Foreign multinational enterprises play an increasingly large role in Canada’s information communications technology (ICT) sector. Canadian officials are encouraging these companies to develop stronger local roots, particularly in R&D, commercialization and production, to ensure that they remain in their particular cluster.
The multinational firms are also in a position to assist local companies by developing supplier relationships.
Foreign direct investment in the Canadian ICT sector has increased by more than 10 percent annually since 1990.
According to the federally funded Industry Canada, in its study “ICT/Life Sciences Converging Technologies Cluster,” ICT is a mature sector dominated by a small number of large global companies surrounded by an array of smaller niche players and component suppliers.
About 32,000 ICT companies are gathered in regional clusters across the country, providing critical mass that takes advantage of Canada’s educational and research infrastructure.
More than 579,000 skilled Canadian workers generate more than $125 billion (Canadian) in revenues for the ICT industry.
A KPMG survey of business costs in 11 countries found that Canada’s cost of doing business was the lowest among the G-8 countries.
The North American Free Trade Agreement emboldens Canada’s approach to the United States by granting tariff-free benefits for U.S.-produced goods.
“Canada’s overall business costs are 9 percent lower than the U.S. average,” said Larry Petovello, director of economic development for the city of Mississuaga, which has an ICT cluster. “Canada has a 20 percent cost advantage over the United States for technical/professional labor and a 23 percent cost advantage for senior management, the lowest corporate income tax rates for R&D, and Canadian cities are overall international cost leaders in 15 of the 17 industry sectors studied [by the KPMG survey].”
As a country, Canada offers a solid value proposition for expanding companies, and is a significant player in the global ICT industry.
Companies Flock to Toronto Metro
Ontario has been a hotbed of ICT activity for the past two decades, with more than 5,000 companies and annual sales of $40 billion of products and services. ICT companies range from homegrown global giants like Mitel Networks, Cognos, Research in Motion and Open Text to foreign multinationals like IBM, Alcatel, Cisco Systems, Dell, Ericsson, Microsoft, Siemens, Motorola and McAfee.
Researchers at more than 40 colleges and universities in Ontario conduct research in every area of ICT, including leading-edge technologies, such as photonics, nanotechnology, Voice-Over-Internet Protocol (VoIP) and wireless broadband.
About 30 minutes north of downtown Toronto, the city of Markham, Ontario, has experienced exponential ICT growth since IBM broke ground on its Canadian headquarters in 1980.
Dubbed Canada’s high-tech capital, Markham boasts 860 tech companies, including ATI Technologies, Motorola, Sun Microsystems, Philips Electronics and AMEX.
“There are more than 650 companies with more than 25,000 jobs specifically in the ICT sector,” said Ted Northcott, senior business development officer in the Economic Development Department of the city of Markham. “They include information services, computer systems design and related services, computer and peripheral equipment manufacturing, software publishers, specialized design services, and telecommunications and communications equipment manufacturing.”
Northcott said Canada has many attributes, including a good educational system, solid infrastructure across the country, and generous scientific and research tax credits.
Prairie Region Offers Knowledge Workers
Moving west into Canada’s prairie region, an alternative model is taking hold — technology parks on the doorstep of universities to leverage access to readily available knowledge-based workers.
At the University of Manitoba, located in the province’s capital of Winnipeg, Smartpark was created to foster the development of Manitoba’s knowledge-based industry through university-industry interaction.
Smartpark has steadily expanded during the past two years, with more than $100 million in capital development and 13 companies joining its community.
Lindsey Wiebe, project coordinator for Smartpark, said she believes Canada can continue to be a leader in the international ICT industry by promoting clustering and the free and open exchange of innovate ideas that speed new technologies to the marketplace. And she’s not worried about competition.
“Canada plays a significant role in the worldwide knowledge-based economy,” Wiebe said. “Opening up the ICT sector to increased foreign investment would promote even greater economic growth in Canada. Investment by foreign firms would bring new technological advancements to our country and promote innovation in Canadian firms.”
Foreign owners would have the opportunity to build on an already successful model that has been driving the Canadian ICT industry, she said.
ICT companies that setup shop in British Columbia can expect a quality of life that attracts skilled employees from across Canada and around the world, said Mark Mawhinney, director of business development for Leading Edge British Columbia.
A 2003 Mercer Group survey ranked Vancouver, British Columbia, No 2 out of 215 cities worldwide in quality of life.
“Vancouver also ranked favorably for affordability,” he said. “These lifestyle advantages, combined with recent personal income tax cuts, position British Columbia strongly when competing for skilled workers.”
Mawhinney sees foreign ownership as a natural phase of the maturation of British Columbia’s local community and is consistent with global activities.
“The acquisitions that have occurred will help to bring British Columbia along as a more mature technology cluster,” Mawhinney said. “Liquidity events need to occur for investors and entrepreneurs. As entrepreneurs leave their companies, they return to the community to create the next generation of technology companies with executive experience.”
Mawhinney is in favor of removing the cross-border impediments to capital flow, including Canadian tax consequences on U.S. limited liability corporations (LLC). Currently, Canada Customs and Revenue Agency does not consider LLCs to be a “resident of the United States” for purposes of the Canada-U.S. Tax Convention. Such an investor would not be entitled to the preferential treatment that a tax treaty would otherwise provide.
In June, Canada’s national newspaper, The Globe & Mail, reported that British Columbia Premier Gordon Campbell was preparing to ease the tax burden on the province’s tech sector in a bid to spur innovation and dissuade companies from moving intellectual property outside the province when they are close to commercialization. Details of how the incentives will work and who can apply are yet to be determined.
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