New Brunswick Information Technology Council Conseil des Technologies dInformation du Nouveau-Brunswick

Growing the ICT Sector

The Premiers Advisory Council on Technology
Prepared By: The New Brunswick Information Technology Council on behalf of the Premiers Advisory Council on Technology

2011

GROWING THE ICT SECTOR - 2011

TABLE OF CONTENTS Executive Summary Growing the ICT Sector The Need for Growth ICT as an Engine of Growth The Potential for ICT in New Brunswick Growing the Sector The Basic Strategy People & Ideas the Primary Enablers The Role of Productivity Getting the Ideas to Market Conclusion 3 4 4 7 13 16 17 18 20 22 24

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EXECUTIVE SUMMARY

New Brunswick needs new sources of growth for the economy. Our traditional sectors, while large and still very much key elements to our future, are struggling will be challenged to produce growth. As we have seen around the world and right here in New Brunswick, Information and Communication Technology (ICT), has the potential to provide that growth. The sector has been growing at double the rate of the Canadian economy as a whole since 20071 , and provincially has out-grown the forestry and logging, manufacturing, crop and animal production, and transportation and ware-housing sectors to name just a few2.

At 38.5% of total R&D spend, the Canadian ICT sector is the largest single source of private sector R&D in the country 3, and ICT one of the largest sources of R&D investment internationally4. When it comes to Foreign Direct Investment, economists have concluded there is a causal relationship between ICT and FDI 5. New Brunswick as an economy is not leveraging ICT to its fullest. Our exports of ICT goods are less than 1/3rd the national average 6, and the sector represents less than 4% of the Provincial GDP, a full 25% lower than nationally 7. Paradoxically, what this fundamentally represents is an opportunity. If the Province were to grow ICT exports to the national average, we would add $256,000,000 to the Provincial economy 8. The numbers grow by a factor of 6 if we start to approximate what Finland, a country who successfully grew ICT as a sector when forestry collapsed, or Costa Rica, a country whose GDP matches our own and is the fourth largest technology exporter on the planet 9. To grow our ICT exports we need to first find more talent, generate more ideas with export potential, and dramatically improve our ability to bring ideas to market. We need to shift our market differentiators away from cost, and become known world-wide as a place people can find better solutions and better service. And we need to get the word out about our successes. Enabling all of this will require government and the private sector to be in lock step, and closely co-ordinate their efforts to put New Brunswick back on the global technology map. Innovation starts here.

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GROWING THE ICT SECTOR THE NEED FOR GROWTH

The New Brunswick economy is no different than others around the world, growth is essential to sustain and improve the quality of life of its citizens. Unfortunately, that growth is not materializing.

Figure 1 Gross Domestic Product, 2002 Chained $ (Millions), CANSIM 384-0002

The impact of this can be seen in total employment, which is largely unchanged over the past 5 years.

Figure 2 - New Brunswick Employment by Sector, CANSIM 292-0008

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In order to grow, economies need to export. As can be seen in Figure 3, New Brunswick is one of Canadas export leaders.

Figure 3 - Exports as a % of GDP, CANSIM 384-0002 Of our four major goods exporting industries, Energy exports have grown significantly, the export of Forestry products has been in substantial decline, and agricultural and fishing products, and industrial goods and materials, have shown little if any growth. The picture is somewhat distorted as energy producers must import an equivalent amount of crude oil or natural gas and crude oil prices have more than doubled since 2000 10 , both of which skew the results. While whats happening in the energy sector is a positive development, it is equally clear New Brunswick needs additional sources of growth.

Figure 4 -New Brunswick Export Revenue by Product Type ($000,000), CANSIM 228-0034

New Brunswick needs additional sources of GDP and export growth

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According to Tekes, the main public funding agency for research, development and innovation in Finland, technology driven innovations are a primary source of economic renewal, employment and export growth and improving the well-being of individuals and the environment 11.

Figure 5 - Sources of Economic Growth, Results and Impact of Tekes and Innovation Activities 2010

As has been witnessed in other economies as well, the application of R&D and investment focused on improving the competitiveness of existing sectors of the economy, can be leveraged to the create new engines of economic growth. Initially related to the sectors where the investment was made, in time these can become self-sustaining and make significant contributions in their own right. For example, Icelands R&D efforts focused on its fishery meant that in addition to exporting $50.1 in seafood to Canada over the past 5 years, theyve also sold us $19.2M worth of fish and food processing equipment 12.

Innovating for our traditional sectors can create new sources of export growth

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ICT AS AN ENGINE OF GROWTH

While no sector of an economy is recession proof, Information and Communications Technology (ICT), was impacted less by the recent recession, recovered more quickly (see Figure 6,) and has better prospects for continued growth. Despite Canada not performing as well in ICT as its OECD and G8 peers 13, the sector has been growing at double the rate of the economy as a whole and was 4.9% of GDP in 2010 14.

