The Information Technology Industry in Toronto - Coursework Example

The IT Industry in Toronto Report Name Professor Institution Course Date The IT Industry in Toronto Report Executive summary The Toronto economy plays a critical role in the economy of Toronto and the entire world. As a technology center it can be said that information technology also contributes a lot to the economy of Toronto, Canada and the whole world. The fact is that Toronto IT industry employs numerous people. Toronto is considered the largest, most dynamic, innovative and vibrant center of technology-based companies in Canada. Toronto host 30 percent of the Canada's 40,000 technology companies (CHTHT 2013). The technology culture is doing well in Toronto in part since the City is extremely connected to worldwide social networks. Table of Contents The IT Industry in Toronto Report 2 Executive summary 2 Table of Contents 3 1.0 Introduction 4 2.0 Industry Analysis 4 2.1 Industry overview and major trends 4 2.2 Pestle Analysis 6 2.2.1 Political 6 2.2.2 Economic 6 2.2.3 Social Factors 7 2.2.4 Technology Factors 7 2. 2.5 Legal factors 8 2.3 Porter’s Five Forces 9 2.3.1 Threats of substitutes 9 2.3.2 Threat of Existing Rivals 9 2.3.3 Threat of New Entrants 9 2.3.4 Bargaining Power of Customers 10 2.3.5 Bargaining Power of Suppliers 10 2.3.6 Impact Macro forces have on the micro forces 10 3.0 Toronto– An Emerging City of Technology 11 4.0 Competitive environment 12 5.0 IT and banking sector in Toronto 14 6.0 Key findings and Conclusion 15 7.0 References 16 1.0 Introduction With the rapid changes in business environment, information technology has become part and parcel of many businesses across the world (Hamilton & Weber 2012, p. 67). The strategic role of Information Technology in realizing the strategic development objectives of businesses has been a constant debate in recent years. Due to this availability of information, one of the cities that have benefited from IT is Toronto. The economic diversity of Toronto implies that IT is an important industrial fuel and complements the other sectors of the economy in Canada including banking, insurance and healthcare among others (CHTHT 2013). Drawing our arguments from various sources, this report investigates the situation in the IT industry in Toronto. The report also analyses the Toronto IT Industry trends. To contextualize this argument in relation to the industry, this paper discusses the current business environment of the industry, how the environment affects the industry and the future of the industry. 2.0 Industry Analysis 2.1 Industry overview and major trends Toronto is a major North American’s IT powerhouse. CHTHT (2013) reports that Toronto is host up to 30 percent of 40,000 IT companies in Canada meaning this industry is very competitive. Toronto’s IT industry prospers on the fast innovation and integration of new technologies which comes from partnering with various sectors – for instance, healthcare, education, mainstream media, social media and entertainment. In 2009, Toronto technology industry reported revenue of more than $54 billion with $22.8 billion from the manufacturing subsector while $31.4 billion from the services sector (CHTHT 2013). The City’s IT sector is relentlessly evolving with remarkable growth driven by a broad range of segments like mobile platforms and application, cloud computing, gaming, 3D, social networking and consumer security and security. The federal government of Canada has invested heavily into Toronto’s established IT subsectors of robotics, manufacturing, communications, enterprise software, film, and broadcasting which merge to create urban High-Tech center as seen in figure 1 (TRRA 2013). The government is also supporting Toronto IT industry though investing funds in the University and research center among others like The Canada Foundation for Innovation (CFI). This has ensured that the number of computer science students has continued to go up in the recent years (appendix 2). Figure 1: Distribution of companies Subsectors Source: (TRRA 2013) 2.2 Pestle Analysis 2.2.1 Political Political aspects include government laws and political issues. The government has set laws to control IT to ensure it is used in the betterment of lives and not to infringe the rights of the citizens (Hamilton & Weber 2012, p. 67). With the fluctuating nature of the economy, the IT firms operating in Toronto have been forced to pay a large sum of corporate tax in order to continue operating. Network providers that are government owned get more funds from the government compared to private companies. The political culture in Toronto supports free economy allowing new entrants into the industry (Pine &. Gilmore 1998, p. 99). Even though, there are laws that govern and control the technology industry, they encourage fair competition among industry players. Grant et al. (2012, p. 25) postulate that the laws are also set that give an advantage to local companies to grow and expand just like the Multinationals. 