ITAC report throws cold water on Ottawa’s goal of creating 10 clusters by 2010

Industry Canada target “not achievable”

A new report is adding more compelling evidence that Ottawa’s innovation target for creating at least 10 internationally recognized technology clusters is unrealistic and should be changed. The report — Silicon Valley North: The Formation of the Ottawa Innovation Cluster — was commissioned by the Information Technology Association of Canada (ITAC) and examines the key ingredients of Ottawa’s telecom cluster.

Authored by Dr Jocelyn Ghent Mallett, the report says that governments can provide valuable assistance in helping to create some elements essential to cluster formation. However, it stresses that governments cannot create clusters, foster visionary leaders or create close-knit entrepreneurial communities so essential to cluster formation (see box next page). The inability of government to control the extent and pace of cluster formation raises serious doubts about whether Ottawa’s target of developing 10 major clusters is viable.

“The target is a tough one to meet. If it was 25 years you’d see real progress, but eight years? The best you’re going to do is get started,” says Dr Adam Chowaniec, chairman of Tundra Semiconductor Corp, ITAC vice-chair and chair of ITAC’s Innovation Committee. “You need to be objective and not political here … There’s a danger of the cluster idea being used as a regional development program and that’s not what it is about. You can’t pick where these will occur.”

Many observers are suspicious of the government’s rationale for setting such ambitious targets for its innovation strategy. In addition to the 10 clusters, Ottawa is seeking to raise venture capital investment per capita to current US levels and move Canada to number five in terms of R&D spending per capita as a percentage of GDP.

In the case of clusters, sources tell RE$EARCH MONEY that the target was almost certainly lifted from the National Research Council’s strategic plan. It was then inserted into the innovation agenda with little thought for how it could be achieved. The ITAC report demonstrates how difficult, time consuming and arbitrary cluster formation can be.

“(The target) in my opinion is not achievable. Eight years is an awfully short time period,” says report author Mallett. “The government cannot drop clusters like so many apple seeds across the country. You have to be extremely selective and look for that deeply rooted R&D strength.”

The ITAC report was commissioned shortly after the innovation strategy was released last February due to concerns that the cluster target was “uninformed” says Linda Leonard, ITAC’s VP communications and research.

“It struck us as particularly arbitrary. Clusters are like motherhood but we shouldn’t assume they are easy to produce,” says Leonard, adding that a target of three would be more realistic. “We need to reduce the amount of artificiality and non-strategic investment that a commitment to 10 clusters might generate.”

Considerable research has already been conducted on clusters and cluster formation and much more is underway. The Innovation Systems Research Network (ISRN) is now in the field studying regions across Canada and a compelling body of research is beginning to take shape.

Dr David Wolfe, a Univ of Toronto professor and ISRN coordinator, says he also has concerns about the innovation strategy’s cluster target since it was first announced last February. He agrees that it should be changed.

“The innovation summit would be a good time to modify the targets and make them more realistic, achievable and quantifiable,” says Wolfe. “It doesn’t help if it’s not quantifiable and internationally recognized is not a criteria. You can’t measure it.”

As the ITAC report explains, Ottawa’s R&D strengths are certainly deep and well rooted, with their origins dating back to the late 1940s. The presence of the National Research Council and the decision in the late 1950s by Northern Electric (now Nortel Networks Corp) to locate its R&D activities in the area, laid the R&D basis for Ottawa’s telecom cluster. But it wasn’t until the 1960s and confluence of R&D with other essential factors that cluster formation began to take place. By the 1980s, several other major firms emerged, leading to a period of consolidation and critical mass that exploded in the mid 1990s.

R&D DEPTH MOST IMPORTANT FACTOR

The report notes that strength in R&D is the single most important factor in the formation of a cluster, particularly when there are strong links between the private, public and academic sectors. It also cites Ottawa’s “visionary entrepreneurship”and the leadership networking role played by the Ottawa Carleton Research Institute (now the Ottawa Centre for Research and Innovation) as critical factors.

The only weakness evident in the Ottawa model was access to capital, which likely slowed cluster formation. Its uniqueness comes from the demonstrated ingenuity in overcoming this shortcoming. With little capital available, government stepped in with assistance of various types, notably the scientific research and experimental (SR&ED) tax credit program, the Defence Industry Productivity Program and the Microelectronics Systems and Development Program.

The private sector also worked to overcome the capital deficit with the formation of the Ottawa Capital Network. The creation of labour-sponsored venture capital funds was also instrumental in providing scarce financing, in particular Capital Alliance Venture Inc. They were joined by private venture capital from Celtic Investments (formed by Terence Matthews, former head of Mitel and then Newbridge) and Skypoint Capital.

Rapid cluster growth led to the emergence of angel investors, seeding even more spin-offs from the region’s major firms. By the mid 1990s, Ottawa achieved critical mass and began attracting huge amounts of domestic and foreign venture capital. A major global cluster had finally emerged.

“Access to venture capital never played a significant role in the formation of the Ottawa cluster, which suggests that this element may be a less critical factor in cluster formation when the other elements — in particular, the entrepreneurial element, are there,” states the report. “The way Ottawa blended four of the five ingredients deemed necessary to cluster development (as well as the way it survived the absence of the fifth element), might be unique.”

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