Depth of Ottawa high-tech sector's resurgence revealed in new annual report

Ottawa's high-tech sector is experiencing a resurgence that features fewer large players and a grater diversity of sectors considered key in global markets. After taking the brunt of the hit from the tech wreck of 2000, there are now 1,811 technology firms located in the Ottawa region (up 123 from 2004), compared to around 1,000 at the height of the tech boom, while the total tech employee base exceeds 76,000, the highest level since 2001.

Perhaps most significantly, there are more than 50 companies with more than 500 employees, compared to just 17 in 2000, reflecting a broad-based tech revival. That has translated into encouraging general economic indicators such as population growth, property assessment, unemployment and vacancy rates.

"A profound shift has happened over the past five years. There are more SMEs (small- and medium-sized enterprises) but they're in different sectors," says OCRI president/ CEO Jeffrey Dale. "About 50% of the companies surveyed have less than 10 employees but there's been a big jump in the number of companies with more than 500."

The findings are contained in the inaugural OCRI Report 2005, produced by the Ottawa Centre for Research and Innovation. The document includes a wealth of baseline demographic and economic data as well as R&D and education statistics showing that the region is strong in the areas of software, technology services, telecommunications, defence and security, photonics and microelectronics/wireless (see chart).

The depth of the region's high-tech sector is reflected in the sheer size of the technology services industry which has sprung up to support core firms. The services industry is comprised of approximately 670 companies or 37% of the complete technology sector (see chart). These are firms which feed into the other technology clusters, many of which were created when large firms such as Nortel spun off many of the functions they used to conduct internally.

"This is an under-exposed part of our local economy and most are a result of changes at Nortel and other firms," says Dale. "They used to be vertically aligned but now they outsource and the service sector has grown accordingly."

Ottawa has long been known for its strength in telecommunications, yet the OCRI report ranks the sector third in terms of number of companies and employees. Dale says that's because firms heavily focused on telecommunications are grouped in other sectors.

"Companies self-assess where they are in high-tech. The semiconductor sector is about 80% telecom related and more than 50% of wireless and microelectronics companies are in the telecom space," he says. "When you add them all up, telecom is still the biggest single sector with about 25% of the companies and 30% of the people."

The OCRI report says the Ottawa region remains an attractive locale for firms seeking to expand operations. Investment inquiries received by OCRI are primarily in the areas of wireless, Voice-over-Internet Protocol and security. The firms inquiring, however, are seeking to expand existing operations or through mergers and acquisitions (M&A), rather than making greenfield investments.

While this means many local firms may end up as units in a foreign-based company, Dale says such activity has many positive ramifications.

"M&As result in some level of liquidity of assets resulting in new people and capital coming into the market," he says. "The entrepreneurial spirit of the region often comes from serial entrepreneurs who sell those companies and reinvest. Ottawa has more than 70 multinationals, most of which came through acquisitions. Even through the downturn most stayed because of the R&D and HQP (highly qualified personnel) we have in the region."

On the R&D front, Ottawa has fared well with significant increases in academic research at the region's three universities. Total sponsored research at the Univ of Ottawa, Carleton Univ and the Univ of Quebec at Outaouais was $270 million in 2004, up 28% from 2002. Those institutions also attracted more corporate-sponsored research income, reaching $25.1 million in 2004.

But Dale says universities are limited in their ability to boost R&D spending in the region. Income from the granting councils is limited by the increases the federal government is willing to make, and the Conservative government has pledged only $400 million in new money over the next four years. Unless the private sector can significantly boost its R&D outlays, the Tory objective of increasing R&D spending as a percentage of GDP from 1.9% to 2.3% is virtually impossible.

"Nationally, there's a $5-billion gap between the two. We need companies to pick up the slack. They have to invest more and we need to expand the number of companies doing R&D," says Dale. "We can't do it with peer-reviewed grants alone."

Another looming problem for the high-sector sector is skills. The area's post-secondary institutions are witnessing a drop in the number of students entering the disciplines of computer science and engineering. That could translate into companies facing difficulties finding the right talent for growth.

"There's a disconnect and a lot is with parents and the media. Tech is not hot anymore," says Dale. "At the same time, companies want to hire. They're ramping it up."

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