Economists mull Chinese competition to Ottawa IT firms

Whether the emergence of China as an economic power will threaten Ottawa’s high-tech sector remains a burning question among CEOs and economists.

During a recent Ottawa symposium entitled “”Growth in a Tough Economy,”” some CEOs from the Ottawa region and the Greater Toronto Area acknowledged

that China is on their collective radar.

Bruce Firestone, founder of the Ottawa Senators and research professor at Carleton University’s Sprott School of Business, addressed the prospect of China out-competing North American locations for manufacturing due to its large population and relatively cheap labour pool. The country could even stand to hurt R&D here, he mused.

With China (pop. 1.3 billion) becoming the newest member of the World Trade Organization (WTO), access to this Asian country is on the rise, which could prompt lucrative multinationals to relocate their manufacturing arms to the detriment of the North American market, say analysts. China as a WTO member also means more exports to Canada with lower tariffs — a significant trend that some local competitors will have to adjust to.

Specific to the high-tech sector, export volumes and production in computers and telecom are recovering, said Glen Hodgson, vice president and deputy chief economist at Export Development Canada.

“”But prices are down because you have new market entrants from places like China,”” said Hodgson. “”As firms restructure and as entrants come in, computer prices across the industry could go down as much as a third this year.””

So an Ottawa company making computer parts is seeing the demand, but prices are being pushed downward, and overall revenues are down even though production lines are moving faster today than they were a year ago, said Hodgson.

“”People have just woken up to this fact. “”(China), with an economy that’s slightly larger than Canada’s, is a new influence that has become much more prominent.””

Hodgson added that Canadian companies will have to find higher value-added niches in response to China’s ability to manufacture products more cheaply. Michel Re, executive vice-president of investments at the Business Development Bank of Canada, added, “”we must further “”differentiate ourselves through better education and engineering.””

If there are any alarm bells, Larry O’Brien isn’t hearing them. The CEO of Kanata’s Calian Technology Ltd. said some people might be “”worrying about the wrong thing.””

“”Science is creating brand new opportunities for the Western world,”” he said, referring specifically to the advances in nanotechnology. “”I’m not concerned at all about China.””

O’Brien hinted that there is no way China can outdo North America on the R&D front.

Hodgson agreed.

“”R&D is still going to be done in places where the education system is the strongest, and where R&D workers will want to live. Ottawa clearly has a high advantage.””

In terms of capitalizing on China’s huge domestic market and the growing consumer power there, “”a lot of us are still trying to figure out how we can do it,”” said Hodgson.

“”It’s a lot like the way Europeans were probably looking at North American opening up 150 years ago. There were a lot of free resources . . . and people were likely wondering: How do we take advantage of all this?””

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Jim Love, Chief Content Officer, IT World Canada

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