State of the Nation 2010


6. Digest of Indicators

6.1 Business Innovation Indicators

Private sector innovation is an engine of wealth creation. For individual firms, developing new or improved products can help preserve and capture market share, increasing revenues and profits. If these innovations merely shift market share from one company to another, consumers may benefit from added choice but overall wealth creation has not occurred. However, if innovation prompts other firms to improve their products to compete, the result can be an improvement in the quality of goods available to consumers — an improvement in consumers' net wealth. Firms may also introduce process innovation to reduce costs, which can have the effect of increasing profit margins, lowering prices for consumers, or both.

6.1.1 Going Beyond R&D Indicators to Measure Innovation

The State of the Nation 2008 report referred to the links between innovation, productivity and our standard of living. It noted that Canadian industries invest less in R&D and machinery and equipment than comparable industries around the world. R&D expenditures are only one indicator of innovation, but an important indicator that is well correlated with other contributions to innovation.

Highly aggregated, national data can provide a useful benchmark for the innovative performance of an economy, but it can mask significant differences in industrial composition and the performance of individual industries and firms. Some industries are inherently more R&D- or ICT-intensive than others, and the relationship between these variables and productivity (as is the case with any metric of innovation) also varies by industry.

STIC's State of the Nation 2010 explores business innovation on an industry and sector basis. This section begins by presenting data on productivity levels and growth in Canada by industry and by sector, and then compares labour productivity levels, and their determinants, with the United States. The four determinants examined include: multifactor productivity, investments in machinery and equipment (M&E), information and communications technologies (ICT) (equipment and services), and research and development.

This report also includes new innovation survey findings on how Canadian-based enterprises innovate, the place of innovation in their corporate strategies, and their expenditures on product and process innovations. The growth of technology intensive commercial services trade is also described and analyzed. Finally, the report points out sectoral differences in how much large, medium and small companies are investing in R&D and developments in the availability of venture capital for Canadian businesses.

6.1.2 Productivity Growth for Improved Standards of Living

"There are, of course, other factors besides productivity growth that affect our standard of living, such as changes in Canada's terms of trade (the prices we receive for what we sell abroad relative to the prices we pay for imports) and changes in employment rates (the proportion of the population that is actually employed). However, productivity growth is the major source of improvement in our economic well-being in the long run. Gains in productivity allow businesses to pay higher real (inflation-adjusted) wages and still keep costs down and stay profitable and competitive. So, rising productivity is vital to sustained improvements in real incomes and living standards over time."

— Bank of Canada19

R&D Sub-Priority: Energy Production in the Oil Sands

Dr. Josephine Hill, Zandmer/Canada Research Chair in Hydrogen and Catalysis, at the University of Calgary, and recipient of the 2008 Minerva Mentoring Award for encouraging women in engineering, science and information technology. Dr. Josephine Hill, Zandmer/Canada Research Chair in Hydrogen and Catalysis, at the University of Calgary, and recipient of the 2008 Minerva Mentoring Award for encouraging women in engineering, science and information technology.

R&D in Oil Sands and Heavy Oil

Steam-assisted gravity drainage (SAGD) technology is an example of innovation in the oil and gas industry that developed through extensive field testing. Two horizontal wells are drilled in oil sands formations to produce bitumen — which is a mixture of sand, clay, water, and a dense and viscous form of petroleum. The upper well injects steam into the formation, and the lower well collects the heated crude oil or bitumen that flows out of the formation, along with any water from the condensation of injected steam. The heat from the steam reduces the viscosity of the heavy crude oil or bitumen. This enhanced oil recovery technology is considered twice as efficient as the older cyclic steam stimulation process.

SAGD has gone through several transformations since it was first conceived by Roger Butler in the late 1960s. Alberta Innovates Technology Futures (AITF) is supporting the development of alternative SAGD produced water treatment technologies (e.g., ceramic membranes). Nexen's Long Lake Project in the Athabasca oil sands is the first to combine SAGD with an upgrader process that yields premium synthetic crude through a comparatively more efficient use of natural gas.

Research in Catalysis

Research and development sub-priorities span basic to applied research. For example, research by Josephine Hill, Zandmer/Canada Research Chair in Hydrogen and Catalysis, at the University of Calgary, examines and improves efficiencies in chemical and electrochemical processes that can have application in energy production. The work in the catalysis field has implications for: environmental impact; the development of fuel cells; hydrotreating of heavy oil; and gasification. Implications also impact the conversion of solid waste materials, such as petroleum coke and biomass into activated carbon, which can be used to clean up gas and liquid exhaust streams. The spent activated carbon can then be gasified to produce gaseous products, such as methane and syngas.

Productivity measures the total amount of goods and services produced in a country for each input to production, such as labour, capital or land. The most common measure of productivity is labour productivity, which measures the amount of goods and services produced by one hour of labour.

In Canada, labour productivity levels and their growth vary tremendously between industries. For example, Figure 9 reveals that private sector labour productivity levels in service industries were only 89 percent of the average for the entire economy. The sectors of mining and oil and gas extraction and utilities were sectors with at least three times the private sector labour productivity levels of the overall economy. Productivity in these sectors has been decreasing to an average of -4.5 percent and -1.7 percent respectively in the 2003 to 2008 period. A decrease of -2.3 percent in labour productivity was also registered in the construction sector. In contrast, above average labour productivity growth was experienced in most service industries as well as in the sector of agriculture, forestry, fishing and hunting and the manufacturing sector over the 2003 to 2008 period. Significant labour productivity growth was also experienced in the wholesale and retail trade sectors, both of which increased by 3.4 percent per year in the 2003 to 2008 period.

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Figure 9: Private Sector Labour Productivity (2008) and Private Sector Labour Productivity Growth (2003–2008), by Industry

SECTOR or Industry

Labour Productivity,* 2008

Labour Productivity Growth
(Average Annual Growth (%)),
2003–2008

*Private sector labour productivity is calculated as real private sector Gross Domestic Product (in CAD) divided by total hours worked. Return to text
Note: Sectors are comprised of many industries.
Source: Compilation by STIC Secretariat based on data from Statistics Canada.

GOODS SECTOR

AGRICULTURE, FORESTRY, FISHING AND HUNTING

35.2

4.7

MINING AND OIL AND GAS EXTRACTION

117.7

-4.5

UTILITIES

135.5

-1.7

CONSTRUCTION

28.7

-2.3

MANUFACTURING

48.7

0.8

AVERAGE FOR GOODS SECTOR

47.3

-0.6

SERVICES SECTOR

Wholesale Trade Industries

41.1

3.4

Retail Trade Industries

24.1

3.4

Transportation and Warehousing Industries

33.9

0.5

Information and Cultural Industries

64.1

2.9

Finance, Insurance, Real Estate and Leasing Industries

72.4

0.8

Professional, Scientific and Technical Services Industries

30.9

0.1

Administrative and Support, Waste Management and Remediation Services Industries

22.1

0.6

Educational Services Industries

24.2

3.2

Health Care and Social Assistance Industries

31.7

0.7

Arts, Entertainment and Recreation Industries

20.0

1.0

Accommodation and Food Services Industries

15.5

1.7

Other Services (except Public Administration) Industries

17.4

1.1

AVERAGE FOR SERVICES SECTOR

33.6

1.7

     

Average for all Sectors and Industries

37.8

0.7

Economic research on the United States' productivity growth "miracle" suggests that service industries' labour productivity growth rate increased from 1.0 percent per year before 1995 to 2.3 percent per year in subsequent years.20 Much of the famed revival of U.S. productivity growth is attributable to services productivity. U.S. labour productivity growth is actually not miraculous, but rather the result of corporate action. The sources of the strong labour productivity growth in the U.S. service industries are attributable to high levels of ICT capital spending and rapid multifactor productivity (MFP) growth. Multifactor productivity measures joint influences on economic growth, such as technological change, efficiency improvements, and returns to scale.21

According to the System of National Accounts,22 products are goods and services (including knowledge-capturing products) that result from a process of production.

