Wireless is the fastest growing sector of the Canadian telecommunications market and is presenting opportunities for U.S companies to export technologies, products and services. U.S. companies will be able to take advantage of opportunities in wireless cellular services (particularly in wireless network development), innovative cellular hardware and software development, ultra wideband technology & devices, wireless fidelity (Wi-Fi) Access Points and technology and channel marketing partnerships. The wireless market in Canada is comprised of telecommunications services provided by mobile wireless access facilities. These services include mobile telephony, mobile data such as text messaging, roaming, wireless Internet access and to a lesser extent, paging services. Satellite services associated with mobile telephones are also included in this segment. This report summarizes the Canadian wireless market by looking at its present and future dynamics and suggests opportunities for U.S. businesses and equipment providers.
Market Demand Market demand for wireless services and equipment varies by region: residents in Alberta in 2009 had the highest household penetration rate at 82%, while Quebecers trail all other regions by a significant margin at 61%. This regional variance has been a consistent trend since 1997. Penetration is highest among younger users between the ages of 18 and 34 with almost half of all Canadian mobile owners belonging to this demographic. Among those who owned or had access to a wireless phone in their household in 2008, one third (32%) indicated only one wireless phone was in use in their household, while over two thirds of them (69%) reportedly had access to two or more wireless phones, including 11% with access to four or more. Canadians identified "talking" as the most important activity performed on their phone, followed by text messaging and taking photos. The introduction of "smartphones" and 4G LTE platforms into the Canadian market is scheduled for late 2011 and is likely to spur future high demand for more sophisticated functions using the mobile web such as music, games, and browsing the internet.
Wireless Subscribers and Penetration The Canadian wireless industry witnessed relatively strong subscriber growth during the first half of 2010 following the end of the country's economic recession in late 2009. According to the Canadian Wireless Telecommunications Association (CWTA), the wireless sector experienced a 5.2 percent subscriber growth from 2009-2010. Today, almost 75 percent of Canadian households have access to a wireless phone. While still low, the wireless penetration rate is expected to continue to rise: Merrill Lynch forecasts Canadian market penetration will reach 103 percent by 2018. Ranked as the country with the most HSPA+ networks in the G8, Canada's wireless sector revenues totaled $16.9 billion in 2009 and comprised the largest component of total telecommunications revenues at over forty percent. This number is expected to double by 2013. Data revenues will become even more important with upgrades being made to the HSPA+ networks and then to 4G LTE platforms in August of this year. Experts estimate subscribers to 4G wireless broadband in 2015 will reach 17 million from the 400,000 currently registered.
Wireless Coverage and Services The sheer size of Canada's territory in addition to its vast population spread demands that the wireless industry service a huge geographic area. With a population density of 4 people per sq km, Canada is much more sparsely populated than Europe (70 p/km2) and the United States (30 p/km2). Nearly 99 percent of the current population is serviced over a geographic area of approximately 501,933 square miles. Canadians are serviced by 57 licensed operators, some with national coverage and others operating regionally. Due to their smaller size relative to global operators, Canadian operators have taken a "smart follower" approach when it comes to the commercial deployment of new technologies and services. While a smart follower approach makes good business sense for an operator, a consistent lag in the commercial deployment of new technologies and, more importantly, slow monetization of the technology investment, impacts the entire value chain.
Usage and Pricing Canada and the United States are among the few countries with a mobile pricing system called receiving party pays (RPP), whereby mobile customers pay both to send and to receive calls. Calls to phones with the same service provider are typically billed at the same rate as calls to phones with a different service provider. According to a recent telecom report undertaken by BofA Merril Lynch, Canadians pay the highest mobile bills in the world. Voice rather than data charges make up the majority of the consumer bills thanks to a relatively later introduction of 3G phones. Canadians are estimated to pay slightly less per minute of voice (10 cents vs. 11 cents) than the United States. Data usage represented 23.9 percent of the average Canadian monthly wireless bill which was below the developed world's average of 31.8 percent. Data usage, however, is increasing. High costs of both basic and advanced services, and system access fees and "value packs" are keeping many Canadians disconnected. Canadians send on average 163 million texts per day, representing over a 200 percent increase since 2008. This formidable increase has been facilitated over the last decade by the partnering of the Canadian Wireless Telecommunications Association (CWTA) and Canada's mobile phone operators to offer universal short codes across Canada for easier text messaging experiences. With the high cost of both voice and data in Canada, it is no wonder Canada's wireless industry leads the world in terms of revenue, earning an average of $54.73 per user per month; Canadian carriers also led all 50 nations with the highest average revenue per user (ARPU) per month, at $54.73. The average ARPU among developed nations was $42.90. While Canadian carriers registered low per-minute revenue, other charges such as caller ID, voice mail and data contributed to their otherwise high ARPU.
