National Research Council allocates cluster funding from last federal Budget

Seeking longer-term commitment

The National Research Council (NRC) has announced the allocation of $135 million from the latest federal Budget for its Technology Cluster Initiatives (TCIs). At the same time, it is working to implement recommendations of an internal evaluation prepared last fall that documents the impact of the 11 clusters in fostering company growth and sectoral collaboration. Introduced in three phases over the past 10 years, the TCIs now have two additional years of funding to further demonstrate the benefits of clustering on regional economic development and alignment to the federal government's S&T Strategy.

NRC officials say they are pleased with the continuation of B-base or sunsetting funding for the TCIs, although management had clearly hoped that funding renewal would have both longer term. In its response to the evaluation report's recommendation to position clusters as long-term activities, it stated that "the funding renewal exercise will include every possible argument in favour of obtaining A-based funding for the clusters".

NRC management is currently developing a new five-year strategic plan under the guidance of its president, John McDougall, but it's too early to determine whether it will sustain the push to include clusters under its A-base funding.

"In an ideal world, it would be A-base funding but we're happy with B-base … The beauty of B-base is that it provides a natural due diligence process which is good for the central agencies in making decisions. We've been able to demonstrate results to keep investments flowing," says NRC acting secretary general Rob James. "Two-year funding is a bit more problematic as it's more difficult to demonstrate long-term commitment to our industrial partners and other stakeholders."

Although NRC's first set of clusters (situated in Atlantic Canada) is just 10 years old, Canada is amassing considerable expertise in cluster formation and development. James says the US interest in the NRC clusters resulted in an NRC delegation travelling to Washington earlier this year share its experience and lessons learned. Several TCIs are also exploring the possibility of developing international relationships and twinning with other jurisdictions that share similar technological expertise and aspirations.

"It's a new notion but we're looking at twinning from a technical, business and cultural perspective. It's very preliminary," says James. "It could lead to all sorts of potential by twinning on a supply chain basis or a complementary (technology) basis."

solid leverage factor

The evaluation is largely supportive of continuing with TCIs, citing their leveraging impact from inception to FY07-08. During that period, $342 million in NRC funds leveraged $330 million from other sources. The nanotechnology cluster in Edmonton experienced the greatest leveraging, largely due to joint federal-provincial-university backing of the facility. NRC's investment in the nanotech cluster was $71 million and levered $134 million from other sources. The cluster with the lowest leverage factor was life sciences in Halifax, with an NRC investment of $32 million attracting an additional $6 million.

To the end of FY09-10, TCIs have received $554.2 million in funding. With the latest two-year tranche, the total to the end of FY11-12 is $689.3 million. Overall, TCI funding accounts for nearly 10% of total NRC funding.

The evaluation is less helpful in providing insight into what is arguably the most important metric for the TCIs — revenue growth of companies within the clusters. Instead it cites barriers to the development of firms, including lack of investment capital, lack of incubation space, too few firms in regions where the clusters are often situated (i.e. sustainable infrastructure in Regina) and the high cost of technology development in areas such as fuel cells and hydrogen.

"At the end of the day, it's about growing the revenues of companies within clusters," says Dr Roman Szumski, NRC's VP life sciences. "The preliminary numbers show that is the case."

On the other hand, the TCIs appear extremely well aligned with the government's four main priority areas, as well as most of the sub-priorities identified by the Science, Technology and Innovation Council which the evaluation says suggests "even higher levels of relevance".

"The clusters align very well — competitiveness, productivity BERD (Business expenditures on R&D), more products to the marketplace and highly qualified personnel," says James. "There's also the notion of proxy for critical mass as there are relatively few companies in Canada."

The TCIs also align with provincial S&T strategies, most notably Alberta (nanotechnology), British Columbia (fuel cells and hydrogen) and Prince Edward Island (biosciences), with each provincial government contributing significant resources to the respective clusters.

Aligning with the activities of the NRC itself and the Industrial Research Assistance Program also results in the leverage of financial and technical resources which shouldn't be underestimated.

"(Cluster development) is a long hard road with twists and turns but we've hit a turn here," says James. "The government is providing patient capital and for that they should be commended."

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