There are several steps in the development of new products and processes: institutional research, transfer of knowledge to businesses, commercialization, growth and maturity. According to some witnesses, Canada is one of the best countries in the world for starting a manufacturing business. The challenge lies in the ability to make that business grow.[79] Affordable access to fast and reliable broadband Internet, in both urban and rural regions, would help achieve this goal:

[W]e have a huge opportunity in front of us with technology. As computers, data science, and broadband internet coverage merge with manufacturing, new technologies are emerging such as 3D printing, advanced robotics, and artificial intelligence. Existing technologies, such as computer-controlled cutting … are finding new relevance and uses within modern supply chains.[80]

Scott Smith

Canadian Chamber of Commerce

4.1 Collaboration between teaching institutions and the manufacturing sector

Several witnesses identified problems in terms of collaboration between academia and private Canadian businesses. They believe that post-secondary teaching institutions don’t offer researchers enough incentives to tie their research to industry needs:

The research dollars flow to the post-secondary institutions where projects are designed to satisfy academic curiosity instead of market demand. The incentives for advancement in our post-secondary system focus on publications in prestigious journals and the citations generated through those publications. The wealth generated by patent filings of a research project is not considered in the career path of a researcher.[81]

Scott Smith

Canadian Chamber of Commerce

Certain witnesses propose encouraging businesses to use the research infrastructure in teaching institutions.[82] There does appear to be a lack of consistency, however, in the services universities can offer manufacturing businesses.[83]

There is collaboration between teaching institutions and private industry in certain sectors, such as forest products. FPInnovations, that industry’s research centre, collaborates with certain colleges and universities by sending some of its researchers to work at the teaching institutions. Among other things, they design promising new processes and products for the industry.[84]

Another good example of collaboration is the Consortium for Research and Innovation in Aerospace in Québec (CRIAQ), which was established in 2002 with a mission to increase the competitiveness of the aerospace industry and enhance the collective knowledge base in aerospace through improved education and training of students. CRIAQ develops and stimulates collaboration between industry specialists and researchers to identify and implement pre-competitive aerospace projects.[85] CRIAQ now has an equivalent at the federal level, the Consortium for Aerospace Research and Innovation in Canada.

The research services offered in colleges and institutes are focused almost entirely on applied research, and students participate in almost all projects. These research projects are generally completed in less than one year. In 2014–15, more than 5,500 businesses (of which 86% were SMEs and half were from the manufacturing sector) used the R&D services offered by colleges and institutes. Unfortunately, many more could not do so due to a lack of funding.[86]

Universities play a critical role in the innovation continuum: more than 40% of all R&D in Canada takes place in universities. More than 65% of university faculty members were hired in the last 15 years, which creates a favourable environment for new ideas and innovations.[87]

Research collaboration between teaching institutions and manufacturing companies could also be fostered through the creation of sector councils (see Recommendation 3).[88]

4.2 Patents and intellectual property

There seems to be a problem in Canada with the transfer of intellectual property (IP) from teaching institutions to businesses. One witness commented that “[n]egotiating IP agreements with academic and research institutions is about the most painful thing I do in my job.”[89] In a brief submitted to the Committee, it was said that a member of the Dairy Products Association of Canada “described the process of purchasing IP from universities as a ‘negotiation and communication nightmare’.”[90] In contrast, in some cases in the United States, this IP transfer is free of charge.[91]

Patents held by university researchers are often not commercialized or known to businesses.[92] A witness met by the Committee during its travel to Montreal said that the negotiation with a university to get the rights to her patent took tremendous efforts and time, which may have delayed commercialization of her innovation. Another witness said that Canada needs to have:

a broader policy mandate to look at accessing and improving the way intellectual property and the research from the research and development system are provided for manufacturers. Many times intellectual property is patented and not made available. We need to commercialize these technologies if we put money into their R and D system.[93]

Darrell Toma

Alberta Chambers of Commerce

There was a suggestion that government, teaching institutions and industry create some sort of index of existing patents as a way to promote their commercialization.[94]

Given that faculty members in colleges are not required to publish, holding IP rights is of secondary importance for them. They are therefore more likely to engage with industry precisely because publishing and managing the IP is not key to the relationship.[95]

The question of cybersecurity of IP, particularly concerning the Internet of Things (IoT), was raised by a witness:

[W]hen the IoT gets pervasive, and it will, you'll have different layers of security problems. You have the cloud layer. You have the computer side. You also have the sensor side and the actuator side. Every component in the entire network of the IoT will be vulnerable, I would say. You will need reliability and security at every level.[96]

Pearl Sullivan

University of Waterloo

One witness explained that it costs $10,000 to $15,000 to obtain a patent valid only in Canada. This amount could increase depending on the complexity of the technology involved or if the patent is for another jurisdiction.[97] The Intellectual Property Institute of Canada (IPIC) is promoting the creation of a program that would provide financial assistance to SMEs patenting their first invention, in order to foster a culture of innovation, protect Canadian inventions and favourably position businesses to begin the commercialization phase. Based on the conditions of the Government of Quebec’s First Patent Program [French only], IPIC estimates that a similar federal program would cost $25 million per year.[98]

RECOMMENDATION 5

The Committee recommends that the federal government explore ways to create an index of existing patents in Canadian post-secondary institutions so they can be readily identified by industry, and explore ways to promote and encourage the transfer of intellectual property from post-secondary institutions to Canadian industry.