Canadians also posted high minutes of use with the average subscriber talking 368 minutes per month, the third highest behind Singapore's 374 and the United States' 814 minutes per month. Canada's wireless sector is, therefore, quite attractive as penetration rates as well as high tariffs and ARPUs for service providers are expected to increase. It is only until recently that Canadian cell phone networks are using the GSM (Global System for Mobile Communications) standard which allows users to have multiple cell phone accounts under the same cell phone. This has substantially increased competition amongst service providers as consumers are free to choose various plans with the best rates.
Quad-Play Services Rising broadband penetration continues to drive the triple play market, with around 95 percent of all Canadian households using broadband networks as of early 2010. Broadband penetration is also fostering the emergence of Internet Protocol Television (IPTV) and driving the migration from traditional circuit-switched telephone lines to VoIP telephony.
Deregulation The Canadian mobile industry is in the midst of significant change with new entrants coming on stream and the Government of Canada (GOC) beginning to loosen the rules restricting foreign investment. In 2007, Canada ranked 29 out of 30 in the OECD for the highest mobile phone rates in the developed world. Having recognized this issue, the GOC has begun to deliberate deregulating the wireless market; the result has been a slightly more competitive industry with the prospect of increased opportunities for foreign investors. An additional sale of wireless spectrum is to be auctioned off in 2012 in the hope that this will increase competition among wireless service providers. These financial factors combined with foreign ownerships laws will make the sustained viability of new entrants difficult.
Market Data The Canadian telecommunications sector is crucial to Canada's economic health: wireless communications in particular generate a total economic value of C$39 billion for the Canadian economy. Over 294,000 people are employed in Canada as a result of the wireless industry, each employee earning on average C$59,000 per year compared to a Canadian average salary of C$42,640. Canadian exports of wireless communications equipment have been steadily decreasing, reaching a total of $946 million in 2010. The primary destination of these goods is the United States. Imports of wireless equipment into Canada were flat for 2008 and 2009 at $1.9 billion but increased substantially in 2010, totaling $3.1 billion. The majority of imports in wireless equipment originate in Mexico and China with $1.2 billion and $1.1 respectively. In 2010, Canada imported $17 million of wireless equipment from the United States. The rapid shift from landline and wired telecommunications to wireless devices is strongly affecting the structure of Canada's wireless imports; Canada experienced sharp increases in imports of wireless rather than wired telecommunications equipment. Imports of wired equipment and wireless equipment in 2007 totaled $108 million and $26 million respectively. Wireless retail revenues totaled 3 billion in 2009 compared to 16 billion for wire line. When considering both retail and wholesale revenues for wire line telecommunications, however, wire line revenues were substantially higher than that registered for wireless: total wire line revenues in 2009 were 24 billion compared to 17 billion for wireless. Therefore, while wireless retail products are an attractive investment opportunity, wired equipment for uses other than consumer purchase is considered equally profitable.
Best Prospects Canada's leadership in the wireless sector is concentrated in cellular and WiMAX equipment, data-centric mobile devices and Customer Premises Equipment (CPE), and software defined radio (SDR) solutions and architecture. U.S. companies will be able to find opportunities in areas where the Canadian wireless industry faces challenges including cellular handset development, WiFi access points and CPE, and ultra wideband (UWB) devices. Regionally-centered wireless clusters made up of highly innovative and competitive companies, government facilities and financial incentives to support easy access to the U.S. market and leading edge R&D have contributed to the presence of multi-national R&D centers in Canada. The federally-funded Scientific Research and Experimental Development (SR&ED) Tax Incentive program covers 20 percent of R&D-related costs such as salaries, overhead, capital equipment and materials, allowing Canadian firms to reduce R&D costs of direct investment or subcontracting in Canada. This initiative, along with the large grant made by the GOC in late 2010, will spur technological development in Canada and provide significant investment opportunities for American firms. U.S. companies will also be able to take advantage of opportunities in wireless network development, innovative cellular hardware and software development, ultra wideband technology & devices, wireless fidelity (Wi-Fi) Access Points and technology and channel marketing partnerships. Cable telephony also proves to be an attractive area of investment as subscriber numbers of the four major cable companies has been increasing at a rate of around 30 percent per annum. As Canada has among the highest rates of cable broadband per capita, there remains significant scope for these companies to continue growing their new telephony businesses and for foreign companies to enter the wireless market through Canadian partnerships.
