CANADAS INNOVATION GAP ESTIMATING ITS SIZE; EXPLAINING ITS CAUSES - - PowerPoint PPT Presentation

CANADA’S INNOVATION GAP

ESTIMATING ITS SIZE; EXPLAINING ITS CAUSES

by

Peter J. Nicholson, President The Council of Canadian Academies

Presentation to Socio-Economic Conference 2009 Gatineau, QC 5 May, 2009

www.scienceadvice.ca Science Advice in the Public Interest

THE COUNCIL OF CANADIAN ACADEMIES THE COUNCIL OF CANADIAN ACADEMIES

$30M FEDERAL GRANT SUPPORTS CORE OPERATIONS THROUGH 2015 $30M FEDERAL GRANT SUPPORTS CORE OPERATIONS THROUGH 2015

• MISSION: To support independent, assessments (studies)
• n science that is relevant to issues of public interest
• A non-profit corporation, operational since early 2006.

(Analogous to the National Research Council of the US National Academies)

• Assessments are produced by independent panels of experts,

comprised of Canadian and international authorities who serve without compensation

• Six assessments completed; two more nearing completion

OUTLINE OUTLINE

• INTRODUCTION & SUMMARY
• MEASURING THE BUSINESS

INNOVATION GAP

• INNOVATION AS BUSINESS

STRATEGY

• FACTORS THAT INFLUENCE

INNOVATION AS STRATEGY

• SOME BROAD PUBLIC POLICY

IMPLICATIONS

• Panel of 18 chaired by Bob Brown – majority were senior

business people but also included members from labour, academia and NGO communities.

• Panel was asked for a diagnosis, not a policy prescription
• Panel’s perspective was long-term, covering many decades,

so conclusions remain relevant despite current crisis

• Panel analyzed innovation as an economic process,

not simply as an S&T activity

INTRODUCTION

QUESTION: “If innovation is good for business, why is Canadian business less committed to innovation than most policy-makers believe it should be?”

INNOVATION IS NEW OR BETTER WAYS OF DOING VALUED THINGS INNOVATION IS NEW OR BETTER WAYS OF DOING VALUED THINGS

REPORT IN A NUTSHELL REPORT IN A NUTSHELL

NEW PARADIGM LINKING PRODUCTIVITY, INNOVATION AND BUSINESS STRAT NEW PARADIGM LINKING PRODUCTIVITY, INNOVATION AND BUSINESS STRATEGY EGY

1. Canada’s long-standing productivity growth problem is due to weak business innovation. 4. Public policy has an important role, but the primary challenge is for business to adopt innovation-oriented strategies. 2. Business innovation is driven by business strategy. 3. The productivity issue needs to be reframed to focus on the factors that influence businesses to choose – or not to choose – innovation as a key competitive strategy.

OUTPUT, PRODUCTIVITY, INNOVATION OUTPUT, PRODUCTIVITY, INNOVATION

OUTPUT PER CAPITA GDP/Population = GDP/Hours Worked x Hours Worked/Population LABOUR PRODUCTIVITY Workforce Composition, Capital Intensity, Multifactor Productivity INNOVATION

• Insights of entrepreneurs
• Payoff from R&D
• Improved business models
• Efficient work practices
• Continuous improvement
• Application of leading-edge technology

REPORT FOCUSES ON INNOVATION BY BUSINESS AND AS BROADLY INTERPRE REPORT FOCUSES ON INNOVATION BY BUSINESS AND AS BROADLY INTERPRETED TED

20 40 60 80 100 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

THE U.S. THE U.S. – – CANADA GAP IN PER CAPITA OUTPUT SINCE 1870 CANADA GAP IN PER CAPITA OUTPUT SINCE 1870

Canada’s Strong Job Growth Able to Offset Weak Productivity

ECONOMIES IN CANADA AND THE U.S. HAVE EVOLVED IN TANDEM ECONOMIES IN CANADA AND THE U.S. HAVE EVOLVED IN TANDEM

GDP Population GDP Hours Worked Hours Worked Population = x

CANADA’S GDP PER CAPITA AS PERCENT OF U.S.

