Smart Communities The Grand–Challenge Project to Launch the Digital Economy: A Submission to Industry Canada's Digital Economy Strategy Consultation
Theme(s): Digital Infrastructure, Growing the ICT Industry, Innovation Using Digital Technologies
Summary
To jump start the launch of the digital economy in Canada, we believe that a grand-challenge project is required to which the country can become dedicated. We believe that Smart Communities – communities that are instrumented, integrated, and intelligent – is the grand-challenge project that we should adopt. Smart Communities would provide the focus to put the development of the digital economy.
We are a consortium of private, publicly traded, and not-for-profit organizations including CATA, Cavet Technologies, Celestica, CISCO Systems Canada, Hutchinson Management, IBM Canada, McKinsey Canada, Telus, and the Toronto Region Research Alliance deeply concerned about the state and future of ICT innovation in Canada including software, services, hardware and the electronics capacity that underpins that hardware. While the digital economy will be about a great deal more than ICT and electronics, those industries represent foundational sets of technologies and skills that will be essential to innovation, productivity, infrastructure, digital skills, and success in international markets that will allow for a flourishing digital economy. At the same time a flourishing digital economy will do much to preserve ICT innovation and electronics capacity in Canada – a capacity that is rapidly diminishing and about which action is required.
We believe that Smart Grids and other mutually connected intelligent systems including water; traffic management; transportation; emergency services; land-use, planning, and zoning; to manage the urban environment are powerful elements of a digital economy not only in the opportunities they directly create, but in the effect a serious commitment to smart communities would have on the Canadian ICT/electronics industry as the hardware and applications for truly intelligent communities are created. Smart Communities also have the potential to create a very significant market for cloud services as communities process, store, and manage the data generated by their instrumented environments.
Smart Communities are a real opportunity for government to walk the walk. Smart Communities will create a demand-side imperative for companies to invest in productivity tools and innovative services in order to compete in the digital economy in local, national, and international smart communities. Smart Communities as a national project is an opportunity to act and think both globally and locally. Smart Communities could be for 21st century Canadian development what the railroad was for 19th century Canada. There is no greater bet for increased GDP and highly skilled job development.
We urge the federal government to establish a ten-year policy framework committing Canada to developing smart communities. Canada has the knowledge advantage and the people advantage. Through focusing those advantages on the grand-challenge of smart communities, we will build the entrepreneurial advantage and sell to the world.
Submission
To jump start the launch of the digital economy in Canada, we believe that a grand-challenge project is required to which the country can become dedicated. We believe that Smart Communities – communities that are instrumented, integrated, and intelligent – is the grand-challenge project that we should adopt. Smart Communities would provide the focus to put the development of the digital economy in Canada on fast track.
As a consortium of private, publicly traded, and not-for-profit organizations deeply concerned about the state and future of ICT innovation in Canada including software, services, hardware and the electronics capacity that underpins that hardware, we welcome the opportunity to comment on the government's Consultation paper on a Digital Economy Strategy for Canada. While the digital economy will be about a great deal more than ICT and electronics, those industries represent foundational sets of technologies and skills that will be essential to innovation, productivity, infrastructure, digital skills, and success in international markets that will allow for a flourishing digital economy. At the same time a flourishing digital economy will do much to preserve ICT innovation and electronics capacity in Canada - a capacity that is rapidly diminishing and about which action is required.
Since 1997, global electronics manufacturing has grown at 5.2% per year; Canada in this same period has grown a meager 0.6%. Canada has lost share to both low-cost countries (e.g., Taiwan and China) and high-cost countries (e.g., Finland and South Korea). Even with Canada's primary trade partner, the United States, Canada has lost out. Canada's share of US electronics manufacturing imports has declined from 6.7 percent in 1997 to 3.6 percent in 2006.
Contrary to popular perception, this is not all a flight to low-cost wage geographies; Finland and South Korea both have higher fully burdened labour rates than Canada and have expanded their electronics presence in recent years; Finland - in complete contrast to Canada - actually grew its electronics manufacturing GDP by an impressive 11% and exports by 13% from 1997–2006.
