New report says Canada has private sector R&D capability to be top innovative nation

15th to 5th objective achievable

A new report being circulated by the Information Technology Association of Canada (ITAC) demonstrates that Canada’s chances of entering the exclusive grouping of the world’s top five innovative economies by 2010 lie in the hands of about 60 companies. But the target is only achievable if these high-growth, R&D intensive companies can overcome barriers that could prevent them from generating the necessary revenues and hiring sufficient skilled personnel.

The impetus for the report — Can Canada’s Private Sector Do Its Part to Move Canada into the Five Most Innovative Economies of the World? — was sparked by the government’s objective of moving Canada from 15th to 5th in the world, gauged by R&D spending as a percentage of gross domestic product. Report author Dr Douglas Barber, past president and CEO of Gennum Corp and co-chair of the Ontario Science and Innovation Council, was determined to more fully explore the capability of Canada’s most innovative firms to deliver on such a challenge.

The report notes that for Canada to move from 15th to 5th and contribute to an overall R&D intensity of 3.1%, the private sector must increase its R&D outlays by 145% over the next eight years. That entails moving from $12 billion in 2001 to $29.4 billion in 2010 — a compound annual growth rate of 10.5%.

With modest seed funding from Industry Canada, Barber gained access to the corporate R&D database of Research Infosource Inc (an affiliate firm to RE$EARCH MONEY) and extracted all firms whose R&D intensity was between 3% and 50%. The database yielded 161 firms in 2000 and 259 firms in 2001 within that range, accounting for about 80% of private sector R&D. A brief questionnaire was then mailed to these firms asking them to estimate future growth, future R&D spending and identify barriers to achieving growth.

“It surprised me to see that the private sector can probably do its bit. I thought it was too small a group,” says Barber. “Responses to the report are now coming in and I’m gratified to hear that the bigger innovative players are expecting to maintain growth and R&D expenditures as a percentage of revenue over the next several years.”

Skepticism surrounding the legitimacy of the 15th to 5th target has been coupled with the realization that the very firms being counted on to boost their R&D outlays were not properly engaged last year when the government undertook consultations on the innovation strategy. Barber says the participation by these firm was virtually non-existent, as many were cynical and doubted the exercise would affect meaningful change.

“The consultative process surrounding the innovation strategy did not engage this community effectively,” states the report. “We must seek the counsel of this community as systematically and sensitively as possible. They face challenges that demand their attention. Wasting their time is not a way ahead.”

Barber contends that their absence from the discussions resulted in skewed advice leading to policy distortion that could undermine Canada’s ability to meet the ambitious target. He says the current dominant thinking emphasizing technology transfer from universities to the private sector and receptor capacity is dangerous.

“To my mind this is wrong. Nothing works that way and it puts pressure on academics to do things that they are not used to doing,” says Barber. “You got these aberrant and errant kinds of things emerging from the consultations because the private sector was not there. They were facilitated meetings dominated by bureaucrats and what ends up being published will be too watered down to be useful. ”

IMPOSING BARRIERS

While there is reason for optimism that the 15th to 5th target can be reached, the report makes clear that the challenge of such a task is enormous. The high-tech downturn beginning in of 2001 impacted negatively on private sector R&D growth, with the crash of Nortel Network Corp’s R&D outlays leading the way. But Barber says there is confidence that the technology sector will eventually pull out of its slump, leading to the kind of compound growth rates in R&D required to meet the target.

“It appears that the R&D commitment can weather storms of short-to-medium term duration. The psychology of a research intensive organization is that the best way out of a downturn is through innovation,” states the report.

SKILLS SHORTAGE CERTAIN TO INTENSIFY

A potentially more serious barrier is in the availability of skilled personnel. Barber acknowledges that the high tech downturn has created some breathing room, but asserts that the issue of insufficient human capital will return with a vengeance.

“There was a meltdown of exuberance following the dot com era so it’s easier to recruit today,” he says. “But certain skills are still in short supply. We’re in an anaesthetic period now but I don’t know how long it’s going to last. Information technology is still going to be 50% of the growth engine for economies like Canada and the US.”

The report states that the number of highly qualified people employed by the high-technology sector must increase from 70,000 in 2001 to 140,000 by 2010. Technical support personnel will need to increase from 150,000 to 300,000 in the same period. To produce this volume of human capital, an additional 4,500 professors is required in addition to replacing the 7,000 professors slated to retire over the next eight years.

The dilemma outlined in the report is similar to that addressed by the eMPOWR initiative several years ago (R$, December 20/00, April 4, October 10 & November 13/01). Barber was heavily involved in that industry-backed lobby campaign to boost the flow of skilled personnel, although there is one distinct difference.

“This report is really the larger context of eMPOWR. It’s not looking out for a certain sector of a growing economy, rather it’s looking at the innovation-intensive growing economy,” he says. “We need to change how we prepare young people for the future.”

Barber hopes that the initial report will generate sufficient interest within Industry Canada that it will provide more funding to expand the scope of the study.

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