When it comes to global economic competitiveness, Canada hasn’t performed too well in recent years. This can be due to the fact that other economies are heavily investing in research and development (R&D) while Canada is doing the opposite.
In fact, when it comes to business commitment to innovation, Canada has steadily declined below the OECD median. It’s a strange phenomenon as tax incentives for R&D have been generous, but it has failed to encourage more activity.
If Canada continues to fall behind in the global science and technology race, it can have a serious negative impact on the economy and society as a whole. To turn this situation around, we need to develop a deliberate approach with sensible policy changes (the government needs to start modernizing current policies), strategy, and investment in small to medium size businesses.
Loosening Criteria for Tax Breaks Can Boost R&D
Modification to government policies, specifically the elimination of capital expenditure into scientific research projects five years ago was a major setback. It really needs to be amended to compensate higher allowance on salaries and other associated costs.
If the government expanded the scope of what it considers to be qualified R&D, it could possibly attract more activity. Furthermore, reducing or simplifying the amount of documentation that has to be processed can also give startups and other small businesses greater access.
As the global economy moves from commodities to technology, it will be vital for Canada to expand R&D programs to jumpstart innovation in the country. When there’s more innovation happening within the startup ecosystem and at an enterprise level, it will help the national economy grow from strength to strength.
Correlation between R&D Investment and Profit
Whenever there is a strong correlation between R&D investment and profit, you would expect businesses to go all out and invest all of their working capital into it. However, because of the uncertainty of successfully getting a return on investment, companies are generally averse to this idea.
But it doesn’t have to grind to a halt as Canadian businesses can approach this in a couple of different ways:
- Internal research
- Through research institutions
Internal R&D projects are all completely controlled by the company from start to finish. So the organization will be expected to conduct initial planning, exploratory research, and formulate the final report of findings.
The advantage of this approach is the fact that it will be much easier to control the focus and direction of the research project. It will also be easier to maintain the intellectual property and keep operations onshore.
The disadvantage of this approach is the fact that it will be heavily intensive when it comes to time and labor. Furthermore, it will be quite difficult to manage and hold on to a team of R&D specialists.
Research Institutions for R&D
Companies that lack expertise, equipment, or internal materials can still execute research and development projects through a qualified research institution. These can be organizations that are affiliated with universities that can provide resources and space to complete R&D projects.
The primary advantage here is the access to expert teams and resources. But the disadvantages are managing an external team and sharing intellectual property.
But either way, the government, and businesses together need to investigate R&D options and find some creative ways to improve activity within this space quickly. They should also promote internal and external R&D models enhance activity within this space.
If the country’s economy will continue to be tied to commodities, the future may not be so bright. Growth in Canadian R&D will lead to more jobs, more business activity, and will also place Canada in a stronger position in the global marketplace. So the time for action is right now!