Occasional Paper

Convergent Technologies and the Alberta Advantage

Challenges, Opportunities and Threats

Stephen Murgatroyd, PhD

CEO, Innovation Expedition

Introduction

The future isn’t what it used to be.

As we look to 2025 and the future of Alberta some see continuing prosperity driven by oil and gas revenues – revenue for a hundred years. But the reality is different. It is likely that oil and gas revenues will decline as replacement fuels emerge and gas continues its supply decline. Systematic studies, including from the Alberta Energy Research Institute, point to issues about the continued supply of oil and gas and the price sensitivity for alternatives.

This paper presents evidence and materials from a variety of sources which suggest that there are issues we should discuss, there are opportunities for development and there are challenges to be dealt with. Doing nothing is not an option.

Many different sources are used here. They include the www.2020network.com site, which Mike Hollinshead, Perry Kinkaide and many others have contributed to; various government reports and sources and published work, freely available on the internet.

The basic thesis here is this:

• Oil and gas will not sustain Alberta’s economy after 2025
• A new industry sector – knowledge intensive of bio-nano-ICT-cognitive (BNIC) is needed so as to produce a more diverse economy.
• The BNIC industry sector is at an early stage (we review each element) and needs stimulus

We then ask you, the reader, to respond to a set of opportunities to indicate what action needs to be taken.

It is a challenging paper – it should get you worried, angry, interested, curious, irate. If there are errors here, we apologise – please help us get them fixed – if we are missing some key points, please let us have them. But don’t ignore the thesis. It should concern us all.

Section 1: Context

In this section we document the context for understanding the issues faced by the emerging knowledge based industries in Alberta. We provide both a global context and information about the commercial market.

We use the term BNIC industry or sector to refer to the knowledge intensive industries – biotechnology, nanotechnology, ICT and cognitive technologies, each of which we will look at briefly later.

But we begin with the big picture…

1. The hydrocarbon economy will change significantly and permanently during the period between now and 2025 and this change will negatively affect the basis of prosperity for Alberta and Canada. While we will garner significant wealth to the period 2018-2020, new developments in relation to new fuel sources, fuel cells and bio-fuels coupled with changes in market demand will change the fundamentals of the Alberta economy. Many of the changes will be driven by markets seeking lower price solutions to the rising price of oil and gas, as these commodities become scarcer and/or more expensive to end-users.
2. New sources of prosperity will be needed gradually over the period between now and 2025 to supplement and then replace a significant portion (up to 40%) of the hydrocarbon revenues on which the Province of Alberta currently depends. After 2025, there will be a need for the “new” Alberta economy to be robust and strong.
3. The demographic changes which Canada in general will face are considerable. These changes will put pressure on the Alberta government to increase expenditure on health care to above 50% of Provincial revenues, unless a significant change in the delivery of health care is made. They will also create a strong incentive to encourage immigration, speed knowledge and skill development amongst Alberta’s young people (especially aboriginal youth) and end mandatory retirement. These demographic changes will create social and political issues at the same time as the “old” Alberta economy is declining.
4. The time needed to create new sustainable and robust industries, while becoming faster, is between 15 and 25 years. While there have been many developments in the knowledge based industries in Alberta, we are basically some 3-5 years into the creation of a robust “new” knowledge based economy sector in Alberta.
5. The convergent technologies – biotechnology, nanotechnology, photonics, genomics, information technology and cognitive technologies – provide Alberta with an opportunity to identify niche positions in the emerging knowledge based industries. By doing so, Alberta could create a competitive advantage in the development of a convergent knowledge based industry sector.
6. All other jurisdictions are seeking to leverage these convergent technologies for their own competitive advantage. These include China, India, Brazil, Russia, the EU and the USA. All seek to leverage different characteristics evident in their economies and so as to gain a leadership role in the emerging market driven challenges which the convergent technologies are responding to. For example, the US Congress has allocated $1.46b for nanotechnology for 2006 and has developed a focused roadmap for this work.
7. As China, India and Brazil become both major growth markets for sales and major producing markets for technology, the dynamics of the market place will change. First mover advantage will be more effective than attempts at intellectual property protection and “policing” in these fast growing markets, especially as new inventions and developments will render patents redundant at a very fast rate – far faster than has been the case in the past.
8. The time is now to work through a systematic approach to the development of the knowledge based economy in Alberta if we are to ensure that the future economy and social systems of the Province are amongst the best in the world.
9. No new industry sector has ever been created without a specific role for government. This role generally includes: (a) increasing the supply of highly qualified, experienced and skilled personnel in the sector; (b) encouraging the retention of skilled and experienced managers; (c) creating tax and other conditions likely to attract and retain companies wishing to exploit local advantage; (d) using its own buying power to be a significant and yet demanding customer for the emerging industry; (e) investing in research and development; (f) encouraging the formation of clusters and industry associations which reflect the needed structure of the emerging industry.

