The CETA information
and communication
technology market
entry guide

List of acronyms

How to use this report

The CETA information and communication technology (ICT) market entry guide offers an overview of the Canadian digital economy and describes the benefits of the European Union (EU) – Canada Comprehensive Economic and Trade Agreement (CETA) from the perspective of the ICT sector. This includes an overview of the ICT sector in Canada, Canadian trends in ICT, innovative growth areas, opportunities for EU businesses and market strategies for EU companies to enter Canada. The guide also presents an overview of existing challenges and barriers, and provides ‘tips’ for EU companies prior to entering the Canadian market.

Canada’s ICT sector is home to over 41 500 companies, encompassing everything from innovative startups to large multinationals. The Canadian ICT sector has been growing consistently for over a decade, and over the last 5 years it has outpaced the growth of the Canadian economy as a whole. As technology plays an increasing role across the economy, various levels of the Canadian government are investing in research and development (R & D) as well as adopting technologies to provide a better quality of life for Canadians. Interestingly, while the ICT sector only represents 5 % of the total Canadian economy, it is responsible for approximately 35 % of all private-sector R & D in Canada.

Several announcements and initiatives have taken place in recent years, which have propelled the Canadian ICT sector and ecosystem forward. These include the Innovation and Skills Plan, the introduction of Economic Strategy Tables and the creation of Innovation Superclusters. This guide highlights the priority areas across the Canadian digital economy. Fintech, advanced manufacturing, health tech, interactive digital media and others offer enticing opportunities for EU businesses.

A key milestone in the EU–Canada relationship came into force in the fall of 2017 with the ratification of CETA, which is widely considered to be one of Canada’s most progressive and ambitious trade initiatives. Although it eliminates duties on 98 % of goods currently traded between Canada and the EU, the benefits of CETA do not end with trade. CETA benefits not only manufacturers and producers but also the ICT sector overall, including ICT service providers. Additionally, it provides benefits to EU ICT businesses planning to enter Canada, including access to Canadian procurement markets, enhanced protection of intellectual property (IP) rights, enhanced worker mobility provisions and fair and equal treatment of EU ICT service providers.

Multiple EU business leaders interviewed in this study and other Information and Communications Technology Council (ICTC) research expressed an overall favourable perception of Canada, citing features like cultural symbiosis with Europe, the availability of a diverse and well-educated labour force, a growing tech sector and a welcoming culture. The EU–Canada relationship is long-standing and robust. Increased collaboration and business growth between the EU and Canada is favourable for both sides, and CETA can act as a critical cornerstone to advance these opportunities.

1. An introduction to the EU–Canada relationship

The EU and Canada are among the world’s largest trading economies. The EU is the largest trading bloc in the world and the third-largest economy by purchasing power parity. Canada is a G7 country and the 16th-largest economy by purchasing power parity¹. Built through hundreds of years of shared culture and history, as well as a commitment toward liberal values, Canada and Europe’s trade relationship is robust. The CETA agreement between the EU and Canada eliminated 98 % of pre-existing tariffs. When it entered into force in late 2017, trade in goods and services between Canada and the EU increased by 7.7 % compared to the previous year². The EU was, at that time, Canada’s second-largest trade partner after the United States. In 2016, Canada–US trade was worth EUR 335.33 billion (CAD 508.2 billion) and trade with the EU was worth EUR 62.09 billion (CAD 94.1 billion). China was Canada’s third-largest trade partner, accounting for EUR 42.16 billion (CAD 63.9 billion) in trade. Collectively, these three trading partners (the EU, the United Stated and China) account for around two thirds of Canada’s total trade³.

In the wake of the coronavirus pandemic, polls suggest that Canadian attitudes toward the United States and China have hardened, which may spur a rejuvenated long-term interest in prioritising trade with the EU. A 2020 survey by Angus Reid found that only 38 % of Canadians had a favourable impression of the United States in 2020, compared to 49 % in 2018 and 68 % in 2009. Views of China are even harsher: only 14 % of Canadians held favourable views of China in 2020, compared to 48 % in 2017. In contrast, views of Japan and EU Member States remained high. For example, 82 % of Canadians have a favourable view of Germany, and over half (52 %) of Canadians surveyed identified the EU as a key priority for developing trade ties in 2020 – a 14 % jump from the previous year ⁴.

Growing trade between Canada and the EU is especially relevant to the ICT sector. ICT is one of the fastest-growing sectors in both Canada and Europe, and with the growing permeation of ICT products and services across industries, it has the potential to impact many other areas of economic activity. The CETA trade agreement has a range of provisions that are relevant to facilitate the relationships between Canadian and EU ICT companies. Such provisions – to be discussed later in more detail – include the elimination of tariffs as well as more robust enforcement of IP rights and standards and trademarks. By providing a common regulatory climate, CETA has the potential to boost the number of customers that EU companies can access effectively and better enable their operations in Canada.

Figure 1. Change (%) in ICT trade between Canada and the EU from the pre-CETA period ⁵

Source: Source: ICTC, 2020.

2. Canada’s ICT sector: an overview

The ICT sector makes a substantial contribution to Canada’s economy. In 2019, the ICT sector reached EUR 62.16 billion (CAD 94.2 billion), accounting for 4.8 % of Canada’s total output of over EUR 1 299 trillion (CAD 1 970 trillion)⁶. Over the last 5 years, the ICT sector’s growth has outpaced the growth of the Canadian economy. In 2019, the ICT sector grew by nearly EUR 2.96 billion (CAD 4.5 billion) – or 4.9 % – when compared with 2018⁷.

