Cisco’s Ontario jobs deal will hurt Canadian startups: expert

With notes from Candice So

Debate over whether the 10-year, $190 million agreement between Ontario and Cisco Canada add 1,700 jobs will be an economic boon or bust has been rowing since the Dec. 13 announcement was made.

The agreement will see the Ontario government invest up to $220 million over a 10-year period in return for San Francisco-based Cisco Systems Inc. to set up a new research and development (R&D) centre in Ottawa and add up to 1,700 new jobs there. While Premier Kathleen Wynne and the minority Liberal government has been trumpeting the deal for its creation of new jobs, critics say it’s a needless wage subsidy given to a profitable company in a sector that is already growing and hungry for talented workers.

Ottawa’s unemployment rate is 6.2 per cent, according to 2012 Statistics Canada data. That’s lower than Canada’s overall unemployment rate of 6.9 per cent and Ontario’s rate of 7.2 per cent and unemployment in the ICT sector is even lower. That means that Cisco’s new operations in Ottawa will be poaching from Canadian firms competing to recruit highly talented technical workers, according to Mike Moffatt, assistant professor of business, economic and public policy at Ivey Business School in London, Ont.

Assistant Professor of business, economics, and public policy at Ivey Business School Mike Moffatt.

“Canadian companies are having a talent war against American companies and we’re subsidizing the Americans,” he says. “What we’re doing by subsidizing this foreign multinational is making Canadian firms fight with one arm behind their back.”

Doing the math on the deal, if Cisco uses the $190 million put up by the government to help pay 1,700 workers for 10 years, that is $11,200 per year per worker. That’s a wage boost that Canadian startups looking to hire the same talent won’t be able to afford, Moffatt says. The Ontario could have chosen to give the same funds to Canadian firms to fuel hiring.

“It has the unintended consequence of making acquiring talent more difficult because they’re going to get outbid by this American company,” he says.

Cisco wouldn’t have made plans to create the new jobs in Ontario without the funding, Cisco Canada President Nitin Kawale said in a radio interview on CBC’s Metro Morning this week. Cisco has many options globally to set up a R&D centre and close collaboration with the government helped seal the deal.

“I think without all the ingredients… it would be difficult,” Kawale told CBC.

Cisco has also set up partnerships with Canadian universities to ensure graduates are considering Cisco for a career, he added. The networking equipment firm is looking to hire masters graduates for jobs in product engineering, product marketing, systems and solutions, and other R&D related functions.

This isn’t the first time Ontario has done a deal with Cisco to create jobs in the province. In 2011 a $25 million investment was made to create 300 new jobs as Cisco was laying off 6,500 globally, including 75 in Canada. Those jobs were also created in Ottawa and targeted new engineering graduates.

Former Industry and Trade Minister for Ontario Sandra Pupatello.

Former Economic Development Minister Sandra Pupatello signed the memorandum of understanding with Cisco. Now the former Liberal MPP is the head of the Windsor Essex Economic Development Corp. She argues the new deal with Cisco was key for a couple of reasons.

“The fact that we could reach out and sign a memorandum with a company in the private sector, was meant to send a message to the private sector that we understand that we have to partner with business, not just with other levels of government,” she says. “The governmental benefits is that it allows the company to look more favourably on our jurisdiction for future investments, which clearly has happened.”

Ontario, once a manufacturing-heavy economy, must transition to creating more IT jobs because IT is embedded in every sector including automotive, she says.

But this deal isn’t like the government-funded auto sector bailout during the recession, Moffatt says. In that case, there would have been workers out of jobs if not for government intervention.

“That’s a different situation from a very healthy market that’s doing fine,” he says. “We’re funding up the wrong side of the industry.”

Ontario would be better off investing in retraining programs to help workers transition to new industries hungry for talent and also help startups compete in a global market.

What do you think – is the Ontario-Cisco deal good for the economy or not? Let us know in the comments.

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Jim Love, Chief Content Officer, IT World Canada

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Brian Jackson
Brian Jackson
Editorial director of IT World Canada. Covering technology as it applies to business users. Multiple COPA award winner and now judge. Paddles a canoe as much as possible.

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