MRA Market Research Associates Ltd. P.O. Box 34097 Scotia Square Halifax, NS Canada, B3J 3S1 Tel: (902) 425-1320 Fax: (902) 425-1325 E-mail: [email protected] Website: www.MarketResearchAssociates.com

30 March 2011 Gilles Gaudet, C.I.T.P. Manager, Atlantic Business Initiatives Atlantic Canada Opportunities Agency P. O. Box 6051 644 Main Street Moncton NB, E1C 9J8 Dear Mr. Gaudet, Re: Strategic Review of Promising Sectors I am pleased to provide our final report for the Strategic Review of Promising Sectors. I believe the project uncovered quality, meaningful information and the consulting team is confident that our findings can make a significant contribution to the goals of the Agency and its IBDA partners. I would be pleased to elaborate on any aspect of this report at your convenience. Thank you once again for the opportunity of working on this very timely and interesting project. Yours sincerely,

Robin W. Rodger, MBA, CMC President, Market Research Associates Ltd.

TABLE OF CONTENTS EXECUTIVE SUMMARY 1.0 INTRODUCTION .................................................................................................................. 1 2.0 INFORMATION & COMMUNICATION TECHNOLOGY (ICT) ............................................. 6 INTRODUCTION............................................................................................................. 6 SECTOR DEFINITION .................................................................................................... 6 GLOBAL PERSPECTIVE................................................................................................ 8 CLUSTERS ..................................................................................................................... 8 EMERGING TRENDS ..................................................................................................... 9 Markets...................................................................................................................... 9 Subsectors ................................................................................................................ 10 CANADIAN PERSPECTIVE............................................................................................ 10 Challenges and Issues .............................................................................................. 10 ATLANTIC PERSPECTIVE............................................................................................. 12 RECENT SECTOR PERFORMANCE (EXPORTS) ........................................................ 14 SUPPORTING GROWTH INFRASTRUCTURE ............................................................. 20 SWOT ANALYSIS (Industry View) .................................................................................. 21 SECTOR ASSESSMENT................................................................................................ 23 SUBSECTOR SUMMARY............................................................................................... 23 IMPLICATIONS FOR TRADE DEVELOPMENT SUPPORT........................................... 24

3.0 CLEAN TECHNOLOGIES (Clean Tech) ............................................................................. 29 INTRODUCTION............................................................................................................. 29 SECTOR DEFINITION .................................................................................................... 29 GLOBAL PERSPECTIVE................................................................................................ 30 Clusters ..................................................................................................................... 35 EMERGING TRENDS ..................................................................................................... 36 CANADIAN PERSPECTIVE............................................................................................ 37 ATLANTIC PERSPECTIVE............................................................................................. 39 Ramea Island - Wind-Hydrogen-Diesel Energy Project ............................................ 41 Wind Hydrogen Village – Prince Edward Island ........................................................ 41 Fundy Tidal Energy Test Centre................................................................................ 43 Electricity Load Control Demonstration Project............................................................... 43 SUPPORTING GROWTH INFRASTRUCTURE ............................................................. 44 SWOT ANALYSIS (Industry View) .................................................................................. 47 SECTOR ASSESSMENT................................................................................................ 49 IMPLICATIONS FOR TRADE DEVELOPMENT SUPPORT........................................... 50

4.0 OCEAN TECHNOLOGIES SECTOR (Ocean Tech)............................................................ 53 INTRODUCTION............................................................................................................. 53 SECTOR DEFINITION .................................................................................................... 53 SECTOR PROFILE ......................................................................................................... 54 Export Activity............................................................................................................ 55 SUBSECTOR PROFILE.................................................................................................. 56 KEY SECTOR DRIVERS ................................................................................................ 57 GLOBAL PERSPECTIVE................................................................................................ 58 ATLANTIC PERSPECTIVE............................................................................................. 58 SUBSECTOR OPPORTUNITIES.................................................................................... 59 CLUSTER STRENGTH................................................................................................... 60 INDUSTRY LEADERS .................................................................................................... 60 SWOT ANALYSIS (Industry View) .................................................................................. 61 SECTOR ASSESSMENT................................................................................................ 63 SECTOR SUMMARY ...................................................................................................... 63 INDUSTRY STRUCTURE............................................................................................... 64 IMPLICATIONS FOR TRADE ......................................................................................... 65 5.0 AEROSPACE & DEFENCE (A&D) SECTOR ...................................................................... 67 INTRODUCTION............................................................................................................. 67 SECTOR IDENTIFICATION............................................................................................ 67 SUBSECTORS................................................................................................................ 68 AEROSPACE AND DEFENCE GLOBAL TRENDS ........................................................ 70 AEROSPACE AND DEFENCE NATIONAL TRENDS .................................................... 71 AEROSPACE AND DEFENCE ATLANTIC PERSPECTIVE........................................... 73 CLUSTER STRENGTH................................................................................................... 73 SECTOR PERFORMANCE ............................................................................................ 74 Training and Research Support ................................................................................ 75 INDUSTRY VIEW OF GLOBAL SITUATION .................................................................. 76 REGIONAL / COMPANY PERSPECTIVE ...................................................................... 77 INDUSTRY LEADERS .................................................................................................... 78 SUBSECTORS................................................................................................................ 79 SWOT ANALYSIS (Industry View) ................................................................................. 79 SECTOR ASSESSMENT................................................................................................ 81 SECTOR SUMMARY ...................................................................................................... 81