Prospective Buyers In general, Canadian consumer behavior in the purchase of mobile communications equipment tends to follow the American model. Consumers want to listen to music, watch videos, play games and communicate anywhere and anytime. According to a global business study conducted by market research firm TNS, sixty percent of Canadians between the ages of sixteen and sixty use a cell phone, a point significantly below the global average of eighty percent. However, CWTA reports that Canadians remain among the world's highest users of wireless voice services at an average of 400 minutes per month. As well, the strong customer growth the industry continues to experience is directly mirrored by Canadians' rapid adoption of wireless data services such as text messaging, e-mail, mobile Web browsing and a vast array of multimedia entertainment content In many foreign markets, mobile phones are viewed as the "go-to" device incorporating landline, internet, and other telecommunications services into one. In the Canadian market, however, consumers have historically paid exorbitant prices for triple-play services or accepted the separation of these services as common. Many shifts in the market are changing these widely-held views and simultaneously altering consumer demands. Not only are triple-play services (and even quad-play services) in high demand but consumers now prefer luxury, high-technology options such as Bluetooth, GPS, and touch-screen capabilities to basic mobile functions such as SMS and voice. The increased penetration of smartphones is also heavily saturated in the under thirty crowd in Canada, suggesting a potentially divided mobile market whereby increased smartphone sales are confined to older age groups.
Market Entry In both the mobile communications market and the wireless equipment market, business buyers include both network operators and independent retailers. Retailers purchase wireless equipment, including handsets, direct from the manufacturer or through distributors to sell to end-users. Network operators are vertically integrated companies and have their own retail outlets or purchase for their own internal use. It is necessary for all buyers to stock the latest innovative technologies to meet end-user demand. Network operators will be primarily interested in knowing about products and services that can be part of their value-added service portfolio. They will also be interested in systems, equipment, software, etc., that would lower costs and increase data protection and security.
Market Issues and Obstacles For U.S. firms, there are various ways to enter the Canadian market. Your market entry strategy should be based on your knowledge of the Canadian market, financial resources and human capital available. Entering the Canadian market can range from establishing a Canadian subsidiary to establishing a strategic partnership with a local company. Some firms that are new to selling to Canada prefer to sell directly to the Canadian consumer and provide service from their U.S. headquarters. Industry Canada requires all wireless equipment sold in Canada to be certified. In April 2004, the United States and Canada simplified the trade of telecommunications equipment by allowing certified U.S. telecommunications equipment to be shipped directly into Canada. Industry Canada recognizes seven U.S. testing and inspection organizations to certify, prior to export, that U.S.-made telecommunications products meet Canadian requirements. Canada's recognition of these "certification bodies" simplifies the regulatory approval process and provides U.S. manufacturers of wire and wireless telecommunications products with an uninterrupted path to the Canadian market. Canadian telecommunications regulations are divided between the Canadian Radio-Telecommunications Commission (CRTC) and Industry Canada. The CRTC is an independent agency responsible for regulating Canada's broadcasting and telecommunications system. Industry Canada sets regulatory policy, issues licenses to all telecommunications and broadcasting operators, and regulates all equipment specifications. U.S. firms who wish to export wireless products to Canada will be required to comply with the regulations outlined by Industry Canada, while those firms offering services may also be subject to foreign investment restrictions monitored by the CRTC. Foreign investment restrictions were established in "The Telecommunications Act" of 1993. The Act states that foreign companies can own no more than twenty percent of an operating company or carrier, such as Bell Canada, and no more than thirty-three percent of a holding company, such as BCE, Inc. The Telecommunications Act limits foreign ownership to 20 per cent of a company's voting shares while limits on direct and indirect control are 46.7 per cent. Section 16 of this Act requires that in order to be eligible to operate in Canada, a telecommunication common carrier must be a "Canadian-owned and controlled corporation," incorporated or continued under the laws of Canada. Subsection 16(3) of the Act specifies that a corporation is Canadian-owned and controlled if: a) not less than eighty per cent of the members of the board of directors of the corporation are individual Canadians; b) Canadians beneficially own, directly or indirectly, in the aggregate and otherwise than by way of security only, not less than eighty per cent of the corporation's voting shares issued and outstanding; and c) The corporation is not otherwise controlled by persons that are not Canadians
Tariffs and Levies Under the North American Free Trade Agreement (NAFTA), no customs duties or tariffs are levied on qualified U.S.-made products entering Canada. To get duty-free status under the NAFTA rules of origin, a commercial NAFTA import over $1,600 must be accompanied by a NAFTA Certificate of Origin, while a commercial import less than $1,600 only requires a statement of origin from the exporter confirming the product is made in the United States or Mexico. Canada looks at the origins of the component parts of an item and whether they are transformed in the process of manufacture into another category to determine whether a product is entitled to NAFTA treatment. This can be quite complex.
