Wednesday, May 31, 2006

Lessons from Waterloo

Not the Waterloo in Belgium, where Napoleon lost his final battle, but the Waterloo in Canada, where Research in Motion (maker of the Blackberry) won the wireless email war without much of a battle.

In many ways, Waterloo's history sounds like Pittsburgh's. It used to be the furniture capital of Canada, the shoe-making capital of Canada, and the rubber capital of Canada, but no longer. Many manufacturing plants in these industries are still in the process of closing, laying off thousands of workers.

But despite that, the economy there is booming. Why? Because it's become a center for innovation and entrepreneurship. At the core of that is the University of Waterloo, and the 250-300 companies that have been created from technologies developed there. The best-known of those companies is Research in Motion (RIM), whose founder, Michael Lazaridis, dropped out of the University of Waterloo in the 1980s just before graduation. He is now the Chancellor of that University, as well as the CEO of RIM.

Tom Jenkins, Chairman and Chief Strategy Officer for Open Text Corporation (a $400 million spin-off company from the University of Waterloo that is headquartered in Waterloo), was quoted in The Globe and Mail as saying that the reason companies are growing and thriving there is the "alchemy" in Waterloo -- the cooperation between business, government, and educational institutions. "There is an environment here where if you're an entrepreneur in this town, you're treated with great respect, and I mean from everybody," Jenkins said.

The University of Waterloo is clearly building strength in computer science. Last fall, Bill Gates, the founder of Microsoft, said that in most years, his company hires more graduates from the University of Waterloo than from any other university in the world.

Matthew Nemerson, the head of the Connecticut Technology Council, recently issued a report on a trip he made to Waterloo in May, titled "You won't believe what's happening in Waterloo!".

He notes that the University of Waterloo retains no ownership in any of the intellectual property developed by its faculty and staff. Instead, they encourage them to form businesses in the region.

The university is creating a 120 acre Research and Technology Park to accommodate new businesses and just opened a new 22,000 square foot incubator building there.

Nemerson reports that entrepreneurs who started their companies based on ideas from the University of Waterloo have raised money for a $95 million venture fund earmarked for Waterloo-based companies. He said that the provincial government is considering creating a $50 milion early stage seed fund administered by entrepreneurs.

Nemerson's "three take-away ideas" from Waterloo:
1. Build undeniably world-class academic departments;
2. Encourage a culture that revolves around successful entrepreneurs; and
3. Push government money out through well-trained [private sector] intermediary organizations, like tech councils.


Anonymous Anonymous said...

I know many people have strong (generally negative) opinions about UPMC, but it seems they have made a significant economic impact on the region. I also think they've been the impetus for marrying technology and health care and have gone a long way to developing a new industry for the region.

10:48 AM  
Anonymous Anonymous said...

As a resident of Waterloo, I'd like to add a little more 'realism' to the issue. The University is a huge vehicle of growth, however, much of that is wealth that has been created by the massive introduction of foreign students at the expense of Ontario students, whose dropout rate has skyrocketed, and who now attend post secondary education in fewer numbers per capita than our US neighbours.

Foreign students pay three to four times the tuition, something welcome to university chequebooks. It IS an EXTREMELY business friendly community-but most places are. The regional government just spent another fortune of taxpayers money to build a 'technology park', which so far still sits empty. At the same time local tax rates have skyrocketed.

Waterloo is home to two universities, one of which is essentially a private school, something new to Canada's previous ideology of cheap and plentiful post secondary education.

What is not mentioned is the fact that the region benefits overwhelmingly from the largesse of the federal government.

Federal R&D as well as protection of the auto sector to the southern ontario regime (need I add, to the detriment of all other regions), means that southern ontario is largely a 'federal protected industry area'.

Unlike the US, the federal government keeps a firm grip on the economies of the various regions. Southern Ontario benefitted when financial markets were 'opened up' early in Canada's history, this meant all the financial markets and banking were all regionalized to Southern Ontario and provinces (which is our term for 'states') saw much of their banking, insurance, investment companies centralized in south Ontario.

Note that only five banks control 90% of canadian capital, and only small credit unions provide local competition. Note also that while manufacturing, agriculture, and commodities were placed on the table for the free trade agreement, financial and cultural markets-those located in southern ontario, were not.

So most of the insurance, investment and banking money flows right into southern ontario. Waterloo is really part of Kitchener, long known as the insurance capital of the world. So the 'wealth' was already here, the new industries merely took advantage of them.

Keep in mind that RIM has millions in direct government investment, on a product which an american claims was stolen from him-and which numerous court judges in the US agreed. Fortunately in this case the aggrieved party was a small holding company who benefits from a settlement more than he would by putting RIM out of business.

The point here is that while the university and local government is business friendly-what area isn't? Although I don't live in Pittsburg I find it hard to believe that people who are going to be providing high end jobs aren't given special treatment. That would literally be the opposite of everything I've ever heard about the US.

So to 'duplicate' such a 'success' is FAR more complicated than it seems. Our new federal government is far more 'western based' and has said before he was simply going to cut out 'corporate welfare'. This would have a HUGE impact on the high tech industries here-and would be the end of the auto sector. One hopes he wasn't serious, but Waterloo, like most of southern ontario, benefits to an extraordinary degree from federal policies. That's something you can't expect in the US, but its definitely something to keep in mind.

Finally, personally, I don't particularly like living here. Taxes are high, while actual services are few,'entrepreneurs' don't get special treatment, unless you've got a nice sized pocketbook with you or government connections.

1:00 PM  
Anonymous Anonymous said...

PS The 'tech councils' are NOT private, they are largely run by the regional government and municipal governments. The biggest payouts for tech research comes through the federal branch of R&D.

The University of Waterloo's computer department is quite good, mostly due to its co-op program. The university benefits by 'selling' products from Microsoft to students. RIM and OpenText really were one time products that grew into huge industries, that is extremely difficult to replicate. In other words, it was 'the right product at the right time with the right people'. To duplicate that is almost impossible, or quite frankly, everybody would be doing it.

I definitely think attention should be paid to entrepreneurs, those with products. These people are typically ignored, government usually wants people who have 'instant' ideas for job creation, which usually doesn't help.

But before jumping on the academic bandwagon, you should be reminded that this Chancellor of the University was a university DROPOUT!

1:12 PM  
Blogger Harold D. Miller said...

Thanks for the native insights. There are always two sides to every story...

4:20 PM  

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