From the Wall Street Journal, today:TECHNOLOGY
SEPTEMBER 21, 2009 Nortel's Demise Adds to Worries That Canada Lags in High Tech
By PHRED DVORAK and BEN DUMMETT
Canadian courts and government have approved the dismantling of one of Canada's last technology champions, underscoring fears that the country is falling behind in high-tech.
Canadian and U.S. courts last week cleared the sale of Nortel Networks Corp.'s giant business-phone unit to U.S. telecom-equipment maker Avaya Inc.
Meanwhile, Canada's industry minister said the government wouldn't challenge the sale of Nortel's other big unit, with its wireless operations, to Sweden's Telefon AB L.M.Ericsson. BlackBerry maker Research in Motion Ltd., based in Waterloo, Ontario, had demanded the Canadian government block that sale on the grounds that it would harm national security.
The demise of Nortel, which with RIM long anchored Canada's technology industry, is symbolic of a bigger problem, critics say.
Canada lags behind many other developed nations in technology and innovation, by measures ranging from the amount of money businesses invest in information technology to the rate at which innovative ideas are commercialized. It creates few tech giants, and budding stars tend to be gobbled up by companies from other countries.
Not everyone thinks there's cause for alarm. Technology companies account for roughly the same percentage of economic output in Canada as they do in the U.S., economists say. And Canada remains one of the world's wealthiest and best-educated countries.
The problem is that much of Canada's wealth is based on natural resources and manufacturing -- both of which could falter in the future as resources are depleted and global competition in manufacturing gets fiercer, says Marc Garneau, the opposition Liberal Party's policy expert on science and technology. Canada has to invest more in areas like technology "if we don't want our standard of living to drop," he says.
Mr. Garneau and other opposition politicians took the government of Prime Minister Stephen Harper to task in Parliament on Thursday for allowing the sale of Nortel's wireless network technology to Ericsson.
"Canada's prosperity depends on the knowledge-based economy," argued Mr. Garneau.
Industry Minister Tony Clement responded that stopping the sale would have constituted unwarranted protectionism.
Canada doesn't have many flagship tech companies. There's RIM, with $11 billion in revenue and a market capitalization of $47 billion; the market capitalizations for other Canadian technology firms are less than $3 billion.
The lack of bigger companies hurts Canada, as they tend to bear the lion's share of research and development. Nortel alone accounted for 12% of private-sector R&D spending in 2007, Canada's Venture Capital and Private Equity Association estimates.
In the broader Canadian economy, spending on technology and innovation is lackluster as well. Canadian firms consistently spend less on R&D than the average among their counterparts in developed countries, and that spending is dropping, research think tank Council of Canadian Academies found in an April report
The most successful Canadian tech companies have often been snapped up by foreign firms. France's Alcatel-Lucent bought telecom-equipment maker Newbridge Networks Corp. in 2000;International Business Machines Corp. acquired software-maker Cognos Inc. last year.
"Canada in the tech sector is becoming a branch office for the U.S.," says Simon Gwatkin, vice president of strategic marketing at Wesley Clover, one of Canada's most prominent technology incubators.
Write to Phred Dvorak at firstname.lastname@example.org
and Ben Dummett atBen.Dummett@dowjones.com
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