Canada’s tech sector is at risk of losing market share to the United States as the government reduces operational spending, including IT infrastructure dollars, a new analyst report says.
A Forrester Research Inc. report, to be released Thursday, says the tech sector, whose biggest buyers are governments, is not keeping up with the greater economy. The report’s author and tech industry representatives say a sustained lag could have negative consequences on innovation in Canada and the wider economy. “That may well be due to perception that cutbacks at the government level will ripple through and impact the real economy,” said report author Andrew Bartels, a Forrester research analyst.
While Canada’s economy has outperformed the United States’, growing faster during 2011 and 2012, growth in the tech sector north of the border has paled in comparison, the report says.
“In the U.S. and in some other countries, we’re seeing tech markets growing at one and half times faster than the economy. And yet, in Canada, the tech market is growing at about half the rate of the economy. That’s the big story,” Mr. Bartels said.
A major factor is cutbacks in government spending on technology, the sector’s biggest market, Mr. Bartels noted.
He added that a cautious spending atmosphere could be sending tech entrepreneurs south, despite the government’s commitment to innovation in its recent budget. “Even if the actual numbers are there, the overall tone of austerity is causing people to think that those levels of support for the tech sector may get cut in the future as well,” Mr. Bartels said.
One tech analyst said Canada’s tech sector is continuing to lose innovators to Silicon Valley. “We all understand the need for fiscal prudence at a government level,” said Carmi Levy, an independent technology analyst based in London, Ont. “But, what you end up doing is you drive the next generation of leading innovators away.”
The tech sector is feeling the effects of RIM’s troubles, the report noted.
“Inherently, you’re seeing one of the issues in Canada is we don’t have a flagship anymore. So yes, that’s going to impact,” said Kevin Wennekes vice president of research for the Canadian Advanced Technology Alliance.
Mr. Bartels said the depletion of major Canadian companies could mean the tech needs of Canadian firms will be increasingly met by U.S. imports.
But the industry organization remains optimistic about future markets at home.
“We’re going to start to see some of the conditions that will allow for more favourable investment in IT nationally and at many different levels,” Mr. Wennekes said.
He pointed to the new public safety broadband network, for use by emergency response services, which is in the works and the “app-for-that” mentality that will spur demand in the next 12 to 18 months. “All the applications that will be developed, all the infrastructure that’s going to be required. We’re talking everything from nuts and bolts to huge data management needs to info and identity management, security needs.”