‘We don’t see any surging firm to match BlackBerry’
Blackberry’s problems emerged just as the country was starting to recover from a decade-long slump in R&D triggered by the dot-com bust in 2000, Nortel’s demise in 2009 and the decline of Canada’s manufacturing sector.
The turnaround came in 2011 as Canada’s top 100 corporate R&D spenders together posted a “surprising” 6.1 per cent increase in 2011, according to Research Infosource.
Bombardier’s massive investment in its new C-series aircraft helped spur the country’s performance, as the Montreal-based aerospace firm plowed $1.3 billion into R&D that year.
But BlackBerry was the biggest contributor, boosting its R&D spending by 40 per cent to $1.35 billion as revenue soared to nearly $20 billion, according to company reports.
The next biggest R&D spenders, including BCE Inc., Magna International and IBM Canada, invested less than half that amount.
“BlackBerry has been the number one spender on R&D for the last couple of years. It was spending on a scale that hasn’t been seen since Nortel. If you take that out of the equation, it does have an impact on the total numbers,” said Michael Bloom, a vice-president with the Conference Board of Canada.
Canadian business consistently lags peers, spending just 1 per cent of revenue on research and development, half the rate of their U.S. counterparts.
And while Canada is a leader in public investment in R&D, it has a poor track record of converting lab discoveries into commercial successes.
The Ottawa area never fully recovered from the demise of Canada’s last international high-tech superstar, Nortel Inc. The company, which at one time spent $6 billion a year on R&D, filed for bankruptcy protection on Jan. 14, 2009.
“That had a devastating effect on Ottawa. It’s one of the few places where R&D spending has gone down in recent years,” says Ron Freedman, chief executive officer of Research Infosource Inc., a Toronto-based research firm that tracks R&D spending.
“There’s no way all of the companies in Kitchener-Waterloo, or all of Ontario, could make up the difference if BlackBerry were to disappear,” Freedman said.
The region is confident it can sur- vive BlackBerry’s challenges, noting that Waterloo was one of seven cities — and the only Canadian one — chosen by Google last month as an innovation hub. Home to hundreds of startups pursuing a broad range of technologies, the region is far more diversified than the Ottawa suburb of Kanata when Nortel failed. Indeed, many of the 4,500 people BlackBerry is shedding could end up helping those startups get to the next level. Still, there’s no single high-tech company in the R&D pipeline with BlackBerry-like potential scale. That worries innovation champions. “We don’t see any surging firm to match BlackBerry,” said Bloom. “And Canada is already not a strong performer on business R&D.” If Canada expects to maintain its high standard of living in future it needs to be more innovative, the Council of Canadian Academies warned in a report released this week, called Paradox Lost: Explaining Canada’s Research Strength and Innovation Weakness. The country can no longer simply ride the coattails of its largest trading partner, the U.S., the report warned. With U.S. economic growth slowing, global demand for energy on the rise, increasing reliance on informa- tion technology and an aging population, Canada is facing some major challenges, the report predicted. “These megatrends are all new waves that are hitting and are about to hit more profoundly the Canadian economy and every one of them requires quite an innovative response,” Nicholson said in an interview. Iain Klugman, chief executive officer of Waterloo-based Communitech Inc., says Ontario’s innovation future lies in creating more midsized R&D spenders. “We need hundreds of $1 billion companies, instead of one big one,” he says. He sees a shifting attitude among entrepreneurs that could help achieve that goal, he added. More of them are saying, “We want to grow significant publicly traded companies” as opposed to “We want to sell out before we lose the opportunity,” he said.
For BlackBerry, the future will depend on whether the company finds a buyer. Toronto’s Fairfax Financial Holdings, BlackBerry’s largest shareholder, has offered $4.7 billion (U.S.) for the smartphone maker and plans to take it private.
A U.S.-based private equity firm, Cerberus Capital Management LP, which specializes in distressed assets, is also reportedly interested.