Both Korea and Finland have retained leadership in electronics despite global trends pushing manufacturing to low wage countries. Both have moved upmarket in higher value add, complex electronics (e.g., semiconductors), and have built off incumbent MNCs (e.g., Samsung, Nokia) to stimulate local R&D and commercialization of new technologies and companies. In these cases, the presence of domestic electronics excellence has been critical in sustaining the next wave of commercialization. These value chains of development and commercialization from established MNCs to start-ups in new technologies are critical to the innovation chain. How can Canada do the same, building off the Nortel and RIM legacies to profit from the human capital generated by our leading corporations? Our success in the digital economy will be significantly a consequence of how well we can focus and integrate our existing human capital to build the new economy. Incoming investment is desirable; it is not sufficient. We must develop the value chains for which the human potential already exists.
Within ICT, the global sea change is a move from information and communications technologies as items of capital acquisition to services that enable businesses and consumers access over the internet and dedicated networks. Canada needs to ensure that it becomes a leader in the provision of those ICT services and a leader in using ICT as a service to enhance productivity.
Within hardware, we need to be clear that we are talking about much more than traditional computers, storage devices, and telecommunications equipment. Our concerns also extend to our capacity to develop the new devices that will lead to a truly digital economy.
Canada's capacity for innovation and the ability to absorb and deploy technology was recently ranked 18th in the world. (Conference Board 2010) We must improve. We applaud Industry Canada for their leadership in developing an effective and sustainable strategy to establish a national framework to support and develop our IT industry and digital capability. Although our concerns are far reaching, we have chosen in this submission to focus exclusively on a set of questions from among those raised by the government in the consultation document.
In discussing these questions our consortium quickly coalesced around some key points that we saw as fundamental to the entire set of questions:
- A robust, innovative, digital economy will be dependent upon secure infrastructure that is instrumented, interconnected, and intelligent.
- In developing and implementing a strategy for the digital economy the government would do well to address questions of market pull at least as much of innovation supply.
- Clean-tech in the context of smart communities presents a set of opportunities for the digital economy in which Canada has the capacity to be a market leader.
- Environmental and fiscal sustainability should be key to all strategies for the digital economy. The digital economy not only carries the potential for significant economic growth; it carries huge potential for cost-reduction in existing activities. Demonstrating full use of those capacities for cost-reduction in the public and private sectors will be the most effective foundation for growing the digital economy in Canada. The development of the instrumentation and its integration into smart networks that will truly enable smart communities will be a second economic pillar in the digital economy. Our domestic market for those technologies will be our test-bed to prepare us to go after world markets. A country that walk's the walk will become a credible and in-demand supplier to the world.
Our Comments on Some of the Government's Questions:
- Capacity to Innovate Using Digital Technologies, Page 15
- Which conditions best incent and promote adoption of ICT by Canadian businesses and public sectors?
Any attempt to set incentives to promote adoption of ICT productivity tools by Canadian businesses must recognize that Canadian businesses are predominantly SMEs (fewer than 500 employees as per Industry Canada's definition). Those SME represent 64% of economic output, 80% of jobs, and 85% of new jobs. Clearly any major increase in productivity in Canada must engage SMEs. Any programs to incent increases in productivity must assist SMEs to increase productivity tool usage through reduction of barriers to innovation.
The Net Impact Canada Report (2004 – Canadian e-Business Initiative and Industry Canada) clearly documented the increase in revenue that could be achieved by the adoption of ICT productivity tools.
Although, technological and business developments in ICT may well hold the key to unlocking a capacity for innovation among SMEs, up until now, embracing ICT productivity tools has required major capital expense for the purchase of hardware and software plus increased operating expenses for expertise to enable the support and use of both. Committing to those expenses upfront without hard evidence of the improvements they might effect has been difficult for the typically cash straitened small business environment. Even with hard evidence, capital is hard to raise for most small businesses and competitive salaries for ICT experts to enable the effective use of installations beyond operating budgets.
Rewards from the introduction of ICT based productivity tools come significantly after the expenditure and while clearly, statistically, expenditures on productivity tools produce major benefits. The ability to realize those benefits in an individual company is by no means guaranteed.
ICT as a service including computation in the cloud, software and applications in the cloud, and data storage and management in the cloud carries the potential to remove both the hurdle of the initial capital outlay as well remove many of the difficulties in ensuring support. Cloud services are accessible, manageable, secure, and resilient.
