The head of one of Canada’s most important technology companies said the country is at a crossroads: we have the talent required to be a leader in the digital economy, but a mix of complacency and poor policy means we could easily end up in the remainder bin.
“I’ve seen Canada over the last decade, sadly, turn into a little bit of a low-cost jurisdiction,” said Mark Barrenechea, chief executive of Waterloo, Ont.-based Open Text Corp. “A lot of companies today think of Canada as a lower-cost (country) for entry-level talent; first job or second job is a better way to say it.”
Put another way, we’ve become a development league, “competing more with Southeast Asia than the United States,” Barrenechea said. Open Text used to be able to hire four Indian software engineers for the cost of one worker in Waterloo. That ratio is now two to one. Canada is competitive, but maybe not in the way many of us might have thought.
Followers of Jim Balsillie, the former co-chief executive of the company that created the BlackBerry smartphone,
will be familiar with the argument
that Canada has unwittingly become a staging ground for young coders who eventually take their talents to the real tech centres in the U.S., China and Europe.
But it feels like a good time to stir the fire that Balsillie started. The prospectors of the digital gold rush ignited by the COVID-19 crisis are moving at rapid speed. The big fish will be gorging on the little fish. The winners and losers are being sorted now, not years from now.
Many of Canada’s homegrown technology companies were already upset over the tendency of governments to get excited by the arrival of famous tech behemoths such as Amazon.com Inc. and Google’s parent company Alphabet Inc., which tend to monopolize the best talent before patenting their ideas, thus locking up the wealth for themselves and their home countries.
The race to secure market share in the digital economy
has added a new dimension
: emerging Canadian companies are proving to be attractive targets for larger firms that want to accelerate their adoption of cutting-edge technology.
The ownership of St. John’s, Nfld.-based Verafin Inc. (cybersecurity), Montreal’s Element AI (artificial intelligence) and Calgary’s Benevity Inc. (software) all shifted abroad last year. They were local heroes and now they are branch plants. The jobs are still here, and more may come, so it’s not a dire situation. But it’s objectively the second-best outcome, because control rests elsewhere. It also puts a ceiling on what Canada can achieve since the highest performers at those companies will eventually be called up to corporate headquarters.
“Canada has really got to think through that,” Barrenechea said.
We have some time to think it through. Foreign-direct investment isn’t a one-way street and some Canadian companies are doing their share of the raiding.
For instance, Lightspeed POS Inc., a Montreal-based developer of software that restaurants and smaller retailers use to process sales and manage inventory, on March 11
announced
its intention to buy Vend Ltd., a New Zealand-based rival backed by PayPal Holdings Inc. co-founder Peter Thiel. The US$350-million acquisition would be Lightspeed’s third big purchase since November, a US$1.2-billion shopping spree.
That’s the kind of action it takes to play in what Barrenechea describes as the first tier. You take risks. You raise capital. You deploy that capital, gathering valuable intellectual property, talent and customers. You favour investment over dividends and share buybacks. You go farther afield than the U.S. The Vend acquisition would strengthen Lightspeed’s toehold in Asia, complementing its core operations in Canada, the U.S. and Europe.
Lightspeed, which Dax Dasilva founded in 2005 and took public on the Toronto Stock Exchange in 2019, is one of a few dozen Canadian
technology hotshots
that have been given long leashes by shareholders who are less sensitive about profitability than they used to be. Some will fail or disappoint, which shouldn’t bother anyone. That’s how innovation works.
Open Text, meanwhile, is a survivor, so it probably warrants more attention than it tends to receive. The company is nearing its 30th anniversary and generating cash isn’t an issue. The company
earned
a record US$855 million in its most recent quarter, an 11 per cent increase from the previous year. Its stock price is up about 25 per cent over the past year, pushing its market capitalization to about $12 billion.
Back in 1991, its original mission was to commercialize technology that the University of Waterloo developed to digitize the Oxford English Dictionary. Now, Open Text finds itself in an ideal situation to exploit the shift to cloud computing. Barrenechea this week
unveiled
a streamlined range of software products that will allow companies to gather and protect information generated from employees working from home, manage supply chains and interface with cloud-storage servers, including Open Text’s own private cloud.
The opportunity is huge. Barrenechea predicted the information-management market will grow eight per cent to US$84 billion by 2024. Open Text is already the market’s leader, and its CEO predicts organic growth of two per cent to four per cent in three years, an ambitious jump from the current rate of one per to two per cent. If he pulls it off, he might force people to reassess Open Text’s reputation as a company that is only able to achieve growth through acquisitions, even though it intends to keep buying whenever it spots a good value.
“It is a seminal moment for us,” Barrenechea said, adding that he plans to invest 14 per cent of revenue into research and development, compared with 10 per cent currently. “We’re going to invest
into
modern work and we’re going to invest into our growth rates.”
