The sale and breakup of a flagship technology company is a reoccurring theme in Canadian business. But this time is different. If BlackBerry Ltd. goes, there is no ready replacement. That’s a telling switch from the situation Canada faced with the sale of Newbridge Networks in 2000 and the demise of Nortel Networks in 2009.
More than a decade of declining business investment in research and development has left Canada without an obvious BlackBerry successor. Despite bright spots in Waterloo, Ont., and Ottawa, the country’s performance on most of the important benchmarks of innovation has been deteriorating for years.
Blame business. Governments have kept up their end of the bargain by bolstering research funding for firms and universities – to the point that Canada now ranks first among the Group of Seven industrial countries in higher education research. And the number of Canadian science and engineering PhDs has soared in recent years.
Yet, R&D performed at the corporate level keeps slipping. From 1.14 per cent of gross domestic product in 2006, private sector spending on R&D declined to 0.89 per cent in 2011. By that measure, Canada fell to 25th from 18th place among the 41 countries measured by the Organization for Economic Co-operation Development.
The result is an innovation bottleneck. An abundance of science is generated in university labs and startup firms but most of it never finds its way into commercial applications. Risk-averse banks and too many businesses of the bird-in-the-hand variety remain the weak links in Canada’s innovation system.
“We punch above our weight in idea generation,” observes Michael Bloom, who leads the Conference Board of Canada’s Centre for Business Innovation. “But the further you move towards commercialization, the weaker we get as a country.”
If Blackberry is sold – as seems likely after the board announced a strategic review and hired investment bankers – it will most likely be carved into pieces. That stands to make Canada’s innovation situation worse. The company, which benefited from government grants and loans in its early days, has given back by nurturing the countless startups for which BlackBerry is a customer or mentor. Nortel played a similar role in its day. The loss of an anchor can compromise an entire ecosystem of innovation, making it even harder for startups to make the leap to commercialization.
Ironically, Mike Lazaridis, the creator of the BlackBerry and the company’s long-time co-CEO, opposed the dismantling of Nortel – “chopped up and sold off like so much cordwood,” in his words – telling a parliamentary committee in 2009 that “the most important research programs are performed in close proximity to the headquarters of global leaders.”
“We can’t lose all of those [flagship] companies,” Mr. Bloom insists. “It’s crucial that we have successful enterprises and that they grow. One of the big issues is having the management capacity to keep the innovation going.”
The next BlackBerry need not be a tech firm. Innovation can be driven by any sector, even the old-economy resource extraction business of the oil sands. But tech firms remain by far the most R&D-intensive players in any economy.
Hence, the tech sector is a key barometer of a country’s innovation strength. And innovation matters because it has a profound influence on our living standards – it is “the key long-run driver of productivity and income growth,” the OECD says.
Somehow, Canadian business didn’t get the memo. At its peak in 2000, Nortel, the now-defunct Canadian telecommunications equipment maker, spent $6-billion on research, a sum that dropped to $1.67-billion in 2008, just before its bankruptcy. Even then, Nortel remained Canada’s R&D leader.
Luckily for Canada, BlackBerry hit its stride before Nortel collapsed. Almost by default, the Waterloo-based firm became Canada’s biggest R&D spender. But even with outlays of $1.54-billion in 2011 – some of which was spent developing its line of BlackBerry 10 phones – its expenditures on R&D were barely a quarter the amount Nortel was spending a decade earlier.
Indeed, overall R&D funding by Canadian firms has fallen in both real and nominal terms in recent years. Canadian companies allocated $14.1-billion for research in 2012, down from $14.9-billion in 2006. Though the recession may partly explain the drop, R&D spending does not appear to have picked up with the recovery.
This is not where Canada needs to be in a world in which knowledge-based capital is increasingly supplanting physical capital and labour as the main driver of productivity growth, competitiveness and standards of living.