Industry Canada Business Plan 2009–2010

Operating context

Economic and labour force trends

Industry Canada, its partners and the businesses, investors and consumers it serves, operates within complex and interconnected global, national and regional economic systems, which provide both opportunities and challenges.

The economy

In fall 2008, the Conference Board of Canada gave Canada's overall economy a grade of B, stating that the country's long-term position will depend on how well it can boost productivity and compete on the increasingly global playing field (The Conference Board of Canada, How Canada Performs: A Report Card on Canada).

This is particularly crucial in the current economic environment. After years of steady growth, change came rapidly in the third and fourth quarters of 2008, with intense global economic uncertainty and volatility. As the Government of Canada stated in its November 2008 Economic and Fiscal Statement and re-affirmed in Budget 2009 — Canada's Economic Action Plan,

The Canadian economy currently faces three major challenges, all of which stem from the external environment. First, ongoing global financial market dislocations have resulted in a significant loss of wealth and much tighter credit conditions. Second, the economic slowdown in the U.S. and other key economies is dampening demand for Canadian exports. And third, prices for many commodities have dropped sharply, which will detract from Canadian profit and income growth.

The Organisation for Economic Co-operation and Development (OECD) predicted in November 2008 that Canada's economy will expand by only 0.5 percent in 2008 (the second-lowest growth rate among G7 economies if the prediction holds) and that the economy will contract by 0.5 percent in 2009 before expanding by 2.1 percent in 2010 (highest growth rate among G7 economies if the prediction holds) (Economic Outlook No. 84). In January 2009, private sector forecasters predicted that real GDP growth will be 0.7 percent in 2008, -0.8 in 2009 and 2.4 percent in 2010.

Consumer confidence has similarly been shaken, with consumer spending forecasted to advance only 3.4 percent in 2008 and decline 0.6 percent in 2009 before advancing 1.8 percent in 2010, compared with an average of 4.5 percent in 2007. Consumer bankruptcies increased 13.5 percent from December 31, 2007 to December 31, 2008, and consumer proposals were up 17.4 percent in the same period (Insolvency Statistics in Canada — December 2008, Office of the Superintendent of Bankruptcy Canada).

Nonetheless, Canada has many core economic strengths that will help it meet the challenges of the current global economic slowdown:

• Despite deterioration in 2008–2009, the financial position of households and businesses is predicted to remain high, both historically and relative to the United States (Bank of Canada: Financial System Review, December 2008).
• The Canadian housing sector is relatively sound compared with that of the United States.
• Canada's banks and other financial institutions are sound and well capitalized, and have lower leverage ratios than their international peers.
• Reduction in the goods and services tax rate and the past appreciation of the Canadian dollar (which lowered prices for imported goods) have offset to a large extent the impact of higher energy and food prices. Going forward, the sharp drop in energy prices since the summer of 2008 will provide further relief to Canadian consumers.
• Canada has maintained the best fiscal position of all G7 countries (Economic and Fiscal Statement 2008).
• However, while Canada has made gains in competitiveness in recent years, it still lags behind many OECD countries in terms of its ability to attract new business and investment. The World Economic Forum recently ranked Canada 10th, behind the U.S., Switzerland, Denmark, Sweden, Singapore, Finland, Germany, the Netherlands and Japan (Global Competitiveness Report 2008–2009).

The World Economic Forum also measured several factors relevant to the openness and competitiveness of Canada's marketplace. Of interest to Industry Canada are Canada's rankings (out of 118) for market access (3rd) and for the business environment (16th overall, 23rd based on regulatory environment, 89th based on ease of hiring foreign labour, 26th based on prevalence of foreign ownership, and 45th based on business impact of rules on foreign direct investment). (Global Enabling Trade Report 2008).

The Canadian economy continues to evolve and is undergoing significant structural changes as industry sectors respond to new competition, demand for new goods and services, and changing global markets. The service sector continues to grow in importance compared with manufacturing and resource-intensive industries. In addition, the economy is making the transition towards more innovative and knowledge-intensive industries such as the life sciences, information and communications technologies, and aerospace and defence. Canadian businesses increasingly have to adapt to global business and economic environments, the internationalization of supply chains, and rapid developments in information and communications technologies.

Science and technology-focused organizations in Canada are contributing to this transition, building on Canadian strengths, including internationally recognized universities and strong federal support for domestic research and development. However, Canadian businesses perform poorly in terms of research expenditures as a share of gross domestic product, ranking the second-lowest among G7 countries in 2005 ("Competition Policy Review Panel Research Paper Summary," Centre for the Study of Living Standards).

