By Louis Ross
In Canada, it appears that there is not a well thought out strategy to support emerging technology development and commercialization. What we have is a piecemeal plan with missing links to transition new technology from the R&D stage to commercialization. Additionally, there is a shortage of experienced, “internationalised” management that is needed to lead tech companies to market, and a lack of a vibrant private equity/venture capital industry that can lead and syndicate investments in domestic companies.
These weak points can be overcome in due time with smart policies toward supporting R&D, such as the very useful and efficient R&D Tax Credit regime and a few success stories that can attract people and capital. Another very important potential source of support for Canadian R&D and commercialization capabilities is the Industrial Technology Benefits (ITB) program — a key part of the Canadian defence procurement initiative that includes a number of large contracts that are expected to be issued over the next several years after considerable delays.
Considering the costs of these delays, and plans in the U.S. to facilitate fast-tracked private sector procurements and support of new technology acquisition — Canada will need to transition from the seemingly never-ending “research and study mode” to an active management and decisive decision-making mindset. This is required to take advantage of the opportunities to build new high-value-added, high-tech industries in Canada.
The type of technology development that needs to be funded in Canada should be directly aligned with the needs of those aerospace and defence contractors bidding on the procurements, and they should also focus on “dual-use” technologies that are not only mission critical on the defence side, but also have very large commercial market applications in multiple industry sectors.
They should demand specialised skills, have large barriers to entry, and be implemented in areas where the success of one company and may lead to the development of an entire industry cluster. Intellectual property, especially patents, are another important yardstick to determine how competitive a company or industry is, and the patent strategy needs to cover the most important commercial markets where licensing and sales activity will take place. Again, we are talking high-value-added technologies that cannot be developed in a few weeks or months on a shoestring budget with a couple of people writing code or engineering something that can be done easily anywhere in the world.
Lastly, it needs to serve Canada’s domestic economy, where job creation and the nurturing of specialised skill sets take place in-country as much as possible and the domestic economy receives sufficient enough benefits as a whole.
In the U.S., the most important commercial technologies and largest markets were produced from defence related expenditures that preceded mass commercialization over decades. Throughout the post-war period, the U.S. has been the leader in this area by having both the largest commercial market and the largest defence budget. The commercialization of the computer, wireless communications, the Internet, and virtual and augmented reality are just a few of the many cases to illustrate this point.
The U.S. defence spending is largely the reason why Silicon Valley exists today. Its companies were built on years of defence contracts and a venture capital industry that was created from scratch by Georges Doriot, a former Brigadier General. He ensured that defence needs were met, while companies also positioned themselves as viable commercial companies and could attract private capital.
The Internet itself was meant to be a closed emergency communications system in a time of war, and it turned out to be the catalyst for today’s globalised, connected world. Numerous commercial industries have been built on top of the Internet that would never have been possible without it. In regard to wireless, which became more important because of the availability of the Internet, the move to 5G wideband networks between 2020-2025 will be a key catalyst for Internet of Things (IoT). The IoT will be an always-connected sensor network that provides “live” data that will serve as the fuel for machine learning and artificial intelligence (AI), giving birth to yet another whole new array of technologies and industries, many of which even experts cannot predict.
The U.S. has increasingly realised that it must source from the private sector, especially by linking up promising startups with large established aerospace and defence contractors, fast-tracking decision making, and becoming the expert on various domains that are important to the commercial sector. This means not just knowing mission needs and objectives, but also understanding how access to cutting-edge technology and low-cost suppliers could be developed. The establishment of such organisations as DIUx, the “Defense Innovation Unit-Experimental” group seeks to invest and bring in key emerging technologies early in the development process and bypass the slow-moving, conservative, traditional procurement method that simply doesn’t work in today’s environment.
Canada has a very solid opportunity to align its high-tech commercial industrial policies with what its largest trading partner’s market will require, and also what U.S. aerospace and defence companies are betting on in the future. It also possesses a few things that the U.S. may want to adopt in the future. Though it may sound like it would lead to a U.S.-centric only strategy, that would not be the case. The U.S. is the common sense (and the best) benchmark for what the rest of the world is focused on and interested in.