Access of IT infrastructure as a service is also scalable, it avoids application vendor lock-in, and it removes the burden of technological refresh from the end user. Perhaps above all, ICT productivity tools as a service allows businesses to match their expenditures on ICT to the revenues they have to support the purchases. In short, cloud services significantly remove the barriers to ICT adoption for SMEs.
Becoming a leader in the use of ICT as a service is critical if Canada is "…to be a nation that creates, uses, and supplies advanced digital technologies and content to improve productivity across all sectors." (P.9).
There are some key steps the government can take to assist in driving ICT as a service on both the supply and demand side.
Demand:
The government could provide tax benefits and or direct subsidies for companies procuring ICT productivity tools as a service. For example, operating expenses for ICT as a service could be deducted at 1.5 times for a three-year period. Alternately, government could provide matching grants for ICT as a service; e.g. company spends a $2, government refunds $1. Through the Business Development Bank of Canada, IRAP, or in a program in co-operation with service providers government could fund a coterie of ICT productivity tools specialists to work with SME in implementing productivity tools. BDC and IRAP assistance could have a requirement of an ICT productivity tools plan and could have some upfront funding available to develop such a plan.
Supply:
For Canadian business to become leading consumers of ICT service is clearly desirable. We need to ensure that a strong supply capability is developed in Canada. Government efforts on the demand side could certainly stimulate markets that would encourage potential Canadian suppliers to establish supply capacity. Telcos, integrators, ICT service consultants are all potential service providers. A number of Canadian companies are offering, planning to offer, or evaluating offering cloud services.
Government should ensure that:
- Regulatory issues do not impede telcos from entering the market
- Consider accelerated cost depreciation for equipment purchased to offer a service.
- Becoming a model consumer of ICT as a service itself
- Ensure that its own procurement models privilege companies able to deliver services to government on-line
- Government develops "success stories" around productivity increases and cost-reduction from its own use of ICT as a service.
Both supply and demand could be encouraged if there was an on-line test bed for companies to test out solutions before committing. We are aware that CANARIE INC. is proposing such a test bed to the government in this consultation process. We would support their proposal provided it is appropriately peered to networks that would allow private companies to connect and is appropriately staffed for technical assistance to allow companies to test productivity tools effectively.
- Building a World-Class Digital Infrastructure, Page 19
- What speeds and other service characteristics are needed by users (e.g., consumers, businesses, public sector bodies, and communities) an how should Canada set goals for next generation networks.
More than anything else, we would want to emphasize that world class digital infrastructure is about much more than networks as they have been commonly understood. Broadband is necessary, but it is not sufficient. The term next generation network is so associated with speed increases or network technologies i.e. ATM to Optical; IPv4 to IPv6, that it may not even be a useful locution in addressing the issues of world-class digital infrastructure.
World-class digital infrastructure must be instrumented, interconnected, and intelligent. It must also be secure and pervasive. It must be an internet of things: countless interconnected devices – environmental sensors; sensors in the built environment; appliances; security systems; roadways; railways; cars; pipelines; medical devices; computation resources; data storage, management, and curation installations – all interconnected, all capable of exchanging data in real time, autonomously, and in infinitely reconfigurable combinations.
The complexities of 21st century government make government itself one of the ideal primary adopters and test-beds for such infrastructure.
A conventional networking approach about speeds and feeds is inadequate. Above all, the internet of things is about effectively gathering, processing, preserving, and using data in quantities unthinkable as recently as a decade ago. In any economic system those countries that flourish are those that are most effective in getting raw materials into high value added products. In the digital economy data are the raw materials. Those most effective in the use and reuse of data will be the winners.
Canada needs a data strategy for publicly owned data and needs to model effective data management. Can Canadian business easily and effectively access government non-classified data? Can businesses easily access research data created with public funds? Would publicly funded data in Canada survive an optimal-value-for-money audit? We think it unlikely because we have not built the infrastructure to make it possible for Canadians – citizens and business people – to access the data for which their tax dollars have paid. Infrastructure that is built on the networks is required, to be sure, but so much more that just the network is necessary.