Figure 6 Indexed Canadian GDP Growth, 2007=100, Industry Canada - Quarterly Monitor of the ICT Sector

Forrester Research is calling for the Canadian ICT market to grow of 6.2% in 2011 and 8.1% in 2012 15. The prognosis internationally is also for continued strong growth in the sector. According to the 2011 ICT Market Review and Forecast, the international telecommunications market grew 5.5% in 2010 and is forecast to grow 34% in 2011 16.

The ICT sector continues to show significant growth nationally and internationally

A primary enabler to sector growth is the ability to generate export revenue. ICT exports have had a dramatic impact on a number of economies. Notable amongst these are Finland and South Korea, who have transitioned from being dominated by forestry and agriculture respectively, to multi-faceted economies with a significant ICT component. Finland exported over US$21B in ICT Goods in 2008 (10.6% of GDP) 17, and South Korea in excess of US$90B (26.3% of total goods exported) 18. Neither country had an ICT sector to speak of 30 years ago. Similarly, Ireland went from a position of not having a technology sector to one where in spite of the countrys current economic woes, it still exported almost US$20B of ICT goods 19 and over US$30B in ICT services 20 in 2008.

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Figure 7 - ICT Goods Exports Indexed (1996=100 US $), OECD StatExtracts ICT Goods And contrary to common wisdom, its not just big rich countries that are able to leverage ICT for economic advantage. Costa Rica, whose 2009 GDP was just under US$30B, was rated as the fourth-largest technology-exporting country globally by World Economic Forum, with high-tech exports of representing 39% of its US$14B in exports in 2008 21.

ICT can be leveraged to drive significant export growth

The Role of Productivity While being a powerful engine for growth in its own right, the ICT sector is also primary enabler of growth across all dimensions of an economy, as was acknowledged during the 2009 World Economic Forum. Leading academics, global organizations and industry analysts agree that there is a direct correlation between the use of ICT and positive macroeconomic growth. 22 The principal means by which ICT enables growth is through improvements to productivity, the key factor that determines our standard of living. If the amount of output each worker produces does not increase, real wages and incomes cannot rise 23. If wages and incomes cannot rise, workers have less money for food, shelter, education, and recreation. Poorer productivity also means less tax revenue for government, which in turn results in lower quality health-care, schooling, infrastructure and social programs. According to the Federal Reserve Bank of New York, ICT accounted for 80% of U.S. productivity gains between 1995 and 2000, and 24% of gains between 2000 and 2005 24. Waverman et al. show that in a typical emerging nation, adding an additional 10 mobile phones per 100 population boosts per capita GDP growth by 0.59 percent 25.

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In 2003, the Conference Board concluded that between 1995 and 2000, manufacturing and services industries in the EU and US using ICT grew 225% and 940% more than industries not using ICT 26. In 2009, the Expert Panel on Business Innovation formed by the Council of Canadian Academies concluded: Since 1984, relative labour productivity in Canadas business sector has fallen from more than 90% of the U.S. level, to about 76% in 2007. And recommended the Canadian government encourage investment in advanced machinery and equipment (M&E) in general, and in ICT in particular... 27 as a means of redress.

ICT can improve the performance of our traditional economic sectors

The Role of R&D ICT is also a significant source of R&D investment. While Canada cannot be considered a leader in private sector R&D, ICT attracts disproportionately high levels of R&D investment both in Canada and abroad. 2009 Canadian R&D expenditures were $6.2B, an increase of 2.5% from 2008, with ICT accounting for 38.5% of all R&D spending in Canada in that year. 28 The software industry has been one of the principal drivers of this growth, having an average annual growth rate of 14.5% since 2002. 29 In the EU, the USA and Japan, the ICT sector is by far the largest R&D investing sector of the economy ... it accounts of 26% of overall business expenditure in R&D (BERD) and employs 32% of business sector researchers. 30

ICT drives R&D

ICT & Investment Does ICT attract Investment? We have witnessed first-hand that ICT does attract investment, the growth and acquisition of Radian6 being a recent example. The Canadian Venture Capital and Private Equity Association recently announced its Deal of the Year award was going to the 3 venture capital firms who invested in the company, which was sold for over $326M to Salesforce this year. The OECD Forum on Global Investment in 2008 stated that ICT was a determinant of whether foreign direct investment (FDI) occurred, 31 and The World Economy found a causal relationship between ICT and FDI in the case of developed countries, meaning that a higher level of ICT investment leads directly to an increase in the flow of FDI. 32

ICT attracts investment

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ICT & Employment Hiring requirements for ICT workers in Canada are forecast at 106,335 positions between 2011 and 2016, and shortages in supply are anticipated for all occupations except for network, user support and system testing technicians. 33 According to the Information and Communications Technology Council, the demand for ICT workers remains high and unemployment low. During the recent recession, ICT unemployment peaked at 4.9%, and is now back at its historical level of 2- 3%. Even during the Dot com bust, unemployment in the sector barely topped 6%.

