1

About half of all ICT outputs in Canada originate in Ontario

ICT GDP by Province, 2001 and 2002(Percentage change in brackets)

-

5,000

10,000

15,000

20,000

25,000

30,000

Territories BritishColumbia

Alberta Praires Ontario Quebec Martime

(in m

illio

ns o

f dol

lars

)

2001 2002

(8.5%)

(-1.4%) (6.1%)

(0.0%)

(1.5%)

(-2.3%)

(9.0%)

Source: Statistics Canada

MEDT’s Approach:• ICT is a priority sector• Support for research,

researchers and research infrastructure

• Commercialization - COE’s

• Innovation Infrastructure• Cluster Networks• Facilitation and

Partnerships

2

0

10

20

30

40

ICT Total Economy

Percentage of Workers with a University Degree, 2002

Source: Industry Canada, 2002

ICT Industries Employ:

• 56% (over 36,000) of R&D scientists and engineers (i.e. professionals) in Canadian business.

• 60% of all Masters’ degrees (over 4,800) among R&D scientists and engineers.

• 32% of all Ph.D.s (over 1,300) among R&D scientists and engineers.

Source: Industry Canada, 2002

Ministry Priority = Better Workers for Better Jobs in an Innovative Economy

3

Martin Task Force – Innovation contingent upon increased BERD

Top 10 ICT companies in Ontario by level of R&D spending, fiscal year 2003

R&D Expenditures

Revenue Research Intensity

FY2003 FY2003$000 $000 R&D as % of

RevenueNortel Networks Corporation* (e) $2,788,985 $13,748,715 20.3 Comm/telecom equipmentBell Canada $1,000,000 $16,698,000 6 Telecommunications servicesATI Technologies Inc.* $328,959 $1,941,488 16.9 Computer equipmentIBM Canada Ltd. (fs)(e) $322,400 $5,275,000 6.1 Software and computer servicesCreo Inc.* $144,768 $810,120 17.9 Software and computer servicesZarlink Semiconductor Inc.* $124,453 $271,611 45.8 Comm/telecom equipmentCognos Incorporated* $109,461 $772,277 14.2 Software and computer servicesPMC Sierra, Ltd. (fs) $99,072 $171,442 57.8 Electronic parts and componentsResearch In Motion Limited* $91,030 $429,885 21.2 Comm/telecom equipmentGeac Computer Corporation Limited $68,256 $623,667 10.9 Software and computer services

Source: RE$EARCH Infosource Inc. 2004

Industry SectorCompany

Majority of Canada’s largest and most innovative ICT companies are in Ontario

4

Collectively ICT companies are the most R&D intensive

• Even without Nortel’s dominating presence in R&D, ICT is the largest investor in innovation.

R&D Spending by top 100 Canadian R&D spenders, FY 2003with Nortel

0

2,000

4,000

6,000

8,000

ICT

Life

Sci

Prim

ary

Goo

ds &

Ser

v

Aer

ospa

ce

Aut

omot

ive

Ser

vice

s

Man

ufac

turin

g

(in $

000,

000s

)

FY2003 FY2002

Source: Research Money Inc., Canada's Top 100 Corporate R&D Spenders List 2004

R&D Spending by top 100 Canadian R&D spenders, FY 2003without Nortel

0

2,000

4,000

6,000

8,000

ICT

Life

Sci

Prim

ary

Goo

ds &

Ser

v

Aer

ospa

ce

Aut

omot

ive

Ser

vice

s

Man

ufac

turin

g

(in $

000,

000s

)FY2003 FY2002

Source: Research Money Inc., Canada's Top 100 Corporate R&D Spenders List 2004

5

80% of output and employment now coming from software & services. However, ICT manufacturing still plays an important role in creating new knowledge.

