Ottawa based think tank, The Conference Board, released a series of reports called “How Canada Performs: A Report Card on Canada,” which assesses Canada’s quality of life in comparison to other countries. Canada receives grades of “B” in the majority of the sections, and received a grade of “A” in the Education and Skills section. However Canada’s performance in Innovation is poor, with the think tank assigning the country a grade of “D.” According to the report, Canada ranks second last in the amount businesses spend on R&D and in venture capital expenditures. However the country does well in terms of the quality of scientific research and the creation of new businesses.
The Canadian government provides a variety of funding to provide financial support for companies to undertake innovation projects. The Scientific Research and Experimental Development (SR&ED) tax credit is the most popular funding source for R&D projects, but there also exist various grants and loan programs such as IRAP, AgriInnovation Program, Innovation Demonstration Fund, and the Southern Ontario Fund for Investment in Innovation (SOFII), to name a few. The Canadian government ranks 8th in terms of R&D spending for business; yet, Canadian business spending on R&D has dropped to 0.89% of GDP in 2011, from 1.29% of GDP in 2001. US businesses spend twice as much on R&D, and Finnish businesses three times as much on R&D compared to Canadian businesses. The onus is on Canadian businesses to ensure that they receive full value from generous government funding initiatives.
There exists a vast resource of bright young Canadian graduate students and researchers that companies have difficulties tapping into. Internship programs, such as Mitacs – Accelerate, provide a bridge for companies to gain access to these valuable resources to assist in the R&D needs of the company. On top of acquiring a highly educated graduate student or post-doctoral fellow, Mitacs – Accelerate allows companies to gain access to high-quality, peer-reviewed research, increased innovation through researched solutions to challenging problems, and eligibility for SR&ED tax credits. The Mitacs – Accelerate program is a 4-month internship project that will receive $15,000 in direct funding, with the company and Mitacs splitting the cost 50/50. There is little work to be done on the company’s side as both Mitacs and the University will manage all administrative and financial issues. The program provides interns with real world exposure and the ability to apply the latest tools and innovations to business issues.
Recon Instruments, developers of skiing goggles that indicate your speed, position and distance travelled as well as GPS tracking, take full advantage of the Mitacs – Accelerate program. The company has been involved with the Mitacs program since 2008 and has since invested in 8 internships with graduates from UBC. Through the Mitacs – Accelerate initiative, Recon Instruments has been able to expand its innovation and promote growth within the company by hiring one of their initial interns as a full time R&D manager. A recent announcement by Gary Goodyear, Minister of State (Science and Technology), indicated that the federal govenrment will invest $35 million into the Mitacs program. This investment will help support an additional 1,200 companies and 4,800 Mitacs internships over five years. Goodyear’s objective is to ensure that Canadian companies are receiving the cutting-edge research expertise and skills to compete on the international market, as well as providing graduate students and post doctoral fellows with exposure to the private sector.
Environmentally-friendly vehicles have come a long way in terms of technological advancement and efficiency, but as with anything, there’s always room for improvement. The Automotive Innovation Fund (AIF) is a new program that aims to do just that by providing funding for vehicle and powertrain assembly operations associated with significant automotive innovation to support large-scale research and development (R&D) projects to build innovative, greener and more fuel-efficient vehicles.
It’s no secret that the Canadian manufacturing sector has struggled in years gone by, which is why taking advantage of programs like AIF is so important. The program benefits automotive companies by contributing to the long-term economic benefit for Canada, including job creation and retention. With the fund providing automotive firms $250 million over five years, this will be a much needed boost for Canada’s automotive companies; however, in order to obtain funding companies must adhere to strict qualifying activities that provide extensive automotive innovation and R&D initiatives to develop greener, more fuel-efficient vehicles including:
- new product development (e.g., advanced emissions technologies, energy-efficient engines and transmissions, advanced materials, including engineered plastics, and lightweight components and materials);
- leading-edge engineering and design, and prototype development;
- advanced product testing that ensures cleaner, more efficient automotive performance, and reduces greenhouse gases;
- development of new production methods and process technologies, including advanced flexible manufacturing techniques;
- new or expanded facilities to produce leading-edge and more energy efficient vehicles and powertrains;
- substantive investments in new flexible manufacturing processes; and
- introduction of other new transformative production technologies to substantially increase productivity and efficiency (e.g., robotics and advanced IT systems).
While Canada is certainly not the worst offender in terms of fuel-consumption, averaging about 34 MPG in 2010 compared to the United States’ 26 MPG, we are still far behind Europe and Japan’s values of 47 and 43 MPG, respectively. Given time, the Automotive Innovation Fund may be Canada’s answer to bringing our numbers in-line with the current leaders in the fuel-economy arena.
StatCan recently released a report indicating the direction research and development (R&D) spending by businesses in the industrial sector has been going over the past several years. With anticipated spending of $15.5 billion in industrial R&D in 2012 (an increase of 0.9% from 2011), there is a positive outlook for R&D spending for the new year. See the below graph for the 10 year trend of R&D spending in current dollars.
The main driver for the increase in R&D spending after years of decline, has been the direct growth of the manufacturing sector in Canada. It is expected in 2012 that the manufacturing sector alone will increase R&D spending by 3.1% from 2011 to a total of $7.6 billion. Costs associated to R&D will largely reside in wages and salaries, which has been the norm since 2006. Only 5% of 2012 anticipated R&D spending will be used towards purchases of land, building or equipment. Again this represents the norm of capital spending on a year to year basis since 2009. According to the most recent (2010) provincial data, Ontario ($6.8 billion) continues to be a hotbed for R&D spending followed by Quebec ($4.7 billion), with total R&D spending in 2010 being $15.1 billion. The Canadian government recognizes the positive benefits that R&D spending has on the economy and hence have offered several financial incentives to encourage companies to undertake R&D within Canada. As such, companies should strive to take advantage of the funding that is available to them in order to advance their business and to compete on a global stage.
General Electric Canada’s President and CEO, Elyse Allan, spoke recently at the Economic Club of Canada about how process improvements and technology can help businesses mitigate the risk of doing business abroad. Allan stressed the need to expand in a global economy, and lauded he leadership role that the federal government is taking in their attempts to promote market diversification and free trade. For too long, businesses have been focused on the US for sales, and it is definitely time to look at the larger global economy.
GE has been investing heavily in innovation and plans to invest $6 million in R&D this year (they filed 2,800 patents last year). Two programs that have been paramount to GE’s research initiatives are the SR&ED and Sustainable Development Technologies (SDT) programs. Allan says that there are several Canadian R&D investments that would not have been in Canada were in not for the SR&ED program.
During her conversation with the Financial Post’s Dan Ovsey, Allan stressed the fact that process and performance improvements can be just as important as research to stimulate exports. Driving productivity, she explains, can free up capacity for reinvestment in R&D.