Canada is well situated to develop and export disruptive technology in many different industries, but especially in the natural resources sector. Canadian businesses have leading global roles in the mining, oil and gas, and forestry domains and Canada has a political and technological environment highly favourable for innovation. The natural resource sector’s market size, the technology export potential, and the dramatic forces changing the industry make it a very interesting target.
This article looks at Canada’s strengths and the factors shaping its environment in order to identify and evaluate innovation development and export opportunities. To tackle this goal, we start with two assumptions:
- Past results are a strong predictor of future results.
- Innovation tends to occur at the boundaries between industries and functions.
To identify innovation opportunities, we can look at industries in which Canada has had strong results in the past and find the boundaries where that particular industry’s needs intersect with those of other industries.
The Diverse Industries of Canada
Canada’s successful industries have been a reflection of the characteristics that describe the country. Canada is:
- resource rich with historically successful industries such as oil and gas, mining, forestry, hydropower, and agriculture.
- large and sparsely populated with a very challenging environment, leading to strengths in telecommunications networks and specialized transport such as marine systems and ATVs.
- located next to one of the largest economies in the world. Close ties to the US have driven the success of the manufacturing industry in Ontario. While the globalization of the supply chain has eroded some of this advantage, it is still strong.
- highly educated. A well developed, accessible higher education system has led to strength in pharmaceuticals (especially in Quebec and Manitoba), information technology, and many other engineering disciplines including nuclear power.
- highly stable, with a strong government and a strong central banking system that has led to a solid banking sector.
Innovation Occurs Where Industries Overlap
There is a real and significant connection between the success of an individual startup and its relationship to existing industry, including how it spans industry boundaries. Canadian examples of this include Corvus Energy, Kinaxis, and Miovision Technologies, all of which are now successfully exporting their technology around the world.
Corvus Energy, a Vancouver, British Columbia based company, provides energy storage solutions for marine transportation. Over the past 20 years, following the development of the hydrogen fuel cell by Ballard Power, Vancouver has become a research hub for energy-storage and hybrid-drive solutions, particularly in the automotive sector. Vancouver is also a major marine center with multiple shipyards and Canada’s Pacific Naval Fleet parked in nearby Victoria. Individuals with knowledge of both the energy storage and marine sectors recognized that many of the challenges in automotive energy storage, namely battery weight and hazardous spill response, were much less of a barrier when it comes marine systems. Corvus went on to develop the leading technology in lithium ion energy storage systems for marine transportation and are successfully exporting their technology to Norway and other countries.
Ottawa, Ontario is home to Kinaxis, a company that provides a cloud-based enterprise resource planning solution, competing with the likes of SAP and Oracle. Their story comes out of the overlap of expertise in computer-aided design and manufacturing in the Ottawa telecommunications cluster. Kinaxis is now the ERP solution for a large number of big-name clients including Cisco, Ford, and Lockheed Martin. Following their IPO in 2014, Kinaxis has had one of the most successful tech stocks in the market, weathering the tech downturn at the end of 2015 extremely well.
Miovision Technologies, from Kitchener, Ontario, provides a comprehensive traffic analysis solution including all-weather cameras, video-data collection, and automated traffic data analysis. This innovation was developed by a computer science student working for the city, counting cars and thinking there must be a better way to gather this crucial information. Traffic analysis met computer science at a time when cheap and effective video recording devices like GoPro were on the market. It is no coincidence that Miovision came out of the Kitchener-Waterloo area, which is home to one of the strongest innovation clusters in Canada. This cluster grew around the success of Blackberry and the University of Waterloo’s strong engineering programs. Miovision now claims 650 customers in 50 countries.
Innovation Opportunities Differ By Province
There is opportunity in many of Canada’s industries for disruptive innovation. If you ask local entrepreneurs and investors where the greatest opportunity lies, the answer will depend on where they do business due to each province having its own unique concentration of industries. For example, in Western Canada many believe the natural resource sector is ripe for disruption and that Canada is well situated to lead the way in this disruption.
The natural resource sector has been slower to innovate than many other industries due to its capital intensity and the volatility of commodity prices. A 2012 study by the Centre for the Study of Living Standards discusses this phenomenon.
“The natural resource sector is by nature capital-intensive. Enormous, expensive and immobile capital structures pose several obstacles to the innovative performance of firms, including increasing the risks associated with project success and whether an innovation will find its way into the market. Because capital goods require significant financing, there is a barrier for firms to adapt production to incorporate innovative practices. The opportunity cost of R&D initiatives in the natural resources sector is foregoing current production.
Because commodity prices tend to be volatile, natural resource firms have difficulty planning their future, and tend to be biased towards producing (as opposed to innovating) in periods where prices are high and hesitant to do anything when prices are low (for fear the trend continues).”
This paradigm is changing, especially with regard to the capital intensity of innovation. Technologies like the Internet of Things, drones, and high-speed scanners (and the IT infrastructure that supports them all) have the potential to make a big impact on the industry with far less investment than is traditionally required. Canada already has many entrepreneurs proving innovation can be done cheaply.
One such example is Minesense, a Vancouver company that places high-speed, real-time sensor technology throughout the ore extraction chain to divert waste ore before it gets to the mill. This solution can be as simple as putting a scanner on a shovel to tell the operator the composition of the ore they are picking up. By being more selective about what gets processed, a mine can improve their margins by 20% or more. Until recently, processing the data from multiple sensors in real-time and providing immediate, actionable data to operators would have been difficult and extremely expensive. Advances in sensor miniaturization and computer processing power have made solutions such as this far more affordable and can potentially disrupt an industry as challenging as mining.
Commodity prices are sure to continue being volatile, but the decreasing effectiveness of organizations like OPEC and the breakup of others like the Russian/Belarussian Potash cartel is increasing competitive pressure in the natural resource sector, which is driving the pressure to innovate.
Furthermore, external forces that have always driven innovation in the natural resource industry are getting stronger. Looking at environmental and political forces, jurisdictions around the world are solidifying their policy frameworks to reduce greenhouse gas emissions. The world seems to be at a tipping point on this issue and the natural resource industry has the greatest exposure to it. Regional industries that have cost-certainty on this issue through clear policies and carbon-pricing schemes are the ones that are best situated to innovate to adapt to it. Canada is particularly well situated on this issue as its four most populous provinces have all implemented clear carbon-pricing policies.
Canada’s Natural Resource Sector Can Lead Innovation Globally
The natural resource sector is not the only one in Canada with great potential for disruptive innovation, but given the size of the market, the technology export potential, and the dramatic forces changing the industry, it is a very enticing target.
Canada is well situated to develop and export disruptive technology in this sector given its leading role in the global mining, oil and gas, and forestry industries, as well as its favourable political and technological environment. Over the coming weeks, we will continue to explore opportunities across other sectors.
