Cash crunch, rising loonie slows Canadian tech growth

Inadequate funding is stalling the growth of Canadian tech companies, a new report reveals.

The massive slowdown has come after a decade of huge gains, according to the 2008 Technology Fast 50 report from Deloitte, a Canadian professional services and consulting firm.

Perfect storm

A “perfect storm” confronts Canada’s tech sector, the report suggests, noting that the overall growth rate of this industry has fallen a whopping 1,276 per cent over the past year.

The main reasons cited for this dismal performance include: the economic downturn, the rising loonie, and a huge decline in venture capital (VC) funding.

The funding problem is a very serious one, according to Duncan Stewart, director of research at Deloitte Canada.

He notes that Canadian tech startups are finding it very difficult to raise money from the public.

“There have been only three tech initial public offerings (across North America this year, compared to 20 in 2002.” Only a third of the startups received VC funding, the survey discovered.

Stewart says the source of VC funding has also undergone a significant change.

A decade ago a mere three per cent of these funds came from foreign sources. Today it’s more than half.

“While it’s not a bad thing that other countries are investing in the Canadian tech market, more Canadian companies should be investing.”
The situation should serve rally all stakeholders to find “immediate solutions” to help this industry, said John Ruffolo, national leader of Deloitte’s technology, media & telecommunications industry group in a statement.

“The hyper-growth of Canadian technology companies may be a thing of the past,” he said..

Going green

In this this bleak environment, however, there are some bright spots.

One of these, according to the survey, is a growing interest in new energy-efficient technologies.

Deloitte has sought to encourage this trend by announcing awards for the Top 15 Canadian “GreenTech”” and CleanTech” companies.

Stewart noted that 42 per cent of companies surveyed are taking advantage of rising commodity and energy prices to develop and sell new energy-efficient technologies.

“This is our single brightest spot in the tech world.”

The Deloitte executive emphasized the importance of tracking and acknowledging Canada’s GreenTech legacy.

Rising fuel costs – and resulting price increases – are driving this “green” trend in Canada, Stewart said.

They are forcing companies to cut down on travel and investigate virtual conferencing options – via tools such as Microsoft’s Office Live Meeting 2007.

Other recent examples of “green technology” initiatives cited by Deloitte include Dell’s new energy efficient LED backlight and the liquefied natural gas (LNG) systems offered by Vancouver-based Westport Innovations Inc. (as a substitute for diesel engines).

Westport’s “low-emission” fuel systems are being used in jurisdictions outside Canada as well.

For instance, nine Kenworth T800 heavy-duty LNG trucks, featuring Westport’s high pressure direct injection technology are going to be deployed at the Port of Oakland in California. The Port will use the trucks for hauling containers to and from the seaport.

Winning with wireless

Steward predicts a huge increase in the development and use of a range of wireless applications.

The Deloitte survey findings bear out this view.

Fifty-eight per cent of tech executives polled see wireless applications and services becoming a larger part of their company’s business in future.

This marks a departure from the situation in Canada until now, says a Canadian expert.

“And it’s about time!” says Lawrence Surtees principal analyst, Canadian Communications Practice, IDC analyst.

He says the wireless business in Canada has consistently lagged though it’s so important in our day to day lives.

“Only recently have we begun to see 25 per cent of spending [telecom] dedicated to wireless.”

Historically, Surtees says,  multiple of factors have been responsible for Canada’s underperformance in this area.

Six or seven years ago the biggest issue was security. First generations were less secure. There was also the need to further expand their coverage. But today both of these factors have kind of declined.

“The bigger factor today is the cost and convenience. Wireless data pricing models have very much held things back.”

And the price of wireless data services, he says, has to be a key consideration. “When we look at wireless in Canada versus U.S. or Europe it all comes back to the wireless provider pricing.”

One potential area for greater uptake, the IDC analyst says, is faster Internet access over wireless devices with GPS and search functions.

But he suggests Canadian carriers don’t appear to be getting the message.

For instance, he noted that recently both Bell Mobility and Telus announced plans to turn off their current users’ GPS service – to make people pay for them.

“They’re cutting their nose to spite their face.”

The impact of wireless, Surtees said, would be felt in areas as well.
“My prediction is in five years Google will evolve into a wireless search company.”

The growth of wireless presents huge business opportunities, the IDC analyst said, noting that of the six billion people in the world four billion are wireless users. This means there’s potential to reach out to two billion people, he said.

In Canada, he said, wireless providers are focused mainly on the consumer market and – in the long run – this inhibits them.

But he said the federal government’s recent wireless spectrum auction may speed up adoption of wireless apps among Canadian firms.

And one group that could benefit greatly by such adoption is the first responder/healthcare community, he said.

Surtees said with the growing aging population wireless technology could play a huge role in monitoring and treating certain conditions.

For instance, he said, a wireless PDA with a glucose reader could be very useful tool to record blood sugar levels.

But before such tools are adopted the traditional conservatism of the medical community needs to be overcome, he said. “The medical community needs to back it and say: Let’s put these [tools] in patients hands.”

He rued that the IT budget is always last on any hospital’s list.

Meanwhile, despite the general slowdown in the tech sector some companies have bucked the trend, growing their revenues at a remarkable rate.

Many of these have been have been honoured Deloitte Technology Fast 50 awards technology awards.

For instance, Markham, Ont.-based Nightingale Informatix Corp. – the top award winner – saw its revenue grow 23,078 per cent over five years.

Nightingale is a healthcare application service providers (ASP) for outpatient clinics. Its electronic health record and practice management offerings are designed to help physicians and healthcare organizations more efficiently manage their operations and patient records.

“Traditionally the health care industry was the last to adopt technology,” noted Sam Chebib, president and CEO of Nightingale.

He said this trend is now being reversed. “Our market is now turning more advanced technology in an effort to operate better and more efficiently.”

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