Figure 8 - ICT Employment 2000 - 2011

Demand for ICT Workers Remains High

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ICT & Employment Because the average ICT job in Canada pays approximately 1.7 times the average Canadian wage ($59,975 vs. $35,318 34 ) economies that are able to develop appropriate sources of supply, and grow the number of ICT workers employed, will fiscally benefit through increased spending and tax revenues. The impact of this becomes more apparent when we compare different occupations in New Brunswick, as show in Figure 9, which portrays the average amount a single person from New Brunswick would pay in Provincial income tax by occupation (assuming only basic deductions.) The occupations and earnings used in the calculation come from Total Compensation per Job in the StatsCan National Economic Accounts.

Figure 9 - 2010 Provincial Income Tax Paid per Job, StatsCan National Economic Accounts, Revenue Canada Tax Tables

Individual ICT workers pay significant levels of Provincial income tax

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When we multiply the tax per person by the number of jobs in each occupation, we get a better picture of the total amount of Provincial income tax that would be paid for each occupation.

Figure 10 - 2010 Total New Brunswick Income Tax by Occupation, StatsCan National Accounts & Revenue Canada Tax Tables

In addition to paying more income tax, individuals who earn more, spend more. This translates into more purchases from local businesses, which in turn helps bolster the Provincial economy, and generates more Government tax revenue. Because of the higher paying jobs, the ICT sector will also pay more than average in HST and other forms of taxes, and will further close the gap in total taxes paid relative to other sectors.

The ICT Sector in New Brunswick makes a substantial contribution to the Provincial economy

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THE POTENTIAL FOR ICT IN NEW BRUNSWICK

While the ICT sector in New Brunswick is about 20% smaller than the Canadian average (3.8% of GDP vs. 4.9% 35), it exhibits the same pattern of growing faster than the economy as a whole and being impacted less by the recession, out-performing many of the provinces traditional economic engines and showing sustained growth between 2001 and 2010.

Figure 11 Indexed NB GDP Growth, 2001 = 100, StatsCan National Economic Accounts, CANSIM Tables 379-0025 & 379-0026

To give this additional perspective, if Forestry and logging, and Crop and animal production, had grown at the same rate ICT has over the past decade, they would each be $100M larger today, while Manufacturing and Transportation would have grown by $880M and $370M respectively.

ICT is showing sustained growth in New Brunswick

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Although the ICT sector in New Brunswick is performing well relative to other sectors in the Province, it is under-performing in terms of its size and level of exports, and in key enabling criteria such as private sector R&D. The New Brunswick ICT sector being only 80% as large as the Canadian average, 2/3rds the size of Costa Rica, and not even the relative size of world leaders such as South Korea, suggests there is room for growth well beyond what we have already experienced. Figure 12 - 2009-2010 ICT Expenditures as % of GDP, StatsCan, World Bank

The fact that leading indicators, such as business expenditures on research and development (BERD), are low in relative terms also support the notion the sector has strong growth potential.

With businesses in the Province barely investing of the national average in R&D, not even 1/3rd of the leading Province, Quebec, and being out-spent over 8:1 by leading nations such as Finland and Sweden, the clear implication is additional R&D investment by the private sector will drive growth in the both the sector and the economy. Trailing indicators, in this case ICT exports, tell a similar story. Figure 13 - 2009 Private Sector R&D Investment as % of GDP, StatsCan, and OECD StatsExtract

New Brunswicks ICT Goods exports are barely 1% of our total exports, and just over of the Canadian average, so again there is significant opportunity for growth. And this not just a New Brunswick opportunity, as the gap between Canada and global leaders such as Costa Rica and Korea is closer to 7x. Sobering as these numbers may seem, paradoxically they also help us to see the scale of the opportunity the sector has for the New Brunswick economy. Figure 14- 2009 ICT Goods Exports as % of Total Exports, World Bank

