Selling out Canada's knowledge in the knowledge-based economy

By Adam Chowaniec

The current controversy over the sale of Macdonald Dettwiler & Associates Ltd's Radarsat technology has focused a spotlight on the value of intellectual property in the knowledge-based sector. MDA's situation is unique in many ways, but we should be equally concerned about the acquisition of Canadian anchor technology companies such as Cognos Inc, ATI Technologies Inc and a plethora of small players such as the sale in recent weeks of Meriton and Sirific.

Just as governments in Canada (and globally) are investing more in supporting research and development and are increasingly concerned about extracting value from this investment, Canada is losing intellectual property ownership that has taken (in some instances) three decades or more to assemble. Simply put, we are selling out Canada's share of knowledge in the knowledge-based economy. Whatever we generate in new knowledge will take years to commercialize and this in the face of a world where, especially because of Asian growth, our share of the world knowledge base will shrink.

Why do we lose these companies and why are Canadian companies not more acquisitive? Canadian high-tech companies have two determining attributes: generally they have weaker or less experienced management teams than their competitors, and they are less well financed.

Experienced business talent is in short supply because we have a very small technology sector, and it is very difficult to recruit talent across the border. This is further exacerbated by losing companies to acquisition, especially large anchor companies. Once a Canadian company is acquired by a foreign entity, Canadian technology companies become R&D branch plants – stripped of their sales, marketing, operations and finance functions which are centralized out of the country. The training ground for our business teams vanishes. So as we lose companies, we hurt our competitiveness.

Similarly, on the financing side, better financed companies, whether venture capital-backed or publicly listed, are better acquirers. Our venture capital industry may provide weaker returns than that south of the border, but unless Canada invests in Canadian companies to the same extent that competitive jurisdictions invest in their companies, the returns on Canadian investments will not improve and the cycle will be unbroken. Once a Canadian public company is acquired it loses its Canadian exchange listing, further hurting the small and perhaps even sub-critical public financing market.

So what should we do? Simply blocking these acquisitions is not the way to go, but we do have to improve Canadian companies' chances of survival as Canadian entities. We need to change our views and our governments' policies to recognize the competitive global environment in which we live. Two important misconceptions need to be addressed.

First the world is not a level playing field. Every country wants to maximize its future share of the knowledge-based economy. Incentives of all kinds abound globally. Access to markets is often done by preference. Second, we need to pick winners. Not in terms of individual companies, but in terms of sectors of the knowledge-based economy where we can invest strategically and win globally.

More specifically, link Canadian governments' support of R&D with world-class business skills development that is targeted at the knowledge-based economy. Use Canadian government procurement to support the deployment of early-stage products. Canadian companies occasionally benefit from this kind of procurement from US agencies, but rarely from our own governments. Increase development support for companies. Often small incremental government investment can produce disproportionately large benefits. Increase Canadian venture capital to break the current cycle. Encourage investors and shareholders to take a longer term view of their investments in Canadian companies. Find creative ways to attract experienced business talent into the country.

In the knowledge-based economy, it is the ownership of knowledge, whether physical or in people's heads, that is the ‘natural resource' of that economy. We have to keep the companies we already have, some of which have taken 30 years to build. We have to accelerate their growth, and we have to create new enterprises with the objective of having them contribute to the Canadian economy for the long term.

Adam Chowaniec is founder and chair of Tundra Semiconductor Corp. He is a serial entrepreneur and investor in the Canadian tech sector.  He chairs the Ontario Research and Innovation Council, is a member of the Board of the Natural Sciences and Engineering Research Council and is a past chair of the Information Technology Association of Canada.