Economic Conditions

1. Alberta has a GDP of app. $170billion. Energy revenues contribute 25% (app) of this amount – app. $42billion. Energy related revenue also contribute to app. 70% of the $66bn in exports from Alberta – app. $46b. Provincial Government revenues from energy sources in a full year are app. $10b. For 2025, we would expect the knowledge based industries to be replacing around 20% – 25% of these sums – e.g. have revenues of $10b – $12b and be making a contribution to Government revenues of app. $2b – $3b. Over time, these revenues would need to be around 40% of current oil revenues.
2. Non-renewable energy revenues flowing to the Alberta government are approaching historical highs in 2005/6 because of high international oil and natural gas prices, but these revenues are forecast to drop substantially. This is due to declining conventional gas production (which accounts for almost two-thirds of the total value of Alberta ‘s energy production) and to rapidly rising costs for replacing production with unconventional oil and gas supplies (including the oil sands).
3. Federal government “drag” on the Alberta economy is increasing annually on a per capita basis, and must be considered a serious risk in future economic decisions by the Province^[1]. Between 1961 and 2004 the average per capita transfer from Alberta to the Federal Government was $2,510 as compared to $758 for Ontario, $428 for BC and -$767 for Quebec. Each Alberta family of four is making a net annual contribution to other regions of Canada of about $14,000. This will continue to rise.
4. Amongst the 25 fastest growing companies in Alberta^[2] just two classified as “high tech” – Matrikon (providing technology solutions for a range of industries^[3]) and CSI Wireless (global wireless and GPS Solutions^[4]). Both have technologies which can be applied across a range of industry and market needs, rather than being a niche product dependent on the ebb and flows of a single industry sector. The combined revenues of these two companies is $125m. By 2025 the 25 fastest growing companies in Alberta should all be classified “high tech”

Nanotechnology

1. Nanotechnology is not an industry sector in its own right – it is an enabling technology for many other industry sectors^[5].
2. According to Lux Research, sales of products incorporating emerging nanotechnology will rise from less than 0.1% of global manufacturing output today to 15% in 2014, totalling $2.6 trillion. This value will approach the size of the information technology and telecom industries combined and will be 10 times larger than biotechnology revenues. However, sales of basic nano-materials like carbon nano-tubes and quantum dots will total only $13 billion in 2014: Nanotechnology’s economic impact will arise from how these fundamental building blocks are used, not from sales of the materials themselves^[6].
3. There is a growing and robust focus on nanotechnology development within the National Institute for Nanotechnology (NINT) and NINT is seeking to both co-ordinate and focus its work on a small number of key opportunities which are related to known commercial opportunities. That is, a significant part of the work of NINT is focused on market driven R&D.
4. The Government of Alberta will continue to support the capital and operational needs of NINT in partnership with the National Research Council, WD and others.
5. Systematic tracking of nanotechnology developments in other countries is taking place (see http://www.nanospace.org/new_page_86.htm and http://www.luxresearchinc.com/ ) so that Alberta researchers build a reputation for partnership and alliance building with others world wide with the aim of being first to market with key products and services.
6. There are growing international centres of excellence in nanotechnology in other countries. The United States leads the world in spending, research and patents in nanotechnology, but may lose its pre-eminent position to other countries who are fast approaching the level of investment in R&D in this field, including China.
7. Alberta intends to retain its position as home to Canada’s leading nanotechnology centre and will secure its success through commercialization, despite the development of other areas of nanotechnology in Canada.
8. Nanotechnology as an area of enterprise and expertise within Alberta, should be employing some 4,000 persons and have revenues in excess of $1b by 2015.