New Brunswick has only paritally realized ICTs potential to grow the Provincial economy
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Defining Success Lets consider two scenarios. The first assumes that by generating a number of Radian6-esque companies, the Province grows ICT software exports to the Canadian average as a % of total exports in other words, technology exports grow from 1% of total exports, to 3.6%. In the second scenario we grow those exports to the same level as Finland (16% of total goods exports), something that would make New Brunswick competitive on the international stage. It should be noted that as data on ICT Services exports is proving difficult to obtain at the Provincial level, these scenarios will only consider ICT goods. Canadian ICT services exports in 2009 were in the order of $US7B, or approximately 50% of ICT Goods exports. 36 The Canada Scenario Growing ICT goods exports to the Canadian average results in an increase in exports of $332,000,000, and causes New Brunswicks GDP to grow just under 1%, or by $256,000,000 37 . Wages and Salaries paid to workers in the Province, from which the Provincial government generates both income tax and HST, increase by $192,000,000. Indirect taxes grow by an additional $23,000,000, and the Province also adds 3,200 jobs. The Finland Scenario As positive as the Canada Scenario might be, it hardly represents a position of leadership and would only place the Province 3rd in Canada. While aggressive, targeting Finland who transformed their economy from one based almost exclusively on a shrinking forestry sector to a more diversified one in which both forestry and ICT play key roles clearly resonates with our own situation. Growing our ICT goods exports to the same proportion as Finland represents an additional $1,984,000,000 in exports. This in turns translates to $1,539,000,000, or just over 5%, in incremental GDP. Wages and Salaries paid increase by $1,150,000,000, and Indirect Taxes by $137,000,000. The Province also adds 19, 000 jobs. While these numbers are quite substantial and doubtlessly will require an equivalent effort on our part to obtain, it should be noted that Costa Rica, whose 2009 economy of $US30B is nominally equivalent to our own, exported US$2.3B in ICT Goods in 2009, and another US$732M in ICT Services (22% of total exports) 38 that same year. Costa Ricas ICT exports were less than 5% of total exports in 1998.

New Brunswick has significant upside for ICT growth

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GROWING THE SECTOR

THE DIFFERENTIATORS In their landmark book, The Discipline of Market Leaders, authors Michael Treacy and Fred Wiersema posit that to be successful, businesses need to focus on one of three value propositions: Operational Excellence Product Leadership Customer Intimacy They define the objective of Operational Excellence as to lead the industry in price and convenience, and suggest businesses built around this model are indefatigable in seeking ways to minimize overhead costs, to eliminate intermediate production costs, to reduce transactions and other friction costs, and to optimize business processes across function and organizational boundaries.39 Dell Computers are cited as a premier example. Product Leadership is characterized as a continuous stream of state-of-the-art products and services, accomplished by being proficient at recognizing and embracing ideas, rapidly bringing them to market, and constantly rendering their own technology obsolete 40, Apple being a current example. Customer Intimacy involves continuous tailoring and shaping of products and services to fit an increasingly fine definition of the customer. They typically look at the customers lifetime value rather than the value of a single transaction, and will do almost anything to ensure that each customer gets exactly what they want. IBM and Nordstrom are given as examples 41. While individual companies in the ICT sector will make their own choices regarding which strategy is right for them, The Discipline of Market Leaders does provide us with food for thought regarding the broader strategy for growing the sector. Pursuing a strategy of operational excellence, for example, would imply we can be a cost-leader. While the Province is a cost-leader relative to major industrialized nations, much of our competition will come from countries such as China, India, and Costa Rica, all of whom have significant cost advantages we will need to over-come. This would require us to either out-source large segments of the work to lower-cost centres, and/or develop innovative technology and processes that would allow us to off-set their advantage through improved productivity. Product leadership will place different demands on the economy. We would need to become proficient at the core processes of invention, product development, commercialization, and market exploitation. We would need to develop a culture that encourages and rewards creativity, entrepreneurship and risk-taking, and can adapt quickly to changing and emerging market conditions. As the name suggests, Customer Intimacy will require us to understand in detail the business needs of each and every client, the ability to tailor the solution to them, and the operational ability to do so at competitive prices. Consequently, companies will need to be able to offer a vast array of products and services, and their people will need to be well skilled at effecting change, and at getting things done. When it comes to shaping strategy for the sector, New Brunswick should consider how these principles can be best put into effect.

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The Case for ICT Exports As we have already seen, New Brunswicks economy is export-centric, and for good reason. Moving the same dollar from pocket to pocket inside the Province does nothing to grow the economy. To grow the economy we need people in the rest of Canada, and the rest of the world, to buy our products and services. Its no different for ICT. Yes, we can enhance our ability to create exports by being smart about how and where we do spend money inside the Province, but in the end that spending needs to be oriented around the creation of export potential. ICT has the potential to generate exports on multiple fronts. As they did with Radian6, ICT exports can grow out of a single, fertile, idea, almost totally removed from the non-ICT economy surrounding it. As we saw with Iceland and Finland, exports can also be developed as an outcome of work local ICT firms perform for clients in New Brunswick. In addition to ideas exported in the form of shrink-wrapped software or hardware, exports can also take the form of services and consulting. What these have in common to a very large degree is the raw material for these exports comes primarily from inside the Province, and little if any imports are required to produce them. This means that individuals and companies in Campbellton, Grand Falls or Miramichi can as easily create them as those in Moncton, Fredericton and Saint John. It also means much more of the value created will remain in New Brunswick and the communities so engaged. While leveraging ICT to improve the performance of our traditional economy is something we absolutely need to do, ultimately growing the sector needs to be about selling to those outside the Province.