The commercialization of new technologies is also seen as a Canadian weakness, hindering growth in knowledge-intensive industries. Furthermore, The Conference Board of Canada gave Canada a grade of D for its innovation performance for the past three decades and noted that Canada is not taking steps to ensure that science can be successfully commercialized and used as a source of economic advantage (How Canada Performs: A Report Card on Canada).

Industry Canada is well positioned to continue to help businesses meet ongoing and new challenges through well-managed programs under its three key strategies, particularly since enhancing innovation, competitiveness and productivity — key factors in any recovery — is the overarching theme of those strategies.

The labour force

Canada's population and workforce are aging as Canadians live longer and Canadian birth rates drop. According to Statistics Canada, Canadian life expectancy at birth is at an all-time high of 80.4 years (in 2005), while the Canadian fertility rate, estimated at 1.6 percent, is well below the 2.1 percent required to replace natural declines in the population (Statistics Canada, Canada at a Glance 2008).

This demographic shift presents unique challenges to Canada's long-term domestic economic stability. An aging population will affect the domestic economy through decreases in available labour and skills, and will strain social services and the health care system (Human Resources and Skills Development Canada, Industry Canada, and Social Sciences and Humanities Research Council, The Labour Market and Skills Implications of Population Aging in Canada: A Synthesis of Key Findings and Policy Implications).

Many analysts believe that Canada's future economic sustainability and growth may depend even more than it already does on higher productivity to offset these predicted labour force changes. In its Economic Survey of Canada 2006, the OECD notes that "improving productivity performance will be crucial to achieving durable prosperity gains, given the nation's already high employment rates." Furthermore, in its Economic Survey of Canada 2008, the OECD notes that "the onus will increasingly be on higher productivity growth to maintain rising living standards and sustainable public finances."

Canada must increase its productivity growth in the context of these demographic challenges in order to maintain, let alone improve, Canadian living standards.

Along with higher productivity, immigration is, and will continue to be, an important factor contributing to Canada's economic sustainability and growth. In large part, Canada depends on immigration for its population growth. From July 2005 to June 2006, two thirds of the country's population increase was due to immigration. (Statistics Canada, Population and demography overview).

Industry Canada plays key roles in supporting skill development, post-secondary education and sector-specific knowledge growth. These policy areas will become increasingly important as Canadian industries adapt to new skill shortages and the changing labour force and population.

Program-related challenges and opportunities

The constantly changing and fast-paced global marketplace, and the uncertainty of the current economic climate, present challenges and opportunities for the programs and services that Industry Canada offers in support of Canadian consumers, investors and businesses. Described below are the key challenges and opportunities identified through SWOT (strengths, weaknesses, opportunities and threats) and risk analyses carried out by Industry Canada sectors as part of the 2009–2010 planning process.

Science and technology

Science and technology is a global activity, with many countries emphasizing it as a key economic driver. The strength of Canada's economy depends on the ability to leverage existing scientific and technological advancements and generate new ones. While the Government of Canada has substantially increased its investment in science and technology in recent years, business expenditures in research and development — considered to be an indicator of innovation capacity — continue to be low in Canada compared with other developed countries.

Industry Canada works to bridge this innovation gap by enabling collaboration among research institutions and sector firms at the pre-competitive stage of product development with a view to better aligning demand and supply of innovation.

Effective commercialization efforts can be undermined by the misalignment of knowledge being generated with the innovative demands of the economy or by sudden technological change. To address these challenges, Industry Canada leverages opportunities to build strategic partnerships with a wide variety of public and private organizations to ensure that industries' interests are represented in government policy and regulatory program decisions relating to innovation, and to enable Industry Canada to efficiently convey federal policy perspectives back to industry.

The Government of Canada is committed to strengthening the effectiveness of its science and technology investments, and Industry Canada will continue to play a key role in advancing the science and technology agenda by supporting government investments in research and development, leveraging the opportunity to stimulate corresponding private sector investments.

Information and communications technology

The information and communications technology (ICT) sector is dynamic, fuelled by consumers' embrace of the Internet and voice, video and data services over a multitude of platforms and devices. Delivery of feature-rich services is putting unprecedented demands on the bandwidth of core and access networks. Other connectivity challenges include the security of ICT networks and the development of next-generation applications and technologies.

Industry Canada is well positioned to address these challenges, with the appropriate expertise and test-bed facilities to study solutions and applications. However, it faces many challenges of its own in this area, including succession planning and attracting employees that have specialized skill sets, ensuring that scientific equipment is up-to-date and can support leading-edge research, and finding itself with insufficient funds to address all its priority ICT research areas.

