1TECHNOLOGY CLUSTERS IN CANADA

As with the life sciences, just defining the technology or “tech” industry can be a bit of a challenge. In The State of Canada’s Tech Sector, 2016, Creig Lamb and Matthew Seddon advocate moving beyond the “information and communications” (ICT) industry and using a more broad-based definition that includes 22 different industries, including 10 in manufacturing and six in “information and cultural industries.” Using this definition, they find that the technology sector generated $117 billion, or 7.1 per cent of Canada’s GDP, and employed 864,165 people in 2015.¹⁶

Using a more traditional definition of the technology industry, Lucas et. al. identify seven ICT clusters in Canada (Calgary, Cape Breton, New Brunswick, Ottawa, Toronto, Waterloo and Vancouver), with 11,615 people employed in ICT services and another 7,165 employed in ICT manufacturing in 2006.¹⁷

2INNOVATION IN THE TECHNOLOGY INDUSTRY

Canada’s technology clusters deliver as many innovations as any in the world. Part of the reason for that may be the high quality of life that Canadian technology hubs offer. In 2016, consulting firm Expert Market ranked the top technology hubs in the world, using four “work factors” and four “life factors.”¹⁸ Three Canadian clusters made the top 20, with Toronto achieving a third-place ranking, Montreal finishing ninth and Vancouver 13th. The report found it was a particularly attractive time to start a business in Canadian cities, with Toronto, Montreal and Vancouver tying for first place on the “time to start a business” factor. Not all is necessarily well, however. The ranking of Canadian cities was diminished somewhat by the difficulty of achieving seed funding and lower start-up outputs and average salaries than elsewhere. As well, the Centre for Digital Entrepreneurship and Economic Performance (DEEP Centre) notes Canada’s relative lack of high-growth technology firms relative to the country’s global competitors, a sign of gaps in Canadian innovation.¹⁹

3PAST STUDIES OF TECHNOLOGY INDUSTRY INNOVATION

Recent studies of innovation in Canada’s technology industry include:

Cukier, Yap, Holmes and Rodrigues (2009): “Skills shortages” will be a primary focus of any discussion about the state of Canada’s tech sector. In Diversity and the Skills Shortage in the Canadian Information and Communications Technology Sector, Cukier et. al. study the skills shortage issue through five questions:

1. What is the public discourse regarding the ICT labour market shortage in Canada?
2. What is the empirical evidence regarding the labour market shortage?
3. What is the participation of women in the ICT sector?
4. What are the barriers to participation by women in the ICT sector in Canada?
5. What strategies may be employed to increase the “pipelines” to the sector?

The study notes that there are a wide variety of positions in the ICT sector, “from highly technical roles to hybrid roles, such as business analysts, in which the ability to bridge technology and business functions is essential.” Given the broad nature of the ICT sector, it is crucial to not over-generalize when discussing skills shortages. Cukier et. al. find that “the skill sets in short supply are not primarily the core technology skills, but business skills and communication skills.” To increase the participation of women and under-represented groups in the sector, one must consider both “overt forms of discrimination” and “systemic barriers.” One such barrier is the “chilly climate” female engineering and computer science students can find in post-secondary institutions. They note that the “assumption that a degree in computer science or engineering is a prerequisite for a position in project management” may reduce the full participation of women in the industry. Stereotypes, the absence of female role models and work-life balance issues can also play a role.

DEEP Centre (2015): Building Resilience: Innovation Ecosystems as the Foundations for Growth in the 21st Century is a summary of the 2015 Waterloo Innovation Summit, which brought together “over 280 senior public- and private-sector decision-makers and leaders to discuss the development of effective innovation ecosystems.” The summit focused on three key themes: Foundations for Growth, Scaling Up and Embracing Risk and Disruption. One participant provided this succinct summary of the  Waterloo ecosystem’s challenges: “Focus on whether you are content to be the ‘farm team’ that sends talented people and companies to Silicon Valley.

What will it take to create an environment where the same players can hit home runs at home?” The report ends with the following seven broad recommendations to build an innovation ecosystem:

1. Invest in necessary infrastructure and connectivity.
2. Move beyond startups to scaleups.
3. Extract better ecosystem data.
4. Take a more aggressive approach to the recruitment of high-tech management talent.
5. Better enable and support industry-academic partnerships.
6. Focus on building effective research and development support systems.
7. Pursue disruption.