New Brunswick s ICT growth strategy should be export centric

THE BASIC STRATEGY

While there are ICT companies in New Brunswick who may be able to attract investment and grow exports by leveraging the Operational Leadership model, there are significant challenges. Our cost structure is low relative to many advanced economies, however we are at a significant cost disadvantage when compared to those in China, India, Central and South America, and even recent additions to the European Union such as Poland or Latvia. As an example, Gross National Income per Capita in Poland was $15,690 in 2009, whereas Canadas was $37,980 42. When it comes to competing with the more advanced economies for investment, or going head-to-head with them on cost, New Brunswicks cost advantage is often only relative to major urban centres. According to KPMGs 2010 Guide, Fredericton and Moncton have roughly a 20% cost advantage for IT Services relative to the U.S. average 43 . However the report also shows cities such as Bangor ME, Charleston WV, and Lexington KY all within 5% of our cost. As the study assumed the Canadian dollar trading at $US0.94, that differential has been effectively eliminated, and the dollar climbing back above parity will shift that dynamic father. It is essentially for these reasons our strategy to grow ICT exports should be focused primarily on the other Disciplines of Product Leadership and Customer Intimacy. Its not that there arent examples of highly productive and cost competitive businesses in New Brunswick there most certainly

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are and its not to suggest we shouldnt strive to be as cost effective as we can we should. Nor does this mean we should not leverage cost when it works to our benefit. What it does suggest however, is a growth strategy based on the principle of being the low cost provider in the ICT sector may not be viable in the long term. We need other differentiators. To quote Sun Tzu: Thus it is that in war the victorious strategist only seeks battle after the victory has been won, whereas he who is destined to defeat first fights and afterwards looks for victory. A growth strategy built around Product Leadership and Customer Intimacy is not without its own constraints, namely talent, ideas, and capital. Fortunately, unlike the exchange rate and Free Trade Agreements, these are factors over which we can exert more than a little control. When considered through the lens of Product Leadership and Customer Intimacy, our small size becomes an asset which can be used to improve market responsiveness and accelerate decision making. Further, a strategy grounded in creativity and knowing your customer is more about the quality of your people and ideas, and less about economies of scale, and resonates well with growing the investment and export of ICT products and services.

Our product and service differentiators should become Product Leadership, and Customer Intimacy

PEOPLE & IDEAS THE PRIMARY ENABLERS

At the heart of success for Product Innovation and Customer Intimacy sits the people who perform the work and the ideas that make the difference. Where do they come from? PEOPLE While the question of growing the supply of talent is already being addressed in some depth through recommendations to Government via the Labour Adjustment Committee on HQP Talent in ICT, it is of sufficient import to warrant a recap of what needs to be done. The fundamental challenge facing New Brunswick in this regard is one of inadequate supply, caused by low graduation rates from ICT related degree and diploma programs, high levels of emigration, and low levels of immigration and attraction. In its 20112016 Outlook, the Information and Communications Technology Council, a federal HR sector council focused on ICT, is forecasting significant shortages in the Province for most occupations 44. While the ICT jobs here pay in the order of 28% more than the average job in New Brunswick 45 , what will catch the eye of a student graduating from University, prospective immigrants, or workers from the rest of Canada is that they pay 20% less than the Canadian average. These factors have resulted in ICT firms in the Province opening offices in other jurisdictions primarily to gain access to a larger pool of talent, and businesses from outside the Province declining to set up shop here because of the small size of the talent pool. Neither outcome is good for New Brunswick. While the supply of ICT talent is clearly a constraint, it is one shared by every jurisdiction in the country. Should New Brunswick do

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a better than average job of addressing this issue, it will not only enable growth for the companies already here, but will make itself a much more investment-worthy location to companies in the technology sector. How do we grow the supply of talent? In the short term we need to get much better at four things: 1. Retaining the ICT grads we do produce 2. Re-skilling redundant workers from other sectors 3. Attracting and retaining ICT workers from abroad 4. Attracting and retaining ICT workers from the rest of Canada The longer term solution requires us to significantly grow the number of New Brunswick youth who opt for ICT or ICT related careers, and putting New Brunswick on the ICT map in a substantial way. Our anticipated future state one where New Brunswick is known as the source of a continual stream of innovative products and services and superior client experiences and margins are higher because we are competing on something other than cost will make ICT careers in the province substantially more attractive to existing and prospective knowledge workers, and provide the means of levelling the remuneration playing field. The question is how do we get there? Outside of growing the sector itself, the near-term steps consist of: A steady stream of news about successes in the sector finding their way into the local and national press and other media to showcase the potential Educating students, parents and educators, about careers in the sector Fiscal incentives for ICT workers from outside the Province to accept positions here Entry level job guarantees for domestic and international degree and diploma program graduates Leveraging the Provincial Nominee program to grow the number of immigrants hired by ICT programs in New Brunswick Re-skilling of redundant workers from other sectors of the economy Active program to stay in touch with graduates who leave Detail regarding longer term measures can be found in the Labour Adjustment Committees recommendations, however central to all of these is integrating entrepreneurship and technology into the core K-12 and post-secondary core curricula.