Open Text is here to stay, but we can’t take for granted that others have the same ambition to stay in the top division or climb their way there.
“IP and engineering is very mobile,” said Barrenechea, who took over as CEO in 2012 after a couple of decades in Silicon Valley. “You can optimize the economics by leaving Canada, but, for us, we haven’t led with that. We’ve led with talent and culture.”
The challenge for policy-makers, then, is working on the economics. We need to make it less optimal for those who don’t care about culture to leave.
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The head of the International Monetary Fund warned the US that the global economy is closely watching interest rates and industrial policies given the potential spillovers from the world’s biggest economy and reserve currency.
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Published Apr 18, 2024 • 2 minute read
(Bloomberg) — The head of the International Monetary Fund warned the US that the global economy is closely watching interest rates and industrial policies given the potential spillovers from the world’s biggest economy and reserve currency.
“All eyes are on the US,” Kristalina Georgieva said in an interview on Bloomberg’s Surveillance on Thursday.
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The two biggest issues, she said, are “what is going to happen with inflation and interest rates” and “how is the US going to navigate this world of more intrusive government policies.”
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The sustained strength of the US dollar is “concerning” for other currencies, particularly the lack of clarity on how long that may last.
“That’s what I hear from countries,” said the leader of the fund, which has about 190 members. “How long will the Fed be stuck with higher interest rates?”
Georgieva was speaking on the sidelines of the IMF and World Bank’s spring meetings in Washington, where policymakers have been debating the impacts of Washington and Beijing’s policies and their geopolitical rivalry.
Read More: A Resilient Global Economy Masks Growing Debt and Inequality
Georgieva said the IMF is optimistic that the conditions will be right for the Federal Reserve to start cutting rates this year.
“The Fed is not yet prepared, and rightly so, to cut,” she said. “How fast? I don’t think we should gear up for a rapid decline in interest rates.”
The IMF chief also repeated her concerns about China devoting too much capital and labor toward export-oriented manufacturing, causing other countries, including the US, to retaliate with protectionist policies.
China Overcapacity
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“If China builds overcapacity and pushes exports that create reciprocity of action, then we are in a world of more fragmentation not less, and that ultimately is not good for China,” Georgieva said.
“What I want to see China doing is get serious about reforms, get serious about demand and consumption,” she added.
A number of countries have recently criticized China for what they see as excessive state subsidies for manufacturers, particularly in clean energy sectors, that might flood global markets with cheap goods and threaten competing firms.
US Treasury Secretary Janet Yellen hammered at the theme during a recent trip to China, repeatedly calling on Beijing to shift its economic policy toward stimulating domestic demand.
Chinese officials have acknowledged the risk of overcapacity in some areas, but have largely portrayed the criticism as overblown and hypocritical, coming from countries that are also ramping up clean energy subsidies.
(Updates with additional Georgieva comments from eighth paragraph.)
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Poland has EU’s second highest emissions in relation to size of economy Notes From Poland
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WASHINGTON (AP) — The head of the International Monetary Fund said Thursday that the world economy has proven surprisingly resilient in the face of higher interest rates and the shock of war in Ukraine and Gaza, but “there is plenty to worry about,” including stubborn inflation and rising levels of government debt.
“ Inflation is down but not gone,” Kristalina Georgieva told reporters at the spring meeting of the IMF and its sister organization, the World Bank. In the United States, she said, “the flipside” of unexpectedly strong economic growth is that it ”taking longer than expected” to bring inflation down.
Georgieva also warned that government debts are growing around the world. Last year, they ticked up to 93% of global economic output — up from 84% in 2019 before the response to the COVID-19 pandemic pushed governments to spend more to provide healthcare and economic assistance. She urged countries to more efficiently collect taxes and spend public money. “In a world where the crises keep coming, countries must urgently build fiscal resilience to be prepared for the next shock,” she said.
On Tuesday, the IMF said it expects to the global economy to grow 3.2% this year, a modest upgrade from the forecast it made in January and unchanged from 2023. It also expects a third straight year of 3.2% growth in 2025.
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The world economy has proven unexpectedly sturdy, but it remains weak by historical standards: Global growth averaged 3.8% from 2000 to 2019.
One reason for sluggish global growth, Georgieva said, is disappointing improvement in productivity. She said that countries had not found ways to most efficiently match workers and technology and that years of low interest rates — that only ended after inflation picked up in 2021 — had allowed “firms that were not competitive to stay afloat.”
She also cited in many countries an aging “labor force that doesn’t bring the dynamism” needed for faster economic growth.
The United States has been an exception to the weak productivity gains over the past year. Compared to Europe, Georgieva said, America makes it easier for businesses to bring innovations to the marketplace and has lower energy costs.
She said countries could help their economies by slashing bureaucratic red tape and getting more women into the job market.
Paul Wiseman, The Associated Press
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