Lucas, Sands and Wolfe (2009): The authors examine eight ICT clusters in Canada by asking the following questions:

• What are the critical factors that contributed to the emergence and development of the individual clusters in their specific locations?
• What is the relative importance of local versus non-local factors in supporting the overall dynamism of the clusters?
• What are the most important factors that contribute to the ongoing competitiveness of the clusters?

The study takes issue with Porter, whose 1998 report concludes that governments “cannot create clusters by fiat” and finds that governments do play a vital role “in creating the antecedent conditions for cluster emergence.” They advocate that governments invest in higher education and in “cuttingedge” research in the social sciences, the hard sciences and engineering. They find that successful firms in an ICT cluster have “early and successful access to external markets” and that both local and non-local dynamics are critical to ensuring this success. Thriving clusters must ensure that both private and public initiatives “complement each other and (build) on existing regional strengths,” and local civic associations are cited as having a pivotal role to play.

Wolfe D. A. (2016): In A Policy Agenda for the Digital Economy, Wolfe lays out a set of policy recommendations with a focus on, “building on and supporting Canadian strengths in software” and scaling them more effectively. The recommendations include the following:

1. Creation of a technology development agency: Wolfe argues that “what is lacking in the Canadian system is a focused and autonomous agency charged with the mission of stimulating radical innovations that are close to the technological frontier.” He cites the U.S., Israel, Finland and Ireland as successful adopters of this model. In his view, these agencies are successful when they are “effectively insulated from short-term political pressures to produce results” and are relatively inexpensive, with budgets typically ranging from $300 million to $400 million per year.
2. Development of a federal strategy for the sector: The purpose of the strategy would be to identify existing strengths and “make strategic decisions about the areas where we could achieve maximum leverage in the shortest time frame with the minimum amount of additional federal spending.” Wolfe stresses that the process of developing this strategy needs to be iterative, given the constantly changing nature of the sector.
3. Increase availability of risk capital: Wolfe advocates Canada adapt the U.S. Small Business Incentive Research program, whereby federal agencies must set aside a portion of their research and development budgets to assist small enterprises with technological innovation. Adoption would not involve simply copying the U.S. program, as the program would need to be tailored to Canada’s circumstances.
4. Policies to build firms to global scale: The paper advocates for a new program that would identify Canada’s most promising start-ups and “provide them with resources in strategy, revenue generation, talent management and growth capital to help them scale up” and serve global markets, not just continental ones.
5. Local and regional strategies for digital innovation: Wolfe notes that the local context is important when considering the challenges that firms and ecosystems faces. He cites The Action Plan for Prosperity and summarizes a set of policies designed to strengthen clusters at the regional and local levels. There needs to be alignment between academia (universities, colleges and research institutions) and the private sector, he concludes, particularly when it comes to research and training. Furthermore, the report advocates “the creation of a national network to share know-how and best practices on how to improve cluster competitiveness and reinforce cluster development.”

4WHAT OUR ROUNDTABLE TOLD US

At the beginning of August, we headed to Communitech in Kitchener, Ont., and met with a group of two dozen representatives from start-ups, established technology firms and government and asked them to identify the biggest bottlenecks to innovation in the technology sector. Here is what they told us.

Technical skill gaps: As with past roundtables and reports, skills shortages and technical skills gaps were cited as the No. 1 issue facing technology firms. In the view of the participants, there were simply not enough trained workers to fill the technical jobs generated by firms, though they were encouraged by expansions to the University of Waterloo and Western University’s co-op programs.

Despite these skills shortages, roundtable members recognized that there are communities that are largely locked out of the technology sector. One participant noted how Canada, unlike the U.S., lacks quality data on the participation rates of women and visible minorities in the sector. Despite the fact (according to one roundtable member) that in many cases that visible minorities are disproportionately more likely to use technologies such as Twitter, they are largely excluded from the development of those technologies. Over-reliance on “paper” credentials was seen as an issue, and roundtable participants noted that, despite skills shortages, many firms were unwilling to hire from non-traditional sources. There appeared to be universal agreement that companies, governments, universities, colleges and high-schools all need to do more to increase the technical skills of underrepresented communities, for both human-rights reasons and as a practical way to fill technical skills gaps. Infrastructure also plays a role, with access to low-cost broadband in community housing cited as one way to bridge the digital divide. A number of roundtable members lamented that the task of skills development is too often left to underfunded, or unfunded, community organizations.