IDEAS Increasing the number of ideas (intellectual property with export potential) requires a multi-pronged approach, consisting of using ICT to improve the competitiveness of our traditional economic sectors, significantly growing private sector investment in R&D, and making changes to how government procures. Like most jurisdictions, New Brunswick does not have the resources to be all things to all people, so needs to be selective about where it makes investments. That being said, neither government nor industry has proven particularly good at identifying winners and losers. Accordingly, while our efforts should support improving the performance of our traditional sectors, and growing the clusters viewed as strategic, we need to appreciate that we dont know what the next big thing will be. Tablet computers, for example, didnt exist 20 months ago.

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This factor needs to be anticipated when shaping programs. In other words, hedge your bets. So what bets should we make to grow the pool of ideas with export potential?

THE ROLE OF PRODUCTIVITY

As we can see in Figure 13, the Provinces productivity lags many other advanced economies by significant amounts. With New Brunswick only 60% as productive as our American neighbours 46 , studies linking this differential to heavier ICT investment by the U.S.47 , and New Brunswick having the lowest levels of ICT investment per worker in Canada 48 , ICT enabled innovations can be leveraged to help our businesses compete. As we have seen in countries such as Finland, Iceland and others, the innovations spawned by this can also become an important dimension of the economy in their own right.

Figure 15 - - 2010 GDP per Hour Worked (PPP) as a Percentage of the U.S., OECD Statistical Database: Labour Productivity Levels in the Total Economy

To that end we should: Refocus existing government programs to incent and reward productivity results more-so than investment in Machinery and Equipment Implement a program of productivity audits, and make completion of the audits a pre-requisite for government support for the organization

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Incent organizations to implement best practices to close the gaps identified in the audit, and link additional support to a measurement and evaluation component that establishes productivity gains Introduce a program of productivity sustainment/continuous improvement targeted at companies who successfully complete the initial audit and productivity improvement programs Increase the Deal Flow for investors incent local companies to invest in made in New Brunswick solutions Focusing on productivity helps every-corner of the Province, including regions such as the north, which are being hit particularly hard by the down-turn in our traditional economy. More detail on what steps should be taken to grow productivity can be found in the Premiers Advisory Council on Technology White Paper on Productivity.

New Brunswick should leverage ICT as a means of improving our competitiveness and creating new sources of exports

As was stated earlier, New Brunswicks public and private sectors dramatically under-invest in R&D. Iceland, a country with a population and GDP only 40% the size of New Brunswick, not only invests more in R&D as a percentage of GDP, but in absolute dollars. Icelands total R&D expenditures in 2008 were 2.64% of GDP ($US271M) against 0.97% ($C266M) in New Brunswick, and business expenditures were 1.44% of GDP ($US158M) versus 0.37% ($C101M) 49. In order to grow R&D, we should: Work with the Federal government to make the SR&D Tax Credit program more accessible and effective Modify the Provincial SR&D top-up to be competitive with global leaders Encourage SMEs to innovate and collaborate with academic researchers through an R&D voucher program similar to that used in the European Union 50 Work with the Federal government to increase funding available under the Industrial Research Assistance Program (IRAP) Improve investment attraction efforts on companies willing to locate R&D in New Brunswick, who in turn will export products and services from New Brunswick. Incent NB companies to make idle IP available to individuals and companies with an interest in commercializing it.