Bio Industry Sector

1. Global biotech revenues of public companies totaled $54.5 billion in 2004 ($46.6b in 2003). More than three quarters of this revenue continues to come from the US, with Europe contributing 16 per cent, Canada with 4 per cent and Asia -Pacific 3 per cent.
2. The continued dramatic overall recovery in the global biotech sector in 2004 (a 17 per cent revenue growth over 2003 which itself was a 17% increase over 2002) has been driven largely by product successes, new patents and approvals and a growth in agricultural sales.
3. The industry rebound since 2002 has been led by the US with a near 22 per cent increase in revenues of publicly traded companies, followed by Canada and Asia Pacific. Europe has reported a 10 per cent drop in revenues in 2003, but is now making a recovery.
4. The market for generic biotech products will increase over the next few years, as many products will be coming off patent. Asia-Pacific nations such as India and China are emerging as major players in the development of a global market for bio-generics. Both countries are positioned to take advantage of moves by Governments in the U.S. and Europe to create a regulatory framework for approving generic versions of successful protein drugs.
5. Canada has a robust biotechnology industry, with annual revenues in excess of $3.82b (2004)^[7], annual investment in R&D of $1.5b, close to 500 key companies and some 12,000 employees^[8]. Biotechnology companies have more than quadrupled their revenues since 1997, making biotech a fast growing sector of the Canadian economy.
6. Across Canada, large biotech companies, or those with at least 150 employees, represented only 13% of the 496 innovative biotech firms in 2003, but accounted for 64% of biotech revenues. Nearly three-quarters of all companies were small firms, that is, they had fewer than 50 employees. Medium-sized firms, those with between 50 and 149 employees accounted for 47% of spending on biotechnology research and development.
7. More than 70% of the innovative biotechnology firms were in only three provinces: Quebec, Ontario and British Columbia. These provinces continue to comprise the bulk of Canadian biotechnology activity, accounting for more than 80% of biotechnology revenues in 2003.
8. Alberta currently has over 100 companies in the biotechnology industry sector, with most (60%+) focused on bio-health related products and services. Direct employment in this sector is currently around 3,500 employees and it has an indirect impact on some additional 20,000 jobs. Total revenues for this sector in Alberta was $386m in 2004 and in this same year a total of $112m was invested in R&D^[9].
9. Alberta does not lead Canada in this sector and has much to do to build a robust industry, though there are significant developments which will support this: (a) the formation of an industry sector through BioAlberta; (b) the development of a roadmap for the future of the sector; and (c) recognition of the importance of this sector by Government.
10. For this sector to be significant by 2025, the sector would need to generate revenues that rival the average of the top ten largest companies headquartered in Alberta (app. $9b) and create employment for some 30,000+ persons.

Information & Communications Technologies

1. In 2004, Canadian ICT sector revenues were estimated at $136 billion, a significant recovery of 4.4% from 2003.
2. Totaling $26.4 billion, revenues in the ICT manufacturing sub-sector recovered for the first time since 2000, up by 3.3% from 2003. The largest increases were in shipments of wireless communications equipment (+33%) and electronic components (+6.6%). Shipments of wired communications equipment slightly recovered (+1.8%), while those of computer equipment continued to decline (-18.7%).
3. Revenues in the ICT wholesaling, rental and leasing sub-sector also recovered in 2004, up by 6.2% to $39.6 billion. Revenues of the ICT services sub-sector continued to grow in 2004, up by 3.8% to $70.0 billion. Revenues increased in all ICT services industries, with the largest growth in cable and other program distribution (+8.5%). Although relatively small, sales in the ISP and data processing industries grew by 6.1% and 5.6% respectively. In comparison, revenues increased by 3.3% in the software industry and by 2.5% in the computer systems design industry.
4. Alberta’s Information Technology Cluster employs more than 55,000  in over 3,500 companies and has surpassed the 10 year North American average for sector growth. Most Information Technology specialists work in software and systems design, scientific and technical consultation, data processing or specialized design services within Alberta’s key sectors: oil & gas, finance, retail, and wireless & telecommunications.
5. There are several major players in Alberta. Nortel’s world-wide headquarters for wireless research and development and manufacturing are located in Calgary, employing over 2,750 people. Other significant wireless companies include Wi-Lan and Cell-loc. Other examples of major information technology companies located in Alberta are: Matronik Inc, a leader in process control systems, CSI Wireless, a leader in geo-spatial systems and GPS, Smart Technologies, electronic whiteboards and “roomware,” ADC.com, a leader in customer care systems, Celcorp, an e-business solutions company, and the software company Intuit. Major energy-related software and services companies include: Merak, QCData, Hyprotech, and Applied Terravision.
6. While these companies provide a basis for further growth and development, there are also significant investments in R&D within Alberta both by these and other companies and by the Government of Alberta. In 2004/5 the Government of Alberta invested $350m in iCore and other significant projects are taking place at the four Universities and two Polytechnics within Alberta.
7. The industry, however, is fragmented and has many small companies – the average size of which is 6.5 employees.
8. The industry is experiencing consolidation and integration, with some of the leading companies of 2002-3 now being owned by majors headquartered outside of Alberta.
9. Key issues the industry sector faces are: (a) access to venture capital; (b) competition in key markets outside Canada for customers; (c) speed of R&D.
10. The sector has a positive outlook on the future and is growing^[10].
11. Today the sector produces $8.5B in revenue with $2.5B in exports. By 2013 this sector should be employment over 140,000 persons and experiencing continued growth, with revenues in excess of $30b.