The Canadian ICT manufacturing subsector is heavily export-oriented. About 78 %⁸ of ICT products manufactured in Canada were exported in 2018. Canadian exports of ICT goods increased by 1.3 % in 2018 to EUR 7.45 billion (CAD 11.3 billion) from 2017⁹. When it comes to specific goods, exports of communications and electronic components equipment increased the most, while audio and video equipment had the steepest decline¹⁰. The United States, the Asia-Pacific region and the EU are Canada’s biggest trading partners, accounting for 70 %, 10 % and 9 % respectively of all ICT goods exported from Canada. The ICT services subsector is highly domestically oriented. In 2017, exports of communications services grew by 1.8 %, totalling EUR 1.6 billion (CAD 2.5 billion), while software and computer services grew by 6.1 % to reach EUR 5.27 billion (CAD 8 billion)¹¹.

The ICT sector’s R & D expenditures totalled EUR 4.09 billion (CAD 6.2 billion) in 2018, an increase of 2.2 % from 2017¹². The ICT sector is responsible for approximately 35 % of all private-sector R & D in Canada.

Canada is home to a world-class knowledge-intensive workforce. Over 50 % of ICT workers currently hold a university degree, compared to 30.5 %¹³ who hold a university degree across all other Canadian industries. Employees in the ICT sector earn on average over EUR 51 330 (CAD 77 800) per year, which is almost 50 % higher than the Canada-wide average, as of 2018. In 2019, there were more than 698 900 professionals employed across the ICT sector, accounting for 3.7 % of Canada’s total employed workforce¹⁴. Some 500 600 of those 698 900 jobs are ICT jobs¹⁵. Employment in several ICT occupations experienced high growth in 2019. The top growth areas were data and information analytics, programming, interactive media development and electrical engineering/installation¹⁶.

2.1. Defining the ICT sector

Definitions of the tech sector vary according to source. The Organisation for Economic Co-operation and Development (OECD) definition, dating from 1998, is as follows: ‘A combination of manufacturing and services industries that capture, transmit, and display data and information electronically.’

ICTC currently defines the ICT sector as a collection of ‘businesses that fall under certain digital-based industries.¹⁷’ In more practical terms, ICTC defines the sector according to the North American Industry Classification System (NAICS)¹⁸, a classification of business establishments in North America. A total of 19 NAICS codes are used to define the ICT sector, including the following key industries:

• software publishers,
• motion picture and video industries,
• satellite telecommunications,
• computer systems design and related services.

The distinction between the ICT sector and ICT employment is noteworthy. While the ICT sector is defined by a grouping of ICT industry codes (see Table 1), ICT employment is defined by a grouping of occupational codes (see Table 2), irrespective of whether employees in these codes work in ICT industries. An example of an ICT worker within the ICT sector can be a software engineer working for a telecommunications company, whereas an ICT worker may work in a non-ICT industry, such as a cybersecurity professional working for a tourism company.

ICTC defines ICT employment according to 30 National Occupational Classification (NOC)¹⁹ codes, which include:

• engineering managers,
• computer and information systems management,
• software engineers and designers,
• computer and information systems managers,
• web designers and developers.

Table 1. Summary of industries in the ICT sector (NAICS codes)

Table 2. Summary of Core ICT Occupations (NOC codes)

2.2. Canadian trends in the ICT sector

The ICT sector is dynamic. It experiences both substantial innovation and internal disruption – meaning that the definition of what is and is not considered ‘ICT’ is fluid – and creates larger impacts for the wider economy. Increasingly, it is challenging to decouple ICT from the broader economy: the coronavirus pandemic has ushered in a large-scale shift to remote work, and online business has reinforced this trend.

2.3. Key ICT innovations

The rapid and sustained growth of the ICT sector and ICT across the economy is primarily driven by technological innovations that are generating some form of economic value across the economy.

Many ICT industries have had success selling these technologies directly to consumers, both in and outside of Canada.

Figure 2. Technology subject to commercialisation and innovation in the last decade

2.4. Growth in ICT subsectors

Many innovations in the ICT sector have found applications outside the ICT sector. Some technologies, such as artificial intelligence (AI) and blockchain, are especially broad in applications and potential areas of impact. On the other hand, certain industries have proven particularly ripe for innovation. This has given rise to a vibrant ecosystem of tech-based subsectors. In Canada, the following technology subsectors have seen notable growth and are expected to continue to drive innovation:

• clean technology (including clean energy generation, waste management);
• clean resources (natural resource extraction via clean technology);
• health tech and biotechnology;
• ag-tech (technology used to maximise outputs in the agriculture sector);
• fintech;
• interactive digital media (including video games, animation, visual effects, mixed reality);
• advanced manufacturing (including 3D printing, manufacturing automation).

2.5. Smart cities and digital governance

As technology plays an increasing role in the home and workplace, various levels of government in Canada are interested in adopting these technologies to provide a better quality of life and governance for Canadians.

Some of the most zealous adopters of digital technologies have been municipalities, many of which have partnered with technology companies to pilot innovative projects. Key examples include the winners of Infrastructure Canada’s ‘Smart City Challenge,’ the city of Guelph’s circular economy project; Montreal’s project to enhance food access and mobility options; Bridgewater’s project to reduce energy poverty and encourage clean energy use; and Nunavut’s suicide prevention project²⁰. The concept of a ‘smart city’ has recently caught on in Canada, and cities across the country are undertaking projects that touch on several related areas, as shown in Figure 3.

