Growing Canada’s Technology Triangle

Growing Canada’s Technology Triangle

In light of the news this week about Blackberry, we thought it was timely to look at the strength of the industry in Canada’s Technology Triangle (CTT).

On a relative basis, CTT which comprises the regions of Waterloo-Kitchener, Cambridge, and Guelph, shows similar or more favourable numbers than some of the world’s largest innovation hubs. The invested venture ratio (IVR) – which is measured as the total value of technology companies in a region divided by the amount of equity invested – shows 7.02 number for Waterloo, whereas California (Silicon Valley) and Massachusetts show averages of 5.14 and 4.47, respectively.[1] This means in terms of shareholder value creation the Canadian region outperformed the other more famous innovation regions. Using other metrics, such as Internal Rate of Return (IRR), CTT also outperforms its innovation peers. The greater cooperation between academic institutions and private sector achieved in recent years has also led to increases in the number of spin-off companies and share of academic R&D funded – to an extent that put CTT ahead of the US peers. Comparisons within Canadian boarders reveal that the region has also outperformed the Greater Toronto Area (GTA) in job growth and education attainment. [2] Despite the impressive results, the region does lag behind its peers, both domestic and international, in R&D investment and innovation output. The Institute for Competitiveness & Prosperity identified two main recommendations that can aid in harvesting the region’s full innovative potential: industry-academia relationships and governmental active participation.

In most international innovation hubs, the tight relationships between private sector and academic institutions generate momentum for innovation development. The adoption of technology transfer offices to facilitate commercialization of technological developments within universities has greatly aided the process of taking the innovations to market. This practice has been introduced already in the CTT; however, other practices found in international regions have not. Given that availability of skilled labour has been shown to represent both the biggest challenge and advantage for businesses in the CTT region, strengthening the relationships between private sector and universities seems reasonable.[3] One way to accomplish this is to provide specific tax exemptions for companies that purchase, lease, or finance student-led R&D from local universities. Another option is to offer flexibility on the academic programs to allow students to work full-time and get quality education – an example of that is the Bayh-Dole Act in the United States. These measures can attract talented, entrepreneurial individuals to the region, boosting the innovation output capacity.

Although the idea of taxation incentive is theoretically sound, the results of it show a slight discrepancy. According to many independent sources, Canada and Ontario have the most generous set of taxation rules for innovation development and R&D.[4] Yet, this generous tax system does not reflect dominance in output, which might indicate that the mechanisms behind innovation do not necessary rely on revenue-side fiscal incentives. Nevertheless, the expenditure-side of it shows great results in most international innovation hubs. That is, active government expenditure to finance innovation, particularly for military and defence purposes, can be a great tool for technological advancement. One possibility to boost CTT’s innovation output, and consequently Ontario’s, is to have the government more involved with purchasing, leasing, and financing specific R&D, rather than relying heavily on passive tax credits. Many of the government-contracted research in Silicon Valley and Route 128 (Massachusetts) led to spin-offs and market-oriented innovations. Perhaps one option for the government of Ontario and Canada is to more actively participate in the innovation process.

The CTT region is very important for the economic development of Ontario, and especially for the manufacturing industry, with focus on key technology sectors. Implementing the proposed changes can aid the region to reach full potential in innovation output and R&D. Most of the solutions are borrowed from other innovation hubs across the globe and have the potential to be beneficial here in Ontario.

 

[1] Colapinto, Cinzia. "A way to foster innovation: a venture capital district from Silicon Valley and route 128 to Waterloo Region." International Review of Economics 54, no. 3 (2007): 319-343.

[2] Tom McCormack. “The Growing Importance of Canada’s Technology Triangle.” Centre for Spatial Economics, (2008): 1-20.

[3] Bathelt, Harald, and Alfred Hecht. "Key technology industries in the Waterloo region: Canada's Technology Triangle (CTT)." The Canadian Geographer/Le géographe canadien 34, no. 3 (1990): 225-234.

[4] Ontario Investment and Trade Centre, “Research and Development in Ontario” (2009): 1-17.

Photo Credit: Elena Andreeva, Getty Images 

Category: Technology