Cognitive Technologies

(Expert systems, artificial intelligence, simulations based on human decision systems and singularity . While many see this area as a sub-set of ICT, it is a distinctive set of activities with unique characteristics, regulatory issues and investment needs. As a sector, it is vibrant and at the heart of many potential convergent developments^[11]. It is, like nanotechnology, a sector which will develop products and services for other sectors – an enabling technology. For example, future robotics will depend on developments in cognitive science as will enhancements of the semantic web or the next stages of the development of neural virtual reality^[12]).

1. The United States leads the world in nearly all aspects of AI technology, with over 60 percent of an estimated $12b global AI/Business Intelligence market (2002) and maintaining a 50% share through 2007, when global sales are expected to be $21b^[13].
2. An estimated 70-80 percent of the Fortune 500 companies use AI/BI technology to varying degrees.
3. New product developments in robotics, automated simultaneous translations, brain implants, bioinformatics, business intelligence using neural networks and semantic devices are all receiving angel and venture capital investment worldwide^[14]. There are also significant developments in e-learning which make use of AI and cognitive technologies^[15]
4. US sales of language translation software achieved $187m in 2004 and are growing at 35%.
5. Both at the University of Calgary and the University of Alberta^[16] there are strong research resources working in this field.
6. There appears to be no separate tracking of cognitive technology as a sector within the knowledge based industries in Canada or Alberta.

Section 2: The Challenges

We document here the challenges faced by these emerging industries as a sector of the Alberta economy. We make use of the challenges developed by the team working on the development of a Chamber of Technology for Alberta (see www.2020network.ca), since these have emerged from discussions with those from each of the sectors just reviewed^[17].

• Fragmentation. The lack of an evident constituency for early-stage, technology based start-ups or mid life companies. The separation of a convergent technology industry into niches – bio, nano, cognitive, ICT – and the creation of competition between these niches further fragments the development of the sector. Rivalry between Edmonton and Calgary and the lack of a clear sense of how innovation works both within the industry sector and within Government all add to this problem.
• Ignorance. Little appreciation of the development cycle and effort for commercializing technology amongst researchers and lack of understanding of the possibilities of BNIC technologies amongst investors.. There is also a great deal of ignorance about how other technology intensive players in other parts of the world – India, Brazil, China, US – are working and how they are getting first mover advantage in the marketplace.
• Mismatch. Alberta has two of North America’s finest research universities, yet we are a Province of only 3.5M–perhaps some humility is needed here — and some recognition that we have a way to go to develop the supportive infrastructure needed to create a strong and sustainable sector. There needs to be a strong sense of realism and less rhetoric in the way we think about our existing situation and what it will take to achieve outstanding results. For example, a key issue for the Universities in sustainability – nothing has changed in relation to this key concern.
• Transition. The next 10-15 years could be Alberta’s last kick at the hydrocarbon cat. As a Province, we currently depend on hydrocarbons to sustain our social infrastructure – are we able to replace this revenue with equally large revenues coming from methane, fuel cells and knowledge based industries? Do we know how to transition from one economic model to another?
• Lead Time. 2020 seems a long way away, but in terms of building a replacement for the hydrocarbon economy it is very close indeed. It will take five to ten years to put the soft infrastructure of policy and institutional supports in place and another five to ten to bring along a sufficient number of entrepreneurs, leaders, scientists and engineers capable of developing and running a post hydrocarbon economy. It will take that long to grow enough technology intense businesses that they can replace the hydrocarbon era businesses without a hiccup. Additionally, the substitution of fuel cells for internal combustion engines could happen much faster than people think and, because of the inelasticity of demand for oil and gas, this will cause energy prices to erode significantly by 2010. We may not have the financial resources after that to do anything serious enough to make a difference.
• Infrastructure. The lack of an infrastructure in Alberta to facilitate emerging enterprises – the perceived shortage of venture capital for the non oil and gas sector, access to global markets and the availability of skilled and experienced management and, only recently, evidence of the existence of networks and incubators for facilitating information/deal/capital flow. We need to strengthen investment in incubators (Tec Edmonton, NABI, CTI, and others) and focus on educational activities to unleash innovation if we are to be successful.
• Priorities. The lack of a distinction between the unique requirements of early-stage small and early-stage large enterprises vis-a-vis capital (angel vs. venture)and the attempt to “do everything”. Might we stand more chance if we focused on four to six things that Alberta intends to be a world leader, and make the play. These “things” wouldn’t be biotech or nanotech, for example, but would be solutions to problems that we know the world needs – using bio and nano technologies to clean polluted water (something Alberta needs for the oil sands and for agriculture, but the world needs too) and pushing hard on diabetes, where we already have a leadership role? We need market pull not technology push to drive investments and activity.
• Management. Graduates prepared to enter the corporate world with little preparation for early start-ups or for enduring the commercialization journey. The complaint from venture capital investors is that there are too few sound projects with proven management for them to invest in. We also need management to be more aware of the global context for the work of companies and of the global opportunities knowledge based industries have.
• Challenge – challenging the banks, credit unions and others to facilitate the transition of many existing companies into new ownership as demographics leads to major changes in who runs Alberta technology businesses. Challenge in focusing the sector on key activities that will lead to significant gains. Challenge to secure, develop and retain highly qualified people.
• Business. Chambers of Commerce have been developed around the need to maintain market share for the established rubber-tire, retail trades, but have little appreciation of the new economy or of technology dependent enterprises. We need to find new ways of doing business and new ways of networking.
• Marketing. Broad–including public–interest in the facets of technology and research, but little investment in marketing or distribution.
• Educating for creativity, leadership and convergence and an investment in lifelong education for entrepreneurs.

