The cost of borrowing money just went up. Unlike their US counterparts, Canadian banks that held positions in high-risk US mortgages will likely not receive a bail-out package.  The net impact of the mortgage crisis is that Canadian banks will have to increase their lending rates to make up for their losses.

This is a great opportunity to explore alternative financing options.  Two programs which many businesses are not aware of are the federal government’s IRAP (Industrial Research Assistance Program) and SR&ED (Scientific Research and Experimental Development) programs.

IRAP is run in conjunction with the National Research Council of Canada (NCR), and provides non-repayable contributions to Canadian small and medium-sized enterprises (SMEs) interested in growing by using technology to commercialize services, products and processes in Canadian and international markets. NRC-IRAP also provides mentoring support and invests on a cost-shared basis for research and pre-competitive development technical projects, upon assessment of a project and firm by a team of Industrial Technology Advisors.  Canadian SMEs with under 500 employees and industrial associations desiring to enhance their technological capability are eligible for support.

The SR&ED program is a federal tax incentive program, administered by the Canada Revenue Agency (CRA), that encourages Canadian businesses of all sizes, and in all sectors to conduct research and development (R&D) in Canada. It is the largest single source of federal government support for industrial R&D. The SR&ED program gives claimants cash refunds and/or tax credits for their expenditures on eligible R&D work done in Canada.

A year ago it looked like game over for Nintendo’s storied console business. The Nintendo Entertainment System had ushered in the modern age of video games, but was not bleeding market share due to newer, more powerful systems from Sony and Microsoft.

Nintendo’s response was the handheld DS, followed by the Wii. The DS two-screen touch handheld was a test study that focused on gameplay and “fun” instead of trying to compete with Sony and Microsoft on graphics and hardware.  The DS was a success, so the Wii followed suit.

Nintendo built the Wii: a cuddly, low-priced, motion-controlled machine that focused on interaction and unique gameplay.  Their strategy was to expand the target market, because to compete with Sony and Microsoft to develop the best hardware would have been suicide.  Nintendo used a cheaper and lower-powered processor for their Wii console because they firmly believed that they could appeal to children as young as 4 and adults as old as 70 if they could:

1. Make video games easy-to-play, interactive, and “fun.”
2. Sell a complete gaming system at an affordable price point. 

This strategy was an astounding success!  Families, women, children, and all grandparents all embraced the gameplay of the Wii, and the low $300 price point increased sales volumes drastically.  And because of the decision to adopt older technology, they were able to sell the console with a $50 profit margin! (Sony and Microsoft both sell their consoles in the $400 to $500 price range at a loss)

Nintendo now projects that the Wii will take a 40-45% market share in this generation.

This case study illustrates the fact that innovation and R&D is a necessary part of any business’ survival.  Businesses are constantly competing to build the better mousetrap.  However, the business that figures out how to deter the mouse from entering the house (at an attractive price point) will steal market share from their competitors.

Further information:

• Stringer: Wii business model superior to PS3’s
• The untold story of how the Wii beat the Xbox, PlayStation

… is dead. Bankrupt.

Lehman Brothers, America’s fourth-largest brokerage, and one of the latest victims of the US sub-prime mortgage crisis, has filed for Chapter 11 bankruptcy protection. The current disaster is one of the biggest meltdowns in modern-day history because it has affected stock markets across the globe.  In Canada, the TSX slid by more than four per cent, or 515 points. That represented the TSX’s second worst day of the year.

Garth Turner, in his published book “Greater Fool,” believes that the US real estate crash is about to sweep into Canada.

“When bungalows in Vancouver cost $900,000 and resale homes with no parking in midtown Toronto are $1 million, it’s only forty-year mortgages and an embracing of debt that sustain the unsustainable.  The inevitable conclusion is that the current Canadian real estate market is floating on a sea of unrepayable, and perhaps unserviceable, debt.