6.0 LIFE SCIENCES ................................................................................................................... 83 INTRODUCTION............................................................................................................. 83 SECTOR DEFINITION .................................................................................................... 83 Subsectors ................................................................................................................ 84 GLOBAL PERSPECTIVE................................................................................................ 85 Pharmaceuticals ........................................................................................................ 85 Biotechnology ............................................................................................................ 86 Medical Devices and Diagnostics.............................................................................. 87 CANADIAN PERSPECTIVE............................................................................................ 88 ATLANTIC PERSPECTIVE............................................................................................. 89 Provincial Clusters..................................................................................................... 89 SWOT ANALYSIS (Industry View) .................................................................................. 94 SECTOR ASSESSMENT................................................................................................ 97 SECTOR SUMMARY ...................................................................................................... 97 IMPLICATIONS FOR TRADE DEVELOPMENT SUPPORT........................................... 103 7.0 AGRICULTURE AND AGRI-FOOD...................................................................................... 108 INTRODUCTION............................................................................................................. 108 SECTOR DEFINITION .................................................................................................... 109 GLOBAL PERSPECTIVE................................................................................................ 109 CANADIAN PERSPECTIVE............................................................................................ 110 ATLANTIC PERSPECTIVE............................................................................................. 111 Sector Characteristics ............................................................................................... 111 Atlantic Agri-Businesses............................................................................................ 112 Recent Sector Performance ...................................................................................... 113 Supporting Growth Infrastructure .............................................................................. 114 SWOT ANALYSIS (Industry View) .................................................................................. 114 SECTOR ASSESSMENT................................................................................................ 116 SECTOR SUMMARY ...................................................................................................... 117 IMPLICATIONS FOR TRADE DEVELOPMENT SUPPORT........................................... 118 8.0 FISHERIES AND AQUACULTURE...................................................................................... 120 INTRODUCTION............................................................................................................. 120 SECTOR IDENTIFICATION............................................................................................ 120 GLOBAL PERSPECTIVE................................................................................................ 120 ATLANTIC PERSPECTIVE............................................................................................. 121 ISSUES AND CHALLENGES ......................................................................................... 124 SUPPORTING GROWTH INFRASTRUCTURE ............................................................. 125 RESEARCH AND TRAINING OVERVIEW ..................................................................... 126 SWOT ANALYSIS (Industry View) .................................................................................. 127 SECTOR ASSESSMENT................................................................................................ 129 SECTOR SUMMARY ...................................................................................................... 129 IMPLICATIONS FOR TRADE DEVELOPMENT SUPPORT........................................... 130 MARKET OPPORTUNITIES ANALYSIS ........................................................................ 131