Goods are physical, produced objects for which a demand exists, over which ownership rights can be established and whose ownership can be transferred from one institutional unit to another by engaging in transactions on markets.

Services are the result of a production activity that changes the conditions of the consuming units, or facilitates the exchange of products or financial assets.

While comparisons across industries within Canada are important to obtain an understanding of where productivity levels are improving, comparison with other countries' industries provides an indication of Canada's international competitiveness. Like Canada, U.S. services productivity levels lag in the manufacturing sector, but are catching up rapidly. Growth in labour productivity is essential for rising wages and increased profitability for employees and investors.

Figure 10 compares the relative performance of Canadian industries compared to the same U.S. industries for labour productivity levels, and its main determinants: multifactor productivity and capital intensities for machinery and equipment investments and ICT investments. The figure shows that there was a widening Canadian labour productivity gap with the U.S. from 2002 to 2007. Canadian productivity levels over this time period fell from 77.3 percent to 72.1 percent of U.S. labour productivity levels. While Canadian mining, oil and gas, utilities and manufacturing sectors all saw declines in labour productivity relative to the U.S., 9 out of 11 service industries also saw declines in relative productivity to the U.S. over this period. Only agriculture, forestry, fishing and hunting, construction and a few service industries (i.e., wholesale trade; finance, insurance and real estate and the management of companies industries) witnessed improvements in their productivity vis-à-vis their U.S. counterparts.

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Figure 10: Canada–U.S. Labour Productivity, Multifactor Productivity, and Capital Intensity Comparisons (U.S. = 100)

SECTOR or Industry

Labour Productivity

Multifactor Productivity

Machinery and Equipment*

ICT

2002

2007

2002

2007

2000–07 Average

2000–07 Average

* Machinery and Equipment includes ICT. Return to text

** FIRE stands for Finance, Insurance, Real Estate and Leasing. Return to text

Note: Sectors are comprised of many industries.

Source: Tang, Jianmin, Someshwar Rao, and Min Li, Sensitivity of Capital Stock and Multifactor Productivity Estimates to Depreciation Assumptions: A Canada–U.S. Comparison, International Productivity Monitor, Number 20, Fall 2010, Ottawa, Centre for the Study of Living Standards.

GOODS SECTOR

AGRICULTURE, FORESTRY,
FISHING AND HUNTING

85.5

86.4

82.8

86.2

70.5

79.1

MINING

88.9

88.0

79.3

72.5

80.0

31.2

Mining, except oil and gas industry

58.1

47.3

52.2

39.4

57.0

35.1

Oil and gas extraction industry

87.9

81.6

94.9

100.3

100.5

25.6

UTILITIES

76.5

62.7

53.9

49.0

51.0

73.6

CONSTRUCTION

149.5

192.5

151.8

196.9

79.2

14.7

MANUFACTURING

84.4

73.2

91.1

77.2

91.1

36.6

SERVICES SECTOR

Wholesale Trade Industries

73.7

90.0

97.8

120.3

29.9

45.6

Retail Trade Industries

81.3

75.6

95.3

85.5

70.4

72.1

Transportation and Warehousing Industries

123.8

108.1

112.5

96.7

86.8

19.7

Information and Cultural Industries

64.5

46.6

69.9

52.3

82.8

98.5

FIRE** and Management of
Companies Industries

70.0

72.1

75.7

74.9

105.4

72.2

Professional, Scientific and
Technical Services Industries

45.4

38.6

54.0

47.6

45.7

42.3

Administrative and Waste Management Industries

113.5

107.6

144.1

126.2

39.9

49.9

Education, Health Care and Social Assistance Industries

99.4

95.9

102.0

98.0

34.2

17.8

Arts, Entertainment and Recreation Industries

39.6

39.0

49.4

47.9

39.3

128.7

Accommodation and Food Services Industries

74.1

72.2

85.2

78.8

28.3

47.1

Other Services (except Public
Administration) Industries

145.3

143.8

181.6

178.3

61.1

102.1

             

Average for all Sectors and Industries

77.3

72.1

75.4

68.5

74.5

47.9

Analyzing the drivers of labour productivity is an important part of understanding Canada's relative productivity growth. Multifactor productivity (MFP) and investments in machinery and equipment (M&E), especially ICT capital, are important drivers of labour productivity growth. Investments in M&E and ICT capital often influence labour productivity through MFP. The Council of Canadian Academies' Expert Panel on Business Innovation concluded that "…the rate of MFP growth over suitably long periods of time is primarily due to business innovation — interpreted broadly to include better organization of work, improved business models, the efficient incorporation of new technology, the payoff from R&D and the insights of entrepreneurs."23

MFP declined relative to the U.S. in all industry sectors and industries of the Canadian economy with the exception of agriculture, forestry, fishing and hunting; oil and gas extraction; construction and wholesale trade. The net effect brought Canada's relative MFP performance down to 68.5 percent of U.S. MFP levels. In spite of this decline, Canadian construction, oil and gas extraction, wholesale trade, administrative and waste management, and other service industries (except public administration) retained higher MFP levels than their U.S. counterpart.

Investments in machinery and equipment (M&E) and its ICT component were similarly lower than overall U.S. levels from 2000–07. Relative investment intensity in ICT was less than one half the U.S. levels, whereas investments in M&E were slightly under three quarters of the U.S. levels. Canadian machinery and equipment investment intensity was higher than U.S. levels in the oil and gas extraction industry and the finance, insurance and real estate (FIRE) and management of companies industry. For ICT capital, Canada's investment intensity was higher than U.S. levels during the 2000–07 period in the arts, entertainment and recreation and other services (except public administration) industries. Gross fixed capital formation in machinery and equipment was 6.3 percent of Canada's GDP in 2007, up slightly from 6.2 percent in 2004 (as reported in State of the Nation 2008).24

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6.1.3 Innovation Focus in Business Strategy

The 2009 Survey of Innovation and Business Strategy (SIBS) was a joint pilot project by Industry Canada, Foreign Affairs and International Trade Canada and Statistics Canada. A total of 6,233 enterprises in Canada spanning 67 industries were surveyed. The sample was limited to firms with 20 or more employees and revenue of $250,000 or more. Industry-by-industry comparisons of the results from SIBS with the U.S. should be adjusted to account for the different size cut-off used in the U.S. Business R&D and Innovation Survey. As innovation is dependent on the size of firm, all other things being equal, Canadian results for the propensity to innovate would be expected to be higher than those of the U.S. Questionnaires integrating features from other countries' business surveys were sent to the Chief Executive Officers or senior managers of enterprises. The survey response rate was 70 percent. SIBS data provide insights into long-term strategic objectives of Canadian-based enterprises when they invest in innovation, their business innovation strategy, as well as business innovation activities and outcomes.

The survey tracks four types of innovation at the firm level, as identified in the Oslo Manual, for measuring innovation: product innovation, process innovation, marketing innovation and organizational innovation.

Product Innovation involves a good or service that is new or significantly improved. This includes significant improvements in technical specifications, components and materials, incorporated software, user-friendliness or other functional characteristics.

