Why the American tech industry is innovating in Canada
At a time when foreign direct investment flow into developed economies plummeted by 40 percent, investors went all in on Canada in 2018, intensifying their investment in the country by 70 percent. In fact, when Amazon announced it would be dividing its HQ2 pie into numerous slices, its further expansion into Vancouver became the largest foreign direct investment (FDI) in tech in Canadian history.
IBM and Microsoft have both also crossed the border from America into Canada, joining the 41,500 tech companies that have taken root in cosmopolitan cities such as Toronto and Vancouver. In Toronto alone, the number of tech jobs increased by 50 percent between 2012 and 2017, adding 82,100 jobs to the city; that’s more than any other city in North America. Not to be forgotten are the new tech jobs in cities across the country, like Montreal, Ottawa, Halifax, Victoria, Edmonton, Calgary and Winnipeg.
So, what’s the big draw? If you’re not sure how Canada became a high-tech utopia seemingly overnight, you’re not alone. For many, the details of Canada’s differentiators in economic opportunity and security remain unclear. We’ll unpack the most salient of them here.
The most educated workforce in the world
In part, Canada has its marquee federal immigration program to thank for its recent tech-brain gains. The fast-track visa offered to tech workers through the Global Skills Strategy has attracted about 24,000 highly skilled employees since coming into effect two years ago. Each of these employees was welcomed into Canada in as little as two weeks. In comparison, in the U.S., denials for H-1B visas rose from 6 percent in 2015 to 24 percent in 2019.
Technology companies are following the rush of talent to Canada for good reason: it’s home to the most educated people in the world, with more than 55 percent of Canadians having graduated from post-secondary institutions. Add to that its increasingly large and diverse international talent base and its wealth of both the development and managerial-level talent that companies today need. Tech companies in Canada also enjoy high-quality talent at a low cost—the average tech salary in Toronto is $100,000 (U.S.) annually, as opposed to $145,000 in San Francisco.
Where startups succeed, major players follow
The success of many of Canada’s smaller, scalable technology companies has intrigued iconic American tech multinationals such as Facebook, Google and Twitter, all of which have established offices in Canada. Pinterest, Uber and Instacart have also joined homegrown tech companies like Element AI, FreshBooks, Hootsuite, Shopify, Wattpad and Wealthsimple up north.
Two powerful programs in particular are helping globally competitive companies innovate and collaborate in Canada.
Rolled out by the federal government in 2018, the Innovation Superclusters program will be responsible for creating 50,000 jobs in five areas: digital technology (in British Columbia), protein industries (in the Prairie provinces), advanced manufacturing (in Ontario), AI (in Quebec) and ocean (in Atlantic Canada). These clusters are co-funded by the government, academia and nonprofits, and matched dollar for dollar by businesses of all sizes across the private sector. Top names like Microsoft, Deloitte and Boeing have signed on as members of the digital technology Supercluster, with Microsoft’s CEO citing the program as an opportunity for its Canadian businesses to accelerate growth.
Another program that demonstrates Canada’s collaborative ecosystem approach to feeding innovation is its Creative Destruction Lab, which supports massively scalable, science-based companies in Calgary, Halifax, Montreal, Toronto and Vancouver. Within this exciting seed-stage program, entrepreneurs and angel investors provide early-stage companies with mentorship and opportunities to raise capital. Already, the program has yielded 72 Canadian A.I. startups.
Accessible government funds for innovation and expansion
Though Canada is celebrated for ranking No. 1 in quality of life, nothing is as compelling to companies making location-based decisions as the financial support accessible to them in Canada.
The Scientific Research and Experimental Development (SR&ED) tax credit represents the most powerful financial tool in Canada’s toolbox. Available to companies of all sizes and in all industries, SR&ED provides money for R&D activities that support the creation of new technologies or the improvement of existing technologies. Through it, 20,000 claimants annually take advantage of more than $3 billion in tax incentives.
Companies incorporated in Canada can also harness the Strategic Innovation Fund, for large projects requiring funding of $10 million or more. Open to all industries and sectors, it can be used for R&D, growing or expanding a firm into Canada, attracting or retaining large-scale investments to the country or advancing collaboration between academia, nonprofit organizations and the private sector.
Many provinces also offer complimentary programs, so that businesses enjoy support from all three levels of government.
Despite these and many other incentives, some American investors still harbor misconceptions that Canada is expensive to do business in. Or that it represents a far-off, North Pole-esque destination. If that’s you, you’re missing out. And in the meantime, your counterparts are busy taking advantage of Canada’s claim on the lowest business costs in the G7, its robust innovation ecosystem, highly skilled and affordable talent base and global trade footprint. Today, 14 trade deals give Canada access to 51 countries and 1.5 billion consumers.
Canada’s got game, and can help you reduce your risk, make money and access innovation. Invest in Canada exists to make it easier for your business to expand in Canada and to connect you with the right people in the right places across the country. We invite you to get connected with us and start expanding today: https://www.investcanada.ca/contact.