Canadian IT investment not keeping up with the Joneses

An IT industry group is again calling for Canadian businesses to ramp-up their IT spending to catch up with the U.S., bolstering their argument with a recent study indicating under-investment is at least partially responsible for the growing productivity gap between the two countries.

The Information Technology Association of Canada, along with vendors including Hewlett Packard Canada and Microsoft Canada, sponsored the study by the Ottawa-based Centre for the Study of Living Standards (CSLS).

The report concluded that in 2004, current dollar investment per worker in IT by Canadian businesses was 45.1 per cent of U.S. levels, and as a share of GDP just 61.1 per cent. By sector, companies in the information and cultural industries led the pack, investing US$ 12,244 per worker, while the accommodation and food services industry brought up the rear, investing just $98 per worker.

With Canadian productivity growth also lagging that of the U.S., CSLS president Andrew Sharpe said there is a link between lack of IT investment and the productivity gap. “Many people think [IT investment] is a key factor behind the Canada/U.S. labour productivity gap.”

A recent study by University of Toronto economist Melvyn Fuss and London Business School chair of economics Leonard Waverman concluded IT spending accounts for 60 per cent of the productivity gap, but Sharpe said he would put the figure at closer to 20 per cent.

The U.S. is well ahead of the pack globally on IT spending. Canada tied for seventh out of 19 Organization for Economic Cooperation and Development (OECD) countries, placing ahead of Germany and France.

While Sharpe is doubtful we will ever close with the U.S. on productivity or IT spending, he said it is possible to reduce the gap significantly. Doing so would mean a healthier bottom line for businesses and higher pay for workers. To date, he said, lower Canadian wages have given businesses less incentive to turn to IT for productivity gains.

However, Sharpe said on the other indicators Canada is doing as well as, or better than, the U.S.

“The unemployment rate is a very important [metric] and we’re doing very well in that regard. I think that’s more important than productivity,” said Sharpe. “There’s much more to life than productivity.”

ITAC president and CEO Bernard Courtois said advances in technology are making investments in software, hardware and communications infrastructure even more beneficial to businesses, and Canada has to catch-up.

“This is actually a very bad time to be lagging on the deployment of IT,” said Courtois. “We see the danger growing.”

Courtois said strong demand for our natural resources from the U.S. and China is driving the current strength of our economy but that demand won’t last, and if we want to fully leverage our natural resources and diversify our economy IT investment is needed.

“Our future is as a developed and sophisticated nation, and that’s going to be dependant on high-value jobs that are more than extracting our natural resources,” said Courtois.

The report’s release during the Federal election campaign was coincidental, but Courtois said he hopes political parties will discuss these issues. He would like to see a national dialogue and debate on the topic, and targeted tax incentives to encourage businesses, particularly the SMBs, to invest in IT.

“Other countries have done it, and we’ve done it before for investment in machinery and equipment for manufacturing,” said Courtois. “There is a precedent for this.”

The vendor community is hoping the study will give them more hard evidence when they’re discussing ROI on IT spending with clients. Lynn Anderson, vice-president, enterprise, marketing and alliances, HP Canada, said they’re trying to understand systemic issues behind productivity gap and identify where IT investment could help.

“It’s not just a bunch of (vendors) saying it, it’s actually research supporting the position,” said Anderson. “It’s about building substantive evidence for something I think we’ve intuitively felt all along.”

However, not all vendors see a big difference in the Canadian market. Greg Davis, who joined Dell Canada as president this summer from the corporate parent in Round Rock, Tex., said customers are different everywhere, even across Canada. But he thinks Canadian companies as just as receptive to a strong IT value proposition as U.S. companies.

“I don’t see reluctance [among] customers to open up their wallets,” said Davis. “If we can provide a strong value-add at a reasonable price then I think Canadian companies are very willing to take up that offering.”

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