Process Innovation involves a new or significantly improved production or delivery method. This includes significant changes in techniques, equipment and/or software.

Marketing Innovation involves a new marketing method with significant changes in product design or packaging, product placement, product promotion or pricing.

Organizational Innovation involves introducing a new organizational method in the firm's business practices, workplace organization or external relations.

These innovations can be new to the firm, new to the market/sector or new to the world.

SIBS data revealed that the large majority of Canadian-based enterprises relies on existing products, processes, marketing and organizational practices. Only 19 percent of enterprises in all surveyed industries stated that their strategic focus was to regularly introduce new or significantly improved goods or services, and only 34 percent of firms' long-term strategic focus was to introduce new or significantly improved business activities or processes to their operations. Thirty-one percent of enterprises' long-term strategic focus was to introduce significantly improved marketing practices or methods, while 33 percent of enterprises' long-term focus was to introduce new or significantly improved management practices or change to their organizational structure.

Monitoring the outcomes of innovative activities is essential to ensuring that long-term innovation strategies are successfully adopted. The survey inquired about the monitoring practices of Canadian-based enterprises to achieve their objectives. Financial objectives figured most prominently in all enterprises' measurement of long-term strategic objectives, ranging from 65 percent of enterprises monitoring gross or operating margin growth to 76 percent monitoring sales or income growth. Customer orientation indicators were the next most cited set of measures. This includes process and organization-related objectives such as improved customer satisfaction (50 percent of enterprises). Increased sales of new products and process innovation placed third in importance as to what is measured in the long-term objectives of enterprises.

A Focus on Service Industries

Services encompass a wide range of industries often serving other parts of the economy. In 2008, services accounted for 61.5 percent of private sector GDP and 72.6 percent of private sector employment in the Canadian economy. The top three service industries by employment are retail trade; finance, insurance, real estate and rental and leasing; and accommodation and food services.

Many of Canada's largest corporations in 2009, as identified in the Financial Post list of top 500 Canadian companies, were either service firms or manufacturing firms with large service activities. Of the 30 largest firms in Canada, by 2008 revenue size, 16 had substantial service activities, such as: Royal Bank of Canada, Power Corporation of Canada, Manulife Financial, George Weston, Scotiabank, Toronto-Dominion Bank, Bank of Montreal, Bell Canada Enterprises, Walmart Canada, Alimentation Couche-Tard, Sun Life Financial, Empire Company, Brookfield Asset Management, Canadian Imperial Bank of Commerce, Thomson Reuters, and Research In Motion.

Branham Group's 2010 list of top 250 Canadian technology companies was also heavily occupied by firms with sizeable service activities.

Examples of Service Enterprises

Thomson Reuters uses innovative technology to deliver information to decision makers in the financial, legal, tax and accounting, scientific, health-care and media markets. In 2008, the company received an R&D 100 Award from R&D Magazine for its intellectual property research and analysis platform.25 The company has also earned six Technology Innovation Awards from The CPA Technology Advisor, including a 2010 award for its staff management tool.26

CGI Group offers IT management and business process services in areas such as systems integration and consulting, application management and technology management. CGI Group is one of the most R&D-intensive ICT companies in Canada, spending $76 million in 2009.27 The company has collaborated with Bell Canada to create a centre for innovation and technology excellence,28 and it has been recognized for important innovation in e-procurement29 and electronic health information management.30

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6.1.3.1 Expenditures on Innovation Activities

Amongst all Canadian-based enterprises reporting innovative activities, utility enterprises have a greater incidence of spending large amounts on both product and process innovation, as shown in Figures 11 and 12. For good or service innovations, 41 percent of innovative enterprises in this industry spent more than $1 million, 26.4 percent spent the next largest amount (i.e., $200,000 to less than $1 million), 25.6 percent spent between $50,000 and $200,000, and 7.4 percent spent $1 to $50,000. There were no instances of a utility enterprise not spending anything on product innovation. In contrast, approximately 20.7 percent of innovative enterprises in transportation and warehousing industries did not spend anything on product innovation. Manufacturing followed by professional, scientific and technical services have a high incidence of spending large amounts on product innovation.

Figure 11: Total Expenditures on Good or Service Innovations, 2009

Figure 12 shows a high incidence of high expenditure levels (i.e., $500,000 or more) on process innovation was found in utilities (54.3 percent of innovative enterprises), followed by finance and insurance (44.6 percent of innovative enterprises), and mining, quarrying and oil and gas extraction (at 24.8 percent of innovative enterprises).

Figure 12: Total Expenditures on Process Innovations, 2009

6.1.4 Innovation through Research and Development

6.1.4.1 Business Performance of R&D

Business expenditure on R&D (BERD) intensity is the ratio of business R&D to a measure of output. Figure 13 compares the ratio of BERD to GDP for a selection of countries in 1998, 2003 and 2008. Most countries show an increase in BERD intensity over these years, while the intensity in Canada has declined. This is not just the result of faster GDP growth in Canada, but also declining aggregate business performance of R&D (Figure 14).

Figure 13: Business Expenditure on Research and Development Intensity by Country, 1998, 2003 and 2008 (as a Percentage of Gross Domestic Product)

Figure 14: Business Expenditure on Research and Development in Canada, 1991 to 2010

From 2006 to 2009, funding for R&D from federal and provincial governments, higher education, private non-profit groups and foreign sources increased. While not offsetting the decline in business performance of R&D, the private sector also directed more resources to higher education to perform R&D.

Business sector value-added, which is composed mainly of profits and wages, is essentially the business contribution to GDP. The metric of business expenditure on R&D (BERD) as a share of business value-added is a measure of how much of a business' resources is dedicated to R&D. By international standards, Canada's business R&D expenditures' share of business sector value-added was quite low in 2008 (Figure 15). The top 25 companies in Canada accounted for an estimated 33 percent of total intramural business R&D performed in 2009. This share has been fairly stable in recent years, but is down considerably from nearly 50 percent in the late 1980s. The share of the top 100 companies has similarly decreased, from nearly 70 percent of the total in the late 1980s to an estimated 53 percent in 2009. While R&D performance is still heavily concentrated in a few score of leading R&D performers, business R&D is becoming more distributed.31

Figure 15: Business Expenditure on Research and Development Share of Value-Added in Industry, * 2008

* Value-added by industry is based on gross value-added net of "real estate activities," "financial intermediation services indirectly measured" and the public sector; i.e., it is a measure of private sector productive value-added. Source: OECD, Main Science and Technology Indicators, 2010. Return to text

Econometric estimates of the link between R&D and productivity vary widely. Firm-level studies generally suggest a rather robust link between R&D and productivity while more aggregated industry-level data sometimes show a weaker link. Broadly speaking, however, the economic literature suggests a positive link between R&D and productivity, making R&D performed by Canadian industry an indicator of business sector innovation worth noting.32

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6.1.4.2 Canada's Industry Structure and Business Performance of R&D

Some argue that Canada's overall low business expenditure on R&D is a reflection of Canada's industry structure. Does Canada's industry structure explain historically low business expenditure on R&D (BERD) in comparison to leading innovating countries?

Overall low business R&D can in part be explained by the relative size in Canada of industries that globally tend to invest less in R&D. For example, Canada has a relatively large energy extraction sector. Investments in product and process innovation in this sector have historically involved more capital expenditure than R&D and are not always separately accounted for as R&D. Canada also has a relatively small ICT manufacturing sector in comparison to high R&D nations such as Sweden, Finland and Germany. Figure 16, based on the OECD Structural Analysis (STAN) database, illustrates the industry sector composition of the Canadian economy and the economies of the United States, Sweden, Germany, Finland and Australia.