2.2.2 Economic The economic environment is the state and the nature of the economy under which a company firm competes. Ghemawat (2007, p.55) claim that the “rise in interest rates means that investment in IT equipments are postponed causing declining sales” in the IT sector in Toronto. The increase in the cost of living has resulted in lack of disposable income for Toronto residents to use on luxury equipment like the IT gadgets and services. Decrease in the rate of economic growth of companies within Toronto also affects the industry sales (CHTHT 2013). The demand has also gone down in the industry due to the presence of numerous companies offering the similar products of services (Camillus 2008, p. 98). However, with the present economic environment in Canada, most of the established firms already lack the time and capability to design mobile applications and solutions which is the current trend in the tech field. Start-up companies especially in Toronto now play a vital role helping companies with their mobile application development strategy (CHTHT 2013). 2.2.3 Social Factors Environmental protection and Health & Safety has turned into a key issue in IT sector in Toronto. Some regulations and laws that are imposed in on companies in that city can unfavorably affect the companies’ results and financial status by rooting for recycling and safe disposal of products of major players (Brugmann & Prahalad 2007, p. 80). Particular products in this industry have been said to affect face health status of the customers due to their features and design. For instance, Bloomfield (2011) claimed that the too much sound produced by iPod (a product of Apple) could cause loss of hearing. IT gadgets are also considered luxury goods, therefore only people with high disposable income tend to buy them. 2.2.4 Technology Factors Toronto as a leading center in Canada host several companies including world major players like Microsoft Canada, Apple Canada, Ericsson, Canada HP Canada and Cisco Systems Canada (CHTHT 2013). With the rapid technological changes, short product life circle, improvement of services and scramble for this market, a firm operating in this industry must allocate sufficient funds for research and development because it is a basic requirement to remain strong in the industry (Anthony 2012, p. 44). It also acts as a competitive advantage for industry players in order to control the market. Toronto has become a center of research and innovation in the IT industry in Canada as a whole. Toronto-region firms and research companies are global leaders in skill creation and development. CHTHT (2013) claim that organizations are turning digital and early adopters starting to leverage tablets to encourage paperless education, C-level actions like presenting business proposals on the fliers. The Mobile Experience Innovation Centre (MEIC) is an institution which supports applied research and innovation in mobile and wireless sector (CHTHT 2013). Extreme Venture Partners is another apps incubator, a company in Toronto which has financed 15 applications firms mainly in the Toronto City. 2. 2.5 Legal factors IT is faced with legal cases that if not addressed properly may force other players out of the industry. Even though, Canada has strict laws on patents and copyrights in copyright law and information technology Act of 1997 (Cameron, Aird & Berlis 1997). Most leading companies in Toronto in one way or the other have been sued for illegal copying of other players copyright. Canada also has tough laws concerning tax and labor (TRRA 2013, p. 67). This to tame companies like Apple Inc which have been accused of not paying effective tax in the UK (Watson 2012, p. 34). For instance, Canada has set a law that governs application and personal information in relation to business activities and information on workers which binds every Information technology company in that country. The law is contained in the federal Personal Information Protection and Electronic Documents Act (PIPEDA). The perspective of this law is to create fairness and promote a healthy business in Toronto and country at large. 2.3 Porter’s Five Forces We use Porter's five forces to evaluate frameworks for business strategy used by Toronto IT industry players to establish the competitive intensity and attractiveness of that market. 2.3.1 Threats of substitutes The industry is very wide and deals with several products and services. This makes its products prone to a high competition. Companies that deal with computers, portable music player and most electronic products are changing rapidly. New products are coming up to replace the existing ones (Ghemawat 2007, p. 89). Even though, voice calls still tops the IT industry in Toronto, social media is increasing and people now find it cheaper to communicate in social media platform rather than make phone calls. Computers (desktops) are facing threats from tablets and laptops and macBook. 2.3.2 Threat of Existing Rivals The threat of current competitors is very strong in the Toronto market. This existing rival operates in various market segments like PC, portable music players and various consumer electronic products. There are leading players competing in the same market like Evertz Technologies, Softchoice, Aastra Technologies, IBM Canada, HP Canada, Apple Canada, Nokia and HP Canada amongst other (CHTHT 2013). Each rival is offering similar products and services with similar strategies that make it hard for any of them to dominate the market share. Since there are many players, low price has become strategy for them to compete effectively. 