- Growing the Information and Communications Technology Industry, Page 23
- What is needed to innovate and grow the size of the ICT industry including the number of large ICT firms headquartered in Canada
- What would best position Canada as a destination of choice for venture capital and investments in global R & D and product mandates
Before addressing this question, we would like to make one important point about the ICT industry in Canada. We make this point as a consortium that includes both foreign and domestically owned publicly traded companies. The struggle for global mandate within a global company touches Canadian ICT companies equally regardless of the provenance of their owners. Once a Canadian company goes global, its challenges to retain product, production, and R & D mandate for its Canadian operations is no less than the challenges faced by Canadian subsidiaries to secure and keep global mandate from international parent companies.
There is a curious phenomenon when it comes to the location of ICT companies and the assignment of global mandate: the size of domestic market is less important than the uptake of ICT tools within that market. Robust companies are more likely to locate where the domestic market is small but the penetration high than in significantly larger markets with moderate or low penetration levels. Finland and Singapore are examples of small markets with high penetration and a robust ICT sector with global mandates.
Solving the problem associated with the capacity to innovate using digital technologies is, therefore, critical to maintaining and growing the ICT sector.
It goes without saying that having the government itself as a model user of ICT productivity tools would be of huge impact in securing global mandate for Canadian operations. A government which led in:
- Digital environmental monitoring
- Electronic health records and "Smart" deployment of medical resources
- Public data widely and easily available to citizens and companies
- "Smart" energy monitoring and control
- Predictive economic modeling and strategy development
- e-skills development – both as a subject area and as a means to enhancing skills development across all sectors
would create the platform for an extremely robust ICT sector that was able to sell its products and services to the world.
To further assist Canadian ICT companies, the federal government should be prepared to become an investment partner with Canadian wings of international ICT companies – Canadian or foreign owned – in the input costs for the execution of global mandates including skills development, design, engineering, and business development. Such investment could be made as low or no interest loans in part forgivable depending upon jobs created, increased tax revenue, or supply contracts created for Canadian SMEs.
The development of value chains as noted at the beginning of this submission is critical. In other jurisdictions, innovation has come very strongly out of the human capital developed by large players. In our own past, Nortel played that role as an incubator of talent in Canada. We must ensure that we retain the capacity of our large players whether foreign or Canadian owned and that we create the environment in which "graduates" of those large players can develop new technologies and new businesses armed with their experience.
We recommend that as part of its R & D Review the federal government review the SR & ED Tax Credit Program. There is no doubt that SR & ED has many beneficial effects; however, its utility to larger companies pursuing global mandates needs to be reviewed.
Although the review of the federal support programs for R & D is mentioned in the consultation document (P. 21), we recognize that it is not the focus of this exercise. We would like to be consulted when that review is underway. We have more to say on the subject of government programs to support private sector innovation, but it would seem most appropriately offered at the time of the R & D review.
Our Single Most Important Recommendation:
We urge the government to look at all our comments seriously, but we urge most strongly that the way to kick-start the digital economy in Canada is to chose a grand challenge and dedicate the country to meet it. Such a grand challenge should have the capacity to engage companies across the country, domestic and internationally controlled; it should be audacious with order of magnitude potential, it should require engagement from software, hardware, content, services, and multiple sectors outside ICT. Our nomination for this grand challenge that could animate the whole country to become active in the digital economy is building smart communities.
As a grand challenge on which the country is focused, smart communities has the capacity to transform Canada creating new jobs, new technologies, new services, and both fiscal and environmental sustainability as we deal with the ongoing urbanization of the country. In addition, it will afford Canada global markets for everything it develops to make its communities smarter.
These global markets represent true order of magnitude opportunity, if not several orders of magnitude increase in opportunity. Over the next 5 years 500 million people will be added to the world's cities. For the first time in human history, in 2008 we passed the point that more than 50% of the world's population lives in cities. By 2030, the number will exceed 60%. By 2050, 100 new cities will be developed in the world with populations in excess of 1 million.