Consumer interests

Canadian consumers regularly change where they shop, what they buy and how they pay for it, as they respond to globalizing supply chains and the emergence of new technologies, new products and new marketing techniques. Understanding how these shifts affect consumers is a major challenge for Industry Canada and other policy-makers, as they seek to protect consumers and meet their information needs. To meet the challenge, Industry Canada, through the Office of Consumer Affairs, capitalizes on its wide reach and influence within domestic and international communities that specialize in consumer policy development and research, consumer-related standards development, and consumer advocacy. To build on this success, Industry Canada must embark on a multi-faceted agenda:

• continuing to address major consumer issues in a timely and effective manner
• enhancing existing collaborative arrangements with other governments, academics and consumer advocacy groups, and pursuing new ones
• keeping pace with the evolving and increasingly complex operating environment
• ensuring resources are aligned to expected results and to minimizing risks

The Competition Bureau, an independent agency of Industry Canada, contributes to the prosperity of Canadians by protecting and promoting competitive markets and enabling informed consumer choice. Competition is not only good for businesses but also for consumers. A competitive marketplace provides consumers with competitive prices, product choice and the information they need to make informed purchasing decisions.

International competitiveness

To compete in a world economy dependent on global value chains, Canadian firms must develop global reach and agility, particularly to keep pace with emerging economic powerhouses such as Brazil, India and China. Within this competitive environment, regional economic integration takes on a new significance. Consequently, Canadian industry must seek out its comparative advantages in industries once considered to be the mainstay of Canada's prosperity, such as natural resources and manufacturing. Several factors could affect the performance of Canadian industries in globalized markets, including the value of the Canadian dollar, the state of the U.S. economy, access barriers in important international markets, interest rates, key input costs (such as oil prices), and the global financial and credit crisis.

To address challenges affecting Canadian industries' performance in global value chains, Industry Canada must continue to analyze the specific issues that industries face and use its knowledge to contribute to the development of strategies, policies and programs for various industry sectors. To mitigate the risks of delivering results in isolation, Industry Canada must enhance the strategic partnerships within its extensive network of industry and government representatives.

Resource and other corporate challenges and opportunities

The expertise and knowledge that Industry Canada's employees bring to the Department are irreplaceable. Consequently, people management at Industry Canada is not, and cannot be, a simple matter of recruiting people to work in the Department's many offices across the country.

The Canadian workforce is aging and population growth is slowing, and these trends will affect Industry Canada as much as the larger Canadian economy. The Department anticipates a significant turnover due to retirements in coming years. New staff must be brought on board and trained to assume their responsibilities. A significant aspect of this preparation will be the successful transfer of "corporate memory" and expertise. However, intense competition for talented knowledge workers and the reduced labour pool may impede Industry Canada's ability to recruit, develop and retain talent and corporate knowledge to deliver on the mandate and achieve strategic outcomes.

These challenges present an opportunity for a cultural shift in people management. This business plan includes the Department's People Management Strategy for Renewal and Results, which is tailored to the Department's business needs and addresses the priorities of public service renewal. Implementation of this strategy began in 2008–2009 and will continue over the next two years.

At the same time, Industry Canada must implement strategies to ensure efficient use of its operating budget. A focus on efficient, high-performing programs will allow Industry Canada to continue to effectively deliver its mandate with a reduced operating budget in coming years (largely due to projected decreases in re-spendable revenue) and evolving Government of Canada priorities. More than ever, the results of audits, evaluations and strategic reviews that Industry Canada carries out will be critical to prudent planning, priority setting and resource allocation.

Long Description

The following are other significant corporate challenges for Industry Canada in 2009–2010:

• Industry Canada must take a consistent, risk-based approach to monitoring and reporting performance information for the Department's grants and contributions programs to demonstrate sound stewardship and value for money.
• Industry Canada must strengthen its Performance Measurement Framework to ensure that it covers all of the Department's programs and enables data collection for performance measurement, monitoring and reporting in support of departmental and parliamentary decision making.
• Industry Canada must ensure effective and efficient management of information, resulting in informed decision making, productivity improvements, retention of corporate knowledge, and ongoing access to information and records.
• Industry Canada must implement the Real Property Management Framework it developed in 2008–2009 to support timely and informed real property management decisions.
• Industry Canada must ensure high availability of its information technology systems so that the Department can continue to deliver quality e-services to Canadians and Canadian businesses.