Data Sources: Conference Board & Groningen Growth and Development Centre, 2008; Maddison, 2008

CATCHING UP FALLING BEHIND

CANADA CANADA’ ’S RELATIVE PRODUCTIVITY SLIDE S RELATIVE PRODUCTIVITY SLIDE

PRODUCTIVITY IN THE BUSINESS SECTOR - CANADA AS % OF U.S. SINCE 1947

60 70 80 90 100 (93%) 1947 1951 1955 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 Real GDP per Hour Canada as % of U.S. Peak Year – 1984 93% in percentage terms Labour productivity difference CATCHING UP FALLING BEHIND

CANADA CANADA’ ’S PRODUCTIVITY GROWTH HAS ALSO LAGGED MOST OECD PEERS S PRODUCTIVITY GROWTH HAS ALSO LAGGED MOST OECD PEERS

(U.S. – Canada)

Data Source: CSLS, 2008a

WEAK MFP GROWTH IS RESPONSIBLE FOR CANADA WEAK MFP GROWTH IS RESPONSIBLE FOR CANADA’ ’S LOW RANKING S LOW RANKING

CANADA CANADA’ ’S PRODUCTIVITY GROWTH LAGS OECD PEERS S PRODUCTIVITY GROWTH LAGS OECD PEERS

LABOUR PRODUCTIVITY GROWTH : 1985-2006

• 1

1 2 3 4 Ireland Japan Finland Sweden France U.K. Belgium Germany Denmark Australia U.S. Austria Netherlands Italy Canada New Zealand Spain Switzerland Average Annual Growth Rate (%) MFP Contribution Capital Deepening Contribution

Source: OECD, 2008a

Multifactor Productivity Growth

0.5 1 1.5 2 2.5 3

1961-2006 1961-80 1980-2006

CANADA CANADA’ ’S MFP GROWTH HAS LAGGED U.S. FOR AT LEAST 45 YEARS S MFP GROWTH HAS LAGGED U.S. FOR AT LEAST 45 YEARS

MULTIFACTOR PRODUCTIVITY (MFP) GROWTH

Labour Composition Improvement

0.5 1 1.5 2 2.5 3

LABOUR COMPOSITION IMPROVEMENT

Capital Deepening

0.5 1 1.5 2 2.5 3

CAPITAL DEEPENING

Labour Productivity Growth

0.5 1 1.5 2 2.5 3

1961-2006 1961- 80 1980-2006

Period Average Annual Growth Contributions (%)

ACCOUNTING FOR PRODUCTIVITY GROWTH DIFFERENCES ACCOUNTING FOR PRODUCTIVITY GROWTH DIFFERENCES

LABOUR PRODUCTIVITY GROWTH

Data Source: Baldwin & Gu, 2007

Multifactor Productivity (MFP) Capital Intensity Labour Composition HP filter (Lamda = 100) U.S. growing faster than Canada Canada growing faster than U.S.

CAPITAL AND LABOUR QUALITY NO LONGER OFFSETTING CANADA CAPITAL AND LABOUR QUALITY NO LONGER OFFSETTING CANADA’ ’S WEAK MFP S WEAK MFP

SMOOTHED COMPONENTS OF LABOUR PRODUCTIVITY GROWTH SMOOTHED COMPONENTS OF LABOUR PRODUCTIVITY GROWTH

GROWTH RATE DIFFERENCE: CANADA MINUS U.S.

• 3
• 2
• 1

1 2 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005

Growth Rate Difference: Canada minus U.S.

Labour Composition Capital Intensity Multifactor Productivity (MFP)

HP filter (Lamda = 100)

Productivity Gap Narrowing Productivity Gap Widening

Data Source: Statistics Canada, 2007a

MFP = The part of GDP per Hour that is NOT explained by Capital Intensity and Workforce “Quality”

WHAT IS WHAT IS “ “MULTIFACTOR PRODUCTIVITY MULTIFACTOR PRODUCTIVITY” ”? ?

THOUSANDS OF INNOVATIONS, LARGE & SMALL, DRIVE PRODUCTIVITY GROW THOUSANDS OF INNOVATIONS, LARGE & SMALL, DRIVE PRODUCTIVITY GROWTH TH  Installing a Drive-thru window in a fast food outlet  Equipping a sales force with BlackBerries EXAMPLES OF INNOVATION-BASED MFP GROWTH:  Double stacking rail containers

The innovation “signal” in MFP comes mixed with a lot of noise.

IS MFP GROWTH THE IS MFP GROWTH THE “ “STATISTICAL SIGNATURE STATISTICAL SIGNATURE” ” OF INNOVATION? OF INNOVATION?