Figure 16: Composition/Comparison of Canadian, United States, Swedish, German, Finnish and Australian Economies (Share of Gross Domestic Product), 2005

6.1.4.3 Changes in Research and Development Performed by Industries in Canada

In 2007, R&D in Canada was performed primarily by the following industries, as shown in Figure 17: ICT manufacturing (18 percent); R&D services (8 percent); computer services (8 percent); pharmaceutical manufacturing (7 percent); aerospace products and parts manufacturing (6 percent); software (5 percent); telecommunication services (4 percent); motor vehicle and parts (3 percent); oil and gas extraction (3 percent) and finance and insurance (2 percent). The remaining 36 percent was spread over other industries.

Figure 17: Business Expenditure on Research and Development Contribution by Industry, 2000 and 2007

There has been significant change in industries performing R&D in Canada. Declining ICT manufacturing R&D has been in part offset by growing R&D in computer services, software and telecom services. At the same time, the R&D service industry (comprising firms whose primary activity in Canada is undertaking research activities) continues to grow in importance in the Canadian R&D landscape. R&D expenditures have also increased notably for Canada's banking and financial sector and for the oil and gas industries.

6.1.4.4 International Comparison of Research and Development Intensity by Industry Sector

Benchmarking R&D expenditures by industry on an international basis poses challenges. Comparable international data are less current and there are differences in the way statistics are collected. Canada assigns R&D figures according to the main business activity of the company being surveyed. Other countries assign R&D figures according to the type of research being conducted (product field). Product field countries include Finland, Sweden, France and the U.K. This difference in methodology has the effect of some similar R&D activities being assigned to different industries in different countries. For example, a firm that designed radio broadcast antennas but outsourced all manufacturing to a firm in another country would be classified as a telecommunications equipment firm according to the product field data collection method, but would be classified as an R&D services firm according to the main activity. This difference in methodologies should be taken into consideration for international comparisons of private sector R&D activities.

Industry-led Innovation:
Saskatchewan Pulse Growers

A producer examining a pea crop.
A producer examining a pea crop.

Peas, lentils and beans — pulse crops — are staple foods in fast growing emerging markets, and are also being used in non-food products such as fuel, lubricants and pharmaceuticals. These crops flourish best in the dry, fertile soil of the Canadian prairies. Canada is now one of the world's leading producers and exporters of peas and lentils.

Rapid expansion of pulse crop acreage in Canada combined with more intense rotations requires that the crops have broad adaptation to various conditions. Expansion increases the risk of leaf and soil diseases, which threaten the sustainability of crop production. At the same time, growers must maintain high yield, a diverse product range and superior quality. Innovation in this industry can come from research into genetic improvement, disease resistance and nutritional and therapeutic benefits, as well as management and agronomic practices for quality control and sustainability.

Representing over 18,000 pulse crop producers in Saskatchewan, the Saskatchewan Pulse Growers' expenditures in R&D as a percentage of the total of their investments have increased to 60 percent in the 2009–10 fiscal year. These investments in innovation have ensured the competitiveness of Saskatchewan producers and profitability of the pulse industry as a whole.

The biggest successes have been the Pulse Breeding Program and the Variety Release Program, resulting from collaboration between Saskatchewan Pulse Growers and the Crop Development Centre at the University of Saskatchewan. Under these programs, the Saskatchewan Pulse Growers provide access to new pulse varieties developed by the Crop Development Centre by offering breeder seed without royalties to select-status seed growers in Saskatchewan and Alberta. In exchange for a financial commitment to research in Saskatchewan, the Saskatchewan Pulse Growers received the distribution rights to all pulse varieties developed by the Crop Development Centre. As a result, pulse producers in Saskatchewan and Alberta have a quick and steady supply of new, improved pulse crop varieties.

Figure 18 shows Canada's business R&D intensity as compared to the average business R&D intensity of a selected group of OECD countries as well as the average of the top five BERD-intensive counterparts by industry. By international standards, Canada tends to have a lower business R&D investment as a share of value-added in a number of industries. These include industries that employ large numbers of people, such as construction and food product manufacturing. Canada's R&D intensity is also lower in some industries that globally tend to have high R&D ratios, such as motor vehicle manufacturing and chemical manufacturing.

Figure 18: Business Research and Development Intensity by Industry, 2005 (Business Expenditure on Research and Development/Value-Added)

Business R&D as a share of value-added was higher in Canada versus comparators in industries such as ICT manufacturing; wholesale and retail; 33 transportation, storage and communications, including telecommunications. In the case of forestry, paper and lumber industries (that have a low level of R&D investment globally), Canadian investment was over double the average investment for these industries. It is important to note that, in absolute terms, this may represent very small differences.

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6.1.4.5 Research and Development by Sector and Firm Size

The measure of output used to scale R&D activities between firms of different sizes in the following analysis is revenues (or net sales). This metric is an indicator of how intensively firms pursue R&D activities relative to other uses. Most R&D in Canada is performed by large firms. However, for some industry sectors in Canada, SMEs (defined here as firms with revenues of $50 million or less) made important contributions to total R&D expenditures.

Figure 19 shows the contribution to total R&D in a given sector that was made by small (under $1 million in revenues), medium ($1 million – $50 million in revenues) and large (over $50 million in revenues) firms. For example, around 75 percent of total business R&D in manufacturing was performed by large firms, with small firms contributing less than 5 percent and the remainder contributed by medium-sized firms.

Figure 19: Distribution of Business Performance of Research and Development by Revenue Size of Firm

Sectors for which large firms ($50 million and more in revenues) were particularly important to total R&D expenditures included manufacturing, utilities, and the finance and insurance sectors. In the retail trade, construction, real estate and the professional, scientific and technical services sectors, small and medium enterprises (under $50 million in revenues) accounted for the majority of business R&D expenditures.

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6.1.5 Innovation through Investments in Machinery and Equipment

Investment in advanced technology is one channel through which knowledge is transferred between firms; that is, it is a channel through which technology and practices diffuse. This process, sometimes called 'embodied innovation,' contributes to productivity gains, especially in the case of the adoption of information and communications technologies (ICT). Adoption of new technologies in supply chains and in production also gives rise to process innovation.

The relationship between ICT and productivity has been widely studied. Findings suggest that the effect of ICT adoption on productivity has varied between countries and industries.34 While investments in ICT often result in productivity and competitiveness gains for adopters, adoption of ICT itself frequently requires organizational change and demands a workforce with the skills to make use of the new technologies.35 Furthermore, as well as being a catalyst of innovation, ICT adoption may have the strongest productivity benefits for firms that are innovative to begin with.36

Canadian industry seems to invest less in ICT equipment per worker than other countries. Figure 20 shows that there are some areas of higher relative Canadian ICT investment. Canada's wood products manufacturing industry, for example, seems to be more highly ICT-intensive than in many other countries, reflecting a fairly pronounced rise in ICT investments from 2000–04 (the time of the figure). Canada's post and telecommunications industries, which include the telecommunications service industries and which generally have a fairly high level of ICT investment, are also more ICT-capital intensive than average, as are Canada's utility and certain sales industries.

Figure 20: Information and Communications Technologies Capital Intensity (Investment per Worker), 2004

The Survey of Innovation and Business Strategy indicates that 83 percent of enterprises that adopted advanced technology purchased off-the-shelf advanced technology, 10 percent leased off-the-shelf advanced technology, and 13 percent licensed advanced technology. Many of these enterprises also customized, significantly improved, or developed their own (or in conjunction with others) advanced technologies.