4.3 Commercialization

Several witnesses mentioned that too many good ideas are abandoned early on due to a lack of assistance (regardless of the type). The commercialization of products, and therefore the generation of income, is often the major stumbling block for Canadian start-ups.[99]

The ecosystem, comprising innovation centres, incubators, accelerators, academia and government organizations and programs, can help with the commercialization of products.[100] Industrial clusters are also important for the manufacturing sector:

[T]he suppliers of our ingredients and raw materials, and the distribution network that we ship into, have to be relatively close. There will be several places where we tend to have those clusters of our companies, and when we do, they enhance other business around them.[101]

Darren Praznik

Canadian Cosmetic, Toiletry and Fragrance Association

Mentoring is also an exceptional tool for start-ups. In fact, businesses that are mentored survive at twice the rate of businesses that are not.[102] According to one witness, mentors are “the glue of Canada's entrepreneurship community.… They are investors. They give back.”[103] Mentors are hugely important because they help reduce errors and save time.[104] The work of the C100 organization was cited as an exemplary model of mentoring.[105] C100 is a non-profit organization created by Canadian investors living in Silicon Valley that offers venture capital, mentorship and knowledge to Canadian entrepreneurs.[106]

Large companies can support the development of smaller companies, notably through innovation centres:

Large companies and the people who run them aren't typically rewarded for taking risks. They need a little help to do that. There are simple and productive ways that big companies can engage with smaller and more agile firms, things like innovation contests, strategic partnerships, and problem-solving sessions convened by a neutral, trusted partner.[107]

Avvey Peters

Communitech

There are several incubator and accelerator models being developed in Canadian colleges and institutions.[108] The Communitech representative called on the federal government to support the existing ecosystem.[109] The multi‑disciplinary dimension should be central to incubators because the best ideas often emerge from the overlapping of several disciplines.[110]

4.4 Access to foreign markets

Several witnesses indicated that the best way for a manufacturing company to develop is not to completely design a product, but to insert itself into global value chains.[111] In some cases, such as steel, access to the value chains of American companies, proximity that allows for on-time delivery, and quality products give Canadian businesses a competitive advantage.[112] One problem that was highlighted during the Committee’s visit to Montreal is that large Canadian companies are not doing enough to integrate start-ups into their value chains, which prevents them from developing. This was also mentioned by other witnesses.[113] Greater use of the federal government’s trade delegates is part of the solution for SMEs trying to access foreign markets and global value chains.[114]

Overall, opening up to trade and free trade agreements creates opportunities for Canadian manufacturing businesses to access new markets more easily,[115] although they do represent a challenge for some industries:

The TPP [Trans-Pacific Partnership] specifically falls short on two very important points. Despite the highly integrated nature of the Canadian and U.S. auto sectors, Canada accepted an accelerated tariff phase-out of five years, five times faster than the auto tariff phase-out that was agreed to in the U.S., 25 years for cars and 30 years for trucks. Both of the U.S. tariffs are back-loaded. It is very uncompetitive with the U.S. Also, the TPP failed to include strong and enforceable currency disciplines to address currency manipulation. We know there are governments that manipulate their currency, including the Japanese government. That is why we have been extremely strong in making sure we have currency disciplines in the TPP.[116]

Dianne Craig

Ford Motor of Canada Limited

Trade, and the capacity to export or import, is of critical importance in several industries. For example, all the engines Ford builds in Canada are exported, and 90% of the vehicles it builds in Canada are exported to 100 countries.[117] However, representatives of the automotive sector distinguished between theoretical and practical free trade. By way of example, very few vehicles are exported from Canada to South Korea and Japan. There are non-tariff barriers that may be a cause for this phenomenon:

Even if you have tariffs that get reduced over time, there are the non-tariff barriers that are primarily currency manipulation, which are preventing our vehicles from getting in. That's one, but I'll give you another example with what happened in South Korea. Consumers had bought vehicles that were exported into South Korea. All of a sudden for some reason, they got audited. So in their equivalent of whatever their registration area is, all of a sudden, everybody who didn't buy a Hyundai or Kia was getting a phone call about their purchase.[118]

Dianne Craig

Ford Motor of Canada Limited

Free trade agreements can have less impact on automotive aftermarket parts because most of the manufacturers have already moved their production to Asia.[119] One witness expressed concern regarding a liberalization of trade with China, which he says is not a market economy.[120]

More information should be made public regarding the potential positive and negative impacts of trade agreements on regional and local markets, but also regarding the opportunities they may provide in terms of exports to new markets.[121]

RECOMMENDATION 6

The Committee recommends that the federal government consider all pertinent information regarding predicted impacts for Canada in terms of employment and production, by industry, when considering signing trade agreements.

 It was stated that free trade agreements should include clauses to prevent currency manipulation by governments for purposes of obtaining a competitive advantage for their businesses.[122] In the steel industry, problems with dumping by China negatively affect the competitive capacity of Canadian businesses. Efforts to improve trade dispute settlement processes are therefore required.[123] A representative of ISED told the Committee that the trade dispute settlement mechanisms are slow, and that the level of harm required to trigger a review of disputes is too high. He also mentioned that the federal budgets of 2015 and 2016 indicated that there would be improvements to the operations of the Canadian International Trade Tribunal.[124]