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There’s no better time for Canada to buy into its own innovators

Iain Klugman is CEO of Communitech. Kevin Lynch is vice-chair of Bank of Montreal and former clerk of the Privy Council.

As the Canada-Europe trade agreement and the Trans-Pacific Partnership expand the global marketplace for Canadian firms, our technology and innovation sector faces a paradox that opens a window on Canada's chronically low productivity levels – companies often have more success selling their innovative and productivity-enhancing new products abroad than at home. We need some game-changing solutions to this long-standing problem for the mutual benefit of our established firms, our technology innovators and the Canadian economy.

In recent years, but especially since the 2008 global financial crisis, hundreds of talented young Canadian entrepreneurs have launched commercially viable tech startups. These innovators, many of whom have come out of startup accelerators both here and abroad, know how to attract early-stage and venture investors.

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Yet, despite their success in bringing new technologies and innovations to market, many of these nascent firms too often slam into a wall when they attempt to tap the domestic market, specifically when trying to sell into established Canadian firms and government procurement agencies. And this constrains their ability to scale up and grow exponentially from a Canadian base.

The paradox is a byproduct of a dynamic tech sector. These upstart firms enable their customers to be more productive, more innovative and to grow faster as a result. Yet our established companies and governments are failing to take advantage of all that homegrown talent and technology.

While some larger Canadian corporations do invest heavily in new technology, many more don't. Indeed, national research and development (R&D) statistics, which are weak by international benchmarks, are actually skewed upward by the activities of the few, not the many.

Equally, Canada's public sector is exceedingly risk averse when it comes to buying leading-edge technology in general, and technology from startups and smaller firms in particular. This penalizes government sector productivity.

The result of all this is a peculiar kind of vicious circle.

A growth-oriented, wealth-producing tech sector is stymied by lack of early access to the important domestic market. Larger Canadian firms, meanwhile, are missing out on opportunities to boost their own productivity and competitiveness through strategic investments in cutting-edge technology and innovation.

And governments, and therefore taxpayers, lose out twice. They forsake opportunities to make their own services more productive and cost-efficient. But they also fail to exploit the leverage of their own substantial procurement budgets to support, on a competitive basis, growth-oriented Canadian technology firms that create jobs and generate tax revenue.

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So, where does the onus for change lie? It is not just with governments.

In Corporate Canada, apart from a handful of leaders, too few Canadian firms provide insights about their innovation and research investments relative to best-in-class global benchmarks for their sector. How do Canadian firms' annual investments in innovation and research stack up against such global leaders in each sector we compete in? If we're unable to answer the question, can we credibly expect to win on the world stage?

Corporate boards could demand and deliver more transparency in terms of benchmarking the R&D and innovation performance of their companies. Large public and private sector pension plans, many of which have pressed corporate boards for improved governance, sustainability and disclosure reforms in recent years, also have a role to play. They could be pressing for more expansive R&D and innovation investment disclosure and benchmarking of Canadian listed companies relative to global best-in-class performance on innovation and research. Information-driven competition and market suasion can drive best-in-class practices.

Canada's sluggish private sector R&D and innovation record, and low productivity, are not new stories. But as our economy continues to adjust to a world with lower and more volatile growth, and as Canadian exporters adjust to competing in an increasingly globalized world, the technology and innovation story takes on renewed competitiveness urgency.

As we know, periods of swirling economic uncertainty provide policy-makers and corporate leaders with opportunities to adopt new thinking about competitiveness, and make strategic changes in direction.

This is one of those moments.

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