Figure 3. Areas subject to Canadian projects on development and integration

ICTC is investigating smart city developments and labour market needs across Canada via a multi-year project. These activities are grounded in six ‘smart city priority areas’: smart infrastructure, smart environment & energy, smart health & wellbeing, smart government, smart mobility, smart regulation²¹.

2.6. Creative destruction and talent shortages

The adoption of new technologies that streamline business processes creates disruption across the economy. Nowhere is this more evident than in the ICT sector itself. Studies have yielded vastly different estimates of the number of jobs affected by automation over the long term, from inconsequential effects on overall jobs to hundreds of millions of job losses²². As a result, ICTC estimates that businesses in the ICT sector and broader digital economy – as well as digitally skilled workers – are better prepared to withstand this disruption. Prior to COVID-19, which created considerable shock waves across the economy, ICTC estimated that the demand for talent across the digital economy would reach more than 193 000 workers between 2019 and 2022. The pandemic reduced this demand by nearly 24 %. Under ICTC’s new baseline scenario, the digital economy is expected to see a demand for 147 000 workers by 2022, with total employment reaching nearly 2 million (down from an original forecast of 2.1 million). However, despite the pandemic-driven shrinking demand, the digital economy, and in particular the ICT sector, has proven remarkably resilient in comparison to many other areas of the economy. According to ICTC’s analysis, by July 2020 the gross domestic product (GDP) of the ICT sector only decreased by 1 % from its February peak (compared to a 9 % drop in the overall economy). Moreover, employment in the ICT sector actually saw growth despite the pandemic, climbing by nearly 10 % from February to July 2020.

2.7. Key players

Canada’s ICT sector is home to over 41 500 companies, including everything from innovative startups to large multinationals. Yet, around 85 %²³ of the ICT businesses in Canada are small, employing 10 people or less. Only 1.6 %²⁴ of Canadian ICT businesses employ more than 100 people. In all, 37 000 companies or around 89.9 % of all ICT businesses fall within the software and computer services industries space, 4.5 % within ICT wholesaling, 2.2 % within ICT manufacturing and the other 3.4 % within the communications services industry²⁵. Figure 4 shows Canada’s 25 biggest ICT and ICT-adjacent companies, according to the 2019 publication of the Branham 250²⁶.

Figure 4. Canada’s 25 biggest ICT and ICT-adjacent companies

The ICT sector in Canada is represented by a variety of national, provincial and regional organisations, industry associations and other stakeholders. Combined, these organisations facilitate the growth of the local Canadian ICT market and can also provide connections and assistance for EU ICT businesses seeking to expand to Canada. A full list of such resources is available in Annex I.

2.8. Coronavirus shocks and questions for the future

The COVID-19 pandemic shocked the global ICT manufacturing sector due to its disruption of the supply chains. However, ICTC research suggests that the digital economy – including the larger ICT services sector – has been considerably less affected than many other sectors. Indeed, organisations such as Amazon and Facebook were among the first major corporations to switch to universal remote work and, in some cases, the coronavirus has even heightened the demand for certain ICT services. Key examples include the surge in demand for cybersecurity services and professionals and machine learning engineers. Additionally, in the first months of the coronavirus – and specifically as lockdowns took shape across the country – the demand for telecommunications services and videoconferencing platforms, video games and animated content all saw a massive surge in demand.

3. CETA provisions affecting the ICT sector

After CETA came into effect, there was a substantial growth in trade between the EU and Canada. Owing to expanded opportunities offered by the agreement, along with a shared history and cultural proximity, there is significant potential for growth and increased partnership opportunities between the EU and Canadian ICT sectors. In general, CETA’s provisions include tariff reduction, the enabling of labour mobility, access to government procurement and regulatory cooperation.

3.1. ICT-Specific regulations

Chapters 15 and 16 of CETA explicitly address the ICT sector.

In Chapter 15, the EU and Canada commit to giving each other’s businesses ‘fair and equal access’ to public telecommunications networks and services. The chapter includes a commitment to ‘competitive safeguards’ to ensure a competitive playing field in the telecommunications field. Specifically, each trade partner commits to taking ‘appropriate measures’ to prevent anti-competitive actions from a major supplier or a group of suppliers. The anti-competitive behaviour identified is broad: it includes engaging in anti-competitive cross-subsidisation, using information received from competitors to achieve anti-competitive results, and not providing commercial relevant information and technical information about essential facilities to other service suppliers²⁷.

In Chapter 16, the EU and Canada promise to cooperate on issues related to e-commerce, such as combatting spam. It includes roles for protecting personal information and pledges that services traded online between Canada and the EU will not be subject to customs duties.

According to Reservation I-C-9 (from the Schedule to Annex I of CETA), foreign investment in ‘facilities-based telecommunications services suppliers’ in Canada is restricted to a maximum cumulative total of 46.7 %. Foreign investment may not make up more than 20 % of direct investment and 33.3 % of indirect investment in such companies. These service suppliers must be controlled by Canadians and 80 % of board members must be Canadians.

3.2. Tariffs

Prior to CETA, only a quarter of Canadian products exported to the EU were duty-free. CETA has eliminated 98 % of pre-existing tariffs on goods traded between the EU and Canada²⁸, including all tariffs on industrial products²⁹, i.e. products consumed by businesses rather than individual consumers. The removal of tariffs on industrial products applies to a wide class of goods, including clean technology products and industrial ICT equipment such as transmission apparatuses, fibre optics and sound and signalling apparatuses³⁰.

