Federal procurement practices, which allegedly favour foreign systems integrators, are helping to bury Canada's IT and telcom industries, Mitel Networks Corp. chairman Terry Matthews said Wednesday.
During a keynote address at the Research Money conference in Toronto, Matthews said in 40 years in Canadian high-tech, he has never seen it this bad.
"I am not a happy camper," said Matthews, a British-born industry veteran who has helped start a total of 80 companies, including Ottawa-based private branch exchange maker Mitel and Newbridge Networks, which was acquired by French manufacturer Alcatel SA in 2000.
Though he became rich from Mitel, which rapidly gained market share and appreciated in value between 1976 and 1982, Matthews fears the current investment climate makes it very difficult for Canadian technology entrepreneurs to replicate his success.
Not only is it difficult to raise venture capital funding today, but with competition from Silicon Valley, it is difficult to keep hard-working technology executives in Canada and it's more difficult to get funding through programs such as the National Research Council's Industrial Research Assistance Program, Matthews said.
On top of that, he said, government contracting practices tilt the playing field in favour of American systems integrators, who often buy their equipment from U.S. firms instead of Canadian technology startups.
"Ever try to sell anything to the federal government?" he rhetorically asked the audience at the event, which was hosted by the Information Technology Association of Canada (ITAC), an Ottawa-based lobby group.
The root of the problem, he said, is that Canadians are more honest than government officials and industry executives in other countries.
As a result, he suggested, Canadian government departments tend to adhere to the letter of fair trade rules stipulated by accords such as the General Agreement on Tariffs and Trade (GATT), but bureaucrats in other countries do what they can to favour homegrown companies.
"In Germany, if they have a large procurement, they (ensure German) technology companies have all kind of notice," he said. "Whereas Canadians tend to be absolutely honest, (in) other countries (they) tend to be honest but not absolutely honest."
In Canada, many large contracts are awarded through one department, Public Works and Government Services Canada (PWGSC). A spokesperson for PWGSC said that "Public Works is very committed to making Canadian companies able to compete on different contracts...we regularly consult with Canadian industry groups."
The spokesperson noted that companies based in the U.S. also have Canadian counterparts that provide employment in Canada and "they can certainly bid for Canadian government contracts."
Contracts are also subject to Canadian law and procurement regulations, plus international trade agreements such as the North American Free Trade Agreement, according to PWGSC.
"These agreements provide for (more) competition and they require non- discriminatory procurement practices as per Canadian procurement regulations. At a certain level we have to comply with these agreements."
Yet, according to Matthews, a lack of success in government contracts is not only hindering the Canadian tech sector, but it is exacerbating the problem.
"If you can't sell to your own government, how do you expect to sell it somewhere else?"
If for example a nascent telecommunications equipment manufacturer tries to sell technology to a foreign telco such as France Telecom, the carrier would not normally sign a deal. If the buyers are convinced they actually need the technology, Matthews said, they will normally go to an established vendor, largely out of fear a small startup could go out of business and therefore stop supporting products.
"They might say, 'Work with one of our vendors,'" he said, adding the domestic market in Canada is so small that startups in the IT and telecom sectors must export products if they want to stay alive, but as a group, Canadians are not doing so well.
"In Canada we're not participating very well in global telecom," he said, advising audience members if they start a technology firm they need to sell internationally.
"Don't be a corner store. Become global."
But aside from Waterloo, Ont.-based Research in Motion Inc., Canada has few large success stories in the sector, he said. Part of the problem is an overemphasis on the petrochemical and mining sectors, he said.
"We need to shout loud about the advantages of Canadian technology and not just what they are digging out of the ground."
Another problem is outsourcing to countries like India and China, where salaries are much lower, he said.
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