LONG LONG‐ ‐RUN MFP GROWTH RATE IS A GOOD MEASURE OF BROAD INNOVATION RUN MFP GROWTH RATE IS A GOOD MEASURE OF BROAD INNOVATION

Common methodology should minimize effect  Measurement / Model Errors Little impact on growth rate differences  Slowly-varying Factors Effects likely to be broadly similar in U.S., Canada  Public Infrastructure Changes since NAFTA should have helped Canada  Economies of Scale Averages out over 1961-2006  Economic Cycle IMPACT ON CANADA-U.S. MFP GROWTH DIFFERENCE CONFOUNDING FACTORS

DISTINCTION BETWEEN MFP GROWTH AND CAPITAL DEEPENING IS SOMEWHAT DISTINCTION BETWEEN MFP GROWTH AND CAPITAL DEEPENING IS SOMEWHAT ARTIFICIAL ARTIFICIAL MFP Growth

INTERACTION OF MFP AND CAPITAL INVESTMENT INTERACTION OF MFP AND CAPITAL INVESTMENT

• Machinery & Equipment
• Software
• Structures
• Public Infrastructure
• Entrepreneurial Insights
• New business models
• R&D
• Better Products/Processes
• Upgraded Skills

CAPITAL INVESTMENT INNOVATION ACTIVITIES

ICT DRIVES U.S. ICT DRIVES U.S.‐ ‐CANADA INVESTMENT GAP CANADA INVESTMENT GAP

M&E ANNUAL INVESTMENT INTENSITY SINCE 1987

1 2 3 4 5 6 7 8 9 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 Per Cent of Nominal GDP in Business Sector NON-ICT M&E ICT

M&E = Machinery & Equipment

ICT HAS BEEN A KEY DRIVER OF MFP & PRODUCTIVITY GROWTH IN U.S. ICT HAS BEEN A KEY DRIVER OF MFP & PRODUCTIVITY GROWTH IN U.S.

Cdn $ Strengthening Peak of Tech Boom Cdn $ Weakening

Data Source: CSLS, 2008b

INNOVATION THROUGH THE LENS OF BUSINESS STRATEGY INNOVATION THROUGH THE LENS OF BUSINESS STRATEGY

Structural Characteristics Competitive Intensity Climate for New Ventures Public Policies Business Ambition

INNOVATION AS A BUSINESS STRATEGY?

Influencing Factors Strategy Choice Inputs to Innovation Activity Innovation Outputs Macroeconomic Outcomes

REFRAMING THE ANALYSIS OF CANADA REFRAMING THE ANALYSIS OF CANADA’ ’S WEAK PRODUCTIVITY GROWTH S WEAK PRODUCTIVITY GROWTH

LABOUR PRODUCTIVITY GROWTH INCREASED LIVING STANDARD

Capital Investment Research & Development External Enablers Human Capital New Products Continuous Improvement New & Expanded Markets

+ +

MFP Growth Workforce Capability Capital Deepening

Comparative advantage and history imply:

• Commodity supplier
• Little contact with “end customer”
• Foreign control in many

tech- intensive sectors

• Comfortable and profitable niche

in North America Smaller markets tend to provide:

• Less reward for innovation risk
• Less attraction for competitors

from the outside, and thus . . .

• Less pressure to innovate

But success of Finland and Sweden shows importance of innovation- driven export focus

“UPSTREAM” ROLE IN NORTH AMERICAN VALUE CHAINS SMALL AND FRAGMENTED DOMESTIC MARKET

CANADIAN BUSINESS HAS ADAPTED PROFITABLY TO THESE CONDITIONS CANADIAN BUSINESS HAS ADAPTED PROFITABLY TO THESE CONDITIONS

ROOTS OF CANADA ROOTS OF CANADA’ ’S INNOVATION WEAKNESS S INNOVATION WEAKNESS

CORPORATE PROFIT(BEFORE TAX) AS PER CENT OF GDP

3 6 9 12 15 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 % of GDP

BUSINESS PROFIT HEALTHY DESPITE WEAK INNOVATION BUSINESS PROFIT HEALTHY DESPITE WEAK INNOVATION

STRONG AVERAGE PROFITABILITY TENDS TO CONFIRM STATUS QUO STRATEG STRONG AVERAGE PROFITABILITY TENDS TO CONFIRM STATUS QUO STRATEGY Y