These tariff removals will be particularly helpful to European suppliers of telecommunications equipment. Ten of Canada’s top 25 ICT organisations are in the telecommunications sector³¹. Canada is a large, affluent market for industrial telecommunications and has some of the fastest cellular connection speeds in the world³². However, there continue to be large gaps in service quality between urban and rural areas³³. EU companies specialising in the export of telecommunications-related equipment (particularly if related to 5G) will find a robust and growing market for their products in Canada. The Canadian government has identified the improvement of connectivity nationwide to be of national interest and will host spectrum auctions in 2021 to distribute rights to 200 Hz of 5G bandwidth³⁴. Since Canadian opinion of the United States is at a four-decade low³⁵, and most Canadians are opposed to any Chinese involvement in the new 5G infrastructure³⁶, European telecom exporters are gaining improved access to Canada at a particularly opportune time.

3.3. ICT services

CETA facilitates trade in services between the EU and Canada. Article 9 of CETA requires that each of the two signatories (the EU and Canada) treat foreign services and service suppliers no less favourably than they would their own service supplies. In this regard, CETA prohibits ‘arbitrary and unjustifiable discrimination’ toward foreign companies, while allowing signatory parties a measure of independence in regulating sectors. Article 9 concludes that neither nations, provinces, territories, regions or municipalities may adopt measures that limit service supplies, value on service transactions and total number of service operations from external countries. The only effective exception to this article is found in Reservation I-C-9, which caps foreign investment for telecommunications providers that comprise more than 10 % of industry revenue and insists that their boards have 80 % Canadian representation³⁷.

Chapter 11 provides a framework that allows Canada and the EU to recognise each other’s professional qualifications. Specifically, the framework permits ‘relevant authorities or professional bodies’ in Canada and the EU to negotiate in this regard. Chapter 16 of CETA stipulates that online services traded between Canada and the EU are not subject to customs duties.

3.4. Labour mobility

CETA recognises new categories of business travellers. These include short-term business visitors, contract service suppliers and independent professionals. Contract service providers and independent professionals refer to people who travel between Canada and the EU to complete a service or contract for a key service sector. They are eligible for work permits for up to 12 months, with the possibility of a 12-month extension³⁸.

CETA also allows for other key personnel – normally business visitors or investors, as well as senior intra-company transfers or trainees – to obtain work permits for up to 3 years. Notably, many such personnel are exempt from completing a Labour Market Impact Assessment in order to obtain a work permit³⁹. This is a critical component, as previous ICTC research⁴⁰ found the assessment to be a key barrier for ICT businesses seeking to source skilled international talent.

This freedom of travel can allow for the ramp-up of meetings, consultations, R & D, market research and sales and relationship-building. The key desired outcome of this provision is to make it easier to conduct business deals between companies and to build transatlantic teams and relationships.

Additional information on labour mobility between the EU and Canada can be found in the CETA themed report on mobility of professionals.

3.5. Government procurement

While companies were previously able to bid on government contracts to some degree, Chapter 19 of CETA grants access to procurement contracts at every level of government – national, regional, provincial and local. The current public procurement offer is the most comprehensive that Canada has ever made (including NAFTA) and opens procurements in all but two sectors: energy utilities (in Ontario and Quebec) and public transport. Canada has committed to publish all bidding opportunities centrally online, allowing EU companies a single access point for all procurement opportunities in Canada⁴¹.

More information on public procurement can be found on the public procurement guides available at: https://trade.ec.europa.eu/access-to-markets/en/country-assets/tradoc_158655.pdf and https://trade.ec.europa.eu/access-to-markets/en/country-assets/tradoc_158939.pdf.

3.6. Regulatory cooperation

CETA includes the Protocol on the Mutual Acceptance of the Results of Conformity Assessments. This protocol does not necessarily require acceptance of the respective party’s technical regulations, but rather allows for the recognition of accreditation bodies and conformity assessment bodies. In essence, these bodies allow for regulatory conformity to be tested outside of the export destination. For example, Canadian and EU companies under certain product categories (including ICT) can have their products tested for conformity and certified for each other’s market⁴². This can reduce marketing delays for producers and reduce barriers to exports.

3.7. Intellectual property and copyright

Several provisions in CETA are related to IP and copyright. According to the agreement, Canadian exporters to the EU will implement more stringent measures to cut down on circumvention devices. Companies from both Canada and the EU will comply with a range of other regulations such as the Trademark Law Treaty, the Hague System for the International Registration of Industrial Designs and the Patent Law Treaty. Enhanced patent protection will be implemented for pharmaceutical and industrial designs. Key provisions are patent term restoration where delays are encountered when obtaining regulatory approval – a frequent occurrence in the pharmaceutical industry – and the right of appeal as it relates to dual litigation⁴³.

3.8. CETA’s impact on Canada’s ICT sector

CETA’s tariff eliminations reduce overall business costs for Canadian companies seeking to export to the EU. For Canada, CETA opens a market consisting of hundreds of millions of potential customers and 27 national economies⁴⁴. New protocols on labour mobility can also enable Canadian ICT businesses to build relationships with EU businesses and customers along a much faster timeline than in the pre-CETA period. CETA provides preferential access to the EU government procurement market, which is estimated to be worth more than EUR 1.3 trillion⁴⁵.

