OpenText’s big expansion helped by provincial funds

OpenText Corp. will spend $2 billion creating 1,200 new jobs in Ontario over the next seven years with the help of $120 million from the Ontario government.

Mark Barrenechea, CEO of the Waterloo, Ont.,-based company and Ontario Premier Kathleen Wynne made the announcement Friday. The 1,200 jobs — which will nearly double the company’s Canadian workforce — will include 30 per cent in research and development, while 10 per cent will be for people 29 years and under.

The new jobs will add to the corporate headquarters in Waterloo and the offices in Ottawa. Also, a new Customer Briefing Centre will be built in downtown Toronto and is expected to open this summer. Other OpenText offices across the province include Richmond Hill, Peterborough, and Kingston.

OpenText CEO Mark Barrenechea began his presentation by showing letters from governors of different states, including Ohio and Texas, asking him to bring OpenText operations to their backyard.

“We have choices in Texas, we have choices in California, we have choices around the world. But we’ve chosen to invest in Ontario,” he said.

Ontario is desirable because of the talent on offer and because of the investment made by the government.  Barrenechea said the jobs were “multiplier jobs” that would spur the creation of other jobs in Ontario.

That idea was also echoed by Wynne in her comments during the official announcement. Service jobs will be created to support the high tech jobs, she said.

“I believe its extremely critical right now in Ontario that we understand our strengths and play to our strengths,” Wynne says. “Tech is one of those strengths… having successful high-tech companies brings more high-tech companies and that brings more jobs to support those companies.”

The announcement comes one day after OpenText announced booming third quarter financial results ending March 31. It reported company revenue was up $442.8 million, a 31 per cent improvement over last year. The company’s growth came on the back of high-value licence deals and an increase in customer support services revenue.

With growth like that, the government has no business giving it money, says Ian Lee, an assistant professor at Carleton University’s Sprott School of Business.

“If the company is making money and very successful, then why on earth are you subsidizing it?” he says. “It’s almost as if they have a death wish to figure out what they shouldn’t be doing and then they go to it like a moth on a light bulb.”

Lee points to the Drummond Report, a report written by economist Don Drummond about how to reduce Ontario’s deficit released in February 2012. In the report, Drummond writes that business subsidies are not an efficient use of public resources and don’t raise living standards for citizens. It’s not enough to merely create or retain jobs because those jobs might have been created without government support, and an economic policy that is focused on job creation is often costly with few results to show, the report says.

On the other hand, Ontario may have felt pressure to woo OpenText (TSX: OTC) to invest in the province instead of a more tech-friendly locale such as Silicon Valley, says Chris Wynder, consulting analyst with London, Ont.-based Info-Tech Research Group. Although OpenText has a headquarters in Waterloo after being spun out of the University of Waterloo’s computer science and engineering programs, it is now embedded heavily into different offices in the U.S. and Europe. Without the cash, perhaps OpenText would have taken their new jobs elsewhere.

“Canada is not OpenText’s core market where they sell goods, their core market is the U.S. and the E.U.,” Wynder says. “I don’t think they would have done it without the pot being sweetened.”

For Ontario the prize is 1,200 jobs in the knowledge worker sector that are likely to be secure, backed by a growing software firm. It’s a salve that takes some of the sting out of the waning manufacturing sector that provided Ontario with many of its jobs throughout the ’80s and ’90s. But the devil is in the details, he acknowledges. It’s not clear how OpenText will spend the $2 billion its pledged towards the project.

This isn’t the first deal the Ontario government has done to create jobs in the high tech sector. It signed a 10-year agreement with Cisco Canada to create 1,700 jobs in the province in December 2013. That deal similarly saw the promise of investment in job creation by Cisco, to the tune of $4 billion by 2024. It also saw plans to build a new R&D centre in Ottawa, where the lion’s share of the new jobs would be based. Critics responded to that deal by pointing out Ottawa’s unemployment rate is lower than the rest of the province, and R&D jobs in the high tech sector are in demand across North America. Some also described the investment as subsidizing a foreign company in San Francisco-based Cisco.

For a government with a deficit, it should be focused on eliminating that and providing companies with the infrastructure they need to boost productivity, Lee says. Not handpicking companies to favour over other competitors.

“It tilts the playing field,” he says. “What they should be doing is focusing on the deterioration of the economy in Ontario.”

Ontario will withhold 30 per cent of its investment until OpenText meets its requirement to invest $2 billion of its own money and create the 1,200 jobs, says Eric Hoskins, Minister of Economic Development.

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Brian Jackson
Brian Jackson
Former editorial director of IT World Canada. Current research director at Info-Tech

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