Could York Region become Canada’s next big tech hub?

Globe and Mail
February 17, 2014
By Samson Okalow

In the wake of BlackBerry Ltd.’s recent travails, which seem to threaten a replay of the end of Nortel Networks Corp., it's easy to overlook the fact that Canada still has a few cards to play.

Ottawa and Kitchener-Waterloo, Ont., have been home to some of Canada’s brightest stars, but little-recognized York Region may be taking a run at restoring some of the tech limelight to the country’s $155-billion industry.

This region of the Greater Toronto Area (GTA) recorded the most accelerated revenue growth among Canada’s seven tech hubs, at 23 per cent in 2012, vaulting it past Ottawa to No. 4, behind Toronto, Vancouver and Montreal. Data was compiled by Ottawa-based Branham Group, authors of the Branham annual rankingof the country’s top 250 information and communications technology (ICT) firms.

Statistics Canada data indicate ICT employs 9.2 per cent of York residents, leading all GTA regions. Observers chalk its success up to a number of factors.

Proximity to Toronto but with slightly lower taxes and more space.

Big anchor tenants such as IBM and CGI that serve to attract small businesses as suppliers and partners.

A high concentration of the talent these businesses need.

Relatively strong links to the growing east Asia market.

Increasingly active engagement between business, government and educational institutions.

York Region may finally be getting its due after toiling for years in the shadow of Toronto. But there’s a clear distinction between the two: Where Toronto is a hotbed of edgy startups in make it or break it mode, the average age of the York companies on Branham’s top 250 list is 21 years.

Andrew Bisson, a vice-president at Branham Group, characterizes York as a “mature region,” saying “it’s very much an enterprise solutions base for the ICT sector.”

Karna Gupta, head of the Information Technology Association of Canada, credits the region’s success to its diverse population and the way its nine municipalities, schools including York University and Seneca College, and incubator ventureLAB have made explicit efforts to work together. He likens it to a process that Kitchener-Waterloo went through with its Communitech business incubator.

“The conversation is now between the hospitals, the tech companies, the incubation guys, the angel investment and the corporate members and educational [institutions]. This platform really did not exist in the way it does today.”

When Jason Smith, president and CEO of Markham, Ont.-based Real Matters, launched the company in 2004, he turned for advice to a board member to figure out where to locate. The private, 230-person firm with revenue of $85-million is in the financial services software business and operates a cloud-based marketplace for the mortgage and insurance appraisal industry. Born and raised in Aurora, Ont., he jokingly says that proximity to home was one consideration, but what the research found was that Markham appeared to have the greatest depth - not simply in terms of a developer pool, but a certain kind of developer.

In Toronto, the company was finding mostly young, single people who were interested in being downtown and working on the latest mobile wizardry, rather than ‘boring’ financial services software. But people living in Markham were a different breed.

“They tend to be more mature,” says Mr. Smith, 39. “Maybe they’ve had their first child … and their focus is they don’t want to work on something that might be here today, gone tomorrow, may not have the robust funding, and may not have the disciplined team. Those developers are interested in working on big complex problems that are very sticky and very stable. So we were fascinated in our ability to find them here in this market.”

Over at Illumiti, a systems integration and management consulting firm with revenues of $67-million, COO Dror Orbach says being close to the airport, to customers and to Toronto’s various bedroom communities, such as Oakville and Hamilton, from which its employees hail was a significant factor in choosing York. But most important? “There’s also a large supply of qualified SAP consultants in this area and that’s what we need.”

It’s a theme echoed by a number of people, including Doug Lindeblom, director of economic strategy and tourism for York Region. “I think the No. 1 factor is the highly skilled work force in the ICT industry," he says. “There’s a very strong critical mass of ICT-related work force here. That’s the primary driver.”

Of course, it doesn’t hurt that taxes are a bit lower than in Toronto. According to York officials, the region boasts the lowest business tax in the GTA. It’s 2.19 per cent for industrial and 1.89 per cent for commercial, compared with 3.18 per cent for both in Toronto.

Nevertheless, no one is saying Canada’s various municipal governments are locked in potentially counterproductive competition with each other to attract ICT businesses.

Jeremy Laurin heads ventureLAB, the region’s equivalent to Communitech and other well-known incubators such as MaRS Discovery District in Toronto. A serial entrepreneur best known for Newdae Technologies, he says the incubators across Ontario don’t formally compete with each other. Characterizing it rather as “a friendly, competitive spirit,” he describes the goal of the regional innovation centres as doing “the best possible work for the province to make sure Ontario is recognized around the world as a meaningful place for investment attraction.”

That’s a state of affairs confirmed by David Wolfe, professor at the U of T’s Monk School of Global Affairs and author of several labour market studies looking at Canada’s ICT sector. He says the country's various tech hubs are complementary, with each tending to specialize or focus on particular areas (for example, Calgary is strong in wireless, owing to its original Novotel connection and now because of the oil and gas industry’s demand for geospatial technology). Companies then locate their operations “using different parts of the country to do different things.” (Dr. Wolfe is currently serving on a technical panel appointed by the Ontario Ministry of Finance to study business support programs.)

York isn’t without its challenges, although they are ones shared across the country. Primarily, Canadian companies tend to be quite small and, according to some, lack the scale to break into international markets. Among York’s top performers, median revenue for 2012 was a modest $18-million. Referencing the much debated “skills shortage,” ITAC’s Gupta says: “We don’t have enough senior management in the ICT sector. As a country we have not been able to produce or develop C-suite skills to grow and scale global companies in Canada.”

The end result, he adds, is companies that ultimately are obliged to either sell out to bigger foreign players or simply fold.

Branham’s Mr. Bisson touts York’s story but is more restrained when it comes to picking the next BlackBerry from its field. “Hard to say,” he muses. “It’s a long way to go for any of these firms.”

Despite the high-profile decline of BlackBerry, business people like Real Matters’ Mr. Smith remain bullish about Ontario’s – and by extension, York Region’s – prospects because of the work that has been done to attract business. From offices looking out on Highway 407, he says it’s not just about government wooing big players as it recently did with Cisco, but about all stakeholders working together to create an “ecosystem” that makes the province attractive. He says this is why he gets “a call a day” from U.S. private equity funds looking to invest in Canadian companies.

“They know that we’ve got this great ecosystem that’s building up here. The short of it regarding Cisco is that investment and the government helping is just bringing further spotlight on the market. And it’s going to encourage more people and capital to get into the sector, and more entrepreneurs to take a shot on building something given what we’ve got here.”