Business Profitability in Canada has exceeded that in the U.S. in 83% of years since 1961

Data Source: Statistics Canada, 2007

KEY FACTORS THAT INFLUENCE INNOVATION STRATEGY CHOICE KEY FACTORS THAT INFLUENCE INNOVATION STRATEGY CHOICE

Analyzed in Context of R&D

• Sector Mix
• Foreign Ownership
• Firm Size Distribution
• STRUCTURAL CHARACTERISTICS
• COMPETITIVE INTENSITY
• CLIMATE FOR NEW VENTURES
• PUBLIC POLICIES
• BUSINESS AMBITION

INNOVATION ANALYSIS CONVENTIONALLY FOCUSES ON STRUCTURE AND R&D INNOVATION ANALYSIS CONVENTIONALLY FOCUSES ON STRUCTURE AND R&D GAPS GAPS

GAP HAS NARROWED FOR MANUFACTURING BUT GROWN FOR SERVICES GAP HAS NARROWED FOR MANUFACTURING BUT GROWN FOR SERVICES

SECTORAL EVOLUTION OF THE U.S. SECTORAL EVOLUTION OF THE U.S.‐ ‐CANADA R&D GAP CANADA R&D GAP

THE U.S. - CANADA BERD INTENSITY GAP: 1987-2002

• 0.3

0.3 0.8 1.3 1.8 1987 1989 1991 1993 1995 1997 1999 2001 % points

Utilities & Primary Resources Business Services Motor Vehicles Pharmaceuticals Chemicals (excl. Pharma) Aerospace Office Accounting & Computing Machinery All other Manufacturing

Data Source: Panel calculations based on OECD’s STAN database

GAP IF CANADA HAD U.S. SECTOR WEIGHTS GAP IF CANADA HAD U.S. SECTOR R&D INTENSITY

“ “MIX MIX” ” & & “ “INTENSITY INTENSITY” ” EFFECTS ON THE R&D GAP EFFECTS ON THE R&D GAP

LOWER R&D SECTOR INTENSITY IN CANADA EXPLAINS MOST OF THE GAP LOWER R&D SECTOR INTENSITY IN CANADA EXPLAINS MOST OF THE GAP

1 2 3

1987 1990 1993 1996 1999 2002 B E R D Intensity (B I)

Actual observed BI for U.S.

REVISED GAP

BI for Canada with U.S. sector mix prior to 1996, there are limited sector BI data for the U.S. Actual observed BI for Canada

1 2 3

1987 1990 1993 1996 1999 2002 BERD Intensity

Actual observed BI for Canada Actual observed BI for U.S.

REVISED GAP

BI for Canada with U.S. sector mix Data Source: Panel Calculations based on OECD STAN Database

IMPACT OF FOREIGN OWNERSHIP (I) IMPACT OF FOREIGN OWNERSHIP (I)

AUTOMOTIVE PRODUCTIVITY HIGH IN CANADA DESPITE LOW R&D AUTOMOTIVE PRODUCTIVITY HIGH IN CANADA DESPITE LOW R&D

R&D AND OUTPUT SHARES IN THE AUTO INDUSTRY

BERD INTENSITY : 1987-2002

5 10 15 20

1987 1989 1991 1993 1995 1997 1999 2001 BERD as % of GDP

SHARE OF GDP: 1998-2007

0.0 0.5 1.0 1.5 2.0 2.5 3.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Share of Business GDP (% )

Data Source: OECD, 2008b

IMPACT OF FOREIGN OWNERSHIP (II) IMPACT OF FOREIGN OWNERSHIP (II)

HIGH R&D IN CANADA HAS NOT PRODUCED STRONG OUTPUT GROWTH HIGH R&D IN CANADA HAS NOT PRODUCED STRONG OUTPUT GROWTH

R&D AND OUTPUT SHARES IN PHARMACEUTICALS

BERD INTENSITY: 1987-2002

5 10 15 20 25 30 35

1987 1989 1991 1993 1995 1997 1999 2001 BERD as % of Sector GDP

SHARE OF GDP:1987-2002

0.0 0.2 0.4 0.6 0.8 1.0 1.2

1987 1989 1991 1993 1995 1997 1999 2001 Share of Business GDP (%)