The defence industry as a whole has significantly reduced its R&D expenditures as a percentage of its CapEx over the past few decades. They became systems development companies and turned to M&A (of technology and companies) when they decided that an area was worth pursuing. This gives the opportunity for Canadian tech startups to secure potential lucrative R&D contracts and alliances with U.S. and foreign companies. It will provide exposure to overseas investors who are increasingly seeing Canadian tech startups as interesting value players and offshore R&D options to main operations based in the U.S. This can be leveraged via smart ITB policies that know how to link these companies with other companies that are successful in Canadian defense procurements and accumulate outstanding ITB investment obligations.
Canada stands out globally as a country that 1) has a very consistent track record of not following through with procurement initiatives in a cost effective and timely manner, and 2) has not sought to benefit its domestic technology development initiatives by aggressively requiring related foreign direct investment (FDI) from companies that win such procurements. There seems to be an endless cycle of “studying” the situation, setting up advisory boards, and kicking the accountability can further and further down the road. Not being entrepreneurial and decisive in getting things done means missing opportunities — lost opportunities that far outweigh the “safety” and savings incurred from doing nothing.
Areas Where Canada Can Excel
Canadian high tech has done a fairly good job at finding niche markets to excel in that benefited by having strong industry clusters supported by larger companies and government industrial policies. For example, this has been the case in the gaming, aerospace, and the oil and gas industries. These three later played a significant role in helping to stimulate expertise in navigation, in both hardware and software technology development. This includes GPS and GNSS sensor fusion software and hardware such as GPS-jamming technology.
The gaming industry, another commercial industry born from years of defence-funded research projects in the U.S. and translated into commercial success in Canada, has a big opportunity to compete in the Simulation and Training space as new, low-cost wearable technologies that embed next generation MEMs sensing systems, as they become available over the next few years. This includes highly accurate motion capture, head and position tracking and GPS-denied and restricted area position or tracking technologies.
There is a direct overlap between the gaming industry and positional tracking. For example, augmented reality on the fly must have accurate PNT (position, navigation, tracking) technology that is industrial or tactical-grade in order to field usable systems. The gaming sector will also be working on the content and perhaps the software for these systems (i.e. images, etc.). These systems, in turn, would be marketed to enterprise customers and, eventually, would be economical enough to market directly to the individual consumer.
Canada does have special competencies in gaming, simulation and training, navigation, oil & gas, unmanned vehicles, machine learning, artificial intelligence (AI) and microsystems/MEMS (micro-electro mechanical systems), a type of semiconductor R&D. Considering the above, Canada should be well placed for emerging technology areas like virtual and augmented reality, which are still in development but close to mass market commercialization within the next three to five years as some of the previously mentioned technologies mature.
These areas clearly have high investment “multipliers” for companies making investments in R&D in Canada to fulfill their obligations under the ITB program after a successful bid on a procurement. They involve both “direct” and “indirect” value propositions and are certainly on the technology and business roadmaps of nearly every company bidding on a Canadian government defence contract.
It is essential that the government understand fully the capabilities of Canadian-based companies for direct and indirect ITB-enabled investment opportunities, the markets that key emerging technologies address, and which ones are optimal choices for ITB transactions that also provide high multipliers for the companies that must deal with these obligations in the future. A win-win situation must be established where both Canada and the companies benefit. Collaborations between overseas aerospace and defence contractors can provide a very attractive opportunity for startups and SMEs, and the Canadian economy as a whole.
Louis Ross is currently the CEO of Motion Engine, Inc. based in Montreal. He is also the Chairman of MEI Micro (US), an affiliated company. Louis has been actively managing and advising startup company operations in the emerging technology space for over 15 years and has been involved in establishing related operations in Canada, the U.S., Japan and Hong Kong.