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Ontario grant to help OpenText create up to 1,200 jobs

The OpenText building in Waterloo, April 11/2006.

Kevin Van Paassen/The Globe and Mail

The government of Ontario says it will secure hundreds of new tech sector jobs with a $120-million partnership with software giant Open Text Corp.

The Waterloo, Ont.-based company said it will create up to 1,200 jobs in the province over the next seven years, as well as invest $2-billion in staff and facilities. The new hires will be based in Toronto, Peterborough, Ottawa, Richmond Hill, Kingston, as well as in its home town.

"We're a global software company, and there is a real fight on where to place labour today," Mark Barrenechea, chief executive of Open Text, said in an interview. "Ontario is there as a partner to help incent and motivate us to have that next growth initiative here."

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Open Text has expanded from its core software business and has been an active acquirer of other companies. It now employs 8,200 people globally, but only 16 per cent of those employees are based in Canada, and lately the growth has been coming from outside the country.

"Over the last five years, Open Text has tripled their employment worldwide. During that period, the growth in Ontario has only been 1 per cent," said Eric Hoskins, the provincial minister of economic development, trade and employment. The agreement with Queen's Park will double Open Text's work force in the province to 2,400.

The move follows the province's $190-million deal to help generate 1,700 jobs at Cisco Systems Inc. late last year. Cisco said it will create a research and development hub in Canada.

The Open Text jobs will be higher-salaried positions in areas such as software engineering, information technology, and finance. The province has stipulated that new employees must make 35 per cent more than the average provincial wage to count toward the partnership. The average Ontarian in a full-time position makes about $64,000, according to Statistics Canada's figures from 2012. Open Text also agreed that more than 30 per cent of the jobs created will be in research and development. Another 10 per cent will be reserved for younger workers under age 30.

"I'm a strong believer in every year, you get the best that come out of university because they think different, and you want to inject your organization with the 'think different' every year," Mr. Barrenechea said.

Mr. Hoskins said he approached Open Text after the company acquired cloud-based business-to-business (B2B) service provider GXS Group late last year. GSX is headquartered in Gaithersburg, Md., and he wanted the integration and expansion of this business to happen in Ontario, rather than the U.S.

"I indicated to them at that time that the government was very interested to partner with them," Mr. Hoskins said. "They have a presence in 33 countries, we wanted to make sure this expansion and job creation happened here in Ontario, so that was the basis for us stepping forward."

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"What this tells any technology company in the world is here's government that plays favourites," said Gregory Thomas, federal director of the Canadian Taxpayers Federation. He called the move destructive and short-sighted.

"Ontario needs to figure out how to build a business environment where world class tech companies can succeed," Mr. Thomas said. "We've had catastrophic experiences with Nortel, BlackBerry is fighting for its life. And the Ontario governments response is to hand $120-million of taxpayer money to OpenText?"

Paul Boothe, director at the Lawrence National Centre for Policy and Management, said governments should evaluate these types of partnerships the way private sector investors would, by analyzing the returns they get when firms pay and employees pay taxes.

"If you're an investor, you have a budget and you look at alternative investments," Mr. Boothe, who is also a professor at the University of Western Ontario, said. "We have to be open to this, but the check on that is treat it like an investment. … Some of these deals won't be worth it, and some of them will."

Mr. Boothe acknowledges critics who believe the government should never issue this kind of funding to private companies using taxpayer money. But cutting off all funding might mean countries will move to other jurisdictions that are offering incentives, he said.

Open Text competes for the best employees with other companies that have agreements with public partners, such as LinkedIn Corp., Inc. and Twitter Inc., which received tax breaks and other funding, Mr. Barrenechea said.

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The province's investment changed where the company decided to hire more staff. "As a Canadian company where we have 5 per cent of revenues in Canada, and 95 per cent of revenues outside of Canada … it really is a global war on talent," Mr. Barrenechea said. "We have choices to make where we want to see that expansion."

Open Text will be paid by the government in instalments over the course of the next few years. "It's sort of pay-as-you-go," Mr. Hoskins said. The province will hold back 30 per cent of the funding until all thresholds are met, and negotiated five years of job protection after the target is reached.

But Mr. Barrenechea said Open Text is "in it to hit the target," and added that the government's contribution would not be used to pay executive bonuses. "I wanted to make sure there was no controversy on that point," he said.

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