Data Source: OECD, 2008b

FIRM SIZE DISTRIBUTION AND THE R&D GAP FIRM SIZE DISTRIBUTION AND THE R&D GAP

U.S. U.S.‐ ‐CANADA R&D GAP IS CONCENTRATED IN LARGEST COMPANIES CANADA R&D GAP IS CONCENTRATED IN LARGEST COMPANIES

R&D INTENSITY AND FIRM SIZE

5 10 1-49 50-99 100- 499 500- 999 1K-5K 5K + Overall Number of Employees R&D as % of Revenues

Total BERD is concentrated in large firms, despite their lower “intensity”

Data Sources: Statistics Canada, 2006

KEY FACTORS THAT INFLUENCE INNOVATION STRATEGY CHOICE KEY FACTORS THAT INFLUENCE INNOVATION STRATEGY CHOICE

• STRUCTURAL CHARACTERISTICS
• COMPETITIVE INTENSITY
• CLIMATE FOR NEW VENTURES
• PUBLIC POLICIES
• BUSINESS AMBITION
• Competition spurs

innovation

• Small markets less

attractive to competitors

• Export vs domestic markets
• Regulation

KEY FACTORS THAT INFLUENCE INNOVATION STRATEGY CHOICE KEY FACTORS THAT INFLUENCE INNOVATION STRATEGY CHOICE

• STRUCTURAL CHARACTERISTICS
• COMPETITIVE INTENSITY
• CLIMATE FOR NEW VENTURES
• PUBLIC POLICIES
• BUSINESS AMBITION
• Early-stage financing
• Innovation from

university research

• Geographic clusters

Family & Friends Angel Investors & Mentors Multi-Stage Venture Capital Buy Out Go Public

Lots of Canadian early-stage start-ups Critical shortage of successful tech entrepreneurs (except in ICT) VC in Canada tends to be small, lacking tech experience Too few firms grow to sustainable scale in Canada

MULTI MULTI‐ ‐STAGE FINANCING OF NEW VENTURES STAGE FINANCING OF NEW VENTURES

SUCCESS CREATES SUCCESS CREATES ‘ ‘ANGELS ANGELS’ ’ WHO THEN HELP GENERATE MORE SUCCESS WHO THEN HELP GENERATE MORE SUCCESS “Valley of Death”

VENTURE CAPITAL PERFORMANCE

Net Return* on Previous 10 Years for 2001-07

5 10 15 20 25 30 2001 2003 2005 2007 Internal Rate of Return (%) Canada U.S.

VENTURE CAPITAL PERFORMANCE – NET RETURN ON PREVIOUS 10 YEARS

AVERAGE RETURNS ON VC IN CANADA NOT COMPETITIVE AVERAGE RETURNS ON VC IN CANADA NOT COMPETITIVE

NO QUICK FIX, BUT MARKET PEFORMANCE WILL BE THE SUCCESS CRITERIO NO QUICK FIX, BUT MARKET PEFORMANCE WILL BE THE SUCCESS CRITERION N

Poor Canadian Returns Due To:

• Comparative immaturity of VC sector
• Prevalence of VC in an unsuitable vehicle (LSIF)

Data Sources: CVCA, 2007; NVCA, 2008

KEY FACTORS THAT INFLUENCE INNOVATION STRATEGY CHOICE KEY FACTORS THAT INFLUENCE INNOVATION STRATEGY CHOICE

• STRUCTURAL CHARACTERISTICS
• COMPETITIVE INTENSITY
• CLIMATE FOR NEW VENTURES
• PUBLIC POLICIES
• BUSINESS AMBITION
• Macroeconomic Policies
• Human Capital
• Trade Liberalization
• Regulation
• Taxation (esp. SR&ED)
• Sector Strategies
• OECD “Menu”

NAFTA Canada-U.S. Free Trade Agreement “Modern” version of R&D Tax Credit Tech Boom Collapse Technology Partnerships Canada Prosperity Initiative Creation of NABST Canada’s Innovation Strategy Strategic Aerospace & Defence Initiative 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 0.2 0.4 0.6 0.8 1 1.2 1.4 BERD as % of GDP

