Innovation out of our hands in a branch-plant economy

TheStar.com – Business – Offshore decision making guides our private-sector economy
Published On Tue Mar 23 2010.  By David Olive, Business Columnist

Nortel Networks Corp. on Friday quietly shed the last of its remaining major businesses, selling its optical and ethernet networking operations to U.S.-based Ciena Corp. for $774 million (U.S.).

There is a bounty of ironies here, of course. A mere decade ago Nortel had a $360 billion stock-market value, making it the 12th most-valuable corporate enterprise in the world. Nortel supplied world markets with its pioneering fibre optical gear that is now the backbone of the global Internet. For a time it nervily supplanted LM Ericsson as a telecom-equipment supplier to the Swedish government. The phones at the White House ran on Nortel’s networking gear.

Ciena, meanwhile, was a start-up too small to appear on Nortel’s radar when it went on its multibillion-dollar takeover binge in the late 1990s, which almost saw Nortel merging – and as the dominant partner – with the legendary Corning Inc. of New York State, maker of Thomas Edison’s first light bulb.

We coulda been a contendah …

Instead, the steep decline and ultimate dismantling of the 125-year-old Nortel roughly coincided with the loss to foreign owners of such other “national champions” as Alcan, Inco, Falconbridge, Stelco, Ipsco and Dofasco, the latter among the world’s best-run and most consistently profitable steelmakers during close to a century of Canadian ownership.

“Canada for sale” was Ottawa’s guiding principle, if one wants to dignify with a label the feds’ lack of interest, under both the Paul Martin Grits and Stephen Harper Tories. Yes, commitments of continued employment were extracted from or offered by some of the foreign buyers. These were promptly reneged on come the recession by the new Swiss, Brazilian and U.S. owners of Falconbridge, Inco and Stelco, respectively.

It’s in that context that we’re warned again that Canada lags the world in industrial innovation, this time in the Conference Board of Canada’s latest report card, which ranks Canada 14th among 17 peer nations.

“Canada is well-supplied with educational institutions and carries out scientific research that is well-respected around the world,” said Gilles Rhéaume, vice-president for public policy at the think-tank.

“But, with a few exceptions, Canada does not successfully commercialize its scientific and technological discoveries into world-leading products and services. Canadian companies are rarely at the leading edge of new technology and find themselves a step behind the leaders.”

That’s an understatement. We’re not a step behind, we’re nowhere to be found in most industrial sectors. There are no Canadian-owned automakers (South Korea has several).

We have no major players in heavy equipment; chemicals; industrial wiring and electrical controls; motors; prescription and over-the-counter drugs; hygiene, make-up, fragrance and other personal-care products; breakfast cereals, snack foods; liquor; diapers; greeting cards; laundry and other cleaning products; hotel and resort chains; industrial and household tools; pet food; tires; office and home furnishings; or heart stents, Stryker beds and other products of the medical-industrial complex.

The decisions about shape, size, variety, colour, pricing and regional availability of all those things are made beyond our borders. Canada has always been a branch plant, since its first brush with European fur traders. How can we complain that we suffer the backward attributes of a branch-plant economy when we are, in fact, a branch plant?

Innovation is a key to productivity gains, the principal means by which we raise our standard of living. But innovation is largely out of our hands. Industrial R&D for companies that sell their goods in Canada is largely conducted elsewhere. So is the critical decision-making about new-product development and investment in more efficient capital equipment.

With notable exceptions like the auto sector, branch plants rarely have a mandate to export. The entire point of most branch plants is to focus on serving a national or regional market.

We know from the examples of Bombardier Inc., now building China’s inter-city rail system; engineering giant SNC-Lavalin, also of Montreal; Magna International with its hundreds of plants in North America and Europe; and BlackBerry developer Research In Motion that Canadian firms are capable of developing world-class products and conquering global markets.

But in contrast with many of our industrialized peers, we have not devised a national industrial strategy that incubates cash-strapped yet promising start-ups that might someday have the required heft of a Bombardier, Magna or RIM; strengthening the bond between universities and teaching hospitals with commercial enterprises; and confronting the dilemma of Canadian owners of world-class firms selling out to foreign interests.

If it feels at times that we’re living in someone else’s country, in some degree we are. With one of the least domestically owned economies among our industrial peers, it’s long past time we confronted the implications of foreign ownership on our lack of control over productivity, on which our prosperity very much depends.

dolive@thestar.ca

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