In 2017, the year that CETA was signed, Canada was the third-highest source of foreign direct investment (FDI) in the EU after the United States and Switzerland. Canada accounted for nearly 5 % of FDI in the EU⁴⁶. Canada also received around 4.5 % of EU foreign investment in 2017⁴⁷.

CETA coincided with a rise in trade between Canada and the EU. In the year following CETA’s entry into force, exports of goods and services from Canada to the EU rose by 3.9 %. There was a rapid rise in the export of technical products from Canada to several EU Member States. For example, merchandise exports in ‘scientific and precision instruments’ to Austria rose by 38.5 %. Scientific and precision instrument exports to Denmark rose by 13.5 % and those to Germany rose by 7.7 %⁴⁸.

3.9. CETA’s impact on the EU ICT sector

Canadians have a positive attitude toward building trade relations with Europe across all sectors. CETA has coincided with an increase in Canadian import of technical products⁴⁹. For example, Canadian imports of ‘computer and electrical manufacturing’ products from the EU increased by 11 % between 2015 and 2019⁵⁰.

Table 3. Key CETA benefits for the EU ICT sector

4. Key trends and opportunities for EU businesses

4.1. The innovation and skills plan

In recent years, the Government of Canada has announced several initiatives to propel the Canadian ICT sector and ecosystem forward. This will be beneficial for EU businesses as well.

In 2017, the Government of Canada announced the Innovation and Skills Plan. This plan is an ambitious effort to make Canada a world-leading centre for innovation, to create well-paying jobs across the country and to help strengthen and grow the middle class⁵⁴. The plan adheres to a set of clear targets which consist of the following:

• growing Canada’s goods and services exports by 30 % by 2025;
• increasing the clean technology sector’s contribution to Canada’s GDP;
• doubling the number of high-growth companies in Canada, particularly in the digital, clean technology and health technology sectors, from 14 000 to 28 000 by 2025;
• equipping Canadians with the tools, skills and experience they need to succeed in the marketplace while also attracting global talent⁵⁵.

The success of the plan is tracked across four areas: people and skills; research, technology and commercialisation; investment, scale-up and clean growth; and programme simplification.

As a part of the Innovation and Skills Plan, the Government of Canada also announced the creation of six Economic Strategy Tables. These tables are a new model for collaboration between industry and government to identify growth opportunities in advanced manufacturing, agri-food, clean technology, digital industries, health/bioscience and the clean resources sectors. The ICT sector was recognised as one of the growing areas under the Digital Industries Table. In 2019, the government announced that it would be adding a seventh table focused on tourism.

Figure 5. The Innovation and Skills Plan’s Economic Strategy Tables

As mentioned, 85 % of Canadian ICT firms currently employ fewer than 10 people. In the first Digital Industries report, the Government of Canada set up an ambitious plan to expand the number of large Canadian digital companies. The goal is to double the number of businesses earning CAD 1 billion or more in annual revenue (from 13 to 26 businesses) by 2025. In order to achieve this growth target, four recommendations were proposed: scale up Canadian businesses; attract, retain and support skilled talent; transform Canada into a digital society; and leverage IP and promote the value of data.

Piggybacking on these initiatives, in June 2019 the Government of Canada and the EU signed an administrative arrangement between the EU and Canada creating a transatlantic cluster collaboration⁵⁶. Thanks to this arrangement, the 26 EU cluster organisations and Canada’s five innovation superclusters will have more opportunities to strengthen collaboration and form strategic business partnerships with overseas counterparts (see Figure 6).

4.2. The innovation superclusters

In 2018, the Government of Canada announced a EUR 626.86 million (CAD 950 million) business-led Innovation Supercluster initiative that includes five superclusters: the Digital Technology Supercluster; the Protein Industries Canada Supercluster; the Next Generation Manufacturing Supercluster (NGen); the AI-Powered Supply Chains Supercluster (SCALE.AI); and the Ocean Supercluster. The Innovation Superclusters initiative is projected to create in excess of 50 000 jobs and contribute more than EUR 32.99 billion (CAD 50 billion) in GDP to Canada’s economy over a 10-year period⁵⁷. The initiative represents a collaboration between 450 small, medium-sized and large companies, 60 academic institutions and 180 other participants from five high-potential sectors.

Figure 6. Canadian Innovation Superclusters

4.3. Market entry strategies

Entering a new market is a venture supported by several smaller initiatives and undertakings during the pre-market-entry stage. While there are no guaranteed ‘dos and don’ts’ in this process, important steps for entry can include the following.

• The entering company has completed extensive market research on the host country in order to understand factors, including but not limited to the following: local culture and important cultural considerations⁸⁴, local consumer appetite for the project, appropriate price-setting (what the market will bear)⁸⁵, relevant barriers to entry, identification of major competitors and completion of a thorough competitive analysis (including a SWOT analysis), and potential marketing and rollout strategies. In the context of Canada, price-setting must also take into account whether goods imported from outside of Canada are subject to any permits, restrictions or regulations. The Canadian Border Services Agency (CSBA) offers a Reference List for Importers with further information.
• The entering company has researched and taken into account relevant legislation and regulatory considerations pertaining to their entry (assessing whether local laws and regulatory instruments may cause barriers for the business). In the context of Canada, it is important for entering companies to understand the impact of relevant legislation and regulation at the federal, provincial and municipal levels. Other factors to consider are potential interprovincial trade barriers that may exist. For the latter, entering companies should consult Canada’s Agreement on Internal Trade⁸⁶.
• The entering company has identified and/or approached relevant local partners; these can include partnerships to aid in marketing, partnerships for manufacturing and/or product development, and others. In some cases, partnerships with local businesses may expand into joint ventures⁸⁷. In this instance, the entering company may choose to work with a company in the host country by creating a third company to do so. An example of this is the Sony Ericsson joint venture, which allowed Sony to expand its share of the cellphone market, while Ericsson benefited by leveraging Sony’s then advanced mobile phone technology⁸⁸. It is important to note that in Canada, the term ‘joint venture’ is not associated with a specific legal meaning, and therefore joint ventures tend to be regulated on a case-by-case basis⁸⁹.