Taxes U.S. goods exported to Canada may be subject to a federal tax. The Canadian Goods and Services tax (GST) of five percent on a value-added basis is assessed by Revenue Canada at the time of import, and at each subsequent resale level. Importers are entitled to partially offset their GST payments by collecting and retaining GST payments received from the sale of their goods to Canadian customers.
Standards Certification All electrically powered products sold in Canada must comply with the standards established by the Canadian Standards Association (CSA), Canada's largest standard-writing body. Information pertaining to these standards can be obtained by contacting the CSA directly. According to the Canadian Radiocommunication Act and the Radiocommunication Regulations, in addition to CSA requirements, wireless telecommunications equipment imported into Canada must also be certified by Industry Canada. Industry Canada's equipment certification requirements for wireless telephones are covered by several existing Radio Standards Specification (RSS) regulations. U.S. companies should contact Industry Canada to determine the appropriate equipment certification requirements for their particular products.
Labeling Requirements The GOC's Consumer Packaging and Labeling Act require consumer product packaging to be in both official languages, English and French. In addition to federal labeling requirements in Canada, the Province of Quebec has additional French-language requirements. For example, directions for use and warranty certificates accompanying the product must be provided in the French language. The province also requires that any French labeling/markings must be given at least equal prominence as labeling/markings in any other language(s) on packaging. Exporters are encouraged to work with a local distributor or major retailers to meet these requirements and ensure proper French-Canadian language usage.
The Canadian entertainment software market is a strong and rapidly growing industry with many opportunities for U.S. companies. U.S. companies that produce middleware tools, provide gaming services including advertising and publishing or would like to partner with a Canadian organization in game development will find many opportunities in the Canadian entertainment software market.
There are three main sub-segments in the Canadian entertainment software industry, namely:
1. video game production
3. game services.
Video game production includes major publishers, most of whom develop games in-house and finance external game development; third party game developers who develop games under contract with publishers; and independents that develop and market their own games and console manufacturers. Most of the console manufacturers only have sales and marketing personnel in Canada.
The middleware category includes organizations that make the tools, applications and software for game developers. This segment may also produce video game consoles and additional features for entertainment software.
The game services category includes firms that directly support the entertainment software industry. The majority of the Canadian entertainment software industry is focused on video game production. As indicated in the graph below, game production firms represent 83 percent of the market in the Canadian gaming industry followed by game ware organizations, and game services, including advertisers and publishers.
Geographically, much of Canada's entertainment software industry is located in three key areas: Vancouver, Montreal and the Greater Toronto Area (GTA). Secondary clusters exist and are showing strong growth potential in Quebec City, Edmonton, Calgary, Charlottetown, Winnipeg, Ottawa and London. These secondary areas are populated by a greater percentage of very small organizations (1-5 employees), they are also anchored by a relatively strong number of small and medium sized firms (5-20 employees and 20-100 employees, respectively).
There are no very large (over 500 employees) or multinational organizations.
The entertainment software market is the fastest growing segment in the entertainment industry. According to PricewaterhouseCoopers, this market is expected to grow as a wider demographic of people begins to use this type of software on a daily basis on a variety of new platforms. PricewaterhouseCoopers projects that the global entertainment software market will grow at an annual rate of 7.4 percent over the next five years, from US$51.4 billion in 2008 to US$73.5 billion by 2013. Canada's overall rate of growth in this industry is estimated to be 29 percent in 2010.