The data presented in Figure 21 show industry adoption rates of 'advanced technology,' defined here as information technologies (IT), communications equipment and measuring and control instrumentation. The first two components, IT (computers and software) and communications equipment, comprise what is generally referred to as ICT capital.37

Figure 21: Share of Advanced Technology Capital Stock in Total Machinery and Equipment Capital Stock, Average 2004 to 2008

There are inherent differences in the rates of adoption of advanced technology between industries; some industries require greater baseline investments in technology to compete. Within the Canadian data, pronounced differences can be seen between industries in terms of the shares of machinery and equipment capital stock that are composed of advanced technology assets. The types of advanced technology adopted also vary considerably by industry (Figure 22). For example, Statistics Canada's recent Survey of Advanced Technology found that over 53 percent of semiconductor and electronic components manufacturing business units reported adopting some form of inspection and verification technology, compared to only 23 percent of manufacturing business units overall.

Figure 22: Advanced Technology Capital Stock by Asset Type (Average 2004 to 2008)

While IT tends to be the most important component of advanced technology adopted by industry, other forms of advanced technology investment are important to specific sectors. For example, while IT is over 90 percent of advanced technology capital stock in some financial sector industries, it is less than 40 percent of the total advanced technology capital stock in the R&D services industry. Research that has looked at the impact of IT equipment, software and communications equipment adoption on productivity has found that all three can play an important role in improving productivity.38 Recent Canadian policy measures to promote the adoption of advanced technology and spur productivity growth have generally focused on IT (i.e., computers and software) and not other components of advanced technology capital noted here such as communications equipment and instrumentation.

A Step Ahead in Technology —
A Step Ahead of Financial Crime

Verafin Inc.

Verafin Inc. of St. John's, Newfoundland, was founded in 2003 by a team of electrical engineers with backgrounds in artificial intelligence and pattern recognition. Its software solution helps banks and credit unions identify fraud, money laundering and other suspicious activity on its computer networks. Today, Verafin has over 90 employees and is one of North America's leading providers of compliance, anti-money laundering and fraud detection software with more than 650 customers. Verafin was able to transfer ICT expertise and technology from a context of engineering for harsh environments to the financial industry.

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6.1.6 Innovation and the Rise of Service Industries

In 2008, service industries accounted for 61.5 percent of real private sector GDP and 72.6 percent of private sector employment in the Canadian economy. The rise of service industries is a long-term trend, which is experienced throughout all advanced industrial economies. Services cover a wide and complex variety of transactions on products that are generally intangible in nature.

6.1.6.1 Innovation through Utilization of Information Technology Services

Higher rates of investment in ICT equipment have been identified as an activity that improves business productivity.39 Some Canadian industries that under-invest in ICT equipment by international standards seem to make more intensive use of information technology (IT) services; for example, Canada's mining and quarrying sector and financial sectors as shown in Figure 23a and b. For other industry sectors, such as manufacturing and construction, the intensity of IT services use is low by international standards.

Figure 23a: Information Technology Services Intensity, Mining and Quarrying Industry (mid-2000s)

Figure 23b: Information Technology Services Intensity, Finance and Insurance (mid-2000s)

While the link between investment in ICT equipment and productivity has been studied in depth, less attention has been paid in the productivity literature to purchase of IT services, or IT outsourcing. Some research (using a methodology similar to the one used here)40 has suggested a link between IT outsourcing and productivity at the industry level. The research has also suggested complementarities between IT outsourcing and investments in ICT capital.41 Technological and business model developments such as remote hosting of data and websites, software as a service and cloud computing may contribute to an increasingly blurry line between what constitutes a purchased IT service and what constitutes an investment in capital. Research on productivity and the interplay between IT services outsourcing and ICT capital investments, such as whether or not these are complements or substitutes for each other, could further our understanding of this area.

6.1.6.2 Technology Intensive Trade Flows (services and goods)

With the rise of service industries, one would expect a growing trade in commercial services between countries. International transactions in commercial services are compiled as exports (or receipts, i.e., revenue derived from services sold abroad) and imports (or payments, i.e., expenses for services received from abroad), and include the following types of services:

  • communications services;
  • construction services;
  • insurance services;
  • other financial services;
  • computer and information services;
  • royalties and licence fees;
  • management services;
  • research and development services;
  • architectural, engineering and other technical services;
  • other miscellaneous services to business; and
  • audiovisual services.

Other broad categories of services transaction, in addition to commercial services, are travel, transportation and government services.

In order to gauge the most technology intensive aspects of commercial services trade, Figure 24 combines transactions for the computer and information services; royalties and licence fees; research and development services; and architectural, engineering and other technical services from 1990 to the third quarter of 2010. While many other aspects of services trade may involve research and development activities, these four categories42 were chosen because they reflect explicit payments or receipts for technology transfers and the cross-border trade in research and development intensive activities.

Figure 24: Technology Intensive Services Trade — Receipts of and Payments for — as a Percentage of Total Commercial Services

R&D Sub-Priority: Biomedical Engineering and Medical Technologies

Dr. Carl-Éric Aubin and his teams of engineers and researchers are designing the next-generation technologies for advanced treatment of young patients with scoliosis.

Dr. Carl-Éric Aubin and his teams of engineers and researchers are designing the next-generation technologies for advanced treatment of young patients with scoliosis.

Engineering the Spine

The École Polytechnique engineers and the researchers of Sainte-Justine University Hospital are working together to develop next-generation technologies for the treatment of spinal pathologies. Different simulators make it possible to design and optimize spinal braces and surgical instrumentation that are personalized and optimized. An integrated "operating room of the future" combining imaging applications, navigation technologies and a surgical simulator will assist the surgeons during the operation. A trans-disciplinary team of engineers, orthopaedists and biologists are developing fusionless implants that are minimally invasive and intelligent for the advanced treatment of young patients with scoliosis.

Figure 24 highlights that, over time, technology intensive services transactions (both receipts and payments) are a growing share of total commercial services transactions. This growth of the technology intensive share is substantial given that for the past two decades total receipts from commercial services transactions grew from $9 billion in 1990 to just under $40 billion in 2009 whilst payments grew from $13 billion to $41 billion over the same period. That is, technology intensive commercial services — both exports and imports — are a growing share of a rapidly growing pie. In spite of the recent recession, which reduced total commercial services trade by 4.8 percent for receipts and 2.7 percent for payments, the share of technology intensive service transactions largely sustained their contributions.

The largest component of technology intensive commercial service exports was in computer and information services (at 12.7 percent) followed closely by architecture, engineering and other technical services (at 12.5 percent) in the third quarter of 2010. Exports of R&D services in the third quarter of 2010 were 9.4 percent and 8.4 percent for royalties and licence fees. The largest category of imports of technology intensive commercial services was royalties and licence fees (21.9 percent) followed by architectural, engineering, and other technical services (9.5 percent) by the third quarter of 2010.

Figure 24 does not separate out transactions within multinational enterprises (i.e., intra-firm between parent companies and their affiliates) and arm's-length service transactions. Data indicate that the value of intra-firm transfers within multinational enterprises accounts for the majority of these payments for services.

The four categories of technology intensive service transactions (computer and information services; royalties and licence fees; research and development services; and architectural, engineering and other technical services) — both exports and imports — have been added to the State of the Nation 2010 report as its newest international measure for traded technological intensive services. It captures both the ability and desire of Canadian enterprises to export their locally produced technology intensive service activities abroad, but also Canadian enterprises' desire to benefit from the technology intensive service activities produced abroad. Given the increasing role of services in advanced economies, the growing complementarities between goods and services, and the increasing internationalization of Canadian corporate strategy, it is an innovation related measure well worth monitoring in the future.