These are the challenges the emerging NBIC industry sector faces as it looks to replace oil and gas as drivers of the Alberta economy in 2020 and beyond.

3. Threats

In this section we look at the threats which could impact Alberta’s strategy for growth and development of the BNIC knowledge industry sector in Alberta and suggest that there are six major threats.

• 1. Other Jurisdictions First to Market
  2. Size and Sustainability of the R&D Effort in Albert
  3. Lack of Venture Capital and Related Management Issues
  4. Access to Markets
  5. Intellectual Property Issues
  6. Slow Cluster Development

Other Jurisdictions First to Market

Canada spends a lot investing in the front end of the R&D process – in University and public research institutions. The ratio of private : public spend on R&D in Canada is very poor (1.14:1 versus 3:1 in faster growing technology focused economies, such as the US and Finland^[18]) and we have a poor record at commercialization (only 34% of opportunities developed through R&D investments attract risk capital).

Economies with a higher level of deal flow, a stronger throughput of highly qualified people and managers and a strong market pull for R&D versus technology push are likely to be faster to market with products and services in the BNIC field.

Size and Sustainability of the R&D Effort in Alberta

Alberta is a small jurisdiction with just 3.5m people, four Universities (two of which are small and, while they each have a role in research, one is disconnected from the BNIC field except in relation to e-learning).

The benchmark performance of Alberta’s R&D system is weak, as the following table shows. While public investment in R&D is growing in Alberta through endowment contributions to a range of R&D funds, private investment is low. The danger here is that this pushes technologies to the market which the market is either not ready for or is unwilling to invest risk capital.

Private:Public R&D Ratio

(Target = 3:1)

Product Opportunities /$R&D

(Target = 0.51)

HQP

(Target = 10%)

Canada

Status

1.18 and falling

0.38 and rapidly falling

6.4 and rising moderately

Outlook

Poor

Poor

Fair

Alberta

Status

0.73 and falling

0.31 declining slightly

7.1 rising

Outlook

Very Poor

Low

Moderate

Table based on Cornford with Murgatroyd (2005 September) Analysis Is Innovation Working in Western Canada? (Western Economic Development, Mimeo)

A second and most significant issue here is the long term sustainability and viability of the post-secondary system in Alberta. While the Government of Alberta has increased slightly the resources it is making available to covering operating costs, these allocations do not meet the sustainability needs of the University sector, do not speak to the capital infrastructure liabilities of the Universities or to significant growth and expansion. As currently funded, the University system is unsustainable.

Lack of Venture Capital and Related Management Issues

A great deal of the energy of industry executives in the BNIC sector is given over to securing sustaining capital for their business. While there is a lot of capital available, much of it is being invested in Alberta’s established natural resource economy rather than the emerging economy. While efforts are now being made to organize angel and venture capital through both the Keiretsu Forum’s in Edmonton and Calgary and through other mechanisms, deal flow is poor for this sector. This is an especial problem for angel capital (less than $500,000 of funds and support through mentoring), which many early stage companies need to get them to the venture table.

One reason for this, is the nature of management in the BNIC sector in Canada generally versus other jurisdictions. A recent 2004 PCW Study suggests^[19]:

• 90% of emerging Canadian tech companies expect to be acquired by another company
• Only 35% expect to exit via an IPO
• US firms have, on average, more than 2x the number of people working in R&D (42 versus 20)
• Canadian companies are 50% owned by founders while in the US the % is closer to 15%
• In Canadian BNIC companies 75% are CEO’d by founders – in the US 40% but 65% of the US founders have substantial CEO Experience, far more than their Canadian counterparts.

Since investors make decisions primarily on the competence and experience of management, there is a problem here.

