Government Must Support the Tech Sector

Published in the Telegraph-Journal 9th January 2012

A confounding paradox exists in the tech sector. Over the last twenty years, the combination of exponentially greater computing power, the decreasing cost of application development and a greater recognition of the value of information technologies has supported a steady demand for technology software and hardware. For users both corporate and consumer, the rewards have been greater agility, speed and efficiency over a wide range of products such as telecommunications, automotive and productivity-enhancing applications. Consumer electronics have greatly increased in functionality while prices have come down across the board. Corporations have marshaled improvements in enterprise resource planning, data mining and quality management to reduce overall costs and speed to market.

But at the same time, major challenges have created an uncertain future in many of Canada’s high-tech communities. In 2007, Ottawa-Gatineau’s tech sector employed more than 70,000 according to Statistics Canada data. But by 2011, the number of high-tech jobs in that region had declined to below 44,000, a fall of almost 40 per cent. It’s true that the Kitchener-Waterloo Technology Triangle region experienced an employment boom in recent years, but that hiring binge has ground to a halt with the instability at Research In Motion. Hiring forecasts have become more conservative in Toronto, Montreal, Calgary and Vancouver. The troubling downturn in tech futures is mirrored in the U.S. where large firms continue to perform well but where the good news increasingly is a reflection of their off-shore holdings.

The global credit crisis did not help. Beginning in 2007, the financial crisis stifled borrowing and equity financing; a shortfall of sufficient investment to finance ambitious growth is a recognized factor in the lackluster expansion in the sector. The high-flying Canadian dollar has not been helpful for many export-oriented firms. Many of the jobs that have been lost have been transferred to lower cost locations such as China, India, Brazil and Korea. In the last ten years, these countries have also significantly ramped up capabilities in design, architecture and engineering so that they essentially have become equal to all but the most sophisticated. Capabilities have become ubiquitous.

Outsourcing has become a common practice among tech companies and many of the manufacturing and basic engineering jobs that have been sent overseas are unlikely to return. So even in the event that the sector regains momentum, it may not be able to create jobs in Canada in the same numbers as before.

New models of competition are beginning to emerge on the horizon in which the biggest unknown variable is the role of government. These models are based on the recognition that, for many companies in the tech sector, it’s becoming more difficult for many companies to produce proprietary products. Large companies such as IBM, HP and Microsoft are a few of a dwindling number that can afford the total development cost of their product line, including process research and development. Increasingly, the new models of competition recognize that the total cost of development can be so great that support from government is required to ensure a stable environment for the participants. One of the critical factors of success of the tech sector in China is the role of government in promoting infrastructural stability, even if that support frequently has been crude. However, in Canada and the U.S., there is only a dim awareness of the fundamental conditions that make the interdependence between corporations and government necessary.

In the face of mounting challenges, the tech sector is at a crossroads. To succeed, we will need to answer the question of the role that government must play in fostering the retention and growth of the industry such that Canadians obtain the full benefits of the country’s investment.

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Filed under economic development, Government transformation, Innovation strategy, Technology engine

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