In addition to the steps noted above, it is important for entering companies to understand which resources are available to support both the entry process and their activities once they are established in the host country. While not intended to be an inclusive list, the following are examples of important resources that EU companies may use to support their entry into Canada.

Invest in Canada. In March 2018, the Minister of International Trade launched Invest in Canada⁹⁰, a new federal organisation dedicated to attracting global investment and simplifying the process for global businesses to invest in Canada. Invest in Canada brings together all levels of government and private sector partners to provide a ‘one-stop service’ to global investors. Invest in Canada works with global companies in areas identified in the government’s economic growth strategy: advanced manufacturing, agri-food, clean technology, digital technology, health sciences and biosciences, and clean resources. Approximately 1.9 million Canadians are employed by foreign-controlled multinational enterprises in Canada: that is almost 12 % of Canadian workers, or one in eight Canadian jobs⁹¹.

Innovation, Science and Economic Development Canada (ISED). ISED provides resources on several topics that can facilitate EU businesses to start or expand operations in Canada. ISED provides resources on a long list of business issues: taxes, permits and regulations, IP, business support and how to sell to the government, grants, loans, private and public sector financing, permits, licences and regulations (including broadcasting, distribution and spectrum licences, telecommunications standards and certifications), scientific research, funding, datasets, innovation support, facilities and educational resources, IP and copyright, funding, collaboration, and commercialisation and licensing resources⁹².

Horizon Europe. EU companies and researchers interested in public funding possibilities can learn more on the collaborative research and innovation projects offered by the Horizon Europe programme of the European Commission⁹³, as well as international research and collaboration opportunities offered by the Canadian Government⁹⁴.

Canada’s Regional Development Agencies⁹⁵. The six agencies work closely with businesses and innovators in their regions to foster the right environment for business growth and entrepreneurship. The goal is to create ideal conditions for the development of strong, dynamic and inclusive regional economies throughout the country. The agencies help businesses scale up in the following ways:

• delivering nationally coordinated programs tailored to fit regional needs and circumstances;
• providing access to financial assistance;
• bringing together key players in their respective ecosystems;
• supporting community economic development;
• ensuring that regional growth strategies eliminate regional gaps and align with federal government objectives⁹⁶.

(A) Canadian society and business culture

From its earliest history, the territory of Canada has been home to peoples of diverse ethnicities, religions and cultures. Before the arrival of French and English colonists hundreds of years ago, a wide variety of indigenous peoples lived across the territory. After Canada was formally established as a British colony, conflict between the values of English and French Canada gradually resulted in a political system based on compromise.

Canada’s current government and legal systems reflect its past as a British and French colony in North America and set it apart from most countries in Europe and the United States. Canada is a constitutional monarchy, and common law is used in all jurisdictions for criminal and civil matters outside of Quebec. However, the Province of Quebec (first settled by French people and still dominated by French speakers) has its own civil code, which applies to some areas of law such as family law. Various First Nations also have self-government, as stipulated through treaties.

Multiculturalism is a key part of Canadian identity and is enshrined in the Canadian constitution. Many vibrant, close-knit cultural communities exist in Canada. Official bilingualism is a key part of Canada’s multicultural identity. English is the native language of roughly 60 % of Canadians, while Canada’s second largest province, Quebec, is dominated by French speakers. There are substantial numbers of French and English speakers in almost all provinces. Reflecting decades of international immigration, nearly one in five Canadians are native speakers of non-official languages.

Canada is one of the highest-trust societies in the world and scores high on a range of measures, including gender equality and quality of life. In previous ICTC research, attributes like high quality of life, economic and social stability and natural beauty were regarded as key Canadian attributes that can help attract investment.

Canada is one of the easiest countries in which to set up a business and has a unique business culture (although some variations are present, particularly between Quebec and English Canada). Canadian business culture is a bit slower-paced, relationship-based and conservative than in the United States or northern European countries. Canadian businesses are collaborative and relatively willing to collaborate and give advice on how to refine ideas.

Remco Dolman,
Founder and CEO of Spotzi

(B) Canada’s economy and ict sector

Canada is the 10th largest economy in the world. It is larger than any individual EU Member State economy, except Germany, Italy and France. Compared to other developed countries, Canada is more dependent on natural resources: oil and gas, forestry and mining are major contributors to the Canadian economy. Canada’s economy is highly integrated with the US economy, particularly in sectors such as manufacturing. For this reason, business connections in Canada can often be leveraged effectively to reach US clients.

The Canadian ICT sector represents nearly 5 % of the total Canadian economy, a figure that has been growing consistently for over a decade. To date, the ICT sector has seen faster growth than many other sectors of the economy.

