Time to level e-commerce playing field

Government action and education critical in enabling Canadian small businesses to compete online with their larger competitors.

// By Corinne Pohlmann, Vice-President of National Affairs and Partnerships, Canadian Federation of Independent Business

Online shopping has exploded since the pandemic, but it has not necessarily benefitted all businesses equally. One of the great things about e-commerce is that it gives any business a chance for their products or services to be found and purchased online, but today powerful corporations dominate the digital market. Especially since the pandemic, e-commerce has been an effective space for entrepreneurs to grow their businesses, but it has become increasingly more difficult for many of them to compete online.

At the same time, Canada’s Competition Act has failed to effectively keep up with emerging technologies and a changing economic landscape. The Government of Canada recently launched consultations on modernizing the legislation. The Canadian Federation of Independent Business (CFIB) responded by calling for small and medium-sized enterprises (SMEs) to be better acknowledged by the Competition Bureau and for them to do more to ensure a more equitable market for small businesses to compete with larger organizations.

The state of competition

SMEs represent nearly half of Canada’s GDP, employing 88 per cent of the workforce and driving our economy. However, each year fewer Canadians start their own businesses. With the increase in corporate giants within Canada, it is no surprise that many small business owners are finding it more and more difficult to compete. Corporate consolidation has become a worrying trend, with 89 per cent of SMEs wanting the federal government to play a role in ensuring fair competition. Consolidation can also have a negative impact on small businesses as two-thirds (66%) noted that an increase in large corporate giants operating within Canada was making it harder for them to compete. Not surprisingly, businesses in the retail (78%) and hospitality (71%) sectors were more likely to say that the emergence of these larger firms has made it harder for them to compete.

The anticompetitive effects of big business

Big businesses control a lot of the digital market, owning the platforms on which e-commerce takes place and guiding how customers navigate the internet to make their purchases. A majority (90%) of small business owners agree that the dominance of big business in the e-commerce space threatens Canadian small businesses. Poor reviews, for example, have the capability of massively affecting small businesses’ rank on search engine algorithms. Consumers make quick decisions, and small factors can influence a buyer. Negative reviews are often difficult to challenge and require the owner to dedicate time and resources to the issue that they would have preferably spent somewhere else. To stay afloat, small businesses are forced into dealing with larger companies and must often operate within platforms owned by corporations like Yelp, Google, or TripAdvisor.

In today’s economy, many SMEs feel the need to participate in e-commerce in order to be competitive. But, this also comes with some significant upfront costs that can be difficult to recover. For example, Amazon Marketplace is a platform that small businesses often use to sell their products. However, some SMEs have found that many consumers are encouraged to buy the company’s own products over those offered by small businesses. We have also heard of a number of instances of small businesses being prohibited from selling certain products, with their listed products ending up lower in search results than Amazon-certified items.

Many SMEs have also shared that they have a difficult time communicating with their customers and are forced to deal with Amazon’s customer support (which can be its own challenge) while paying to use their platform. So, it’s no surprise that nearly three-quarters (71%) of SMEs believe that corporate giants should shoulder larger penalties for abusing their dominant position in the market.

As online shopping has grown more than 50 per cent between 2018 and 2020, now is as good a time as any to try and resolve some of these issues and create a more equitable digital space for small businesses, starting with making improvements to the Competition Act to better address these emerging issues.

Recommendations

While there is no simple solution, CFIB has a few recommendations for the federal government to make things easier for smaller businesses trying to compete in the growing digital marketplace.

-Reducing the regulatory burden placed on small businesses would allow them to remain productive and compete on a more level playing field with larger businesses who face much lower regulatory costs per capita.

-Better education and training are needed on how to detect and manage harmful digital practices such as malicious reviews, deceptive marketing practices or abusive behaviours by dominant firms, that limit the scope and ability of small firms to compete.

-Improvements to Canada’s Competition Act are long overdue as Canada falls further and further behind other countries in reigning in some of these harmful business practices.

It is high time for the Canadian government to act to ensure that many more innovative small businesses have the ability to effectively and fairly compete and ensure the future health of the Canadian economy.

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Corinne Pohlmann is the Senior Vice-President of National Affairs and Partnerships at CFIB, Canada’s largest association of small-and medium-sized businesses with 97,000 members across every industry and region, 22,000 of whom are operating in retail.