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RIM's woes pose tough questions for government

RIM's PlayBook. The key policy objective for the country should be nurturing the next generation of RIMs, not saving particular companies, says federal task force chair Tom Jenkins of Open Text Corp.

Research In Motion/Research In Motion

With Jim Balsillie gone, a lot of people are wondering what the future holds for Research In Motion.

Here are some logical follow-up questions: What would Canada's economy look like without its technology flagship? And to what lengths should governments go to save the BlackBerry maker?

As recently as a year ago, the notion that cash-rich RIM might simply go "poof" seemed fantastical.

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Not any more. The company has acknowledged that all options are on the table, including joint ventures, licensing agreements and even an outright sale.

RIM's importance to Canada shouldn't be understated. The company is more than a homegrown global tech brand.

The firm has been a wealth-creation machine for Canada in the past decade. Clustered around RIM's Waterloo, Ont., headquarters is one of the largest concentrations of math, science and engineering brain power in North America. In fiscal 2012, the company spent $1.6-billion on research and development – more than twice the budget of the National Research Council.

Prime Minister Stephen Harper mused in February that he would not look kindly on a hostile foreign takeover of a company such as RIM, in whose technology Ottawa is so heavily invested.

"RIM … is a strong Canadian company. It's been an important part of the Canadian business landscape, and obviously we want to see that company succeed and continue to grow as a Canadian company," Mr. Harper told Reuters.

It's unclear if Mr. Harper's comments are a subtle warning to potential acquirers, or a pledge not to let RIM fall, as Nortel did.

Finance Minister Jim Flaherty has shown less enthusiasm for intervention, pointing out that RIM shareholders are ultimately "masters of their own destiny."

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The man that Mr. Harper put in charge of a recent federal task force on overhauling federal R&D policy argues that saving RIM at all costs would be a bad idea. Tom Jenkins, executive chairman and chief strategy officer of software maker Open Text Corp., says companies are like people – they're born, they grow up, and eventually, they die.

"Companies go through life cycles," Mr. Jenkins explained in a recent interview. "And what we have to be careful of – whether it's RIM or CAE or Nortel – we have to remember that economic competition is a flow. We can't just look at it as a static thing."

Mr. Jenkins knows RIM well. RIM and Open Text are located barely two kilometres away from each other in Waterloo. Mr. Jenkins and Mr. Balsillie run in the same social circles.

The key policy objective for the country should be nurturing the next generation of RIMs, not saving particular companies, Mr. Jenkins argued. Governments should focus their attention on making sure small and medium-sized companies have what they need to grow into the next RIM, he explained.

"We need to look at what can we do to build those small companies into the RIMs of the future," Mr. Jenkins said. "If we think of it as a static marketplace, and keep it in place, then we're back in the seventies model [of economic development]"

So, yes, governments should do what they can to convince multinationals that Canada is a great place to invest. That means a mixture of tax incentives, purchasing power and strategic investments in startups.

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Often overlooked is the fact that RIM is already the beneficiary of substantial federal largesse. The government was a key early customer for the BlackBerry. A back-of-the-envelope calculation of federal R&D tax credits shows that RIM probably saved more than $1-billion in taxes from 2006 to 2012. Add in matching provincial credits, and all Canadian taxpayers have a substantial stake in the company.

But governments can't save companies from their own blunders and arrogance. RIM's stubborn refusal to settle a U.S. patent lawsuit cost the company $612.5-million (U.S.) in 2006 – nearly four times its R&D budget that year. Then, there were Mr. Balsillie's numerous distractions, including his pursuit of an NHL franchise. And most importantly, there was the company's failure to turn billions of dollars worth of R&D into a successor to the basic BlackBerry smartphone.

No amount of government help will ever overcome those kinds of corporate mistakes.

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More

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