Canada’s ICT sector is also highly diversified, reflecting the varied needs of Canadian and international customers. ICT companies focus on all dimensions of the Canadian economy: media and entertainment, agriculture, resource extraction, clean energy, finance and other verticals. Although Canada’s domestic ICT sector is mostly composed of small businesses, large international companies – mostly from the United States and the EU – have a growing presence in Canada. In addition to CETA, Canada is also part of the United States–Mexico–Canada Agreement (formerly NAFTA), allowing it free trade privileges with the United States and Mexico.

Although Canada is an extremely large country, its population is concentrated around urban centres, particularly the cities of Toronto, Montreal, Vancouver, Calgary, Ottawa and Edmonton.

(C) Education and the labour market

Canada has world-class ICT talent. Graduates of top universities, including the University of Toronto, Université de Montreal, McGill University, the University of British Columbia, the University of Alberta and the University of Waterloo can, however, be hired at more favourable rates than other tech hubs, such as Silicon Valley.

Canadian tech workers are also very diverse. Nearly 40 % of Canadian ICT workers were born outside of Canada⁹⁷, and cities like Montreal, Calgary, Vancouver and Toronto are especially diverse in ICT talent. International students also make up a high share of attendees at Canadian universities.

(D) Research, startups and industry communities

Canada’s research output is high and the country is home to some of the top names in computer science, such as Yoshua Bengio and Geoffrey Hinton. The Canadian government provides strong support for research and development activities through tax credits at the federal (e.g. the Scientific Research and Experimental Development incentive) and provincial levels, which supports the growth of a vibrant startup ecosystem in Canada.

Yet, the Canadian ICT sector is tilted toward startups and medium-sized organisations. Canada has historically not been as effective as the United States in creating ‘unicorns’ (privately held startup companies with a value of over $ 1 billion USD), and Canadian startups often face challenges in scaling their operations. The Canadian government’s ‘Supercluster’ initiative was created, in part, to assist startups on their scale up and commercialisation journey.

You can find more information on the webinar ‘How to find business partners in Canada’ produced under the CETA Market Access Programme here.

4.4. Market entry requirements

The process of opening a new business in Canada has several scenarios, depending on whether the activity is an expansion of business operations that already exist in the country or if it is a brand new business.

The Corporation⁹⁸ is the most common form of legal business structure for foreign companies seeking to establish new business operations in Canada. The Canada Business Corporations Act⁹⁹ is a complete legal framework regulating Canadian business corporations on the federal level. It provides various requirements for both residents and non-residents who wants to register a company in Canada. Corporations in Canada may be incorporated federally, under the act, or provincially under a similar provincial business corporations act¹⁰⁰. Each province in Canada has its own website where a business can register¹⁰¹. Incorporation is achieved by the filing of articles of incorporation. After obtaining an article of incorporation, the next step is to get a federal business number and corporation income tax account from the Canada Revenue Agency. If planning to conduct business across other Canadian jurisdictions, the next step is to register as an extra-provincial or extra-territorial corporation.

The two most common ways for existing foreign corporations to expand their businesses to Canada are through the registration of a Canadian branch or the incorporation of a Canadian subsidiary, which is then managed from abroad. A branch office is an extension of the foreign company, which means that the non-Canadian corporation will be subject to liabilities incurred by the branch. This business form requires that the non-resident investor appoint a local agent for the service of court documents. Branches can be registered on the federal level or provincially.

Foreign companies often prefer a joint venture with a Canadian company by incorporating a subsidiary. According to Canadian legislation, the subsidiary is an independent company whose controlling or sole shareholder is another corporation. Joint ventures may be created by the establishment of a new business or by acquiring a partial interest in an existing Canadian business¹⁰². This business form also requires that the non-resident investor appoint a local agent to complete the company incorporation procedure in Canada.

There are many angles to consider when deciding whether to register a branch or incorporate a subsidiary. These include tax implications, the ability to raise capital, access to the special programmes available through the Canadian government, and the parent company’s level of exposure to liabilities.

In the case of registering a brand-new business, Immigration, Refugees and Citizenship Canada offers a programme to non-resident innovative entrepreneurs who are willing to immigrate to Canada to start the business. The Start-up Business Class programme is for individuals who provide active and ongoing management of the business from within Canada and under the condition that an essential part of the business’ operations is conducted in Canada¹⁰³.

It is also possible to enter the Canadian market as an investor through the federal government’s Immigrant Investor Venture Capital Pilot Program for high-net-worth individuals (minimum net worth of CAD 10 million) interested in immigrating to Canada and opening a business¹⁰⁴.

5. Challenges and barriers to doing business in Canada (regulatory and technical)

Regulatory barriers can be commonplace when starting businesses in a new jurisdiction and/or expanding one’s reach from outside of a home country. Understanding how to navigate the processes, policies and regulations of a new country is no easy task. It requires considerable research and collaboration with key organisations in the host country to facilitate the journey.

While ICTC’s research has not specifically uncovered any regulatory or technical barriers that are especially burdensome to EU companies seeking to expand to Canada, regulation differs depending on the region as well as the type of business that is being set up. Regulation in Canada takes place at the federal (national) as well as the provincial (regional) levels. It is important to understand that regulations applying in one region do not necessarily apply in another (i.e. regulations pertaining to ride-hailing services in Ontario are not the same as those in British Columbia, Nova Scotia or Alberta). Understanding specific regional regulations is recommended prior to expansion.