THE MACRO CONTEXT FOR BUSINESS EXPENDITURE ON R&D THE MACRO CONTEXT FOR BUSINESS EXPENDITURE ON R&D

ONLY THE TECH BOOM / COLLAPSE HAS HAD MAJOR IMPACT ONLY THE TECH BOOM / COLLAPSE HAS HAD MAJOR IMPACT

BERD AS PERCENT OF GDP

Data Source: OECD, 2008c

GOVERNMENT FUNDING OF BUSINESS R&D GOVERNMENT FUNDING OF BUSINESS R&D

(2005 OR LATEST YEAR)

CANADA IS AN CANADA IS AN ‘ ‘OUTLIER OUTLIER’ ’ IN TERMS OF RELIANCE ON TAX IN TERMS OF RELIANCE ON TAX‐ ‐BASED INCENTIVES BASED INCENTIVES

Per Cent of GDP

0.05 0.1 0.15 0.2 0.25 Canada U.S.

Cost of fiscal incentives (typically R&D tax credits) Direct government funding of Business R&D

0.05 0.1 0.15 0.2 0.25 Canada U.S. U.K. Netherlands Australia Japan

Cost of fiscal incentives (typically R&D tax credits) Direct government funding of Business R&D

Data Source: OECD, 2008d

• Canada has implemented most of the productivity-enhancing

measures recommended as a result of OECD analysis.

• Business taxes – especially on capital – have been high,

but are now competitive and declining.

• SR&ED tax credit - $4B incentive in 2007 – is among world’s richest

and is by far the largest program of government support for innovation.

INNOVATION POLICY INNOVATION POLICY ‐ ‐ SUMMARY SUMMARY

CANADA CANADA’ ’S INNOVATION POLICIES HAVE RELIED PRINCIPALLY ON MARKET FORCES S INNOVATION POLICIES HAVE RELIED PRINCIPALLY ON MARKET FORCES

• Concerted national strategy to “back winners” is difficult – not simply

because governments have not been good at picking winners, or dropping losers – but because of Canada’s diverse and regionally-oriented political economy works against concerted action.

KEY FACTORS THAT INFLUENCE INNOVATION STRATEGY CHOICE KEY FACTORS THAT INFLUENCE INNOVATION STRATEGY CHOICE

• STRUCTURAL CHARACTERISTICS
• COMPETITIVE INTENSITY
• CLIMATE FOR NEW VENTURES
• PUBLIC POLICIES
• BUSINESS AMBITION

INTANGIBLES OF INTANGIBLES OF “ “BUSINESS CULTURE BUSINESS CULTURE” ” IS THE RESIDUAL FACTOR IS THE RESIDUAL FACTOR

DOES CANADIAN BUSINESS LACK DOES CANADIAN BUSINESS LACK “ “AMBITION AMBITION” ”? ?

MANY INTERNATIONAL SUCCESS DEMONSTRATE CANADA MANY INTERNATIONAL SUCCESS DEMONSTRATE CANADA’ ’S INNOVATIVE POTENTIAL S INNOVATIVE POTENTIAL Why might Canadian businesses be less ambitious than the Americans?

• Arguments often advanced include:
• Canada’s historical dependence on foreign initiative
• Less competition in Canada’s domestic market
• Canadian priorities / values are less commercially focused
• The issue is hotly debated:
• Are Canadian and U.S. “attitudes” all that different?
• Most panelists believed that business ambition was a key differentiator.
• Evidence is largely anecdotal based on experience of those

who have worked in both U.S. and Canada.

NEW FACTORS AT PLAY FOR CANADA NEW FACTORS AT PLAY FOR CANADA

CHALLENGES AND OPPORTUNITIES SHOULD MOTIVATE INNOVATIVE RESPONSE CHALLENGES AND OPPORTUNITIES SHOULD MOTIVATE INNOVATIVE RESPONSES S RESOURCE DEPENDENCE

• Volatile
• Unevenly-distributed
• Environmentally-challenged

US MARKET

• Increasing vulnerability of access
• Protectionism
• National security

EMERGING MARKETS

• Where the BIG growth will be
• Increasingly sophisticated competitors
• Broad spectrum of opportunities

NEW BUSINESS LEADERS

• Less captives of old mindset
• More at home in the world

SECTOR SECTOR “ “CASE STUDIES CASE STUDIES” ” OF BUSINESS INNOVATION OF BUSINESS INNOVATION

GOVERNMENT NEEDS TO (RE)DEVELOP DEEP SECTOR EXPERTISE GOVERNMENT NEEDS TO (RE)DEVELOP DEEP SECTOR EXPERTISE There is no one-size-fits-all solution to the innovation puzzle.

