Does Canada Even Need a Technology Sector?

Posted by Knowlton Thomas

In my mailbox this week arrived the latest issue of Canadian Business, one of my favourite magazines. Instantly I was struck by the cover: it was uncharacteristically stark and jet black, like the rare special issues newspapers sometimes run when an exceptionally salient member of society has passed away.

Only no one died. The 8-by-11-inch glossy tombstone was for Research In Motion.

Gravely titled "It Didn't Have to Come to This" on the cover and "The End of RIM" on the inside, Canadian Business thoroughly documents the rise—and, more emphatically, the fall—of what was for several years Canada's largest, most profitable, and most formidable tech company.

Now, it's worth noting that the magazine has long been a cheerleader for RIM, so for them to pen this feature article, it speaks loudly to the state of perception of the Waterloo company. But we often talk about RIM on isolated terms: RIM cuts 5,000 jobs, RIM's growth has slowed, RIM may have to split into two and sell. And that's not an appropriate lens with which to observe the firm's downfall.

What is more appropriate is to discuss the entire country's tech sector at large, of which RIM remains a very significant chunk of. Those 5,000 jobs? It's not just bad news for RIM, it's bad news for Waterloo. It's bad news for all of Canada, because many of them will fan out across the United States.

We're also at risk of losing the country's biggest research and development spender (by far; $1.4 billion in 2010). This would have substantial implications nationwide, severely afflicting the home-grown creation and commercialization of high technology across Canada.

Sure, some of those 5,000 stick around, and a few will even try to launch their own tech startups. But as Canadian Business pointed out, the same thought followed Nortel's collapse—and that hope quickly faded after a startup-fuelled recovery failed to materialize. And business talent is "very impatient," industry veteran Adam Chowaniec explains. "They won't all stay here."

Canadian tech entrepreneurs and others involved in the scene consider our country's startup ecosystem to be faring well and expanding in most respects. However, everyone knows the usual cycle: a company gets big enough and a foreigner acquires it, extracting valuable talent and assets in the process. And when they don't, Nortel—or, now possibly RIM—happens. That is, an excruciatingly slow and agonizing disintegration.

All of which begs a question: if our rare giants are doomed to fall and our startups are fated to exit outside of Canada, what sort of tech sector do we really have? More important, do we even need a tech sector?

It's not something anyone reading this would naturally consider. But it's a surprisingly legitimate question.

Canadian Business is quick to highlight the fact that we as citizens have tremendously high standards of living and that is largely as a result of multiple other sectors—namely mining, foresty, and oil and gas. So who really cares whether or not our tech sector grows or event exists? Perhaps it is not necessary to the success of our nation. And perhaps it is, especially after studying our history, conceivably impossible to maintain one anyway.

Our population is but a fraction of America's, which places us at an instant, permanent, and steep disadvantage. Further, our tech firms are often valued lower than their US counterparts, which makes coming north for acquisitions an enticing opportunity for American companies with cash in their pockets. Indeed, Byron Capital Markets found that mid-sized tech firms in Canada are valued at a discount up to 34% compared with their US peers.

Maybe that's why American titans like Salesforce keep coming back again and again, sucking the blood right out of us. Should we be bothered by the post-bite itch?

It's not that easy to dismiss technology, though. With a dependency on sectors excluding tech, Canada becomes vulnerably to swings in commodity prices, Canadian Business notes—and we are all aware how volatile those can be. In fact, the magazine suggests that thinking so complacently about our tech sector is "dangerous." We cannot afford to abandon hope, it affirms.

"If what we as a nation are going to focus on is pulling stuff out of the ground, selling it to the world, and then buying back the finished goods, I can tell you from a prosperity perspective which way we're going—and it's not up," John Ruffolo of venture capital firm Omers said of the foresty sector to Canadian Business. "What concerns me is that people start to come to the conclusion that we cannot support a global technology player, so let's not bother anymore."

And it's really as simple as that: yes, Canada does need a tech sector. Moreover, we need Canadians to care that Canada needs a tech sector. We need our startups to become giants, not sell out at first chance; we need our giants to constantly innovate, not succumb to hubris; we need our successes to reinvest in their local ecosystems, not flee south; we need our investors to open their wallets and increase their risk tolerance, not remain trapped in conservative bubbles; and we need our consumers to buy Canadian, not American.

It's easier said than done, of course.

But we do need it.

Company:
BlackBerry
Website:
http://www.blackberry.com
Location:
Waterloo, Ontario, Canada

Research In Motion (RIM), a global leader in wireless innovation, revolutionized the mobile industry with the introduction of the BlackBerry solution in 1999. Since then, BlackBerry products and services have continued to change the way millions of people around the world stay connected. With the launch of BlackBerry 10, we have re-designed, re-engineered and re-invented BlackBerry. Not only did we introduce a... more

Company:
OMERS Ventures
Website:
http://www.omersventures.com
Location:
Toronto, Ontario, Canada

We're OMERS Ventures and we are as passionate about your success as you are about your company. We are looking for like-minded partners who have a shared vision of building a vibrant and successful Canadian knowledge economy. OMERS Ventures is the venture capital arm of OMERS, one of Canada's largest pension funds with over $53 billion in net assets. more


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Knowlton Thomas

Knowlton Thomas

Knowlton is the managing editor of Techvibes. Based in Vancouver, Knowlton has been published in national publications and has also appeared on television and radio. Previously he was an editor for New Westminster weekly The Other Press and served on its board of directors. When not working, Knowlton enjoys playing tennis, hiking, and exploring weird side streets. more



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