The growth in the number of game development studios that operate in Canada has increased slightly over the past two of years. This is due, at least in part, because the Canadian Governments, both Federal and Provincial, have been offering tax rebates to game developers in order to encourage them to set up operations in Canada. A second reason for the growth is that market demand has increased in recent years. In fact, the entertainment software market has enjoyed a significant growth rate in Canada, reaching 23 percent in 2008 and 29 percent in 2009.
Canada is rapidly establishing itself as a world leader in the entertainment software industry, specifically the video game industry. Canadian video game developers are becoming renowned for producing high quality games and are behind some of the world's most successful game titles. According to Games Investor Consulting, Canadianmade games have had tremendous international success in terms of retail revenues over the past two years, with an estimated value of approximately US$3.28 billion and US$3.61 billion in revenues in 2008 and 2009, respectively. These earning helped to propel Canada ahead of the United Kingdom, to become the third most successful developers of video games in the world – behind the United States and Japan. In fact, the Entertainment Software Association of Canada (ESAC) has reported that ten of the top 100 video game development studios in the world are located in Canada.
Until 2007, when the ESAC published its first white paper, little was known about the size and scope of Canada's entertainment software industry. There was no aggregate data on the size of the industry, no overall job numbers or economic impact statistics to provide a snapshot of the significance of the Canadian entertainment software industry. Even today, trade data is difficult to establish because the numbers available are either bundled in with other forms of software or other forms of technology.
What is known from ESAC's most recent research is that in 2008 the demand for entertainment software in Canada continued to rise and industry representatives reported record sales in the last quarter of the year. Also in 2008, combined sales of software and hardware products grew by 33 percent from the preceding year, reaching a record breaking $2.2 billion. According to Hicking Arthurs Low Corporation’s (HAL) report on the Canadian entertainment software industry, the software segment, which consists of console and portable game software, accounted for 50 percent of these sales, representing an increase of 51 percent from 2007. In Canada, the growth in retail sales is expected to continue but at a slower average annual growth of 9.2 percent through 2012.
By the end of 2010, Canadian consumers are expected to spend $1.3 billion on entertainment software and related products. The current economic situation is not expected to alter these predictions.
According to the Hickling Arthurs Low 2007 report, 'Entertainment Software: The Industry in Canada', Canada's success in the entertainment software industry stems in part from the industry's evolution into a global production network of large game publishers and console manufacturers that have relied on third-party game developers to develop innovative titles. Canada is very well represented in this global production network, having captured a significant portion of the game development activity due in part to major investments by multinational publishers. The report states that half of Canadian organizations in this industry rely on exports for 90-100 percent of their revenues with Canada's largest export market being the United States. The survey also showed that the United States is the origin of a large majority of entertainment software imports into Canada. Neither industry nor government statistics are available for specific trade data on Entertainment Software. This is because industry has not collected research on trade data and the government places entertainment software in with all software manufactured in Canada.
Canada's ability to take advantage of the global opportunities in entertainment software rests primarily on two factors: provincial governments that maintain a supportive business environment for entertainment software firms and a large pool of talent. Together, these factors underpin Canada's strength in game production. However, these benefits are only just beginning to extend to the middleware companies. Canadian game developers are in need of a number of third-party tools supplied by middleware companies to create cutting-edge 3D animation.
U.S. developers who develop tools that range from audio systems that make a computer-generated scene sound like the real thing, to artificial intelligence 'engines' that drive the behavior and tendencies of characters and objects onscreen will find a large receptive market in Canada.
The most common option for U.S. game developers is to sell games to Canada through retailers. Many large U.S. retail outlets such as Best Buy, Future Shop, Toys 'R' Us and Wal-Mart, already have substantive Canadian retail presence. Canadian based sellers or renters of video games include large retail outlets such as Rogers Video, Future Shop (owned by Best Buy) and a number of internet cafes where a large number of online games are played.
Canada's entertainment software industry is comprised of both domestic and foreign companies. The largest companies in the Canadian entertainment software industry are game development studios owned by the two largest multinational entertainment software companies in the world; Electronic Arts of California and Ubisoft Entertainment SA of France. In fact, Ubisoft's largest development studio is located in Montreal, Canada and employs more than 1,600 employees.