In addition to technology intensive services trade, imports and exports of high-technology products also warrant monitoring in the future. High-technology products are identified as products, or groups of products, that have a high R&D expenditure in relation to their sales. Using high-technology product definitions in combination with high-technology industry definitions is beneficial for many reasons. It allows countries to determine the true proportion of high-technology products in their economy and identify whether such high-technology products originate in high-, medium- or low-technology industries. It also allows benchmarking of these results with other countries, providing a more detailed analysis of trade and competitiveness. 

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6.1.7 Financing Innovation through Venture Capital

Venture capital (VC) firms play an important role in the financing of innovation. New technology firms depend on VC to fund R&D and fund growth since they are often perceived as too high-risk for traditional institutional funding.43 A study released in 2009 based on 2004 data shows that, in Canada, equity financing accounted for 44.3 percent of the total financing received by innovative44 SMEs compared to 8.7 percent for non-innovative SMEs.45 Ninety percent of the total equity financing received by innovative SMEs was provided by angel investors and VC firms compared to only 42.3 percent for non-innovative SMEs.46

The Impact of the Economic Downturn

The economic downturn has been the principal story in the VC industry since the State of the Nation 2008 report. Data from 2008 and 2009 show a dramatic decline in absolute financing along with declines in the number of firms financed and the amount of investment per company. Total venture capital investment in 2009 was the lowest since 1996, falling to $1.035 billion, or about half of the value reached in 2007.47 Compared to other countries in the OECD, Canada ranked seventh in 2008 (the most recent ranking available) in terms of absolute VC investment.48 The largest amount of VC investment occurred in the U.S., which accounted for almost half of the OECD total.49 That said, VC investment in the U.S. has experienced a decline similar to that suffered by Canada (Figure 25). In European countries, the investment volume also dramatically declined, falling between 20 percent and 83 percent in 2009 compared to the five-year average.50 In terms of total deals and average deal size, Canada ranked second in the world in 2009 for the number of deals, behind only the U.S., yet ranked 21st in average deal size.51

Figure 25: Trend in Venture Capital Investment (United States and Canada)

While global VC investment declined during the recession, Canada's VC industry was hit particularly hard. In 2008, Canada ranked 17th in the OECD in terms of VC as a percentage of GDP.52 This was a decline from 2003 and 2005 when Canada ranked in the top 10.53 Canada's share of VC to GDP also fell from 0.12 percent in 2007 to 0.08 percent in 2008.54 In contrast, 2008 world VC investments were the highest since 2000, and the major global decline did not occur until 2009.55

Looking forward, Deloitte's 2010 Global Venture Capital Survey reported that half of Canadian venture capitalists expect the money available for investments over the next five years to moderately increase (1 percent to 30 percent) while the other half anticipate a decline or no change from the present.56 This compares favourably against the more negative outlook of respondents from France, Israel, the U.K. and the U.S.

Exit Values and Rates of Return

Exit values and rates of return are important measures of the wealth generated through VC and they are key factors in the attraction of VC investment. An exit value is the price received for the liquidation of a stake in a business, such as through mergers and acquisitions or initial public offerings. Due to inconsistencies in the national definitions of venture capital and the lack of compiled data, it is difficult to compare other countries' exit performance with Canada. The number of VC-backed mergers and acquisitions and initial public offering exits fell across Canada, the U.S. and Europe during the recession. In Canada, the 21 mergers and acquisitions (M&A) exits in 2008 were the lowest since 2003.57 The number of exits through initial public offerings (IPO) declined even more dramatically, with only one in both 2008 and 2009 (compared to 12 in 2007).58 In terms of values, the average M&A transaction sizes in Canada and the U.S. were relatively high in 2009 compared to previous years, reaching $120 million in Canada and US$142.9 million in the U.S.59 Conversely, Canada's average IPO offering size of $29 million in 2009 was relatively low,60 and it paled in comparison to the average offering size in the U.S. in 2009, which was US$136.8 million.61

Rates of return of Canadian and European VC funds have been historically much lower than those of U.S. VC funds.62, 63 It may be argued that the traditionally higher rates of return in the U.S. are a result of greater financing for growth, which can lead to more profitable exits. The expansion stage has typically received a greater share of total VC investment in the U.S. than in Canada, although recent data suggest the share of expansion financing in the U.S. is declining to similar levels found in Canada. In 2003, expansion stage financing accounted for about 47 percent of total financing in Canada64 and about 71 percent of total financing in the U.S. 65 This can be compared to 2009 when expansion stage financing accounted for about half of total financing in both countries.66, 67

The lower rates of return in Canada may also be due to the historical significance of retail funds (primarily labour-sponsored funds), which accounted for almost a quarter of all VC investment in 2009.68 Compared to private independent funds, which usually receive capital from institutional investors, labour-sponsored funds receive capital from individual investors who collect tax credits on their contributions.69 The performance of labour-sponsored funds has been disappointing, and some argue that this poor performance results from the lack of oversight provided by retail fund managers, who are responsible for almost three times as many companies as private fund managers.70

Collaboration in Action

Nexterra Systems Corp.

Nexterra Systems Corp. is a small enterprise based in Vancouver, British Columbia (B.C.). It develops and manufactures biomass gasification systems that use renewable fuels such as wood waste. Nexterra's customers include the United States Department of Energy's Oak Ridge National Labs, Johnson Controls Inc. and Kruger Products. In 2010, the company was named as one of Canada's 50 fastest growing technology companies by Deloitte. Nexterra has grown with the help of several government, university and industry partners. Nexterra's technology was first commercialized with financial support from the National Research Council's Industrial Research Assistance Program, Natural Resources Canada and Sustainable Development Technology Canada. Nexterra also received funding from the Innovative Clean Energy Fund, and the BC Bioenergy Network to support new applications of its technology. Nexterra is collaborating with GE Jenbacher, FPInnovations and the University of British Columbia (UBC) to demonstrate a new heat and power application. The UBC's Bioenergy Research and Demonstration Project is a first of its kind biomass fuelled cogeneration (heat and power) system that will provide clean, renewable heat and electricity for the campus, while offering a platform for bioenergy research. In March 2011, Nexterra secured its fifth round of financing with $15 million in equity financing from Tandem Expansion Fund and ARC Financial. The Tandem Expansion Fund itself is a collaborative effort between the Export Development Corporation, the Business Development Bank of Canada and Teralys Capital, a private technology-focused fund of funds. The Tandem Expansion Fund provides late-stage capital for technology entrepreneurs and announced its first closing of $300 million in December 2009.

