Helping startups key to health of economy, report suggests
The global pandemic is forcing many small businesses to choose between survival and preparing for a technology-driven future, a situation that should prompt policy-makers to create incentives for innovators to protect their intellectual property and scale up, according to new research from the Information and Communications Technology Council.
Making investments to develop and protect trademarks, designs and other intellectual property is costly, especially across multiple jurisdictions, and the move to survival mode during the pandemic has drawn away from such spending, according to the 27-page report released Thursday by ICTC, which bills itself as a not-for-profit national centre of expertise for strengthening Canada's digital advantage in a global economy.
The report, which was done in partnership with ventureLAB, a Markham, Ont.-based technology hub, suggests that the health of the Canadian economy after the pandemic depends on getting small businesses — particularly startups — on track to protect their intellectual property and scale up.
“Innovative and timely incentives for IP development, a business culture that keenly and rapidly responds to opportunities, and a tailored investment-attraction strategy will all play critical roles in a competitive Canadian economy post-COVID,” the authors wrote.
According to research cited in the report, small and medium-sized businesses that hold formal intellectual property are three times more likely to expand domestically, four times more likely to expand internationally, and nearly two times more likely to have experienced high growth of at least 20 per cent per year in the previous three years.
Having patents, meanwhile, may also increase the likelihood of receiving venture capital funding.
Canada is taking steps to support firms with exploitable intellectual property as they scale up in size, such as through the $160 million set aside recently by the Business Development Bank of Canada (BDC), the authors note.
However, the ICTC report says a more “fundamental shift” is needed in Canada “to more effectively consider the value of intangible assets in decisions affecting innovation.”
A pilot project underway in the province of Quebec — an incentive deduction for the commercialization of innovations — is an example of a step that could be taken across the country, the authors say.
Introduced as part of Quebec's 2020-21 budget in March, the pilot will create “one of the most competitive corporate tax regimes in North America” for startups, the report suggests. It will allow eligible companies to be taxed provincially at two per cent, rather than Quebec's general income tax rate of 11.5 per cent.
“When added to the federal general rate, it will result in a combined tax rate of 17 per cent for qualifying businesses, one of the lowest rates in Canada and the U.S.,” the report says.
“Although the results of this initiative remain to be seen … the competitiveness and innovative nature of this regime is likely to pay strong dividends for Quebec businesses as well as attract savvy foreign innovators to the province.”
There is no shortage of innovation taking place among Canadian businesses, according to the report, but the challenge remains for startups to transform their innovative ideas into scalable and sustainable business models.
A “strong and resilient scale-up ecosystem in Canada … can shape and support globally competitive Canadian anchor companies in a future where the digital economy will lead the way,” the report concludes.