Canadian entertainment software consumers make up an extensive and very diverse population as males and females as well as the youth and elderly purchase entertainment software. ESAC conducted a survey that subdivides Canadians, who regularly play video games into three categories, namely:
1. long-time devotees
2. "born again," and
The survey found that 45 percent of the gamers are long time devotees to video games, 36 percent are "born again" gamers who have begun to play video games again after years of not playing, and 17 percent are "newbies" who have recently began to play video games for their first time. Within the current population of recent gamers, 64.3 percent are men and 34.9 percent are women. It is estimated that the number of female gamers will continue to increase in the future as video game developers continue to target females by creating games that are more attractive to women.
According to ESAC's 2009 survey of adult gamers, 67 percent of adults between 18-34 years of age are gamers, followed by 48 percent of adults between 35-54 years of age, and finally 34 percent of adults above age 55. The number of people, aged 55 years or higher who play video games is expected to increase in the future as more are using interactive video games for physical activity. This demographic is attracted to simple video games that incorporate a low to moderate level of physical activity.
Furthermore, when purchasing or renting a video game for their children, the ESAC survey found that 82 percent of Canadian parents check the ESRB rating symbol on the game box to determine the suitability of the game.
Additionally, 86 percent of Canadian parents use the content descriptors when purchasing games for their children. The same survey also revealed that 95 percent of Canadian parent respondents in 2009 reported to have played video games with their children at least once a month. Amongst these Canadian parents, 57 percent have reported that they play video games with their children at least once a week. Therefore, this would indicate that the Canadian market for children and family oriented video games is growing and offers great opportunities for U.S. organizations, which develop gaming software that is fun, educational, and promote physical activity.
Different consumer groups have various preferences regarding the type of platform used to play video games.
The computer remains the most popular platform of use across all age groups, however, game consoles and handheld devices are becoming the most frequent amongst teens and youth. As a result, entertainment software developers have been rapidly picking up on this trend and are now discharging the majority of gaming software and accessories for young consumers geared towards these platforms.
Canada is an ideal export destination for U.S. organization in the gaming industry. It is geographically close to the United States and shares similar business practices and attitudes. More importantly, Canadian companies are predisposed to partnering with U.S. firms. The integration of trade and investment between Canada and the U.S. has vastly simplified doing business across the U.S.-Canada border. U.S. products and services also experience a high degree of receptivity in the Canadian market.
Canada's distribution and sales channels for entertainment software are similar to those in other industrialized countries. For U.S. companies, there are various ways to enter the Canadian market. The market entry strategy should be based on in-depth knowledge of the Canadian market, financial resources and human capital available. Entering the Canadian market can be accomplished by establishing partnerships, joint ventures, subsidiaries or opening an office in Canada, however, for the initial stage it is often preferable to work with local agents or representatives in order to effectively introduce new products to Canada. Some companies that are new to exporting to Canada prefer to sell directly to the Canadian end-user and provide service from their U.S. headquarters.
Market Issues & Obstacles
There are no significant barriers to trade for the importation of entertainment software into Canada. However, U.S. firms should be aware of other market issues before entering the Canadian Entertainment Software market. These issues are listed below.
Some organizations, including the Entertainment Software Association (ESA), consider Canada to be a piracy haven. Online piracy, fueled by the availability of illicit mod chips and game copiers are the primary concern for this industry. The International Intellectual Property Alliance (IIPA) implicates Canada as a top distributor of mod chips used to avoid anti-theft technology installed in game consoles such as Microsoft Xbox and Sony PlayStation 2. In fact, in 2009, due to Canada’s delay in implementing the WIPO treaties, ineffective enforcement mechanisms, and several other issues, USTR placed Canada on its Special 301 “Priority Watch List”. Members of both the ESA and IIPA are both recommending that Canada be retained on the Priority Watch List in 2010 based in large part on Canada’s inadequate response to domestic sources of piracy.
Piracy is estimated to cost the U.S. and Canadian entertainment software industries more than $3.5 billion annually.
In response to parental concerns on the contents of video games, the Entertainment Software Association formed the Entertainment Software Rating Board (ESRB) that independently assigns ratings to entertainment software.
