Pulse Check on Silicon Valley North: Part 1 – Introduction

The 1980’s and 1990’s were exciting times in Ottawa’s economic scene. An article published in the New York Times  in 1981 observed that Ottawa’s reputation as a “staid, sleepy, inward-looking city with traditional ways” has faded with the region’s “emergence as the country’s biggest center for advanced technology research and manufacturing, particularly in telecommunications”. It looked like Ottawa was finally going to break away from the economic grip of the federal government with bullish predictions of a high-tech work force reaching 100,000 by 1990 and exceeding the number of civil servants. New home-grown companies started at dizzying levels around the flagship anchor company – Nortel Networks Corporation (formerly known as Northern Telecom Limited). The high technology sector was also booming in the 1990s with companies like Nortel, JDS Uniphase Inc. and Alcatel SA  hiring thousands of people. Although Ottawa’s high-tech sector never did quite reach the 100,000 employment mark, by the turn of the new millennium, Ottawa had emerged as one of North America’s prime high tech growth centres.

However, everything was about to come crashing down. The giant Nortel experienced a series of strategic missteps and management errors that eventually resulted in the company’s bankruptcy and liquidation in 2007. Between 2000 and 2002, Nortel’s global employment dropped from a peak of 94,000 to just 37,000 with 10,000 lost jobs in the Ottawa region. Ottawa’s high tech economy was further battered at the same time by the global collapse of the Internet bubble in 2001 which resulted in numerous firms failing due to the disappearance of sales and investment opportunities.  Many of Ottawa’s anchor home-grown firms were purchased by foreign interests including Cognos, Corel, Newbridge and JDS Uniphase resulting in Ottawa being called as Silicon Subsidiary North.

The turnaround in the local high technology was sudden and dramatic and largely unforeseen. As late as January 2001, Canada’s leading think tank, the Conference Board of Canada predicted in its Metropolitan Outlook publication, that the Ottawa economy “will remain the fastest growing metropolitan economy in Canada” due to the “continued strength of the high-tech sector”.  Denzil Doyle, generally recognized as the father of Silicon Valley North, predicted in 2000 that Ottawa’s high technology employment could reach 425,000 by 2030 from 72,000 if recent growth trends continued. In 2009, Doyle’s outlook was very different and was quoted as saying that “to put it harshly, it’s [Ottawa’s high tech industry] not just in decline, but it’s in decay.

The following chart shows annual employment in metro Ottawa’s high technology sector between 1992 and 2013 including Q1 2014. The data are based on Statistics Canada’s monthly labour force survey and the agency’s definition of high technology commonly referred to as Information and Communications Technology (ICT) consisting of both ICT services (e.g. computer services, software, data processing, telecommunications carriers etc.) and manufacturing (e.g. communications equipment, electronic components, computer and peripheral equipment etc). The ICT employed labour force data are only available through special tabulations.

 

Total Employment in Information and Communications Technology

Ottawa-Gatineau Census Metropolitan Area: 1992-2014

ICT Employment

The total labour force employed in ICT increased sharply during the second half of the 1990s reaching a peak of 71,700 in May 2000. Employment then declined over the next four years with the demise of Nortel and the Internet bubble collapse. Total employment started to make a significant recovery between 2004 and 2007 but went back into a tailspin with the 2008/09 global “Great Recession” and subsequent weak recovery. However, Ottawa’s ICT sector experienced significant job gains during 2013 and into 2014. According to Statistics Canada’s data, ICT employment in March 2013 reached 68,300, just 3.5 thousand shy of the May 2000 peak month. Since Statistics Canada’s monthly labour force numbers for metropolitan areas are calculated on the basis of three-month moving averages (and not adjusted for seasonal fluctuations), the March 2014 data correspond to the First Quarter. It is also useful to note that the recent surge in ICT employment may be also due in part to the relatively small sample (population) size used in the Labour Force Survey which may result in significant shifts in survey data which in turn may exaggerate upward or downward movements in month to month data.

Ottawa’s high tech sector has also lost some its lustre in terms of public attention and media interest to other emerging Canadian growth centres. The most newsworthy growth is in the so-called “Technology Triangle” which includes the cities of Cambridge, Kitchener and Waterloo and the birth place of Research In Motion (RIM and now known as BlackBerry Ltd.). The Technology Triangle prides itself has having strong linkages between its universities, and in particular, the University of Waterloo and the private sector.

According to Canada’s Technology Triangle Inc.’s website (CTT is the Region’s economic development promotion agency), there are 1,000 information technology companies employing 30,000 workers in the local advanced technology cluster.In comparison, Invest Ottawa states that there are 1,900 high-tech companies in the region with over 75,000 employees.

There has also been some recent discussion around the concept of an emerging “SuperCluster consisting of Waterloo, Guelph-Wellington and Toronto similar to the network of innovation nodes in California’s Silicon Valley. The Greater Toronto Area (GTA) has over 13,000 ICT companies with a total employment of about 200,000. The City of Markham located north of Metro Toronto in the GTA, also lays claim to being the High Technology Capital of Canada with 900 companies. A 2004 study on Toronto’s ICT sector placed the region as the third largest ICT cluster in North America.

In the next series of blogs, I will be looking more closely at selected economic performance indicators in terms of trends in Ottawa’s high technology sector focussing on changes that have occurred over the last decade since the collapse of Nortel. Of particular interest is how Ottawa’s competitive position has been impacted relative to other Canadian high-tech growth centres. Some of the more potentially useful data for measuring economic performance in high technology industries at the local level are not available – for example, data on new firm creation and exits, venture capital or employment in ICT. CB Insights does provide venture capital / financial data for companies by cities but the price of $999 / month (minimum) to access the data is prohibitive.

The specific performance indicators that will be examined include the following:

  • Employment Trends in the Professional, Scientific and Technical Services Industry
  • The Geography of the Branham300
  • Innovation Centres in Canada as measured in terms of patent applications

 Some final concluding observations will be offered in my final blog on this topic.  

Dan Stankovic

 

 

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