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June 15, 2016

Government Can, Business Must When It Comes to Innovation Leadership

 

Over the past several months, most articles on Canada’s weak innovation and commercialization performance have focused on the role of government and what programs and initiatives our new federal government can offer to improve business research and development (R&D) spending and, hopefully, commercialization.

There’s no doubt government has an important role to play in setting the policies and frameworks that catalyze and incentivize innovative economic activity. However government alone cannot and will not pull Canadian firms into sounder competitive territory.

Rather to build globally competitive firms, we need to ask why firms themselves aren’t stepping up to invest into the technologies and processes that drive global competitiveness. As Scotiabank CEO Brian Porter noted at his company’s annual general meeting in April, “While governments can create the conditions for innovation to thrive, Canadian companies need to step up to be the primary drivers.”

His comments are apt, and point to the far more important issues that are at the heart of our economic and competitiveness challenge: across nearly all cohorts of Canadian firms, business spending on R&D is stagnant if not declining and our firms export far less intensively than those in competing jurisdictions. Moreover, as noted by the Branham Group, of 164 transactions involving Canadian technology firms between April 2004 and February 2012, just one saw a Canadian firm as the acquirer.

It’s hard not to draw a rather dramatic conclusion – we’re not playing to win.

To be fair, there are encouraging signs. R&D spending by startups is growing rapidly, and more large firms across financial services, resources and manufacturing are getting engaged in our startup communities.

Such engagement, however, is pretty small when compared to the moves made by major companies in other countries. General Motors’ USD 500million investment in ride-sharing application Lyft is one recent example. Campbell Foods’ USD 125million investment into food startups is another. And the presence of over 100 active corporate venture capital funds in the US versus just a handful in Canada is a key component of the capital challenges facing early stage firms across Canada.

Ultimately, this is about sheer competitive spirit. Firms can either invest and acquire their way into competitive positions or they’ll see others race by. They can either aggressively seek competitive positions in emerging markets or leave future growth to others.

These private sector decisions will shape Canada’s future.

This is not meant to negate the role of government in facilitating and catalyzing innovative activity. In every high-output innovation economy, government plays a major role. A focus on streamlining Canada’s innovation support system, using procurement as a means of providing anchor clients for domestic firms, and doubling up our focus on high-growth firms is necessary.

However Canada already offers firms some of the most generous support for innovation in the world. And yet the data on business investment highlights that domestic firms exploit those incentives far less than in other jurisdictions.

Changing this corporate behavior is the key to our prosperity challenge.

Part of the solution likely lies in our education system, and in helping Canada’s future corporate leaders understand how fast new markets move. As it stands just 3 percent of Canadian undergraduate students travel abroad for their studies annually as compared to 30 percent, 11 percent and 10 percent in Germany, the United States and Australia respectively.

We can’t wait for a next generation though. We need today’s corporate leaders to invest more aggressively in the future, atleast at a level on par with what corporate champions around the world are doing. And to do so we need shareholders and investors to demand innovation-first strategies that bake resilience and long-term corporate sustainability into the DNA of Canada’s corporate leaders.

Dan Herman is the executive director and co-founder of the Waterloo-based Centre for Digital Entrepreneurship and Economic Performance (DEEP Centre).

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