Terry Matthew's sounds alarm bell for future of Canadian high-tech sector

RE$EARCH MONEY Conference

Canada's ability to grow global flagship companies from start-ups is being threatened by the precarious state of the Canadian high-tech sector and government must shoulder much of the blame says the country's most prolific and successful serial entrepreneur. Dr Terrence Matthew's says the high-tech sector has dropped below critical mass and without inspired leadership from the federal government, including direct assistance, strong procurement and encouraging a culture of commerce, the prognosis is grim.

Matthew contends that without programs such as the former Technology Partnerships Canada and a beefed up Industrial Research Assistance Program, emerging firms don't have the resources to conduct the R&D that's essential to attracting venture capital. He is particularly critical of government's lack of support for Canadian high-tech products, noting that virtually none of the $15 billion the federal government spends on procurement is directed toward Canadian firms, making is exceedingly difficult to sell to customers in other countries.

The impact on the high-tech sector, particularly in the Ottawa region, has been devastating, said Matthew's, with several globally competitive firms either gone (JDS) or languishing (Nortel Networks). Without a significant number of major flagship companies, the stock of supporting industries of suppliers, venture capital, lawyers, accountants and advisors has seriously dwindled.

"I've never seen it quite as bad … We are an industry that in my view has gone below critical mass," Matthew's told the Seventh Annual RE$EARCH MONEY Conference held May 21 in Toronto. "At the highest levels of the country, we need to get back to shouting the advantages of Canadian industry, not ignoring it. And industries that are not just digging stuff out of the ground … (We need to) take the spoils of oil and gas and invest it back into industry and we're not doing that, or at least we're not doing it effectively."

Matthew's, chairman of Mitel Corp and March Networks, has been a true force of nature in Canada's high-tech sector since he co-founded Mitel nearly 40 years ago and later built Newbridge Networks into a technology titan before selling it to Alcatel in 2000. His conference keynote address set the tone for a day of enlightening debate on the essential human, financial and regulatory ingredients for fostering firms that can compete and thrive in global markets.

Matthew's, who is a member of the new Science, Technology and Innovation Council (STIC), has met with Industry minister Jim Prentice several times. He says he has told Prentice that the industry is "going below critical mass" and that the minister is receptive to advice on how the situation can be improved.

While some of the participants took exception to Matthew's exceedingly negative assessment of the high-tech sector, the overall reaction was best summed by David MacDonald, president and CEO of Toronto-based Softchoice and chair of the Information Technology Association of Canada (ITAC), the conference's co-presenter.

"The man is the most successful serial entrepreneur we have in Canada and one we must listen to ... The truth of the matter is, he's probably more right than wrong … (Matthew's) looks at things in slices of time and you have to realize his slices of time were built way back when Ottawa was at its zenith. The geography has shifted immeasurable and I think we have to learn from that."

Discussion throughout the day following Matthew's' address demonstrated that Canada's high-tech sector isn't going to fade away without a fight. Many argued that opportunities for growth and global competitiveness continue to exist despite increasing competition from other advanced countries and emerging nations such as Brazil, Russia, India and , China — the so-called BRIC countries.

All agreed, however, that issues such as a critical shortage of management expertise, mentoring and technical talent — especially in the information and communications technology (ICT) sector — must be urgently addressed.

California's Silicon Valley loomed large over much of the day's discussion, given its depth of capital, risk-taking entrepreneurial culture and critical mass of research and companies. Cathy Anterasian, a senior director with Spencer Stuart in California said Silicon Valley was "like having hundreds of Terry Matthew's", adding that opportunities for professional and social networking among peers was unparalleled.

Silicon Valley even has a networking organization of expat Canadians called the Digital Moose Lounge and it was suggested that Canada could benefit from tapping into this pool of expertise.

Kevin Francis, an expat Canadian and president and CEO of San Jose CA-based CenterBeam Inc, says he and his fellow Canadians in Silicon Valley could assist by serving as network advisors and board members on small start-ups.

"Experiential advice can shorten the learning cycle," said Francis, a native of New Brunswick who has established a 150-strong engineering workforce for his company in St John NB. "Make a call to action to all Canucks. You could get an enormous response like a Prairie wildfire."

He also suggested that Canada could take advantage of growing protectionism in the US as well severe restrictions on immigration and onerous reporting requirements imposed on US firms by the Sarbanes-Oxley Act of 2002.

"We need family-friendly and certification-friendly immigration policies to outfox the US," he said. "We also need to develop a culture of risk so that failure is not an embarrassment but a learning experience to be taken on to the next venture."

Microsoft Canada president Phil Sorgen reinforced Francis' perspective, adding that Canada must create an intense culture of innovation and alter policies to aggressively address issues such as the skilled worker shortage: taxation, education, immigration and workforce training. Sorgen says the skills gap threatens to undermine the Canadian economy, citing estimates of a worker shortfall of 1.2 million within 10 years. Special emphasis should be placed on attracting the disabled and First Nations into high-tech.

On the regulatory front, Sorgen said the scientific research and experimental development (SR&ED) tax credit program should be focused on successful firms as technology drives productivity gains.

"Canada no longer has benefit of significantly lower labour costs so we need to increase productivity and invest in new tools," he said.

The Conference closed with a presentation by Antoine Paquin, a serial entrepreneur and general partner in Montreal-based Rho Canada. A veteran of the Ottawa and Silicon Valley tech industries, Paquin said Canada needs to develop a culture of success, learn from and recycle failure and benefit from risk-taking to "mint people who ultimately understand how they can benefit".

"The market is the feedback cycle and that's how you de-risk the equation," said Paquin. "You put capital on greater degrees of certainty and ultimately deliver a very stable company."

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Note: Full proceedings of the Conference and selected presentation transcripts will be posted on the RE$EARCH MONEY website in the coming weeks.