New Brunswick should grow R&D to better enable a constant stream of new products and services

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Government, and more particularly how it procures ICT products and services, can also be leveraged to do more in encouraging ICT investment and the development of ICT ideas with export potential. Specifically government needs to consider: Purchasing made in New Brunswick outcomes or solutions with export potential more-so than meeting its ICT project needs through staff augmentation Introducing a public/private partnership program similar to that introduced by the federal government to promote government as an early-adopter and model user of ICT Modifying the procurement scoring process to reflect the impact a purchasing decision has on economic growth, and government revenue such as personal and corporate income tax, payroll taxes, HST ... Incenting companies from outside the province to make R&D and production investments in the province, similar to what the Federal government does with industrial regional benefits

Government needs to better leverage its ICT purchases to generate exportable IP and investment
GETTING THE IDEAS TO MARKET
As weve all experienced, having a marketable idea and getting it to market are two very different things. If we are to grow the ICT sector, we also need to be better at commercializing our ideas and closing business. A CULTURE OF ENTREPRENEURISM Ideas only have value if they get to market. Getting an idea to market begins with someone wanting to take it there in other words, an entrepreneur. If a larger pool of ideas is to be of value to New Brunswick, more New Brunswickers need to become entrepreneurs. Creating a culture of entrepreneurism will require we develop and implement programs targeted at precisely that. To that end we should: Introduce entrepreneurship & technology programs as a core component of the K-12 and Post-secondary curricula Develop deeper partnerships with established programs such as Junior Achievement and Shad Valley Expand the scale and scope of mentoring opportunities for young entrepreneurs Develop and introduce a marketing program to celebrate entrepreneurial and export success stories Leverage industry to identify additional opportunities for start-ups, partnerships and cluster development Create a masters degree program, targeted at educating engineering and computer-science graduates, on how to turn ideas with market potential into successful commercial ventures THE PROCESS OF COMMERCIALIZATION In order to enhance our ability to commercialize ideas with market potential, and to encourage companies to make the requisite investments around developing ideas into products and services, we should:

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Create partnerships between the ICT sector, and Government and NB companies to develop and market the IP that emerges through increased levels of R&D and changes to Government procurement practices Introduce a Tekes style investment fund for higher risk commercialization opportunities and to encourage private / academic collaboration 51 Develop and deliver a marketing program targeted at attracting Angels, Venture Capitalists and multi-nationals to the Province Better leverage ICT investors and entrepreneurs in helping Government make decisions regarding product development and commercialization investments Continue to grow the pool of capital available to NBIF, and other similar institutions Lower the income-tax rate on export revenue Increase the small business tax credit from 30% to 50% for ICT investments Improve the ability of the sector to raise capital from traditional financial institutions

New Brunswick needs to enhance its ability to get ideas with commercial potential to market

MAKING THE SALE With unique products and services ready to be sold to the rest of the world, what do we do next? We begin by developing a global sales strategy built around leveraging the reference accounts established through creating intellectual property for government, companies in New Brunswicks traditional economy, and those in the new economy. As a result of its proximity, the improved access which NAFTA enables, and our knowledge of the market, our initial efforts are focused primarily on the United States, and in anticipation of the signing of a Canada E.U. Free Trade Agreement, Europe. Leveraging Trade Officers and other sources, the public and private sector identify, then qualify, potential customers and investors. With qualified opportunities identified, industry and government collaborate on the planning and delivery of trade missions targeted specifically at those opportunities. Business and government leaders leverage their respective networks to help enable the needed access. These missions are used to make initial introductions, to further qualify the sales pipe, and if possible, close business. After the trade mission has taken place, industry and government follow-up to close the business, and further grow the list of prospective clients, providing support to each other as appropriate. In parallel industry, and the Provincial and Federal governments, collaborate on developing and delivering export marketing and sales boot camps to new entrants, or companies new to the export market.

Industry and Government need to collaborate on and execute a single marketing strategy

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CONCLUSION
ICT as a sector holds enormous promise for the entire New Brunswick economy. As it has done and is doing for economies around the world, ICT can increase employment, create personal and corporate wealth, grow government revenues, and improve the quality of life of every citizen. As we have seen elsewhere, for that promise to become a reality, industry and government need to work together. ICT is less about bricks and mortar, and more about people and ideas, so rather than the creation of infrastructure, the focus of that collaboration will be on growing the pool of talent, leveraging technology to create new intellectual property, developing new products and services, and selling them to the rest of the world. The success stories of the innovations initially developed for and used by New Brunswick businesses, governments and other organizations will be used to open doors in other parts of the world. While unique products and services enable us to close that first international sale, its the continuous stream of innovations, tailored and customized to exacting client requirements that will generate the repeat business. This is turn, causes ICT exports and employment to grow substantially, and New Brunswick, and New Brunswick companies, acquire an international reputation for the quality of their people and solutions.

