Defining Canada’s place in an era of digital globalization

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Toronto's RIWI Corp. is a 15-person (and growing) technology company that is fully global, but it does not sell a physical product. The company uses a patented algorithm to capture public opinion in every country in the world and then sells its data globally to Fortune 500 companies, multilateral organizations and government agencies. RIWI is an example of the new face of globalization: globalization of data flows, or digital globalization.

Digital globalization can work to Canada's advantage, if we are willing to embrace it and set the proper public policy framework for it. Digitization offers Canada opportunities for global services trade, innovation, technological advancement and greater prosperity.

Digital globalization has arrived for all firms – whether they operate in traditional industries such as resource extraction or manufacturing, or are on the cutting edge of digitized services. All companies, large and small, now have largely unfettered global access to an unprecedented stream of new ideas, data, and technologies. Uber and Airbnb are but two high-profile examples of how information is being digitized and shared between suppliers and buyers, disrupting entire industries.

Most Canadian policy and research has focused on physical trade, notably goods. This form of trade remains important and has strong links to digital technologies. However, the ways in which digital technologies are changing – or, in some cases, not changing – Canada's trade and investment deserve more attention. As we argue in Canada's New Trade and Technology Paradigm, taking full advantage of these new ideas, data and technologies will help to position Canada for the next era in global trade.

Canadians generate some of their own ideas and innovations, but more often rely on imported ideas and technologies. It will become increasingly important to ensure that intellectual property (IP) rules strike the right balance and promote, rather than stifle, innovation. Policy issues to be addressed include protecting digital identities and reputations, safeguarding private information, and simultaneously protecting Canadian IP but also securing access to IP created elsewhere.

In our view, Canada should promote free data flows, subject to privacy and security considerations. To be sure, there can be legitimate privacy or security reasons for countries to filter some types of cross-border data flows. Often, however, such barriers are created to protect domestic companies – "digital protectionism" – or to clamp down on dissent. Bans or threats to restrict search engines such as Google can have wide-ranging repercussions for global business.

Other restrictions and requirements that could be reduced or removed include:

• Restrictions on foreign investment, particularly in communications technologies and digital content;
• Requirements to set up a local presence, such as search engines, in order to sell in certain markets.
• Requirements to “buy local” – any exceptions should be small and limited over time.

Canada will also need to redefine its competitive advantages in an era of digital globalization where technology, innovation and openness will be central. Canada's software and IT services sector is an area showing promise.

The global computer services market has been growing at a phenomenal pace of 18 per cent annually over the past 20 years. Highly specialized Canadian software companies such as Global Relay, GIRO, and RedKnee have expanded their global business rapidly in response. Digitization has also been a key driver of the growth in global services trade. While often ignored, global services are an underappreciated source of Canadian strength – they comprise about 44 per cent of Canada's trade, and are among Canada's fastest-growing exports.

Globalization of data flows helps small companies become global instantly, allowing them to disrupt larger players. The ability to leverage data, not cheaper labour costs, is the new differentiator in global manufacturing value chains. These are just two examples of how digital globalization has changed the landscape for Canada's economy. Policy makers need to redefine Canada's public policies at home and abroad to best take advantage of this new era of digital globalization.

Glen Hodgson is senior fellow at the Conference Board of Canada. Danielle Goldfarb is director of the Conference Board's Global Commerce Centre.