well as digitally-enabled purchasing and delivery options. And many retailers responded swiftly by shifting to e-commerce and home delivery. If Canadian firms are only as innovative as they’ve needed to be, COVID-19 has revealed just how quickly that need can emerge.
Retail is not the only sector facing a burning platform. The pandemic has negatively impacted industries across the economy, which is spurring firms in other sectors to consider their need and options for digital technologies to navigate the new normal. For example, the large increase in Canadians working from home, whether temporary or permanent, requires companies to adopt and integrate technologies to enable regular business functions. Revenue declines may also force companies to leverage technology to increase efficiencies where they can. In fact, a firm’s decisions to automate job tasks is greatly accelerated during economic downturns. There is already some indication that this pandemic has kickstarted a new wave of automation.
How are we supporting technology adoption and can we do more?
While the need for digitization across sectors is clear, the inexperience of many Canadian firms in adopting technology means that many lack the resources and expertise to digitize effectively and quickly. Government support may be needed now more than ever.
As noted in our recent scan, Canadian policymakers have already responded by helping retailers select, implement, and use digital technologies to transition to online sales. Indeed, it appears that the Canadian government’s suite of digital infrastructure initiatives, training programs, and financial support is broader and more robust than the digitization initiatives being pursued by other countries. A key program is the $57.6-million Digital Main Street program, a joint initiative of the Governments of Canada and Ontario, aimed at supporting small businesses through grants, free workshops and training, business model support, as well as through building partnerships between technology start-ups and businesses improvement areas (BIAs). One strength of these efforts is the recognition that firms must make complementary investments—from new business processes, managerial practices, and employee skills—in order to effectively integrate the technology and realize its benefits.
While these current offerings are a step in the right direction, there are major gaps in support for digitization across the economy. Current government support for digitization amidst COVID-19 is entirely focused on Ontario’s retail trade sector. There are opportunities for governments to extend this support and expertise beyond the retail sector. One past example is the Digital Technology Adoption Pilot Program (DTAPP). Kick- started in 2011, this three-year $80 million pilot program was designed to provide Canadian SMEs with advisory services and up to $100,000 in non-repayable contributions to accelerate the adoption of digital technologies. While this program failed to reverse Canada’s poor track record, an evaluation showed that more than half of the roughly 600 participating firms (400 received financial assistance) had adopted digital technology, while the remaining were planning to do so. The evaluation concluded that Canadian SMEs do have a need for both financial assistance and advisory services to adopt digital technology.
To help accelerate investment in technology during and after the pandemic, governments across Canada may consider expanding their focus to other sectors and geographies. This would not only help firms address their immediate COVID-19-related challenges, but could provide a foundation for more sustained, long-term adoption of technology to drive future innovation and growth.
Thank you to Daniel Munro for his contributions to this piece.
For media enquiries, please contact Nina Rafeek Dow, Marketing + Communications Specialist at the Brookfield Institute for Innovation + Entrepreneurship.
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