Although Canada does not have its own rating system, there is a Canadian advisory committee that provides Canadian input into the ESRB's rating system. Some of the input that was gathered by this committee showed that eighty-three percent of Canadians agree that the rating system helps parents buy and rent video games that are appropriate for their children. As a result, the Retail Council of Canada, the ESAC and the ESRB created the Commitment to Parents Program. With this educational initiative, participating Canadian retailers voluntarily agree to:
1. Display point-of-sale consumer education signage featuring the slogan, "OK to Play? — Check the Ratings," illustrating how to use the ESRB rating system,
2. Not to sell or rent games that carry an M-Mature or AO-Adults Only – rating to anyone under the age of 17 or 18 respectively.
A further market obstacle in the Canadian video game market is the French language law in Quebec. An agreement made between the Quebec government and the ESAC in 2007 puts the responsibility of translating video games into French on game distributers. Retailers have indicated that the results of the agreement are higher prices for consumers. This represents a potential competitive disadvantage for U.S. companies because, in addition to the heavy concentration of video game development in Montreal, a bilingual city, all Canadian based game developers already develop games in French to meet Canadian language requirements. Thus, retail costs
may perhaps be slightly higher for games from the United States that are not already published in French.
Under the North American Free Trade Agreement (NAFTA), no customs duties or tariffs are levied on qualified U.S. made products entering Canada. To get duty-free status under the NAFTA rules of origin, a commercial NAFTA import over CDN$1,600 must be accompanied by a NAFTA Certificate of Origin; while a commercial import less than CDN$1,600 only requires a statement of origin from the exporter that the product is U.S.-made. Canada looks at the origins of the component parts of an item and whether they are transformed in the process of manufacture into another category to determine whether a product is entitled to NAFTA treatment.
Canada is one of the most "wired" nations in the world. All major cities are
well-connected to a high-speed Internet backbone and, according to OECD figures,
Canada has the lowest Internet access costs among G-8 countries. The Government
of Canada has made a priority of supporting high-speed research networks and
Internet access for institutions and communities.
Software and services represent a significant portion, about 1.6 percent,
of total Canadian GDP. US companies are the dominant suppliers of computer
software to Canada. However, Canada's indigenous computer software industry,
benefiting from the lowest manufacturing costs in the G-7, has developed strong
companies that have achieved international recognition as market leaders in
their respective product niches, including: data and document management;
network management; customer relationship management (CRM); digital media; and
While demand for ICT products and services has dropped over the last couple of
years, Canadian organizations are still spending on software applications that
show a tangible ROI and that are essential to the core operational competencies.
Software applications that integrate front and back office functions to merge
the value-creation side of the business with the value-counting side of the
business are in demand, as are programs that align operations with customers'
buying habits. Specifically, applications such as CRM, enterprise resource
planning, content management, website development, and maintenance applications
that help reduce costs have good sales prospects. Also, applications that
enable customers to manage their corporate IT infrastructure more easily on
their own and reduce the need for third party services should sell well.
Spending on mobile wireless applications also continues to increase.
PART III. DATA TABLE (in millions of US dollars)
TOTAL MARKET SIZE
TOTAL LOCAL PRODUCTION
IMPORTS FROM THE U.S.
(The above statistics are unofficial estimates.)
Canada's technological infrastructure is second only to that of the United
States and ranks above or very close to the US in terms of number of internet
users and computers per capita, as well as number of computer instructions sent
per second. Building a universal, leading-edge "Information Highway" remains a
Canadian government priority.
In the hardware arena, major trends in the Canadian CPT market include the
migration to Intel-based servers, away from UNIX servers, and the move by
Canadian enterprises toward the use of wireless networking products and Wireless
Area Networks (WANs). On the horizon is the development and adoption of
products that enable seamless transition between WANs and Local Area Networks
(LANs). American manufacturers of such technologies are well positioned to
take advantage of trends in areas of the market where Canadian corporations are
devoting investment dollars.
In the mature Canadian computer hardware sector, growth will come in the form of
anticipated infrastructure replacement, which will provide a boost to the
software, services and hardware markets.
American companies are expected to remain the primary suppliers of computer
hardware and peripherals to Canada. In fact, in this sector, Canada runs a
trade deficit with the United States. US companies with competitively priced
products, effective distribution channels, and strong customer service programs
can expect to profit from continued growth in the computer hardware and
peripheral market in Canada.