Innovation starts here

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END NOTES
1. StatsCan National Economic Accounts, CANSIM Table 379-0027 2. StatsCan National Economic Accounts, CANSIM Tables 379-0025 & 379-0026 3. Industry Canada, ICT R&D Expenditures, February 2010 4. The 2009 Report on R&D in ICT in the European Union, European Commission Institute for Prospective Technological Studies 5. Roghieh Gholami, Sang-Yong Tom Lee, Almas Heshmati (2006). The Causal Relationship Between Information and Communication Technology and Foreign Direct Investment, The World Economy 29 (1), pp. 4362. 6. Statistics Canada, CANSIM Table 228-0002 7. StatsCan National Economic Accounts CANSIM Tables 379-0025, 3790026 & 379-0027 8. Statistics Canada Provincial Input-Output Multipliers, Catalogue No.: 15F0046XDB 9. The Global Information Technology Report 2010-2011 10. Crude Oil (petroleum); Dated Brent Monthly Price - US Dollars per Barrel, US Energy Information Administration August 2011 11. Tekes Annual Review 2010 12. Industry Canada, Trade Data Online, Canada-Iceland 2006-2010 Trade in Goods, Top 25 Product Groups 13. World Economic Forum 2010-2011 Global Information Technology Report 14. StatsCan National Economic Accounts, CANSIM Table 379-0027 15. Forrester Research, The Canadian Tech Market 2011 to 2012 16. Telecommunications Industry Association 2011 ICT Market Review and Forecast 17. OECD StatsExtract ICT Goods and GDP Current US$ 18. World Bank Indicators ICT Goods Exports as % of Total Goods Exports 19. OECD StatsExtract ICT Goods 20. World Bank Indicators Ireland - Communications 21. The Global Information Technology Report 2010-2011 22. ICT for Economic Growth: A Dynamic Ecosystem Driving the Global Recovery, World Economic Forum 2009 23. Canadian Centre for the Study of Living Standards, A Portrait of the Productivity Performance of the Canadian Provinces, 19972007, Spring 2011 24. A Retrospective Look at U.S. Productivity Growth Resurgence, Jorgenson, Ho and Stiroh, 2007 25. The Impact of Telecoms on Economic Growth in Developing Countries, Waverman, Meschi and Fuss 26. ICT and productivity in Europe and the United States: Where do the differences come from?, van Ark, Inklaar, McGuckin 27. Innovation and Business Strategy: Why Canada Falls Short, Council of Canadian Academies, April 2009 28. ICT Sector Intramural R&D Expenditures 2009, Industry Canada

29. ICT Sector Intramural R&D Expenditures 2009, Industry Canada 30. The 2009 Report on R&D in ICT in the European Union, European Commission Institute for Prospective Technological Studies 31. Harnessing ICT for FDI and Development, Paper prepared by MIGA for the OECD Global Forum on International Investment III, Dr. Persephone Economou 32. Roghieh Gholami, Sang-Yong Tom Lee, Almas Heshmati (2006). The Causal Relationship Between Information and Communication Technology and Foreign Direct Investment, The World Economy 29 (1), pp. 4362. 33. Outlook for Human Resources in the ICT Labour Market, 20112016; Information and Communications Technology Council, 2011 34. StatsCan CANSIM tables, 281-0083, 282-0069, 282-0073, and custom tables developed from StatsCan Labour Force Survey by the Information and Communications Technology Council. 35. StatsCan National Economic Accounts CANSIM Tables 379-0025, 379-0026 & 379-0027 36. World Bank Indicators Canada Communications, ICT Goods Exports & ICT Services Exports 2009 37. These and the subsequent estimates in both scenarios were derived using Statistics Canada Provincial Input-Output Multipliers, Catalogue No.: 15F0046XDB 38. World Bank Indicators Costa Rica Communications, 2009 ICT Goods Exports & ICT Services Exports 39. Customer Intimacy and Other Value Disciplines, Michael Tracy and Fred Wiersema, Harvard Business Review January February 1993, Page 85 40. Customer Intimacy and Other Value Disciplines, Michael Tracy and Fred Wiersema, Harvard Business Review January February 1993, Page 89 41. Customer Intimacy and Other Value Disciplines, Michael Tracy and Fred Wiersema, Harvard Business Review January February 1993, Page 87 42. World Bank National Economic Indicators 43. Competitive Alternatives: KPMGs Guide to International Business Location 2010 Edition 44. Outlook for Human Resources in the ICT Labour Market, 20112016, Information and Communications Technology Council 45. Statistics Canada, Full-time/Full Year Average Employment Income Computer and Information Systems Occupations, 2009 46. StatsCan Provincial Economic Accounts, CANSIM 384-0002 and OECD StatsExtract, Labour productivity levels in the total economy 47. Innovation and Business Strategy: Why Canada Falls Short, Expert Panel on Business Innovation, 2009, Page 68 48. ICT INVESTMENT AND PRODUCTIVITY: A PROVINCIAL PERSPECTIVE, CSLS, April 2008 49. Country statistical profiles: Key tables from OECD - ISSN 20752288, StatsCan CANSIM 381-0001 50. Innovation Vouchers OECD 2010 51. Tekes Strategy Growth and Well-being from Renewal

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New Brunswick Information Technology Council Conseil des Technologies dInformation du Nouveau-Brunswick