Private sector R&D spending in ICT, 2004 intentions

ICT Services29%

ICT Manufacturing

68%

ICT Wholesaling, Rental and

Leasing 3%

Source: Statistics Canada, special tabulations for Industry Canada

Distribution of ICT Employment in Ontario 1991 to 2003

60%

65%

70%

75%

80%

85%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Source: Statistics Canada, SEPH 2004

ICT MANUFACTURING

ICT SOFTWARE & SERVICES

6

ICT is doing more with less - output increases despite slower growth in employment

Ontario ICT manufacturing vs servicesIndex (1997 = 100)

80.0

100.0

120.0

140.0

160.0

180.0

200.0

220.0

1997 1998 1999 2000 2001 2002 2003

ICT mfg emp ICT serv emp ICT mfg GDP ICT serv GDP

Source: Statistics Canada

Growth in ICT mostly in the services sector. However, output growing faster than employment.

Consolidation Threat? How does this impact Cognos, Open Text and other leading Ontario-based global software leaders?

7

Global Reality: low end of innovation spectrum• Most routine, low skill manufacturing and services. Majority that don’t

require proximity to markets and have been outsourced.

• Characterized by emergence of new competitors able to offer same level of service at lower cost– Tech support, application development, back office operations and routine

assembly can be outsourced and moved offshore.

– China, India, Philippines, Russia and others emerging as key competitors for jobs and investment in IT services and manufacturing.

• Outsourcing and new global environment can present benefits for Ontario’s ICT companies– Improve productivity.

– Ontario ICT companies have been exploiting global growth markets through “offshore” partnerships.

– Ontario can be an offshoring recipient.

8

• Manufacturing and services are more complex but competition is quickly growing. Some niche markets exist in convergence areas such as medical devices but market share is quickly eroding as emerging markets become more sophisticated.

• Overseas markets are not only competing on cost but are increasingly competing on quality.– According to PWC, many of India’s top outsourcing firms have

attained software quality standards ahead of North American competitors.

– According to a Deloitte Survey 19 per cent of companies identified improved quality as their main driver for offshoring.

Global Reality: centre of innovation spectrum

9

• Complex, emerging and convergence technologies in niche market areas, which requires highly skilled & specialized labour and cutting edge capital inputs.

• Emerging economies are beginning to compete for research-intensive jobs.– In September 2004, Bill Owens, CEO of Nortel said at an event hosted

by OCRI that Chinese telecom manufacturers, Huawei Technologies and ZTE are forcing established players like Nortel and Lucent to cut cost and adopt more flexible product strategies. At the same time, these companies are becoming increasingly sophisticated in their R&D capabilities.

• Tech multinationals are investing directly in facilities and R&D on location in Asia to capture market opportunities. Several well known examples:– Nokia plans to develop 40% of its new handsets at a research center in

Beijing.– WiPro employs 6,500 people in and around Bangalore doing R&D for

others, including nine out of ten of the world’s top telecom manufacturers.

Global Reality: high end of innovation spectrum

10

Success of ICT is linked to companies focusing on high-end technologiesSectors Niche Activities Players – Companies/Research

Institutes

Microelectronics •Digital imaging equipment•MEMS•Semiconductor design

•ATI Technologies•Dalsa•Zarlink Semiconductors•Tundra Semiconductors

Software & related services

•Business Intelligence software•Digital entertainment•Encryption technology

•Open Text•Cognos•Hummingbird•Alias•Dreamcatcher Interactive

Telecom •Wireless•VOIP

•Nortel•Research in Motion•Bell Canada•Redline Communications

11

The Competitive EnvironmentSkills Networks

R&D

Business

Technical

Universities

Industry –MNE & SME

Government

Basic Applied

Attract & Retain Capital/Investment

Reduce Cost

Increase Trade

Increase Innovation

In a perfect world Ontario can compete in a competitive environment by ensuring that its Innovation System is working.

The Innovation System

12

What’s Missing?Skills Networks

R&D

Business

Technical

Universities

Industry –MNE

Government

Basic Applied

SMEs

Skills: need the right mix of business and technical skills. Ensuring that new grads not only have the best technical skills but also business and management skills as they enter the workforce.

Networks: ensuring that Universities, Industry and Government are able to work together in achieving their goal. Also, SMEs need to be included in the innovation process.

R&D: support for basic research; enhanced focus on demand pull.

These three areas need to work together in order to be effective.