TABLES Major Atlantic Canada Export Categories ................................................................................... 5 ICT: Examples of Successful Regional Firms ............................................................................. 13 ICT: Examples of Rising Stars .................................................................................................... 14 ICT: Canada Exports of ICT Goods, ($ Mil) ................................................................................ 15 ICT: Canada Exports of ICT Services, ($ Mil) ............................................................................. 15 ICT: Atlantic Canada: ICT Goods Exports, 2005-2009 ............................................................... 17 ICT: Examples of Capabilities and Expertise .............................................................................. 20 ICT: Universities and Colleges.................................................................................................... 20 ICT: Research Centres and Support Facilities............................................................................ 20 ICT: KEY SECTOR ATTRIBUTES: Information & Communication Technologies ...................... 23 Cleantech Industry Segments as defined by the Cleantech Group ............................................ 29 Examples of Companies Active in Clean Technologies.............................................................. 45 KEY SECTOR ATTRIBUTES: Clean Technology....................................................................... 49 KEY SECTOR ATTRIBUTES: Ocean Technology ..................................................................... 63 Canadian Aerospace and Defence Overview by Industrial Sector, 2007 ................................... 67 Aerospace Product and Parts Manufacturing – Number of Establishments, 2009 ..................... 73 KEY SECTOR ATTRIBUTES: Aerospace and Defence ............................................................. 81 Atlantic Provinces: Private Sector Activity – Life Sciences ......................................................... 89 KEY SECTOR ATTRIBUTES: Life Sciences .............................................................................. 97 Number and Size of Farms in Atlantic Canada: 1956-2006........................................................ 112 Atlantic Canada Agri-food Industry: Key Indicators..................................................................... 114 KEY SECTOR ATTRIBUTES: Agriculture and Agri-foods .......................................................... 116 KEY SECTOR ATTRIBUTES: Fisheries and Aquaculture - Fish and Shellfish .......................... 129 CHARTS Top Atlantic Canada Exports ...................................................................................................... 5 Canada: ICT Exports by Products and Services Group, 2009.................................................... 16 Canada: Regional Share of Exports of ICT Goods, 2008 ........................................................... 16 Total Atlantic Canada ICT Goods Exports .................................................................................. 18 Atlantic Canada: ICT Goods Exports, 2009 ................................................................................ 18 Exports of Telephone Apparatus and Markets............................................................................ 19 Exports of Broadcasting Equipment and Markets ....................................................................... 19 Exports of Misc. Communications Equipment and Markets........................................................ 19 Worldwide Total Energy Consumption 2009............................................................................... 30 Worldwide Renewable Energy 2009 ........................................................................................... 30 Worldwide Windpower Installed Capacity Percent by Top Countries -2010 ............................... 31 New Energy Global Innovation Index.......................................................................................... 34 Electric Power Exports ................................................................................................................ 40 Atlantic Canada Ocean Tech Suppliers by Ocean Industries Sector.......................................... 54 Navigational & Guidance Instrument Exports and Market .......................................................... 55

Boiler, Tank and Shipping Container Mfg Exports and Markets ................................................. 56 Size (%) of Aerospace Subsectors ............................................................................................. 71 Aerospace Manufacturing Exports and Markets ......................................................................... 74 Pharmaceutical & Medical Markets, 2010................................................................................... 100 Medical Equip. & Supplies Market, 2010 .................................................................................... 100 Evolution of Primary Agriculture in Canada ................................................................................ 108 Canadian Food Exports .............................................................................................................. 110 Farm Cash Reciepts ................................................................................................................... 111 Atlantic Canada Food Exports .................................................................................................... 111 Atlantic Canada Agriculture Exports ........................................................................................... 112 Major Species in Atlantic Fisheries ............................................................................................. 121 Atlantic Aquaculture-2009 ........................................................................................................... 122 Atlantic Canada Seafood Exports ............................................................................................... 123 Value-Added Seafood Exports.................................................................................................... 123

APPENDICES Appendix 1 – Interview Guide ..................................................................................................... 133 Appendix 2 – Individuals Interviewed.......................................................................................... 134 Appendix 3 – ICT Subsector Case Studies ................................................................................ 135

Executive Summary This report presents a strategic review of promising sectors in Atlantic Canada, based on interviews with almost 100 key personnel from seven sectors in all four Atlantic Provinces. The resulting information is diverse and is not easily summarized. A sample of information by sector is provided below, but for more detailed information, each sector must be read on its own accord. The reader is also encouraged to review the Introduction Section of the report for general observations that provide a context for a better understanding of the findings.

Sample Sectoral Observations Ocean Technologies: ⋅ Very positive expectations among stakeholders about future sector potential worldwide and within region (all 4 provinces) ⋅ Interesting crossover opportunities with simulations and gaming industry ⋅ Good potential in various subsectors, including: ocean energy, ocean science, ocean observation, environmental monitoring and marine security ⋅ Offshore oil and gas development using Norway as an export model; also significant growth in subsea area (e.g., UAV’s require multi-sector inputs and have cross-over markets potential) Aerospace & Defence: ⋅ Cautious optimism about expansion and growth worldwide; positive but somewhat less within region ⋅ The US still seen as a very important market, but with emerging opportunities in Asia, Brazil and the Middle East; the Arctic will play a much greater role as time goes on ⋅ Excellent niche opportunities in unmanned aerial vehicles (UAV’s), simulator training, small jet development and composites Information and Communications Technologies: ⋅ Demand for ICT is expected to grow, as technology permeates all aspects of business and consumer goods and services; driven by social media, cloud computing, business efficiency needs, cost reduction and similar trends ⋅ There is convergence of ICT and clean technology; as in other sectors that are technology driven ⋅ Growth areas - miniaturization, portability, mobile technology, on-line gaming applications, biometrics, smart technology ⋅ EHealth is identified as a major opportunity field in the Region. ⋅ A shortage of skilled technical resources is the greatest challenge across the region, along with lack of venture capital, some sales and marketing shortfalls, and the small size and niche markets of most companies