Significant Foreign Component in Canada's VC Industry

The significance of foreign funds is also a central feature of the Canadian VC industry. Canada, along with China, Sweden, the U.K., France and India, is a major net importer of VC.71 Foreign investment has accounted for at least 20 percent of total VC investment in Canada since 1999.72 In 2009, foreign VC accounted for about 30 percent of total VC investment, yet only 16 percent of deals in Canada had foreign participation.73 In 2009, the average deal size with foreign participation was $5.3 million compared to the $2.3 million of all-domestic deals.74 On average, foreign investors invested three times that of domestic investors.75

Another consistent feature of the Canadian VC industry is the dominance of the IT sector that has received on average almost 50 percent of total VC investment during the past decade.76 In 2009, 48 percent of all VC in Canada was invested in IT (compared to 45 percent in the U.S.77) while 21 percent was invested in life sciences and 10 percent was invested in energy and environmental technologies.78 The life sciences industry in Canada was particularly affected by the recession with its share of total investment declining 30 percent in 2009 from its level in 2007.79 The biggest gains belonged to the traditional sectors, primarily consumer and business services, which rose from a 9 percent share in 2007 to a 19 percent share in 2009.80

Seizing Opportunities

While 2010 saw the first year-over-year increase in investment levels since 2007, investments remain weak and fundraising is the lowest it has been in 16 years.81 As a result, it is more imperative than ever to seize opportunities. Although Canada borders the U.S. which has the largest VC industry in the world, it places 8th in the ranking of countries invested in by American funds.82 In a 2007 survey by Deloitte & Touche, 40 percent of U.S. investors identified Canada as having the least favourable treatment of investors of any country they had dealings with.83 The survey also noted the extremely low returns on Canadian VC investment. Dealing with regulatory barriers, like the elimination of the reporting requirements under Section 116 of the Income Tax Act (as announced in the federal budget 2010), along with improving performance of investments in Canada (such as through the promotion of later-stage investment84) may help Canada's position in this ranking improve.

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6.1.7.1 Debt Financing of Small and Medium-Sized Enterprises

While venture capital plays an important role in the financing of innovation, over 180,000 small and medium-sized enterprises (SMEs) in Canada received formal debt financing in 2007 (an average of roughly $0.26 million per company) compared to 404 firms that received VC in the same year (an average of $5.1 million per company).85 About 13 percent of SMEs applied for financing from a lending institution in 2007 with about $51 billion authorized.86 Chartered banks are the primary source of debt financing and received 68 percent of total financing requests from SMEs in 2007.87 Along with traditional financing methods, SMEs (especially start-ups) also tend to use informal financing sources such as personal savings (73 percent of start-ups and 54 percent of all SMEs) and loans from friends and family (9 percent of all SMEs).88

The Business Development Bank of Canada (BDC) has also emerged as a major financier of SMEs. During the fiscal year that ended on March 31, 2010, the value of loans given out by the BDC, which totalled $4.4 billion, was higher than in any other year in the Crown corporation's history.89

Nearly half of SMEs that applied for loans did so to increase their working capital.90 For the most part, SMEs did not use debt financing for technology-related investments, such as computer equipment and software (11 percent) and R&D (5 percent).91 Clear exceptions are knowledge-based industries (i.e., knowledge producers, such as science and technology-based firms, and high-knowledge users, such as business innovators and large scale knowledge-user firms) with an estimated 22 percent of debt financing intended for R&D.92 Manufacturing was also above the average at 10 percent.93

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19 – Bank of Canada, Backgrounder on Productivity, 2010. Return to text

20 – Barry P. Bosworth and Jack E. Triplett, Is the 21st Century Productivity Expansion Still in Services? And What Should Be Done About It?, Brookings Institution, Washington, D.C., January 2007. Return to text

21 – Bank of Canada, The Virtue of Productivity in a Wicked World, remarks delivered by Mark Carney at the Ottawa Economics Association, Ottawa, Ontario, March 24, 2010. Return to text

22 – European Commission, International Monetary Fund, Organisation for Economic Co-operation and Development, United Nations, World Bank, System of National Accounts 2008, New York, 2009. Return to text

23 – Peter Nicholson, Innovation and Business Strategy: Why Canada Falls Short, International Productivity Monitor, Centre for the Study of Living Standards, Number 18, Spring 2009. Return to text

24OECD (2009). OECD Factbook 2009: Economic, Environmental and Social Statistics. Return to text

25R&D Magazine, "Thomson Reuters: IP at your fingertips," R&D 100 Awards, 2008. Return to text

26CPA Technology Advisor, Honoring Innovation: Maximizing Workflow Efficiency is Latest Quest, 2008. Return to text

27 – RE$EARCH Infosource, Canada's Top 100 Corporate R&D Spenders 2010 (PDF). Return to text

28 – CGI, CGI and Bell use close cooperation to create an innovative center and accelerate the development of leading-edge solutions, Case Studies.
Return to text

29 – Virginia Commonwealth University, "Innovation in Government Award," L. Douglas Wilder School of Government and Public Affairs, 2007.
Return to text

30 – Canadian Healthcare Technology, "St. Michael's to integrate paper records with HER," News, 2007. Return to text

31 – Statistics Canada, Industrial Research and Development: Intentions 2009, Catalogue no. 88-202-X, 2010. Return to text

32 – Congressional Budget Office, R&D and Productivity Growth: A Background Paper, The Congress of the United States, June 2005, p.1, p. 32. Return to text

33U.S. ANBERD figures show a rapid decline in U.S. BERD in wholesale/retail in the mid- to late 2000s, when there was a reclassification of much of the R&D formerly classified as 'wholesale' into the pharmaceutical and ICT sectors in the United States. OECD (2009), Research and Development Expenditure in Industry: ANBERD 1990–2007. Similar reclassification has not been done in Canada, but recent data from Statistics Canada suggest that this may similarly affect Canada's wholesaling R&D intensity (Statistics Canada, Science Statistics: Industrial Research and Development 2005–2009, Catalogue no. 88-001, July 2009, p.12). In other words, much of the 'wholesaling' R&D figure is likely attributable to firms from highly R&D-intensive industries (such as pharmaceutical or ICT) whose principal activity in Canada happens to be wholesaling. Return to text

34OECD (2004), D. Pilat., The ICT Productivity Paradox, OECD Economic Studies, No. 38. Return to text

35 – M. Draca, R. Sadun and J. Van Reenend, Productivity and ICT: A Review of the Evidence, Centre for Economic Performance Discussion Paper no. 749, London School of Economics and Political Science, August 2006; OECD (2004), D. Pilat., The ICT Productivity Paradox, OECD Economic Studies, No. 38, p. 50. Return to text

36OECD (2004), D. Pilat., The ICT Productivity Paradox, OECD Economic Studies, No. 38, p. 53. Return to text

37 – While data on instruments are not included in the international comparison of ICT adoption rates in Figure 20, instruments are included in the definition of 'advanced technology' capital used for the Canadian inter-industry comparison. Modern monitoring and control instruments often embody significant advanced technology; indeed, the instruments manufacturing industry is included in the definition of the ICT manufacturing sector. Ultimately, monitoring and control involve the collection, transmission, and use of information. Data on investments in instruments were available for Canada. If data on instruments, as well as other ICT investments, were available for other countries, these data would have been used to make international comparisons. Return to text

38 – It should be noted that this report analyzed the impact of IT and communications equipment adoption on productivity but did not specifically look at adoption of instrumentation, which is included in this State of the Nation report as a component of 'advanced technology capital.' A. Sharpe, The Relationship between ICT Investment and Productivity in the Canadian Economy: A Review of the Evidence, Centre for the Study of Living Standards, 2006. Return to text

39 – Tiff Macklem, Canada's Competitive Imperative: Investing in Productivity Gains, Speech, Ottawa, February 2011. Return to text

40 – To estimate international variation in IT outsourcing, this report uses OECD Input-Output data (STAN IO database) and calculates the ratio of IT services inputs (ISIC 72) as a ratio of total inputs to production for various industries. During these calculations, STIC became aware of some discrepancies between the STAN data and the IO data from Statistics Canada, which was found to be attributable to the use of the highly aggregated L-level tables to do the ISIC-NAICS concordance of industries. Consequently, STIC has replaced the Canadian figures that would be obtained from using STAN data with data based on the W-Level rectangular IO tables from Statistics Canada. Return to text

41 – Kunsoo Han and Robert J. Kauffman, Does IT Outsourcing Pay Off? Evidence from Industry-Level Data, 2005. Return to text

42 – Computer and Information Services:According to Statistics Canada, computer services cover the design, engineering and management of computer systems (exclusive of the value of hardware). Also covered are the development and production of original software (including operating software). Computer processing services as well as equipment maintenance and repair are covered here. This category also includes consulting and training related to the provision of computer services. Information services cover online information retrieval services, including database services (the development of subject matter through to storage and dissemination) and computer-assisted document searches and retrievals and news agency services (such as syndicated reporting services to the media).

