Another Canadian company heads stateside

Yet another Canadian Internet enterprise has headed stateside.

Net Nanny Software International Inc. has moved its head office from Vancouver to Bellevue, Wash., where the organization said more venture capital is readily available, as is a lower tax rate and a larger skilled workforce.

Net Nanny specializes in Internet safety and computer security products. The company’s new headquarters will house all senior-level executives as well as the accounting, sales and marketing departments. Its research and development arm will remain in Vancouver, providing a total of 20 to 25 jobs.

Net Nanny president Gordon Ross said he had little choice but to move his company in order to remain competitive.

“It’s either go big or go home,” he said. “To expand to the next level and attract to this organization the type of senior level management we need…we could only find [those elements] down [in the U.S.]”

Prime Minister Jean Chretien at one time dismissed the much vaunted Canadian brain-drain of IT professionals to the U.S. as “a myth.” Ross said Chretien’s comments were nonsensical.

“The Prime Minister doesn’t understand how ludicrous that statement sounds,” the Vancouver native said. “For the leader of our country to make that kind of statement [indicates] a lack of understanding in the political market with regards to high-tech. There’s no support for (Internet) start-ups…a small, garage entity can’t raise the necessary capital and you have to turn to your friends. In high-tech, you just can’t wait four months for a grant to come through.”

Ross spoke from experience. When seeking funding for Net Nanny in 1993 he had to turn to the European market for funding because all the major Canadian markets rejected him.

“They were more interested in the ISP market (at the time). They weren’t looking ahead,” he said.

Could an exodus of Canadian-based IT firms to American soil be the next facet of Chretien’s mythical brain-drain? Ross said the possibility exists.

“Some will follow, some have preceded me, the access to funding is greater down here,” he remarked. “[Americans are] risk takers…it’s a different mindset, a different culture.”

Mike Bell, an industry analyst with Stamford, Conn.-based Gartner Group, said taxation is a major factor for Canadian firms who long to be on an even keel with their American cousins.

“There is an income tax differential of nearly 25 per cent (between Canada and the U.S.),” he said. “IT clustering is becoming hot (in the U.S.), there are clusters emerging in southern New York City, there’s been a huge resurgence in an old section outside of Boston. If you’re Nortel Networks or any large technology company, you need to grow your expansions in clusters not only in the U.S. but throughout the world.”

At first glance, it would appear Nortel has been quietly and gradually de-Canadianizing itself. Originally Northern Telecom, Nortel has been increasing its presence in the U.S. But Nortel spokesperson Jeff Ferry said the telecommunications giant’s business decisions are based on what the market dictates.

“We are not moving our operations to the United States,” Ferry said, while citing Nortel’s head office remains in Brampton, Ont. “We are a global company and on the whole we are expanding at about 20 per cent per year…for example, we’ve recently expanded to Israel.”

Ferry said he would not comment on Canadian social or political issues.

Bell warned Canada should reconsider its taxation policies or face losing companies like Nortel and Corel Corp. to the U.S.

“Canada has a good quality of life, but it’s not as competitive (on taxation),” Bell said. “It’s not only a problem for Canada, but also for Europe…however the Europeans are noticing the competition advantage is compromised by their social practices. Unless there’s another global recession, there’ll be (global) reform and it will behove Canada to reconsider its federal tax structure.”

Net Nanny’s Ross added he was disappointed the Canadian IT market continues to stagger rather than finding its legs and striving forward. Furthermore, he suggested less navel-gazing and more action might be the elixir the IT industry in Canada needs.

“As a nation, we have the technical expertise bar none,” he said. “We have to stop studying [the state of IT in Canada] and react. We study ourselves to death.”