In the previous post, I looked at employment in the Professional, Scientific and Technical Services as an indicator of economic performance of Ottawa’s high-tech sector and its competitive position relative to other Canadian cities. In this post, I will look at the changing distribution of head office locations of Information Communications Technology (ICT) firms in Canada as another high-tech performance indicator.
My analysis is based on the widely recognized and referenced Branham300 which, according to their website, is the definitive listing of Canada’s top publicly traded and privately held ICT companies, as ranked by revenues. By the distribution of ICT head offices and changes in the distribution over time, one is able to assess the competitiveness of metropolitan areas as high-tech centres. Head offices of companies are often play a vital role in local economies because they typically employ highly skilled professionals and are major purchasers high-end professional services such as auditing, management consulting and financial services. More importantly, head offices are the decision making units within corporations determining how corporate resources are invested and allocated (Conference Board of Canada). Still, it is useful to keep in mind that the location of head offices may not always coincide to where the corporate researchers, thinkers and innovators are found. For example, Nortel’s head office was located in Brampton, Ontario but its largest R&D facility was in Ottawa. Similarly, RIM (Blackberry) had its main R&D facility in Ottawa while its head office was in Waterloo.
There is also a conventional and theoretical thinking in the economic geography literature that high-tech firms are more likely to cluster than other types of firms because of agglomeration economies (benefits associated with locating in proximity of each other and with the concentration of economic activities) and knowledge spillover effects (the exchange of ideas and formation of networks leading to greater innovation and new firm creation). It follows then that the distribution of ICT head offices and the changes that may be observed over time in this distribution due to the entry (or exit) into the Branham300 or the movement of head office city locations are reflective of the economic strengths (and weaknesses) of metropolitan areas as cluster locations.
The following chart shows the changes in the number of ICT company headquarters located in Ottawa since 2003. The Branham300 added 50 companies to the list starting in 2008 (from 250). The “Next 50” are shown as an add-on column for the last 6 years.
The chart suggests that Ottawa’s importance as a head office centre for ICT companies has generally weakened over the last 6 years. Excluding 2004, the number of ICT head offices remained relatively steady at between 38 and 40 form 2003 until 2007 following the fall of Nortel and the 2001 Internet bubble burst. The number of head offices in the Top 250 then dropped to a low of 24 in 2012 followed by an increase to 28 in 2013. The Ottawa based firms listed in the “Next 50” did compensate for some of this decline at least during 2008 and 2009. Of the total 39 head offices located in Ottawa from the 2003 Branham Top 250 listing, only 6 companies made it to the 2013 listing – Calian Technology Inc., Cistel Technology Inc., Eagle Professional Resources inc., Halogen Software Inc., Tecsis Corporation and VERITAAQ and only 17 of the total 45 head offices from the 2008 listing of the Branham Top 300 remained in the listing in 2013. This relatively high churn rate reflects the broad structural challenges facing young, small Canadian high-tech firms with companies being bought or sold or simply failing before they get a chance to be a success (a cursory comparison found that only 53 companies in the 2003 Top 250 listing were also present in the 2013 Top 300 Canada wide).
The following chart looks how the geographic distribution of ICT head office locations has changed with respect to selected urban centres. The boundaries of the cities are based on Statistics Canada’s definition of Census Metropolitan Areas (CMAs). Therefore, head offices located in Mississauga or Markham for example, are included in the Toronto CMA (I did however include Burlington in the Toronto CMA and not Hamilton as most of Halton County except for Burlington is part of the Toronto CMA – Burlington is also included as part of what is commonly referred to as the Greater Toronto Area or GTA). The Ottawa CMA would then include Kanata and Gatineau listed head offices. The Kitchener CMA includes Waterloo and Cambridge. The chart shows the total number of Branham300 head office locations for each year between 2008 and 2013.
The Toronto CMA accounts for the largest concentration of ICT head offices – in 2013, almost 38% of the total Top 300 head offices were found here. Ottawa had the second highest number of head offices in 2008 with 45 well exceeding the number in Montreal (36) and Vancouver (35) with the latter two having significantly larger populations. Ottawa’s ranking then dropped into 4th spot by 2013, a position more comparable to its population size but still noticeably higher than Calgary with 25 head office locations. The Kitchener CMA displayed a noticeable increase in its number of Top 300 ICT head offices especially over 2012/13.
In conclusion, Ottawa’s competitive position as a centre for head offices of leading ICT firms in Canada does appear to have weakened somewhat since about 2008. Prior to this decline, the city was home to the second largest concentration of ICT head offices with the Toronto CMA dominated the geographic distribution. Notwithstanding Ottawa’s drop in its ranking, the local economy still maintains a strong position as a head office location, one that is more comparable to its city size relative to other Canadian metropolitan areas. On the other hand, the analysis also shows that the Kitchener metro area is an emerging growth centre for ICT companies.