Royalties and Licence Fees: This is defined as the use of intellectual property rights, for the following sub-categories:

  • Patents and industrial design: royalty or licence fees for the use of patents, industrial designs, industrial know-how or manufacturing rights, as well as payments for non-patented industrial processes.
  • Trademarks: royalties or fees for the use of trademarks, that is, words, symbols, designs or combinations thereof that distinguish the holder's products or services from those of another provider.
  • Franchises: contractual privileges granted by an individual or corporation to another, permitting the sale of a product or service in a specified area or manner.
  • Copyrights and related rights: royalty or licence fees for the use of original artistic, literary, dramatic or musical works; for example, to stage productions or performances, or to make recordings or films.
  • Software: royalties for software and other computer-related items, including fees for the right to replicate, distribute or otherwise use software, whether custom or pre-packaged.

Research and Development Services: This includes charges related to systematic investigation through experiment or analysis to achieve a scientific or commercial advance for, or through, the creation of new or significantly improved products or processes. Research and development extends to the social sciences and humanities but excludes market research and technical studies.

Architectural, Engineering and Other Technical Services: This includes a range of architectural and engineering activities together with a diverse group of scientific and technical services and specific services related to mineral extraction, processing and the environment. Return to text

43OECD (2009), Science, Technology and Industry Scoreboard, p. 22. Return to text

44 – Innovative firms are defined as those that spend more than 20 percent of their total investment expenditures on R&D. Return to text

45, 46 – Shunji Wang, "Financing Innovative Small and Medium-Sized Enterprises in Canada Working Paper," Industry Canada SME Financing Data Initiative, 2009, p. 24. Return to text (45), Return to text (46)

47CVCA and Thomson Reuters, Canada's Venture Capital Industry in 2009 (PDF), 2010. Return to text

48 –, 49OECD (2009), Science, Technology and Industry Scoreboard 2009, p. 23. Return to text (48), Return to text (49)

50 – Deutsche Bank Research, Venture Capital Adds Economic Spice (PDF), 2010. Return to text

51 – Thomson Financial, Canadian Venture Capital Overview (PDF), 2010. Return to text

52OECD (2010), Science, Technology and Industry Outlook 2010, p. 110.
Return to text

53OECD (2007), Science, Technology and Industry Scoreboard 2007, p. 39.
It should be noted that there is inconsistency with the country definitions of VC and some countries have remarked that Canada includes types of funding that are not to be considered "venture capital."Return to text

54OECD (2010), Science, Technology and Industry Outlook 2010, p. 110.
Return to text

55 – Thomson Reuters, State of the Market: The Venture Capital and Private Equity Industries in the World Today (PDF) (presentation), 2009. Return to text

56 – Deloitte and NVCA, Results from the 2010 Global Venture Capital Survey, 2010. Return to text

57, 58, 59, 60CVCA and Thomson Reuters, Canada's Venture Capital Industry in 2009 (PDF), 2010. Return to text (57), Return to text (58), Return to text (59), Return to text (60)

61NVCA and Thomson Reuters, News Release (PDF), January 2010. Return to text

62 – Reuven Brenner, Venture Capital in Canada: Lessons for Building (or Restoring) National Wealth, Journal of Applied Corporate Finance, Vol. 22:1, 2010, p. 90. Return to text

63 – Ulrich Hege et al., Venture Capital Performance: The Disparity Between Europe and the United States (PDF), 2008. Return to text

64CVCA, Thomson Reuters and Macdonald & Associates Limited, 2002–2010. Return to text

65PwC/NVCA MoneyTree based on data from Thomson Reuters (PDF), 2010. Return to text

66CVCA, Thomson Reuters and Macdonald & Associates Limited, 2002–2010. Return to text

67PwC/NVCA MoneyTree based on data from Thomson Reuters (PDF), 2010. Return to text

68CVCA and Thomson Reuters, Canada's Venture Capital Industry in 2009 (PDF), 2010. Return to text

69 – Douglas Cumming and Jeffrey MacIntosh, Comparative Venture Capital Governance: Private versus Labour Sponsored Venture Capital Funds (PDF), University of Toronto, July 2003. Return to text

70 – Reuven Brenner, Venture Capital in Canada: Lessons for Building (or Restoring) National Wealth, Journal of Applied Corporate Finance, Vol. 22:1, 2010, p. 90. Return to text

71 – Joshua Aizenman and Jake Kendall, The Internationalization of Venture Capital and Private Equity, National Bureau of Economic Research, Working Paper 14344, September 2008, p. 3. Return to text

72CVCA, Why Venture Capital is Essential to the Canadian Economy (PDF), 2009, p. 14. Return to text

73 – Thomson Reuters, VC Reporter, 2010. Return to text

74, 75CVCA and Thomson Reuters, Canada's Venture Capital Industry in 2009 (PDF), 2010. Return to text (74), Return to text (75)

76CVCA, Thomson Reuters and Macdonald & Associates Limited, 2002–2010. Return to text

77PwC/NVCA MoneyTree based on data from Thomson Reuters (PDF), 2010. Return to text

78CVCA and Thomson Reuters, 2009 VC Investment Activity by Sector (PDF), 2010. Return to text

79, 80CVCA, Thomson Reuters and Macdonald & Associates Limited, 2002–2010. Return to text, Return to text

81CVCA and Thomson Reuters, Canada's Venture Capital Market in 2010 (PDF), 2011. Return to text

82 – Thomson Financial, Canadian Venture Capital Overview (PDF), 2010. Return to text

83 – Deloitte and Touche, Global Trends in Venture Capital 2007 Survey (PDF), December 2007, p. 53. Return to text

84 – One way this may be achieved is through Tandem Expansion, a large new private growth capital fund with significant investments from the Business Development Bank of Canada (BDC), Export Development Canada (EDC) and Teralys Capital. Return to text

85 – Calculations based on data from the Industry Canada SME Financing Data Initiative (2009) and Thomson Reuters (2010). Return to text

86 – Statistics Canada, Survey on Financing of Small and Medium Enterprises 2007, 2009. Return to text

87 – Industry Canada SME Financing Data Initiative, Key Small Business Financing Statistics (PDF), 2009, p. 3. Return to text

88 – Industry Canada SME Financing Data Initiative, Key Small Business Financing Statistics (PDF), 2009, p. 4. Return to text

89 – Business Development Bank of Canada, BDC increased financing for entrepreneurs by 53% during financial crisis, News Releases, August 19, 2010. Return to text

90 – Industry Canada SME Financing Data Initiative, Key Small Business Financing Statistics (PDF), 2009, p. 13. Return to text

91 – Industry Canada SME Financing Data Initiative, Key Small Business Financing Statistics (PDF), 2009, p. 4. Return to text

92, 93 – Statistics Canada, Survey on Financing of Small and Medium Enterprises 2007, 2009. Return to text (92), Return to text (93)