Electronic commerce and technology

Online sales recorded their fourth consecutive year of strong double-digit growth in 2005, but e-commerce still accounted for just over 1% of total operating revenues for private firms.

Combined private and public sector online sales increased 38.4% to $39.2 billion. Online sales by private firms increased 37.2% to $36.3 billion, while those by the public sector increased 55.4% to $2.9 billion.

This was the fourth year in a row that the overall value of e-commerce sales in Canada increased by 38% or more. To put this into perspective, the increase in online sales was six times the rise in overall retail sales in Canada in 2005.

Large firms, those with over 100 employees, continue to make up the majority of online sales, accounting for 62% of total online sales. In addition, 16% of large firms sell online, compared to only 7% of private firms overall.

The robust growth in the value of online sales was in stark contrast to stagnation in the adoption of basic information and communication technologies (ICTs).

For example, in 2005, 82% of all private sector firms used the Internet, unchanged from the previous year. About 38% had a Web site, up only slightly from 37%.

This stability suggests that these basic technologies have reached at least a temporary saturation point in the Canadian market, much like the use of personal computers did a couple of years earlier. In effect, Canadian businesses have crossed the digital divide and now have the capability to engage in e-business activities.

Most online sales to Canadian firms and households

Increasingly, Canadian firms are making online sales to domestic as opposed to foreign customers. Only 18% of the value of e-commerce sales were reported as exports in 2005, down from a high of 28% in 2002.

The two sectors least likely to make online sales outside the country in 2005 were retail trade and wholesale trade. Each sent only about 12% of the value of their online sales abroad.

In contrast, the manufacturing sector sent nearly one-half of its online sales to foreign clients.

Four industrial sectors dominate online marketplace

For the third consecutive year, four sectors led the way in terms of value of online sales: wholesale trade, retail trade, transportation and warehousing, and manufacturing.

These four sectors maintained the same share of overall online sales in 2005 as in 2004, accounting for 68% of overall sales by private firms. In total, these four sectors were responsible for e-commerce valued at $24.7 billion, up 38% from 2004.

Although the percentage of retailers selling online did not rise in 2005, the value of retail sales online grew considerably.

Wholesalers and firms in transportation and warehousing each reported $7.2 billion in e-commerce sales in 2005. Each accounted for 20% of total online sales.

Retailers reported online sales of $5.4 billion, about 15% of the total. This was an increase from $3.0 billion online in 2004. Manufacturers reported e-commerce valued at $4.9 billion, about 14% of the total.

Use of broadband reaches threshold

The proportion of Canadian firms using the Internet in 2005 was unchanged from the previous year. However, those users were more likely to use a broadband connection.

In 2005, 81% of private Canadian firms used a high-speed link to the Internet. This growth is impressive when compared to 2001, when less than one-half of private firms using the Internet had a broadband connection.

Large firms in Canada have embraced high-speed Internet universally. About 79% of small firms, those with fewer than 20 employees, now are using broadband Internet such as cable, digital subscriber line or a T1 connection. This compares with only 70% in 2004.

Firms that use broadband technology have shown a greater likelihood of using other advanced ICTs such as an Intranet, an Extranet or a Web site. Broadband is an enabler of these technologies, eliminating the bottleneck that may be placed on a firm using a restrictive Internet connection such as dial-up.

Nature of products sold and business values limit electronic commerce

Firms in the private sector identified two major factors as barriers to conducting sales over the Internet. Over 50% of these organizations felt that the products they sell do not lend themselves to Internet transactions. In addition, just over 35% preferred to maintain their current business model.

For these firms, the change to an e-business model simply may be something they are not comfortable with. They are not prepared to deal with possible technical headaches and see no reason to change from a model that is already in place.

Only 18% of respondents felt that security concerns were a reason not to conduct e-commerce. This proportion has remained constant since 2002.

Web sites, e-mail and Internet use consistent with previous year

The percentage of private firms that had a Web site in 2005 edged up to 38% from 37% in 2004. Those sectors that were most likely to have firms with a Web site included education, information and cultural industries, and manufacturing.

Among businesses in the retail trade sector, 42% had a Web site, up from 38% in 2004.

The penetration of e-mail use and Internet use by Canadian firms remained constant in 2005. The steady nature of these numbers indicates that both the market and the use of these technologies have matured.

As with many new technologies, the adoption of ICTs has an ebb and flow that is readily apparent. Early adopters have already put these technologies in place and there is a limited population of firms left to follow suit. Therefore, growth in the adoption of the technology has been curtailed.

Available on CANSIM: tables 358-0007 to 358-0011 and 358-0014 to 358-0016.

Definitions, data sources and methods: survey number 4225.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Bryan van Tol (613-951-6663, bryan.vantol@statcan.gc.ca) or Mark Uhrbach (613-951-2856, mark.uhrbach@statcan.gc.ca) Science, Innovation and Electronic Information Division.