Expanding the nation’s capacity to innovate, enhancing business competitiveness and further industry, government and post-secondary collaboration on research and development is needed if Canada wants to see improvements to its global competitiveness ranking, which has fallen once again.
Canada was outpaced in the latest World Economic Forum’s (WEF) competitiveness rankings, falling to 15th place of 144 national economies in 2014-15, despite holding on to 14th place for the last two years. Canada fell out of the top 10 in 2011-12 and this year’s score is the lowest the country has seen since 2006’s 16th place score.
There were a few key drivers to the latest numbers, or progression of the trend highlighted by experts; underperforming on the capacity for innovation, business sophistication and engaging in global markets.
This is causing Canada to lose ground to other countries that are improving at an excelled rate that Canada hasn’t been able to keep up with, says Michael Bloom, vice-president of industry and business strategy at the Conference Board of Canada, who assisted the WEF with research on Canada’s economic competitiveness for this report, and in years past.
Also sliding one place is the country’s innovation record, to 22nd from 21st in 2013-14. Although the government has made positive steps in terms of funding business development, there is room to make big gains by investing Canadian capital in startups and small enterprises.
“The great startup of today becomes the global company of the future and we’re lacking that piece,” said Mr. Bloom.
A key part in working towards an improved score is Canada’s business sophistication, which in 2014-15 is up to 23rd place, from 25th the year before. This responsibility falls on the shoulders of companies to embrace aspects of innovation that would boost their competitiveness, like step up their spending on R&D, or research and development, and take the risk of expanding into broader markets outside of Canada’s borders.
According to the 2014-15 report, published in September, Canada continues to show strong numbers on health, education and institutions, as well as labour market efficiency.
“We have all these levers, that if they were being pulled on correctly, and at the right amount, and at the right time, we should be doing relatively better than we are now,” said Douglas Watt, director of research in the industry and business and strategy group at the Conference Board of Canada, and spokesperson on the report.
“When you think about what we’re competing with, other top economies, we need to do better and that’s where, if we could pull the basic requirements around health, education, and our institutions, plus the levers around financial markets, market size and higher education and training, we would then produce more goods and services, higher value-added products and services which would lead them to innovation and we would have what the World Economic Forum likes to call more sophisticated business,” said Mr. Watt.
The overall rankings are an aggregate of 12 pillars: institutions; infrastructure; macroeconomic environment; health and primary education; higher education and training; goods market efficiency; labour market efficiency; financial market development; technological readiness; market size; business sophistication; and innovation. Of these pillars, the only three Canada ranked in the top 10 of were health and primary education, holding on to last year’s seventh place ranking; labour market efficiency, placing seventh; and financial market development, where Canada came in eighth.
When it comes to post-secondary education and training, Canada moved from 16th place to 18th, despite it still being one of Canada’s strongest showings.
Canada’s current macroeconomic situation was reflected in the standings as well, ranking just above the bottom 20 countries in terms of the government debt as a percentage of the GDP, at 124th, however, Canada was ranked first for the best score on the percentage of annual change in inflation, as well as on the soundness of the banking system.
Switzerland took the top spot on the competitiveness ranking and among the 14 countries ahead of Canada were the United States in third, Hong Kong in seventh, the United Kingdom in ninth, the United Arab Emirates in 12th and Taiwan just ahead, in the spot Canada held last year.
The WEF survey of Canadian stakeholders in the report indicate the “problematic factors” for doing business in contemporary Canada including the access to financing, the tax rates, an inefficient government bureaucracy, an insufficient capacity to innovate and restrictive labour regulations. These concerns were also evident in last year’s report, signaling the slow, or non-existing improvement in the areas of financing and government regulations.
“Our research shows that Canadian firms, as a whole, have been slow to embrace global market opportunities and are not as connected into great global value chains as they could be, we’re seeing a real need for businesses to do more,” said Mr. Bloom, who also mentioned accessing emerging markets and connecting small and medium sized enterprises, or SMEs with market partners, as important next steps.
The government and post-secondary institutions are doing well at “discovery phase” research, however they face challenges in collaborating or linking this to the private sector and public markets in order to enhance the sophistication to turn R&D into new products, processes and services with value, often times referred to as the “commercialization gap.” It’s thought that now, more than ever, is the time to act, given the amount of venture capital waiting just below the border.
“Businesses need invest more in the management of innovation, the decision making process and being able to be bold leaders that understand risk and how to mitigate risk,” according to Mr. Watt, who thinks Canada could be doing a better job.
Canada is still lacking on its investment in infrastructure, a key area experts agree is a conduit to productivity, like fibre optics, railways, pipelines, ports, bridges and public transit.
In terms of IP protection, Canada ranked 12th, but the strength of IP protection in Canada is the fourth best among the 144 nations. When it comes to the availability of scientists and engineers, Canada is ranked 12th and the countries ability to attract talent is among the top 10, at ninth place, however when it comes to retaining talent, Canada slips to 14th.
“People come in with quite a high expectation coming through immigration process, to have the opportunity to use their skills and expert knowledge in jobs in Canada and often they find there are barriers to that when it comes to requirements to re-qualify, and costs the associated,” said Mr. Bloom, who cited this as an ongoing issue for Canada, losing a portion of our immigrants to the United States, where Mr. Watts described the competition to be “fierce,” and “bold and nimble,” with no trouble enticing talent, and now a growing trend draining Canada’s top brains, are recruiters coming from countries like China and India to recruit their people back home as their emerging economies are creating more job opportunities.
Another interesting number to come out of the report is Canada’s 81st place standing on the prevalence of trade barriers. According to experts, this included the interprovincial trade barriers Canada has, as well as the “thickness” between the Canada U.S. border that are additional costs to companies. Considering the year’s developments on international trade deals, the Conference Board of Canada anticipates the numbers to reflect that improvement as agreements like CETA and the Canada Korea Free Trade deal are implemented.
Comparing Canada’s standing last year, to the current numbers on some key areas indicate that there have been incremental improvements to the areas emphasized or recommended in last year’s report to be important places to build. The capacity to innovate is up one place, to 26th; company spending on research and development, or R&D is up two spots to 27th; and the government’s procurement of advanced research and technology is up from 55th place, to 48th. One area that has slid by one place to 18th, is university industry collaboration on R&D, despite being a growing strength, it seems other countries are finding faster success in this area.
“Smart investment in skills and innovation is key to enhanced productivity and competitiveness,” the report reads. “Economies that consistently rank high in the competitiveness rankings are those that are able to develop, attract and retain talent, and constantly introduce new and higher value-added products and services into the market.”
Although the challenge posed by innovation is not a new story, it is growing in importance as the emerging markets, globalization and trade integration continues to rise, the more Canada needs to innovate to retain or grow its competitive advantage in niches where Canadian industries can punch above their weight.
“We’ve always had a certain market out there for our resources, but we depend on moving up the value chain to live well and I think that’s why it’s worth a continuing effort to figure out how to get the investment and how to create polices that enable trade and encourage people to take the great ideas we generate in Canada and turn them into products and services for global markets,” said Mr. Bloom.
The Hill Times asked Industry Minister James Moore (Port Moody-Westwood-Port Coquitlam, B.C.) for comment, however none was made available, instead an Industry Canada media relations person pointed to past statements Mr. Moore had made on free trade within Canada and the strength of Canada’s economy.
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