2.3.3 Threat of New Entrants The present Toronto IT industry has established and highly competitive players. These major players have created barriers which is very difficult for new entrants to remove. Porter & Kramer (2011, p.65) state that “To make an entry into the market, new companies need a large sum of capital to be effective in the industry and participate in a price war”. Existing firms also have their personal copyrights and patents which make new entries hard to cope (CHTHT 2013). 2.3.4 Bargaining Power of Customers There are many substitutes existing in the Toronto IT industry for network providers, Personal computers, music players and various electronic products. Therefore, bargaining power of the consumers is very high because Toronto industries host several industries which are option of one another (CHTHT 2013). For instance, if HP Canada makes personal computers or laptops which can act as a platform of entertainment, Apple Canada makes iPod which can also be used as a source of entertainment. 2.3.5 Bargaining Power of Suppliers The major technology players that exist in Toronto have their parent companies elsewhere. Companies like Apple Canada have its parent company in the US same to HP Canada while Ericsson Canada parent company is in Sweden. Cleggs et al (2011, p. 77) asserts that most of these companies operating in this industry liaise with their parent companies always to supply them with products to maintain the supply. An example is Apple Canada; which is always in contact with Western Digital, Seagate and Hitachi Global Storage Technologies to help them to avoid shortages and low cost components (Apple 2011). 2.3.6 Impact Macro forces have on the micro forces One of the most outstanding macro environment factors that affect micro environment is advanced technology itself. This factor impacts Toronto IT industry in two ways; it makes both suppliers and customers informed on market issues, like pricing, place and promotion. Levy & Peter (2005, p. 56) maintains that Technology advancement as macro environment has kept most players on by ensuring that they always invest in innovation so as not to be overtaken by events. General public often information seeks on the new product in the market. Toronto as a technology center has made several companies to embrace technology and enlighten their customers about the new products and distribution firms. Through technology, customers now can know whether a particular product is in store or not (Levy & Peter 2005, p. 60). This saves them time and money. 3.0 Toronto– An Emerging City of Technology Toronto strategic position as the largest urban centre in Canada is important for its achievement as an IT powerhouse in North America. Various new entrants to Canada normally pick Toronto to settle in because the city welcomes over 70,000 new migrants yearly (CHTHT 2013). This form of diversity builds the foundation for the growing technology industry as several individuals develop new firms and commercialize innovation. There are several trends and areas of development that is expected in Toronto’s’ technology industry in the few years to come. IDC Canada projects that Toronto’s technology sector in general is expected to grow by 3.6% which is Cumulative Annual Growth Rate (CAGR) in the period of 2009/2014; with communications industry driving most of that increase (CHTHT 2013). CHTHT (2013) claims that by 2104, communications is expected to grow up to C$48.5 billion, whilst IT spending is estimated to achieve almost C$44.6 billion by the same year, stimulated by developments in IT and software services, and a small range of hardware growth (for instance media tablets and Smartphones) (CHTHT 2013). There are different market segments which are growing fast, and the city has turned into a focus for the increase of some leading-edge technologies consisting of mobile platforms, security applications, consumer privacy, social networking and digital media. The mobile phone platform in Toronto has increased in the recent years and is expected to continue growing as Toronto attracts top-quality talent from the Universities especially University of Toronto which, is placed 17th according to world ranking (CHTHT 2013). 