A third problem, given the strategy being pursued by many start ups, is that the companies quickly get bought out by US parents – mostly before an IPO. Thus, the opportunity for an investor to buy stock in a rising star before the buy out are limited to equity positions or angel roles. This reduces the pool of available resources and increases the reliance on major investors, such as labour funds.

Access to Markets

Most Canadian companies look to the US for their sales and marketing opportunities. The US is a complex, difficult and expensive market to penetrate. It is also the easiest to physically gain access to and the market with the most links and connections to Canada.

However, by 2025 the US will be one of four major global markets. China, India and Brazil will, according to Goldman Sachs^[20], provide substantial and fast growth opportunities. At the same time, these markets will grow significant competitors. For example, China committed substantial new resources in November 2005 to innovation^[21], especially in the converging technology sectors. The time to partner is now and the time to learn how to access these markets is now.

What concerns many companies is that they do not have effective sales and marketing personnel – several studies by ITAC have shown this. It may be time to consider the creation of a sector marketing company jointly owned by a range of knowledge based companies which works these emerging markets on a risk-return basis.

Intellectual Property Issues

Domestic applications for patent protections number around 12,000 each year; 28,000 trade marks are granted; app. 8,000 copyrights are recognized together with 2,900 industrial designs. Only the number and rate of trade mark applications is increasing. The TRIPS agreement (establishing WTO standards and permitting IP recognition within the WTO agreement for all countries signing up to TRIPS^[22]) sees Canada as a net exporter of IP

Most patents produce no net revenues. When then do produce revenue, it is usually for the last 3-5 years of their 20 year term. Return on investment for patented drugs, for example, is falling and many drugs brought to market lose money when revenues are set against all R&D costs. Successful drugs generally produce a 9% return after taxes^[23]. However, given increasingly stringent regulations and compliance requirements, this margin is falling while the cost of protecting a patent increases. Recent research suggests that 84% of the value derived from all patents filed since 1970 can be attributed to less than 10% of patents.

Patents now relate to both inventions in the classic sense (a new substance or physical entity) and to business processes. There are an increasing number of business-method patents that now haunt Internet space. Patent No. 5,715,314, for example, gives the holder a monopoly over “network-based sales systems” – we call that e-commerce. Patent No. 5,797,127 forms the basis for Priceline.com and effectively blocks any competitor. Patent No. 4,949,257 covers the purchase of software over a network.

To those of us connected to e-commerce development, it seems bizarre that the US Patent Office consider these ideas to be novel and non-obvious. But the real problem is the incentives such a system creates. Awarding patents of that type siphons off resources from technologists to lawyers – from people making real products to people applying for regulatory privilege and protection. An increasingly significant cost of technology startups involves both defensive and offensive “lawyering” – making sure you don’t “steal” someone else’s “idea” and quickly claiming as yours every “idea” you can describe in a patent application. It is getting silly (unless you happen to be a lawyer or someone producing lawyers).

Slow Cluster Development

A cluster, as defined by Porter (1990)^[24], is a geographic concentration of competing and cooperating companies, suppliers, service providers, and associated institutions. In such clusters, there is a frequent and strong interaction between many individuals and organizations, on both formal and informal levels. Science parks are an attempt to create clusters of like-minded individuals and organizations – and to provide them with their basic infrastructure needs. Other clusters, like Silicon Valley or the oil sands cluster in Alberta grew up over significant periods of time and evolved organically through the operation of market forces into the structures they now are. The ultimate cluster is the island of Singapore.

Key to cluster development are these factors:

1. The existence of strong, demanding customers who challenge the industry to provide solutions to real time problems that would help them be more successful as a business or organization.
2. The existence of a cadre and skilled and competent science and technology graduates with experience and familiarity with how companies work and perform.
3. A cadre of skilled, experienced and respected managers who have worked their way through various aspects of company formation and development and have a proven track record in producing return on investment for equity and share holders.
4. A cluster hub – professional body, network organization or industry association – which provides a central point for standard setting, encouraging collaboration and acting as a voice for the industry as if it were a constituency.
5. A critical mass of companies, ranging from the successful/stable to start-up that collaborates and competes in a spirit of co-opetition.
6. Industry infrastructure that supports R&D and market activities – transport, communications, marketing and financial services.
7. A pool of venture capital resources willing to make risk investments against a business plan presented by experienced managers.
8. A stable government regime which supports, through taxation and infrastructure support, a culture of innovation and enterprise.
9. Fast an efficient access to global markets.

While some of these conditions are emerging on Alberta, most are at an early stage of development for the BNIC industries.Your Suggestions

In this section we examine the choices which various kinds of organizations can make. We use the term “BINC” sector to cover the gamut of knowledge intensive industries which are associated with the emerging technology convergence. This section does not provide answers, but does pose questions for the future.