Agri-food and Fisheries: ⋅ Of the group, by far the sector with longest history, trading heritage and business lineage ⋅ Also perhaps the sector most characterized by structural change and emerging opportunities ⋅ Exporters now face a strategic growth/risk dilemma: go big by entering the supply chains of large retailers or stay small and capitalize on higher margin niches ⋅ Trade demands are forcing consolidations in fish processing and supply chains; new processing technology seen necessary to counter low productivity and diminished labour force. ⋅ Aquaculture is major growth area Life Sciences: ⋅ Growing demand across all subsectors; promising long term outlook; many inherent advantages ⋅ The Atlantic region has good infrastructure and an innovative group of companies, albeit comparatively small and somewhat unevenly distributed ⋅ High stakes and the cost to commercialize are the most difficult hurdles; Atlantic SME’s in the sector are often most restricted by financing constraints (especially pharmaceuticals) Clean Technologies: ⋅ One of the regions greatest assets is its diverse mix of energy types and sources - oil, natural gas, hydro, coal, wind, nuclear, and potentially tidal - both for its own needs and for export ⋅ Increasing emphasis on renewable and clean energy will continue to drive innovation in the industry sectors and sub-sectors, and companies in the region are responding to this with an innovative mix of products and services aimed at niche markets ⋅ The policy and regulatory environment are key enablers in terms of market demand and uptake for clean technologies as evidenced by growth in jurisdictions that are recognized to be leaders

1.0 INTRODUCTION AND PROJECT OVERVIEW PROJECT BACKGROUND The project and RFP to conduct A Strategic Review of Promising Sectors originated from the IBDA Management Committee (ACOA Solicitation No. CP18541) issued on August 31, 2010, and subsequently approved on October 7, 2010. The principal objective of the project was to “… provide the IBDA Management Committee with a concise overview on the opportunities and challenges for Atlantic Canadian firms with a particular focus on SMEs in promising new sub-sectors for growth development.”

Project Team The Project Team consists of: ⋅ Robin Rodger, MRA – Project Manager ⋅ Jim Simpson, JE Simpson Consulting – Project Partner ⋅ Brenda Haley – Sector Research Analyst ⋅ Peter Giffin – Sector Research Analyst

Methodology A principal source of information was expected to be through interviews with key sector personnel in the region. In total, more than 90 interviews were conducted with senior representatives in both industry/industry associations and governments throughout the four provinces. An interview guide was developed as a tool to help shape discussions with key informants. The questions were meant to stimulate wide-ranging discussion with respect to: ⋅ The global business environment within the sector ⋅ The business environment at the regional and company levels ⋅ Subsector analysis The interview guide was not intended as a rigorous script (although it was occasionally used as such). Interviewer probing was encouraged, based on the background and specific expertise of the respondent and the evolving nature of each interview. It was expected that, in many cases, it would be necessary to limit the topics to be covered in the interviews due to time limitations. As implicitly addressed by the series of interview guide questions, the principal goal of each interview was to gather comparative ”global / local” perceptions, as well as to obtain firsthand input with respect to the strengths, weaknesses, opportunities and threats within the sector or subsector under discussion. The final report then represents a compendium of views from expert sources primarily located in key positions of Atlantic Region knowledge-based industrial sectors. A copy of the Interview Guide is provided in Appendix 1 and a list of interview participants is provided in Appendix 2.

