Blog Post

Failure to Thrive: Why Canada Struggles to Grow World Leading Tech Companies

The Council of Canadian Academies (CCA) has produced a number of comprehensive reports on S&T and innovation since 2006 including two published in 2018: Competing in a Global Innovation Economy and Improving Innovation Through Better Management. The CCA’s findings were consistent with past studies, presenting an ideal opportunity to assemble several thought leaders from industry, government and consulting at the 10th annual Canadian Science Policy Conference to discuss these issues. The Panel was comprised of: Pierre Lortie, Senior Business Advisor at Dentons Canada LLP; Lisa Crossley, CEO at Reliq Health Technologies; Judy Fairburn, Board Director at various Canadian innovation, corporate, entrepreneurial and government/policy organizations; Victoria Lennox, Co-Founder and CEO at Startup Canada; and Iain Stewart, President at National Research Council. Moderated by CCA President and CEO, Eric Meslin. The panel engaged in spirited discussion, which is captured in an informal transcript-like form here.

For more than 100 years, successive Canadian governments have bemoaned the country’s inability to grow firms into large, globally successful industry leaders. While much effort has been expended to address this phenomenon, the results have been middling by most informed accounts. Indeed, over the last decade, several large-scale tech companies grown in Canada have failed to thrive, losing their market shares, withdrawing from global markets, and even closing their doors. Canadian researchers, expert panels, and other authoritative bodies have become proficient at offering reasons for why these phenomena occur including technical and management skill gaps, weak IP policies, inadequate venture capital, too much (or not enough) tax support, and small domestic markets. However, the experts have been unanimous about what these conclusions mean. Maybe we’re asking the wrong question: Does it matter that Canada does not regularly grow firms into large industry leaders? Do Canadians really want to scale companies? Are we content attracting foreign subsidiaries with world leading research capacity and infrastructure, and exporting ideas and innovations to be developed in other markets?

The panel began with a disagreement: not all panel members agreed that Canada has a problem with its technology companies failing to thrive. Pierre Lortie reminded us that Canada is home to many successful businesses that occupy leading positions in global markets, such as Bombardier, CAE, Aldo, Canada Goose, and Aliments Couche-Tard. Lisa Crossley, Judy Fairburn, and Victoria Lennox disagreed for different reasons. Lisa highlighted that there is a lack of public support to help companies scale with most investment directed to small and medium-size companies. In addition, there is a shortage of managerial talent in Canada, especially in high tech industries. Judy suggested that Canadian investors are often risk averse, preferring to invest their capital for short-term return which leads to companies “selling out” rather than building the next generation of technology and IP “moat” strengthening. Borrowing a baseball analogy, entrepreneurs are pursuing a “single after single” path, instead of trying to hit homeruns. Victoria pointed out that Canada forgets to include start-ups as part of its innovation community, noting that Canada’s start-up ecosystem is weak compared to other countries; innovation is as much a social phenomenon as an economic one, requiring all Canadians to get involved. This led the discussion to the next question. What role does the Canada government play in getting involved?

Following this exchange of ideas, the panel suggested Canada should provide more support both as direct investment and in the regulatory environment — to help companies commercialize their products, access growth capital, and enter foreign markets, improving their odds for thriving in global markets. Iain Stewart tackled this theme directly by addressing the decades-long history of governments in Canada providing funding support for academic, government, and industrial research (e.g., NRC’s IRAP funding for technology SMEs, VCAP, and superclusters). He noted that Canada’s challenge traditionally has been the low level of investment in R&D and innovation by the private sector. Building on this, Lisa pointed out that some private investors expect new companies to exit markets within three to five years. As such, companies are pressured to build and sell rather than to grow and mature. With relatively little funding directed towards companies that are medium to large sized, their growth and expansion into global markets is limited. Pierre agreed, noting that if small high growth companies, so-called gazelles, are to continue their expansion they need greater access to equity than is currently available in Canada. That is why public venture markets are so important. He suggested that today, Canadian policy discriminates against smaller companies going public: their corporate taxes are increased and their tax benefits for research and development are reduced, becoming non-refundable. By contrast, comparable companies that remain private retain these benefits. This needs to change.

The panel also discussed other opportunities to support Canadian innovation. They stated that Canadian governments should purchase and invest in Canadian innovation, such as in healthcare or artificial intelligence, to help grow companies, but noted that Canada is impeded by public procurement rules, resistance to technology adoption, and a talent shortage. To illustrate this, Lisa approached the topic from a healthcare perspective, highlighting that annually, 11% of Canada’s GDP is spent on healthcare (which is roughly $240 billion) and 30-45% of provincial budgets go towards healthcare. Lisa asked why Canada does not have better procurement policies that encourage adoption of homegrown healthcare products, like many other countries, and suggested that Canada appears to have a bias against Canadian companies because it’s harder to sell products within the borders. The Artificial Intelligence (AI) supercluster (SCALE.AI) is a step in the right direction, helping companies across the Canadian supply chain adopt AI technology and providing opportunities for collaboration with academic institutions, incubators, venture capitalists, and others. Iain added to this by noting that the Government of Canada has recognized the opportunity of the digital economy through the Innovation and Skills Plan, and identified AI in particular as a key disruptive technology. This is reflected in granting council and NRC-IRAP bottom-up funding to AI research and firms, through strategic interventions like the Pan-Canadian AI Initiative supporting three newly established AI institutes  —  the Alberta Machine Intelligence Institute (Amii) in Edmonton, Mila in Montréal, and the Vector Institute in Toronto — and through the superclusters initiative, supporting SCALE.AI, BC Digital Technology, and Advanced Manufacturing superclusters. He said that the challenges may be that Canadian businesses are not customers for these emerging new technologies, because Canadian firms invest less in new business software (and so AI software products) than U.S. (and Chinese) firms, resulting in the loss of Canadian AI talent to the U.S., or that our regulatory system or broader social acceptance are not ready for these new technologies.

As we look to the future, the panel agree that Canada should not neglect the need to focus on teaching innovation management skills in addition to STEM skills to our future innovators. This could include expanding access to innovation management education to students across a range disciplines and career stages to invent but also to commercialize these new products and processes. Pierre lamented that a majority of parents in Canada do not believe that their kids will be better off than they were. Victoria agreed, noting that Canada should look at how it brings the innovative mindset into all of the sciences, including the social sciences and humanities. Lisa and Judy suggested that the emphasis should be on developing the CEOs of today and tomorrow. Lisa brought reminded us that less than 2% of tech-CEOs are women. If Canada had more prominent examples of women CEOs this would encourage and inspire younger women to strive for these roles. Judy added that we need to surround CEOs with professionals who can train them how to be leaders, similar to how we surround professional athletes with trainers, helping CEOs become leaders of globally successful industry leading companies

Canadians can build and have built successful, large, globally recognized companies. Today our focus should be on scaling companies in high-tech industries, creating more global leaders and fully capturing the economic and social benefit of the Canada’s research and innovation. Panellists agreed that the federal government is making strides, connecting with the start-up community and building the supercluster initiative. Yet more can be done. Fostering a competitive mind-set, building “can-do” attitudes, and celebrating our successes will build on the talent and culture that has already bred success in Canada. Failing to thrive may soon be a thing of the past in Canada.