4.0 Competitive environment Toronto’s diverse IT firms and educational infrastructure are important factors to its competitive nature. Companies are only willing to hire or outsource tech firms that provide them with satisfactory service (Cleggs et al 2011, p. 79). This makes most of the companies to embark on research, development and customer service. The competition is not only in terms of service but also through product design and service. The success of players relies on technical knowledge, innovation and effective marketing. Major players such as HP Canada, Apple Canada, Nokia Canada, Constellation Software, Evertz Technologies, Softchoice and IBM Canada take advantage in the extensive service provision and worldwide reach giving them the capability to offer outsourcing services to leading corporate consumers (CHTHT 2013). Small firms compete efficiently through specialization in market niches that widen their market mixes. Figure 2: Top 10 Canadian-owned technology companies headquarted in Toronto, by revenue Source : (CHTHT 2013) Figure 3: Industry competition (multi-national companies) Source : (CHTHT 2013) 5.0 IT and banking sector in Toronto Toronto’s banking institutions are strengthened by Toronto’s ranking as one of the best technology center in the world in the last five years. The sector is also ranked 5th globally by the World Bank due to its strength of information access, investor protection and for strength of credit information. Toronto’s’ banking sector owes part of its success to the IT sector. Through enhanced technology, banks in Toronto and Canada as a whole now improved their services to include online banking and mobile banking. In other words, customers now do not have to go to their banks to carry out transaction but do it right away over their phones or over the internet. Data processing and telecommunications are at the heart of the Toronto banking services industry. It might just be impractical to provide modern banking services with no the broad strategic and operational support of information technology. Generally, effective communication is the key to sustaining strong IT-banking services and client relationships. IT sectors have introduced the following in banking service sector; automation, service pricing, counterparty credit risk, converts pricing, currency exchange, fraud detection, mortgage loan analytics, foreign exchange derivatives pricing, and insurance claims processing, among others. The Toronto IT industry earns 16 % of its sales from banking business services (Deloitte 2009) 6.0 Key findings and Conclusion The analysis of the IT industry in Toronto indicates that adoption of digital Media is likely to go up and will in turn change creative communication and interaction for the better. Toronto’s technology will keep on thriving in particular in mobile applications, social networking and digital media. Proximity to numerous learning institutions and incubators will be a driving factor for growth (appendix 2). The government and private sector funding, mixed with some attraction of investor in Toronto will help fuel innovation in that city. However for the existing players to be effective they must focus on their strengths which they can achieve through consistent product differentiation, price differentiation and getting into strategic alliances with other established tech firms. 7.0 References Apple 2011, Apple Suppliers 2011, viewed on 8th September 2013 http://images.apple.com/supplierresponsibility/pdf/Apple_Supplier_List_2011.pdf Anthony, S 2012, the new corporate garage, Harvard business revinew, p. 23-44. Brugmann, J & Prahalad, C 2007, Cocreating businesses new social compact, Harvard business review, vol. 85, no. 2, p. 80-90. Bloomfield, C 2011, Turn down the volume! Loud iPods overtake noisy workplaces as most common cause of hearing damage, viewed on 8th September 2013, http://www.dailymail.co.uk/health/article-2078048/Loud-iPods-common-cause-hearing-damage-irritate-fellow-passengers.html Cameron, DM, Aird & Berlis, 1997, Copyright and Information Technology, viewed on 9th September 2013 http://www.jurisdiction.com/itcopy.htm Deloitte 2009, Running IT like A Business: 2009 Survey of IT Practices and Trends in Canada, Deloitte Toronto. Hamilton, K & Weber, J 2012, The international business environment, 2nd ed, Oxford, Oxford university press. Canada’s High-Tech Center Toronto (CHTHT) 2013, Economic Development and Sector Report, Viewed 6th Sept. 2013 from http://www1.toronto.ca/static_files/economic_development_and_culture/docs/Sectors_Re ports/Canada_High_Tech_Center_lores_.pdf Camillus, J 2008, Strategy as a wicked problem, Harvard business review, vol. 86, no. 5, p. 98- 121. Cleggs, et al 2011, Strategy: theory & practice, London, Sage publications. Grant, RM., et al. 2012, Contemporary strategic management: an Australasian perspective, New York, Wiley. Ghemawat, P 2007, Why the world isn’t flat, Foreign policy, p. 54-60. Isenberg, D 2008, The global entrepreneur, Harvard business review, vol. 86, no. 12, p. 105-111. Levy, DL & Peter NJ 2005, The Business of Global Environmental Governance.Cambridge, Mass.: MIT Press. Pine, B &. Gilmore, J 1998, Welcome to the experience economy, Harvard business review, vol. 76, p. 97-105. Porter, M & Kramer, M 2011, Creating shared value, Harvard business review, vol. 89, no. 1-2, p. 62-77. Toronto Regional Research Alliance (TRRA), 2013, Information and Communications Technology in the Toronto Region, viewed on 8th September 2013 http://www1.toronto.ca/static_files/economic_development_and_culture/docs/Sectors_Re ports/trra_ict_regional_innovation.pdf Watson, R 2012, Foreign companies 'avoid billions in corporation tax, The Times. 11.0 Appendix Appendix 1: Toronto IT industry funding Source: (TRRA 2013) Appendix 2: institution of learning and talents Source: (TRRA 2013) Read More