Tuesday, January 31, 2006
The 'quiet boom': High-tech turnaround drives Ottawa, Waterloo growth
MARK EVANS, FINANCIAL POST
In the middle of a field in this southern Ontario city where only a few years ago farmers grew corn, the seeds of a high-tech revival are taking root. Three new glass-walled office buildings have sprouted up that, if industry conditions stay buoyant, will be part of a new 120-acre research and technology industrial park.
It's a sign that after several years of sluggish sales and painful cost-cutting, Canada's high-tech industry is beginning to bounce back. It's happening not just here, but also in Ottawa, once the country's high-tech hub, where the local economy has added more than 12,000 jobs in the past two years.
"We're one of the best places to invest," said Tim Jackson, a partner with Tech Capital Partners, which has raised $60-million to invest in local start-ups. "And one of the best places to be an entrepreneur to start a company because the community has matured and you can start a company in Waterloo, take it all the way to be a publicly traded company on any exchange in the world, and do it with the infrastructure that's here."
Communitech, a Waterloo-based trade association, estimates local high-tech companies will hire 1,500 people this year -- driven by Research in Motion Ltd. as well as a growing number of start-ups such as Sandvine Inc. and Slipstream Technologies Inc.
In Ottawa, the number of high-tech companies has climbed to 1,800 from 1,000 over the past four years, while the industry's recovery has seen Silicon Valley, which was battered when the dot-com bubble burst, add 2,000 employees last year to its high-tech workforce -- the first increase in four years.
The revival has much to do with the strength of the overall North American economy, which has improved corporate profits. Many firms now are spending on technological software, hardware and services to increase productivity.
Vito Mabrucco, managing director with Toronto-based IDC Canada, expects the $35-billion domestic high-tech industry to grow by about 5% over the next few years. "This is a quiet boom with positive growth, but not something the industry can't keep up with," he said.
The growth of Waterloo's high-tech economy is not so much a rebound as a resurgence. Unlike many high-tech communities, Waterloo was not hurt as badly when the dot-com boom ended. That was thanks to Research in Motion Ltd., which continued to aggressively grow as its Blackberry business expanded, and to the University of Waterloo, which is rapidly gaining a reputation as one of the world's leading computer-programming schools -- a status made clear by Microsoft Corp. co-founder Bill Gates' recent visit. Moreover, the local economy is diversified, with Toyota and B.F. Goodrich along with Manulife Financial and Sun Life Assurance Co. of Canada all having a presence in the city.
In fact, Waterloo's high-tech economy might have fared even better if not for the city's infrastructure, which strained under the pressure of the last growth spurt as companies sought office space, management talent, accounting firms and lawyers.
"It has taken the community five years to deal with it," said Tom Jenkins, chairman with Open Text Corp., which employs about 400 people at its corporate headquarters in Waterloo. "There has been a consolidation time in Waterloo and the infrastructure had to catch up. Today, the infrastructure is all over the city."
The new 120-acre Research and Technology Park in Waterloo reflects the city's confidence in the high-tech industry's growth. So far, Sybase Inc. and Open Text have each occupied a building, while the third building -- called the Accelerator Centre -- will be home to as many as 20 start-ups who will have access to services such as management consulting, professional and mentoring services, networking events and introductions to investors.
A new sales tool for Waterloo is Google Inc.'s decision to establish a foothold in the city with the recent purchase of Reqwireless Inc., a small firm focused on wireless e-mail and Web browser software. The deal has been seized by Waterloo as another indication the outside world has discovered the city's appeal.
David Caputo, president and chief executive with Sandvine, which offers security and traffic management service to Internet service providers, said it is easier to get people to work in Waterloo than it was five years ago because the city has grown and benefited from the opening of the world-class Perimeter Institute for Theoretical Physics and The Centre for International Governance Innovation, started by RIM co-CEOs Mike Laziridis and Jim Balsillie, respectively.
"We are becoming a little more cosmopolitan," Mr. Caputo said. "There are more restaurants than there used to be and a lot more to do with family than there used to be."
Larry Smith, an adjunct professor of economics at the University of Waterloo and president and CEO of consulting firm Essential Economics Corp., stresses the "tech boom" is not back.
"This is not 1999 or anything like it," he said. "We don't want that kind of wild gyration all over the countryside. The tech sector offers reasonable opportunities for our students and graduates but it would not be fair to say they all have multiple choices or they get their first choice. I would say the labour market conditions are entirely reasonable."
If Waterloo's comeback is a renaissance, what's happening in Ottawa can be called a rebound. During the late-1990s boom, Silicon Valley North was jumping as Nortel Networks Corp., Alcatel SA and JDS Uniphase Inc. hired thousands of people to keep up with demand. At the peak, Nortel had 17,000 employees and JDS had 15,000. When the boom went bust, Ottawa lost 15,000 jobs.
While the market has become healthier and total employment has nearly returned to the peak of 79,000, it is quite different than five years ago. Rather than being dominated by a handful of large multi-nationals such as Nortel, the high-tech community is predominantly small- and medium-sized companies. More than 50% of the 1,800 companies have fewer than 10 employees.
"This is not the same old boom," said Jeffrey Dale, president and chief executive with the Ottawa Centre for Research and Innovation. "This boom is being caused by small, entrepreneurial companies that have found their niche and are generating revenue."
Ottawa also now has an abundance of office space for high-tech companies following a building boom several years ago in suburban Kanata, Ont., Mr. Dale said vacancy rates are 10% to 15%, but he would not be surprised to hear within the next 12 months of plans for the development of a new building.
Despite the growing enthusiasm within the high-tech industry, Mr. Dale said there are troubling signs Canada may not have the talent pool it needs to stay competitive. In the past couple of years, he said, university enrollment in computer science and computer engineering has declined by more than 10%.
Mr. Dale said the industry simply fell out of favour after the dot-come bubble burst in 2001 and the news was dominated by companies such as Nortel laying off thousands of employees -- not the kind of news to excite young people about a career in technology.
At the same time, he said, the federal government shifted its focus away from software and telecom to sexier areas such as bio-technology and nano-technology. It should not have come as much of a surprise, therefore, that technology and innovation was not a high-profile election issue.
"It disappointed me but it didn't surprised me," Mr. Dale said. "The technology sector is about the same size as the auto sector. There are well over 10,000 technology companies across Canada, and they employ well over 500,000 people, but they are below the radar screen because they are small and medium companies. Politically, technology has never been flavour of the month."
© National Post 2006