The sustainability challenges posed by this rapid urbanization – fiscal, social, and environmental - are enormous. Only through the applications of digital technologies in the creation of instrumented, interconnected, and intelligent infrastructure to support the health, transportation, energy, security, and economic lives of these urban dwellers can the degree of urbanization be healthfully supported. There is no acceptable alternative to urbanization. Rural economies have simply never supported the current population leave alone forecasted population. The alternative to urbanization is poverty, disease, death, depopulation, and decline. So the markets are large; the need is compelling. Canada has the technologies and skill to respond to this market pull.
Canada is already well advanced in this urbanization trend. By 2006 more than 80% of Canadians live in urban areas:
But Canada has urbanized with little regard for sustainability. There is a huge domestic market for retro-fitting our communities and then taking out our expertise to the world.
Currently Canadian urban regions have multiple systems for water, energy, sewage disposal, transportation, security, building management – and frequently multiple systems within each category – that are completely siloed and unable to communicate among the systems to operate, plan, and build these highly complex urban environments. Even simply within one category if disparate systems could share data and governments and private sector service providers had the opportunity to truly work with integrated data, the potential for efficiencies, cost savings, and economic opportunities are enormous. Smart Grid is a sterling example, but only one example, of the improvements and opportunities that could be realized.
Smart grid is an intelligent future electricity system that connects all supply, grid, and demand elements through an intelligent communication system. Allowing consumer bidirectional communication and visibility to better control electricity supply and demand as well as the cost associated with it. Both consumers and utilities will be better able to manage their energy costs.
Most of today's systems are one-way. Power is generated and distributed through the utility (or leased) transmission and distribution lines, and either consumed or not. There is no storage capability, so power generating facilities need to have excess capacity in order to meet peak demands. Current inefficiencies with the distribution model do not enable energy suppliers and users to effectively respond to changes in energy consumption and demand.
Energy suppliers need to be able to respond to the changing demands. Smart grid offers the utility and the consumer bidirectional communication and visibility to better control electricity supply and demand as well as the cost associated with it. Both consumers and utilities will be better able to manage their energy costs, and future expansion of the "grid" to allow new capabilities to be enhanced.
As the Smart Grid example reveals, instrumented systems with the appropriate infrastructure to make use of the data generated create a huge opportunity for the deployment of clean technologies and services.
Smart Grid and other mutually connected intelligent systems including water; traffic management; transportation; emergency services; land-use, planning, and zoning; to manage the urban environment are powerful elements of a digital economy not only in the opportunities they directly create, but in the effect a serious commitment to smart communities would have on the Canadian ICT/electronics industry as the hardware and applications for truly intelligent communities are created. Smart Communities create a very significant market for cloud services as communities process, store, and manage the data generated by their instrumented environments.
Smart Communities are a real opportunity for government to walk the walk. Smart Communities will create a demand side imperative for companies to invest in productivity tools and innovative services in order to compete in the digital economy in local, national, and international smart communities. Smart Communities really is an opportunity to act and think both globally and locally. Smart Communities could be for 21st century Canadian development what the railroad was for 19th century Canada and what aviation and roads were in the 20th century. There is no greater bet for increased GDP and highly skilled job development.
We urge the federal government to establish a ten-year policy framework committing Canada to developing smart communities. We believe that provinces, municipalities, and the private sector will rally behind this grand challenge to transform Canada and place it at the heart of global efforts on sustainability and prosperity through the digital economy or, more correctly, the digital society. Most certainly, the members of this consortium, signatories to this submission stand ready to engage as partners to government in this effort. Canada has the knowledge advantage and the people advantage. Through focusing those advantages on the grand challenge of smart communities, we will build the entrepreneurial advantage and sell to the world.
John Reid, President and CEO
CATA Alliance
Albert Behr, President and CEO
Cavet Technologies
Mike Andrade, Senior Vice President
Americas, Celestica
Nitin Kawale, President
CISCO Systems Canada
Bill Hutchinson, Chair and CEO
Hutchinson Management International
Pat Horgan, VP Manufacturing, Development and Operations
IBM Canada
Zouheir Mansourati, Vice President
Technology Strategy
TELUS
Patrick Draper, President and CEO
Toronto Region Research Alliance
The consortium can be contacted through its consultant:
Walter Stewart, Senior Advisor
Research Capacity Building
TRRA
416-673-6678
wstewart@trra.ca
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