Government

Alan Cornford, working with Richard Lipsey and Stephen Murgatroyd, has developed the following classification of policy choices for Government in relation to innovation and the economy.

We can think of these choices in terms of three kinds of policy challenges. These are: (a) to stimulate the building of knowledge capital; (b) to stimulate the flow of HQP and to develop human capital; and (c) to encourage and enable risk capital investment. These three challenges need to be responded to with the intent of achieving best in class benchmark performance.

Each of these challenges requires different types and levels of response. To address these we consider three broad types of technology policy^[25] which may be described as follows: (a) framework policies – policies that provide broad encouragement through single instruments, for example – general tax incentives to increase private R&D; (b) blanket policies – policies aimed at a broad based single need – e.g. specific types of partnership investment for increasing the innovative capacity of SMEs; and (c) focused policies – policies aimed at a defined local need or aimed at addressing some specific issue or failure, e.g. specific incentives for pre-seed angel investment and technology demonstration in one or more sectors or clusters.

Policy Challenge	Policy Domain	Example Policy Choice
Building Knowledge Capital	Framework	Federal: SR&ED Tax Incentive for Private R&D Provincial” Policies to optimize SR&ED
	Blanket	Federal: IRAP /SME private co-investment Provincial: Compliment IRAP for target clusters
	Focused	Federal: Tax incentives for university / college R&D in public/ private R&D partnership Provincial: Tax incentives or matching funds for university/college R&D in sectors/clusters
Building Human Capital	Framework	Federal: HRD skills placement services and improved immigration hiring tax credits Provincial: Immigration hiring tax credits and Venture capital skills placement
	Blanket	Federal: Increased support for post secondary learning activities and for research scholarships Provincial: Tax incentives for S&T skills and technology management hiring by companies
	Focused	Federal: Selected investment in skills and workforce programs in targeted clusters Provincial: Targeted first job investments in post secondary S&T & technology management
Enabling Access to Venture Capital	Framework	Federal: Federal trade/promotion investments Provincial: Licensing/trade tax incentives
	Blanket	Federal: VCC tax credits for risk investment Provincial: VCC tax incentives based on provincial product opportunity yield
	Focused	Federal: First user risk reduction VCC tax credit Provincial: First user risk reduction by means of loans and/or Provincial tax credits

What combination of these policies (or others you wish to suggest) do you think would most encourage the development of:

1. Knowledge Capital
2. Human Capital
3. Venture Capital

What other action could Government take which would help the development of a robust and sustainable knowledge-based industry that leveraged convergence?

Industry

a. There are emerging structures for each of the industries mentioned here (bio and ITC for example). Are these structures performing the functions needed to build effective, sustainable industries for Alberta? Suggest what else needs to be done to improve their functioning ..

b. What can be done to promote effective convergence of the technology sectors?

c. Are the conditions for an effective cluster (see page XX above) existing in Alberta and if so what could be done to strengthen cluster development? If a condition is absent, then what needs to be done?

d. Are solutions to market driven problems emerging from the BNIC sector in Alberta? If not, what can be done to speed first to market for Alberta products and services from this sector?

Companies

a. What can individual small and medium enterprises do to support the growth of this knowledge based economy in Alberta?

b. What three things would help individual companies grow their business and remain Alberta based and Canadian owned?

Supply of Highly Qualified and Effective People (HQEP)

a. Are there sufficient skilled and qualified individuals available to work in the BINC sector in Alberta? If not, what can be done to improve the flow of HQEP?

b. Are there sufficient skilled, experienced managers able to take businesses to the level of performance needed to ensure sustainability, robustness and profit?

c. Are there sufficient opportunities for continuing and lifelong education available in Alberta to support the learning needs of BINC companies and research facilities?

d. Are there sufficient opportunities to sustain R&D within companies in the BINC sector in Alberta?

Financial Institutions

1. What can be done to help those willing to risk capital to understand the possibilities in the sector?
2. Can we strengthen the angel investor network for BINC in Alberta? If so, how?
3. What can major financial institutions do to help support the development of the BINC sector in Alberta?

Universities

1. What can Universities do to encourage and enable convergence in the teaching of students?
2. What can Universities do to encourage and enable convergence in their research activities?
3. How can we encourage better, stronger and more frequent collaboration between industry and the Universities in respect to BINC?
4. How can we encourage closer collaboration between the research Universities with respect to BINC?
5. How can Universities significantly increase the flow of S&T graduates into the Alberta economy?
6. What do Universities need to make them sustainable between now and 2025?
7. What role, if any, should Universities play in the commercialization of research?

Polytechnics

a. Alberta has two substantial technical institutes – SAIT and NAIT. What should their role be in relation to supporting the flow of HQP into the workforce?

b. What role should the Alberta polytechnics have in relation to research and development?

