Overall R&D spending is low and declining as the manufacturing sector shrinks, including in the communications equipment manufacturing sector, reflecting in part the bankruptcy of Nortel Networks

Canada’s information and communications technology sector is one of four leading groups in the country expending resources in industrial research and development, says a new study by leading academics.

However, drilling down into the figures also shows overall R&D spending is low and declining as the manufacturing sector shrinks, including in the communications equipment manufacturing sector, reflecting in part the bankruptcy of Nortel Networks.

Communications equipment makers scored well for getting patents and articles in scientific publications, Kathleen Sendall, chair of the Council of Canadian Academies’ panel on the state of industrial R&D said in an interview.

However, the group also showed a decline in R&D expenditures and economic output in last few years, whether that was in R&D growth between 2001 and 2012, or export growth.

But the figures also suggest that Canada’s high tech manufacturing sector is getting smaller.

(To download the full report click here)

The panel used a number of sources of data for creating its scoring, Sendall said, including Statistics Canada. However, StatsCan only publishes general sector numbers and not spending figures for individual companies.

But Sendall did note that Nortel’s worldwide R&D spending is available, and what it spent after going into bankruptcy protection in 2009 isn’t there any more.

She didn’t say it, but some of that spending here would have been picked up by companies such as wireless carrier equipment maker Ericsson, which bought Nortel divisions.

(SIDEBAR: Is there a link between R&D and innovation?)

Sendall is a member of several boards including Calgary-based energy provider Enmax Corp.

The council, which includes the Royal Society of Canada, the CanadianAcademy of Engineering and the CanadianAcademy of Health Sciences, researches issues to help governments create policies. The industrial R&D report was commissioned by Industry Canada to look into the state of IR&D.  Sendall the country’s private sector’s has a poor record of spending in this area compared to other industrial countries.

The panel confirmed what other studies have shown: Canadian businesses overall invest relatively little in R&D compared to other industrial countries.

RELATED CONTENT: OpenText chair Tom Jenkins headed a panel on R&D in 2011

The international academic panel of 14 she chaired included  a several economists, the CEO of the New   Brunswick research and productivity panel, the vice-president of technology at a Canadian steel mill and the retired vice-president of Xerox Canada’s research centre.

“IR&D is often the key to unlocking the door to a set of products that revolutionize the very way in which we live our lives,” says the report. “The returns on investments in IR&D can be high for the firms undertaking it, the economy at large, and the region in which the IR&D takes place.”

To judge the country’s standing, the panel created a series of indicators broadly split into three categories: the intensity of IR&D effort (measured by among other things IR&D spending as a share of gross domestic product), the impact (measured by number of patents approved and scientific articles published) and trends (IR&D growth over a number of years).

These were measured against a number of industries, including three ICT-related ones: communications equipment manufacturing, semiconductor and other electronic component manufacturing, and computer systems design and related services.

The good news is that the ICT sector is up there in IR&D with companies in the aerospace products, oil and gas extraction, and pharmaceuticals and medicince manufacturers.

But, Sendall said, “the devil is in the details” of those three sub-sectors. Computer systems and related companies (think of Celestica, OpenText, Microsoft Canada or IBM Canada)  ranked well across all indices, she said. But communications equipment manufacturing (which could include Ericsson Canada, DragonWave, Redline Communications, for example,) was among the sub-categories that showed declining R&D spending and economic output.

Sendall said the panel’s mandate was to find out the facts, not determine why some sectors were better than others.

She also noted that compared to the U.S., the intensity of Canadian ICT research and development — measured in dollars spent per unit of economic output — is about the same. But, she added, it’s important to note that our share of the high tech sector within manufacturing compared to the U.S. is smaller, and declining faster.

That is what causes a lot of the gap between the R&D intensity between the two countries, she said. “Contrary to popular belief that its because we have a big resource sector, that difference is largely driven by the fact that the high technology manufacturing sector in Canada occupies a smaller piece of the economy.”

In an interview John Reid,  CEO of the Canadian Advanced Technology Alliance, said the report didn’t highlight anything new for the ICT industry. Referring to the communications industry spending decline, he noted that software applications are becoming more important than hardware.

He also noted that the report found that the R&D work of a small firm can have a large impact with the introduction of the right technology at the right time.

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