Business skill gaps, commercialization and scaling up: Many members of the roundtable expressed concern that talent shortages in the tech sector are frequently thought of only in terms of science, technology, engineering and math (STEM) skills. A number of participants noted a lack of managerial talent in Canada, particularly for helping high-growth firms scale-up. Gaps were identified in business school curriculums, and there was a general feeling that business schools train their students to be managers in traditional, slower-growth industries and that high-growth firms require a different skill set. The Canadian pool of experienced managers, particularly product managers, for high-growth firms was seen as too small for Canada’s current needs, and only immigration was cited as a short-term fix. The low rate of commercialization in the sector was a related issue cited, and this could be linked to a lack of managerial talent. Participants noted that while many useful innovations were being generated, they were not being sufficiently commercialized. One roundtable member felt that this was, in part, due to a far greater focus on measuring the inputs of innovation than the outputs. Another suggested that non-tariff-based trade barriers make it difficult for Canadian companies to export to key markets, and that Canadian trade negotiators focus too much on the export of physical goods, such as cars and oil, and not enough on the export of digital goods and services.

Talent retention: Retention was cited as one of the biggest issues plaguing the Kitchener-Waterloo cluster, with more than one roundtable member lamenting the high number of technology workers and University of Waterloo graduates that migrate to Silicon Valley in California. The roundtable was largely in agreement that smart, ambitious young people migrated because they wanted to be “where the action was.” A few roundtable members felt that the Kitchener-Waterloo cluster suffered from a branding and marketing problem: Canadians were simply too polite to celebrate their successes, and so they suffered a shortage of “evangelists” for the local cluster. The participants believed that the more publicly visible visionaries there were for the cluster, the more the talent would see it as a place “where the action was.”

It was noted by several members of the roundtable that solely in terms of disposable income, technology workers were better off in the Waterloo cluster owing to the exceedingly high cost of living in the San Francisco area. It was noted that improving both intercity and intracity transit would help retain workers, as it would allow the technology sector’s workers to get around the city and get to the big city amenities of Toronto without having to pay the considerable expense of a car.

Improved talent attraction was seen as a way of also increasing talent retention, as smart, ambitious people want to be around other smart, ambitious people and it would increase the overall number of opportunities in the cluster. Finally, one participant felt that we should not see people going to the U.S. to work as wholly negative, as those technology workers are often “brand ambassadors” for Canada and create valuable links between the Silicon Valley and Kitchener-Waterloo ecosystems.

Talent attraction: There was considerable consensus around the table that Canada’s immigration and foreign-worker programs were ill-suited to the needs of the technology sector and participants were cautiously optimistic about coming reforms. Roundtable participants reported that application processes can take six months or more, a length of time unworkable for high-growth industries. Roundtable participants believe there is a global war for tech talent, and that we are losing to jurisdictions with more responsive immigration and foreign-worker programs.

Access to capital: A lack of access to capital was seen as one reason why talent migrates to Silicon Valley, though some roundtable participants felt there was reasonable access to private venture capital in Canada. One participant felt the biggest gap between Canadian and American venture capital access was the lack of appetite for “moonshots” in Canada; it was felt that very high-risk but potentially high-reward companies would likely need to go to the U.S. for funding.

Funding program coherence: Several of our roundtable participants talked about the “alphabet soup” of government funding programs, many of which have overlapping mandates. One member cited the findings of the Jenkins Report and said that the “excessive compliance costs for claimants” creates a barrier to access. Another advocated that the application process be streamlined and noted that an application process that takes six months or more is incompatible with a fast-moving industry like the tech industry. One participant suggested that the federal government could do a better job of providing “tailored advice” to help small- and medium-sized businesses navigate the system. Building on that comment, another member cited Mexico’s ProMexico as best-in-class.²⁰

Final thoughts: At the beginning of the roundtable, one participant simply said, “Three things worry me. Access to talent, access to markets and access to capital.” Those themes permeated the discussion. It was not largely centered on what governments should be doing more of, but rather on what they can be doing better (or occasionally less of). Coherence was an over-arching theme of the two-hour discussion; it was felt that government policies, whether they be on training, infrastructure, research and development or immigration are often overly complicated or at odds with the stated priorities of those governments.

16 The State of Canada’s Tech Sector, 2016 http://brookfieldinstitute.ca/research-analysis/the-state-of-canadas-tech-sector-2016/
17 [source?]
18 Brant, 2016
19 DEEP Centre, 2015
20 These sentiments are echoed in Boothe, 2016.

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