By Grant Kavanagh· On March 30, 2017
In the year 2000, Nortel had a market value of $350 billion, which represented 36% of the entire TSX and employed nearly one hundred thousand people. It was supposed to herald the first generation of great Canadian tech stocks and transform the nation the nation high tech power house. In 2008, RIM was Canada’s largest company with a market cap of $67.37 billion and control of 19.5% of the world’s smartphone market. It was supposed to usher in the next generation of high-tech companies in Canada, yet these companies are now footnotes in the history of a tech story centered in Silicon Valley. Year after year, Canadians watch multi-billion-dollar tech companies either collapse or flee to the bay area, and are left asking why their country seems unable to create long-term high-tech growth.
The answer is not explained in circumstances or lack of entrepreneurial spirit, instead we need to look at the how the government has unwittingly created systemic issues currently hamstringing the Canadian tech sector. The two key issues which have plagued the sector are limitations on immigration, and weak International property rights (IPR) management. How we are able to combat these issues could be one of the key factors that determines the long-term success of the Canadian economy.
The Information and Communications Technology (ICT) Council estimates that by 2019, Canada will need an additional 182,000 skilled ICT workers. Universities across the country are dedicating massive amounts of resources to train students for the jobs, however, quite simply, the domestic supply will be unable to satisfy demand. “Ginormous gaps are going to occur in this space over the next decade,” predicts Mike Galbraith, chief financial officer at Kitchener-based Thalmic Labs. He continues, “it’s going to be impossible for Canada to actually supply enough workers.” In order to ensure we are not left behind, Canada will have to reform the immigration system with the needs of the tech sector in mind. The current program has, instead of welcoming international talent with open arms, made the process increasingly difficult. Hiring individuals situated abroad often means navigating Byzantine processes, paying costs fledgling companies can ill afford and enduring long delays — during which foreign competitors could easily snap up a promising candidate.
The current system takes upwards of 6–8 months until a foreign hire can start to work for the firm and mandates they get paid “prevailing wage” for their position. This wage which is based off of tech giants such as Google Canada’s compensation is an insurmountable burden to many start-ups. This timetable and forced high salary is unrealistic has caused hundreds of lean start-ups to simply leave the position open. With domestic workers, companies still in their infancy provide stock options to compensate for lacklustre salaries; the current system, however, doesn’t allow for that option when tabulating wages of international recruited workers.
The solution lies in a specially purposed “Scale –Up Visa”, designed for the tech sector. The proposed program would deliver a verdict within three weeks, accept applications online and then allow them to be tracked. It would also allow the use of shares as payment to avoid, start-ups having to compete with Google in pay. Variations of this plan have been put forward by the Canadian Chamber of Commerce as well as Start-up Advocacy firm Communitech.
Canada’s immigration policy is one of the most progressive in the world, yet it still posses a deep threat to start ups. If we fail to fix the system with a solution catered to the tech industry, we give forging competitors an advantage in the hunt for top human capitol that could help propel the Canadian economy forwards.
The lack of powerful immigration reform isn’t the sole contributor to to the flailing tech market, according to Jim Balsillie, the founder of Research in Motion, one of the key factors is the lack of skills related to to intellectual property rights. Canada’s spends more on R&D as a percentage of gross domestic product than may competitors including France, Norway, Japan, and Britain and the United States, yet its productivity and innovation continues to lag other OECD countries. This is in large part due to an inability to protect our own Intellectual Property Rights (IPR), as well as a lack of acquisitions aimed at increasing the IPR of Canadian corporations.
IPR will be so important to the knowledge economy of the future that eventually bilateral issues concerning IPR will overtake traditional trade irritants between nations. Currently Google and Apple are spending more money on acquisitions than R&D as they work to pulverize any possible competitions before it can develop. In the past five years, 183 Canadian tech firms have been acquired, over 70% by American firms. One of the issues that is fueling the rash of acquisitions for IPR in Canada is the is the prevailing sentiment that the life-span of a Canadian tech firm is short and ends, if successful, in a large buy-out. This is proven by PwC’s report that 77% of Canadian tech founders are planning an exit strategy for their companies and 63% say that exit plan is to sell.
Balsillie has said in his experience, in Waterloo, when advising tech start-ups, there is no governmental support in terms of protecting firms from buy-outs and the protection of their IPR. This is juxtaposed against the United states where governments and corporations work together to win. High-margin intellectual property rights account for half of U.S. exports, contribute $3.5-trillion (U.S.) a year to the American economy and employ nearly 18 million workers in high-paying jobs. That is prosperity from ideas commercialization.
The Canadian Government is one of the most generous nations in the world in terms of R&D grants, but maintains the flawed psychology that throwing money at ideas without protection will aid in the growth of the economy. If Google executives are visiting the White House on average once a week, then it is time for the Canadian government to deploy smart strategic public policy options that will improve our innovation record. We need a strategy to advance our prosperity beyond the incomplete mantra of greater domestic IPR protection and open borders because these policies have not contributed to the growth of an indigenous innovation economy in Canada. We should explore creating an ideas-protection strategy as part of the process to obtain government funding. Robust strategies would better equip innovative companies to achieve meaningful global sales growth.
The Canadian Mentality of providing only funding to companies is incomplete in the modern economy. We need to mimic the so-called “innovation coalition” that is present in the united states. This coalition consists of universities, private corporations and the government. It was created to facilitate how they can each create synergy to forward American business interest, both domestically and abroad in concern to stimulating innovation and protecting IPR.
The national economy is not the sole responsibility of entrepreneurs, business or government to foster alone. It isn’t merely for the Liberals or Conservatives. The Canadian people have a duty to the next generation of entrepreneurs to ask more of our government. Those men and women should have every tool provided to them by the government to ensure their success and give them the potential to build great companies and employ a plethora of Canadians. It is time for the Canadian government to work to create a commercialization ecosystem that will help them grow and scale up. Not merely to compete in the global innovation economy, but to dominate.