Canada's high-tech sector must become more innovative if it is going to maintain its global competitiveness, say industry leaders.

"If anything, we have slipped in terms of (innovation) performance," says John Reid, president and CEO of the Ottawa-based Canadian Advanced Technology Alliance (CATAAlliance).

A 2007 Conference Board of Canada report, titled How Canada Performs, ranked the country 14th in innovation among 17 Organization for Economic Co-operation and Development (OECD) nations and awarded a "D" grade.

The Conference Board defines innovation as the creation and use of scientific knowledge to bring new or significantly improved goods to market.

File photo by Jack Dagley, Business Edge
Micralyne Inc. CEO Chris Lumb, displaying a microchip plate, says many Canadian firms don't do a lot of product development.

"We have assumed that we are doing better than what we are," Reid says. "Because of oil wealth, you can blinker yourself a little bit."

Canada's advanced technology groups are calling for a national tech strategy; more favourable tax, tax-credit and capital-allowance schemes; better government procurement policies; and federal and provincial policies that allow small firms to emerge from post-secondary institutions and become global players.

CATAAlliance works to develop global investment and partnership opportunities for its 28,000 members across Canada. Reid says the Information and Communications Technology (ICT) sector accounts for 600,000 jobs, $140 billion in revenue, $5 billion in research and development, $23 billion in exports and $12 billion in capital expenditures.

Reid says the main obstacles to the nation's tech-industry growth are retaining and attracting talent, getting capital to finance the growth of new enterprises, and the inability of companies to understand and adopt international marketing strategies that will allow them to take advantage of emerging markets.

He adds this country lacks a "compelling vision" that would illustrate what the tech industry should look like five to 20 years from now.

"If you don't have that strong vision statement, you really can't get the different organizations and resources to align behind it," he says. "It's almost like you have a mission to Mars. You need politically to set out a very bold and exciting vision for the country."

Reid also says governments within Canada must help boost innovation by purchasing more technologies from emerging firms.

"Government has been very slow to act as a customer for Canadian products and services," he says. "(New tech companies) tend to have their first sale offshore, so the procurement strategies need to be improved significantly."

However, Bernard Courtois, president and CEO of the Ottawa-based Information Technology Association of Canada (ITAC), says Canada is riding an extremely rich wave of innovation that began two years ago, as new computer chips enabled the inter-connection of many communications devices and are changing the ways people live and do business.

"Innovation is a concept that's hard to measure," says Courtois. "When people try and measure innovation, they look at how many patents are filed and things like that (as the Conference Board did). Those are all soft measures.

"The true measure of innovation is what happens inside firms as they change the way they do business."

He notes tech firms and their clients do not pursue business transformation aggressively enough to capture potential growth because the Canadian market is too small.

"It's more a question of management expertise and access to a larger pool of capital than it is a lack of technology innovation," he says.

Courtois adds government buying of innovation is not necessarily going to change the Canadian technology industry. "When Cognos got bought out by IBM and you can look around at all those other (takeovers), it was not because those companies were not selling to Canadian governments. They were. They were quite successful."

Courtois was interviewed while attending the 18th annual Precarn Inc. conference held recently in Windsor, where participants looked at ways for the auto industry to use domestically produced technologies. He says more tech-development models are needed, such as those employed by Precarn, an Ottawa-based non-profit firm that helps Canadian companies bridge the "innovation gap" between university and government research stages and commercial rollout.

As part of its core funding model, Precarn requires an end user, technology developer, and researchers to collaborate on each project.

Paul Johnston, Precarn's president and CEO, says the model has succeeded in bringing products and applications to market because partners resolve specific problems that customers face, while developing intelligence systems and robotics for the automotive, clean-technology, medical and other sectors.

"The concept of guaranteeing commercialization is built right into our research project," he says. "It's not research based on speculation."

Ivan Sierralta, director of clusters for Calgary Technologies Inc. (CTI), a non-profit firm based at the University of Calgary that helps startup tech firms commercialize, says Canada's record of helping university-based startups become viable is "quite positive."

"There are extremely promising corporations on their way to achieving success by commercializing intellectual property that came out of our universities and other corporations that are already successful and expanding their markets," he says. "It's a very exciting time for technology companies in Canada."

He says Alberta is "moving to the lead of the pack" in research and development, because Premier Ed Stelmach's Tory government has agreed to match federal tax credits and Ottawa's capital cost allowance.

"Those are going to help Alberta companies dramatically," Sierralta says.

Meanwhile, Alan Winter, president and CEO of Vancouver-based genomics and proteomics research group Genome British Columbia, says while governments, granting councils and other organizations do a good job of putting money into science and technology, Canadian companies are falling short in investing enough in the research and development required to drive innovation.

"But (for) innovation, you actually have to take that research and make a difference," he says. "That means you've got to involve industry. It's that link with industry that we don't seem to have."

Jim Charlton, senior vice-president of information technology investments for Vancouver-based GrowthWorks Capital Ltd., agrees tech startups suffer from a lack of venture capital in Canada. While U.S pension funds have a long history of investing in the venture-capital class, their Canadian counterparts have not followed suit because they are fewer in number, smaller in size, more conservative and do not have venture-capital investment experience.

"And, returns have not been great since the tech bubble burst," says Charlton.

Chris Lumb, president and CEO of Micralyne Inc., an Edmonton-based micro-electronic mechanical systems manufacturer that produced $30 million in revenue last year, says tech firms are also still living with Canada's legacy as a resource-based and "U.S. branch-plant" economy.

"Canadian subsidiaries of American companies didn't do a lot of product development," he says. "The Canadian subsidiary was there to do distribution and get the shelves stocked."

Lumb says his company has enjoyed strong growth even though it never received any venture-capital funding, because it focused on putting customers first. "When I look at a lot of startups, they frequently say: 'We'll worry about our customers later,' " says Lumb, who is also a director of the Edmonton-based National Institute of Nanotechnology.

"That's got to be wrong. You've got to worry about customers right up front - from Day 1.

"Companies that do that are going to be more likely to succeed."

(Monte Stewart can be reached at monte@businessedge.ca)