Infrastructure

a. Does Alberta need more business incubators and supports for start-up companies?

b. Are the technology infrastructure supports within Alberta – Supernet, iCore and the related R&D funds – appropriate or are more supports needed? If yes, what exactly would make the difference and why?

c. Do you see new roles for the Alberta Research Council, Alberta Science and Research Authority and other similar agencies in terms of their support for the emerging BNIC sector?

Pulling This Together

a. If you could change three things so as to stimulate the growth of the BNIC sector, what would they be and why?

b. What are the three major barriers for growth in the BNIC sector?

Thank you for your comments – the next page provides an end story for this document.

Conclusion

Imagine an Alberta which has a diversified economy – oil and gas continue to provide between 40 and 50% of our prosperity, agricultural has moved up the value chain and produces ethanol and other products required for energy as well as continuing to produce food and produce, with more value-added production and the BNIC industry sector contributed between 20% and 40% of the Province’s wealth.

Imagine an Alberta that has tackled the environmental issues associated with the natural resource sector, but is using technologies to “solve” the problems of greenhouse gas emissions and other pollutants.

Imagine an Alberta that continues to support a strong post-secondary education system – with two Universities amongst the top 20 in North America – and has a vibrant research community.

Imagine an Alberta that has a world class reputation for excellence in four specific areas which require the BNIC industries to collaborate and produce solutions for world-wide issues associated with water, energy, food and health.

That is the Alberta the future is likely to be.

The question is: what will it take for us to get there.

For a Province of just 3.5m persons, we are doing well. Let’s continue the journey.

With acknowledgements to all who have helped shape this paper.

Stephen Murgatroyd, PhD

CEO Innovation Expedition

1. See an analysis by Dr. Robert Mansell and Dr. Ron Schlenker (University of Calgary) at http://www.iseee.ca/whatsnew/media_room/nov18_2005.shtml ↑

2. See Alberta Venture’s Fastest Growing Companies in Alberta at http://www.albertaventure.com/files/fgc05_over.pdf ↑

3. See http://www.albertaventure.com/files/fgc05_over.pdf ↑

4. See http://www.csi-wireless.com/main/index.php ↑

5. See http://sev.prnewswire.com/computer-electronics/20041025/NYM11625102004-1.html ↑

6. The report is available immediately to clients of Lux Research’s Nanotechnology Strategies advisory service. For information on how to become a client, contact Rob Burns, VP of Sales at (646) 723-0708. ↑

7. See http://www.statcan.ca/Daily/English/041214/d041214d.htm ↑

8. Numbers rounded. ↑

9. Bio-Industry in Alberta. An Expanded State of the Industry Report for 2005, September. Mimeo produced by BioAlberta see http://www.bioalberta.com/ims/client/upload/FINAL%20-%20State%20of%20the%20Industry%20Report%2020051.pdf ↑

10. See http://www.infoport.ca/data/14/rec_docs/310_IT_survey.pdf ↑

11. See http://plato.stanford.edu/entries/cognitive-science/ ↑

12. For a guide to the resources available, see http://www.phys.uni.torun.pl/~duch/cognitive.html ↑

13. See http://www.gcn.com/vol1_no1/daily-updates/26338-1.html ↑

14. See http://www.aaai.org/AITopics/assets/AIalerts/alert.3.10.05.html ↑

15. See http://www.2020network.ca/index.php/E-learning_industry ↑

16. See http://www.bcp.psych.ualberta.ca/about/ for the Uof A and http://grouplab.cpsc.ucalgary.ca/ as examples of work at the UofC. ↑

17. Acknowledgements to Mike Hollinshead, Perry Kinkaidee, Wayne Karpoff, Al Gourley, Norm Greenfield, Ken Jurina, Steve Moran, Don Simpson and others. ↑

18. This assumes all are measured on the same basis. It is the case, however, that the US permits firms to include market research as an R&D cost which Canadian firms are not permitted to do. ↑

19. See report in Backbone, Nov/Dec 2005 at page 22 ↑

20. See their study of the Brazil, Russian, India, China and South Africa economies for 2050 at http://www.gs.com/insight/research/reports/99.pdf ↑

21. See account at http://murgatroydinnov8.blogspot.com/ under the heading Look Out, China is Coming! ↑

22. See http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm7_e.htm ↑

23. See http://www.dklevine.com/archive/refs4122247000000000461.pdf at page 17 ↑

24. Porter, M.E. (1990) The Competitive Advantage of Nations. Boston: Harvard University Press ↑

25. Lipsey R., Carlaw, K. and Becker: General Purpose Technology Policy in publication 2005. ↑