(A) Provincial regulation

Although ICTC research has found that regulation is not an explicit barrier for businesses seeking to start operations in Canada, the regulatory system is nevertheless not uniform. The federal government regulates on issues it considers of ‘national importance’. These include criminal law, national defence, banking, Aboriginal affairs, citizenship and immigration, and international trade¹⁰⁵. These and a few other areas are considered to be within the jurisdiction of the federal government. Areas of more ‘local significance’ are regulated at the provincial level. These include healthcare, infrastructure (other than critical infrastructure), public education, housing and road regulations¹⁰⁶. As a result, this relatively fragmented system of regulation requires that companies wishing to enter the Canadian market research not only federal regulations but also regional regulations.

It is important to consider provincial differences, due to their implications for technology companies. For example, ride-hailing companies (such as Uber or Lyft) are treated differently depending on the province that they are operating in. Until early 2020, ride-hailing services were not legally allowed in British Columbia¹⁰⁷, and yet they have been operating in Ontario since 2014¹⁰⁸. Similarly, sharing economy platforms – notably Airbnb – are treated differently among provinces. In Ontario, regulations were introduced to limit Airbnb and the degree to which short-term rentals were permitted¹⁰⁹, while in British Columbia, recent regulations require Airbnb hosts to obtain a business licence and only rent out their principal residence¹¹⁰. In Manitoba, properties listed through services like Airbnb were initially considered exempt from the provincial sales tax, but recent bylaw proposals may see Winnipeg Airbnb rentals levied with a 5 % hotel tax, like hotels¹¹¹.

Unionisation can also differ from province to province. Recently, the Ontario Labour Relations Board ruled that Foodora couriers are dependent contractors for labour relations purposes. This move entitles couriers to unionise, providing them the ability to exercise collective bargaining power under the Labour Relations Act¹¹². While Foodora operates in many Canadian provinces, unionisation rights, in this case, apply only to Ontario workers. Similarly, in British Columbia, a media workers’ union recently filed an employment standards complaint about a Vancouver animation studio regarding overtime pay (typically employers are not required to pay overtime for ‘high technology professionals’ under the Employment Standards Regulation). In its decision, the British Columbia Employment Standards Branch ruled in favour of the workers, stating that they are entitled to overtime pay for their work on a film¹¹³.

Just as regional differences exist in the EU (different laws for different Member States), entering a regional Canadian market should be treated similarly as entering a new EU Member State. Since different regulations and policies apply to each provincial jurisdiction on issues not considered of national interest, completing thorough research on the region of interest is highly advisable.

(B) Regulation by type of technology

Despite some provincial fragmentation, regulation on technology often takes place at the national (federal) level. Important regulations – and sometimes lack of regulation – are notable in various areas related to the technology sector in Canada. The following provides a brief description of a sample of key technology areas and their regulation in Canada.

Telecommunications. Telecommunications is one of the most highly regulated sectors in Canada. According to the OECD’s Foreign Direct Investment Regulatory Restrictiveness Index, Canada has the most regulatory restrictions to foreign investment of any OECD country in this space. This has been an issue of contention for many years, even spurring a suggestion by the OECD in 2016 that Canada loosen its foreign restrictions on the telecommunication sector in order to increase competition and drive down the cost of services for Canadians¹¹⁴.

Data and AI. Unlike the general data protection regulation in the EU, Canada does not currently have any concrete regulation on the use of data and AI. Yet, in recent years – and especially after the development of the general data protection regulation – many have called for Canada to implement regulations to mitigate potential harm that can be caused by AI and increasing data collection and use. In early 2020, the Canadian Office of the Privacy Commissioner launched a formal consultation, seeking feedback from Canadians on 11 proposals for the appropriate regulation of AI¹¹⁵. In this consultation, changes to the Personal Information Protection and Electronic Documents Act were also proposed¹¹⁶. The act was implemented in the early 2000s, prior to the large-scale proliferation of the internet and data economy. While this is a positive step, a timeline for official regulation is unknown.

Autonomous vehicles. Unlike the EU, which has developed guidelines for connected and autonomous vehicles, or individual Member States like Germany, which has developed standards for automated systems¹¹⁷, there are no existing regulations, standards or guidelines for autonomous systems in Canada¹¹⁸. In 2018, Transport Canada – Canada’s federal transportation authority – published Canada’s Safety Framework for Automated and Connected Vehicles¹¹⁹. Although the document did provide an overall picture of existing standards for vehicles, it also highlighted the current lack of standards specific to automation features.

Open banking. Open banking (the practice of sharing financial information electronically, securely and only under conditions that customers approve of, with the aim of promoting the development of new apps and services) is an accepted practice in many jurisdictions around the world, including the EU. Canada does not currently have an accepted framework for open banking. In 2018, the Canadian Department of Finance delivered a consultation paper¹²⁰ on the topic, but there has not been significant movement on the topic. In early 2020, the Canadian Finance Minister announced a second phase of open banking review¹²¹.

(C) CETA

There are no CETA-borne barriers for EU businesses that wish do business in Canada (i.e. no provisions that specifically prevent or deter investment or business establishment by EU companies in Canada). In this and other research, ICTC has consulted with numerous EU companies that have started operations in Canada. Those who have leveraged CETA – for example to access the Canadian procurement market – found it relatively easy to do. However, the general conclusion from this and previous ICTC research suggests that EU companies have a general lack of knowledge about CETA. Many are unaware of its provisions and what they offer and/or are unaware of how to leverage the agreement.

(D) Other challenges