 AUTO SECTOR: “Weak R&D But Strong Productivity”  LIFE SCIENCES: “Great Promise – Mixed Results”  BANKING: “Balancing Stability vs Radical Innovation”  ICT: “A Catalytic Role for Government”

BROAD POLICY IMPLICATIONS OF THE ANALYSIS BROAD POLICY IMPLICATIONS OF THE ANALYSIS

BOTTOM LINE: NEED TO GET BUSINESS STRATEGY FOCUSED ON INNOVATION BOTTOM LINE: NEED TO GET BUSINESS STRATEGY FOCUSED ON INNOVATION

 TECHNOLOGY INVESTMENT – Encourage investment in advanced M&E and ICT in particular  COMPETITION & EXPORTS – Increase exposure to competition and promote an export orientation, especially “downstream” in value chains.  NEW VENTURES – Focus on early-stage financing and generation of potential “angels” to be investors and mentors.  BACKING OPPORTUNITIES – Develop sector strategies to catalyze areas of opportunity.  DEEPER UNDERSTANDING – Increase support for Statcan’s leading-edge work on innovation and productivity.

BUSINESS Robert Brown (Chair) CAE; Bombardier*, Montreal Services Guthrie Stewart Edgestone Capital*, Montreal John Thompson TD Bank, IBM*, Toronto ICT Savvas Chamberlain DALSA, Waterloo Brian McFadden Prestige Telecom; Nortel*, Montreal Jim Roche CMC*; Tundra Semiconductor*, Ottawa Alexandre Taillefer Stingray Digital, Montreal Life Sciences Nathalie Dakers CDRD (at UBC), Vancouver André Marcheterre Merck-Frosst*, Montreal Resources Walter Mylnaryk Kruger Inc., Montreal Charles Ruigrok Syncrude*, Calgary Consulting Marcel Côté SECOR, Montreal David Pecaut The Boston Consulting Group, Toronto LABOUR Jim Stanford CAW, Toronto NGO Andrew Sharpe CSLS, Ottawa ACADEMIC Meric Gertler University of Toronto Bronwyn Hall UC Berkeley (US) ; Maastricht (Netherlands) Arthur May Memorial University*; NSERC*, St. John’s

EXPERT PANEL ON BUSINESS INNOVATION EXPERT PANEL ON BUSINESS INNOVATION

DATA SOURCES FOR FIGURES DATA SOURCES FOR FIGURES

Canada's Venture Capital & Private Equity Association (2007). Industry statistics. Retrieved February 2009, from http://www.cvca.ca/resources/statistics/ Centre for the Study of Living Standards (2008a). Relative labour productivity trends in the business sector in Canada and U.S. [Data file]. Retrieved December 2008: http://www.csls.ca/data/ipt1.asp Centre for the Study of Living Standards (2008b). Database of ICT investment and capital stock trends: Canada vs United States [Data file]. Retrieved December 2008: http://www.csls.ca/data/ict.asp Conference Board & Groningen Growth and Development Centre (2008). Total economy database [Data file]. Retrieved January 2009: http://www.conference-board.org/economics/database.cfm Maddison, A. (2008). Maddison’s historical series. Retrieved December 2008, from http://www.ggdc.net/maddison/ National Venture Capital Association (2008). Industry statistics. Retrieved August 19, 2008, from http://www.nvca.org/ffax.html OECD (2008a). OECD compendium of productivity indicators. Paris: OECD Publishing. OECD (2008b). STructural ANalysis (STAN) database. Retrieved January 2009, from OECD Publishing: www.oecd.org/sti/stan OECD (2008c). OECD main science and technology indicators 2008. Paris: OECD Publishing. OECD (2008d). OECD science, technology and industry outlook. Paris: OECD Publishing. Statistics Canada (2006). Industrial research and development: Intentions: 2005 (Catologue No. 88-202-XIE). Ottawa, ON: Statistics Canada. Statistics Canada (2007a). Long-term productivity growth in Canada and the United States. Ottawa: Statistics Canada. Statistics Canada (2007b). CANSIM Database. Retrieved December, 2008: http://cansim2.statcan.ca/cgi-win/cnsmcgi.exe?Lang=Eng&Dir-Rep=CII/&RegTkt=&C2Sub=&CNSM-Fi=CII/CII_1-eng.htm