Next year's Budget offers opportunity but export growth needs to be an S&T priority

13th Annual RE$EARCH MONEY Conference

The next big opportunity for federal S&T support is the 2015 Budget — the year Canada returns to the polls and the national deficit is finally slayed. But after several years of anemic spending on S&T, the challenge to pull even with competitor nations will be steep and must be achieved through dramatically increased exports.

That was the good news-bad news message delivered to the 13th annual RE$EARCH MONEY Conference by David Watters CEO of Global Advantage Consulting Group Inc and a former ADM for economic development and corporate finance at Finance Canada. In a presentation entitled The Road Not Taken, Watters noted that the latest federal Budget provided new advanced research and innovation spending of $550 million over two years — an amount that fails to keep up with inflation.

"We're generally on the wrong path in the types, but especially the amounts (of S&T spending)," said Watters. "NSERC (Natural Sciences and Engineering Research Council) received a 1.4% increase but inflation is running at 2% to 2.25% a year."

Watters says that Canada's gross expenditures on R&D have declined 16% over the past 10 years, pushing down the GERD-to-GDP ratio for 2011 to 1.74% (which fell further to 1.69% in 2012 — R$, December 6/13). In comparison, the OECD average is 2.37%. If the government felt compelled to pull even with the OECD, he says a massive infusion of spending would be required.

"About $70 billion in incremental investment is required just to move to average," said Watters. "Business would need to increase revenues and export sales by $1,000 billion and current Canadian exports are $450 billion. Therefore an export strategy needs to be part of a sustainable S&T strategy."

The challenge is compounded by the small number of large Canadian firms, which have dropped from 2,500 to 1,568. And while the majority of large firms export, the number of small- and medium-sized exporting firms is a tiny fraction of the total.

Canada has approximately 7,800 medium-sized firms which have the greatest potential to enter export markets, but there are no data to determine how many are innovative companies.

Watters said one approach would be for Canada to create more organizations like the Canada Foundation for Innovation to help companies grow and export.

"Canada needs targets and it needs to be accountable to that," he says.

Reinventing export strategies

One company that's assisting the export and sale growth of smaller firms is Celestica, a Toronto-based multinational that has expanded from contract electronics manufacturing services to offering firms advanced information and communications technology solutions and access to global supply chains.

Brad Jackson, Celestica's VP strategy and diversified markets, told the RE$EARCH MONEY Conference that his company is developing cloud-based application infrastructure and embracing open innovation as a means to boost the prospects of Canadian firms in the global market.

"We have a different perspective, looking up from downstream," said Jackson. "Innovation is becoming more lateral, not just up and down the value chain ... We drive a high level of insight and value back to customers. We have to get more savvy getting ideas to market."

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