MRA Research Group

1

Secondary Research In order to provide a contextual reference, consulting team members also carried out secondary (usually internet-based) research as well as statistical research. This served to support consulting team knowledge of the sectors, secure background information in advance of interviews, and ultimately, to assist in the analysis and reporting of results. A considerable number of studies, reports, statistics (with a focus on exports trends in the sector) opinion pieces and other relevant information have been documented in the study. Other research in the macro-economic environment highlights the potential for pro-active consideration of factors that tend to transcend any one sector and may affect several sectors at once that are under study: • • • • • • • •

• • • • • •

Projected decreased populations by 2050 in countries such as Japan (-21%), Russia (-18%) Germany(-16%) and South Korea (-13%) will lower overall demand in these markets (source: World Bank); Conversely, significantly increased populations in 2050 are projected for Pakistan (+85%), Philippines (+62%), Egypt (53%). India (+32%) is projected as the most populated country with 1.55 billion people (source: World Bank); Aging demographic in many developed countries is also facilitating market shifts towards health, convenience and other new lifestyle factors with new product/packaging implications; Instability in global economies affects government spending in many sectors  e.g., renewable resources, aerospace & defence; Austerity measures in many countries (especially Europe) affects buying power, as does rising oil/ transportation/ food prices and can affect all sectors; Continuing banking problems in the US and Europe could eventually lead to potentially significant transitions in world currencies, exchange rates and even new (e.g., public) banking systems, with major long term trading implications; Likelihood of achieving a global agreement to limit CO2 emissions is decreasing; movement toward smaller goals in global climate change agreements can be expected; e.g., one-off strategies in ocean/forestry sectors; Renewable resource development may also be hindered by growing global reserves of fossil fuels, particularly natural gas - keeping prices low; gas is often perceived as a transformation fuel in the near term as new energy technologies are developed; GDP growth in large “emerging economies” points to long term growth in commodity sectors; Potential for growth in natural medicines, especially to offset increasing health costs (Alberta Health Services now offers “complementary and alternative medical services”); Potential for a new trade agreement with Europe in 2011 could affect many Canadian export sectors; Continuing consolidation in global supply chains and buyer concentration; Emergence of many new markets with new requirements; Developments of unforeseen new technologies and/or paradigm changes are especially prevalent in many of the knowledge-based industries that are the primary subject of this report.

MRA Research Group

2

Common Cross-sectoral Themes The study identified a number of themes that overlapped various, and sometimes all, sectors under study: 1) Proximity of US market (but in decline) Perhaps obvious, but the security of the US as our principal trading partner may no longer be reliable, even if the Canadian dollar was less strong – many companies are thinking of market diversification. 2) Emergence of new geographic markets India and China are especially highlighted. However, even BRIC countries are actively competing in such new territories as Indonesia, Turkey, Iran, South Korea, Thailand, Vietnam, Pakistan, Bangladesh, the Philippines, Egypt, South Africa, Mexico and Argentina. 3) Good regional support networks Most of the sectors were pleased with existing infrastructure support such as education and research facilities, government programs, industry associations, etc.; although a few mentioned the need for Centres of Excellence. 4) Abundant niche opportunities and available resources to exploit them Significant niche opportunities exist in most sectors; however, it implies a need for very targeted support. 5) Lacking entrepreneurial drive Lack of risk-taking spirit was mentioned as a dampener in some sectors. 6) US Exchange rate concerns Obvious, but not mentioned all that often in knowledge-based companies. 7) Global economy concerns A common concern for many sectors; especially those selling to governments. 8) Financing needs Start-up and mid-level (for long-cycle R&D) financing was a familiar concern. 9) Limited business (management and marketing) skills Especially in some of the tech sectors. 10) Need to focus Strategically from the company’s perspective, but also a regional strategy need.

MRA Research Group

3

Trade Development Issues The study identified a number of trade development considerations that can affect various, and sometimes all, sectors under study: 1) Atlantic sector profiles Many sectors are not well defined. Developing profiles for each sector would be helpful for identifying capacity and setting strategic directions. An asset map that included factors such as the number of companies in each sector, where located, the state of subsector development, export activity, targets, etc., would help facilitate support requirements and be useful in promotion for investment purposes and for export development support from embassies and consulates abroad. Some of this information has been gather in the present study, but needs to be further qualified. 2) Sector / subsector size The small size of some subsectors means that targeted support programs can often only engage a very small number of exporters. 3) Provinces taking independent development directions Each province has unique strengths and weaknesses that require different direction and support. This can make it difficult to develop region-wide programs for some sectors/subsectors. However, there is more strength and market impact when this can be accomplished (e.g., the Aerospace and Defence Atlantic Alliance is a good example of regional teamwork). Although not all sectors lend themselves equallywell, the IBDA may be able to encourage more dialog, collaboration and coordination between provinces in other sectors (e.g., fisheries, agriculture and ocean tech). 4) Growth of the entrepreneurial base Although basic business skills development is perhaps beyond the mandate of the IBDA, the region must deal with a generally stagnant population growth and a perceived lack of entrepreneurial skills to grow the approximately 2,000 exporters that presently exist. Additional immigration, as well as programs and universities that offer business and export development “bootcamps,” may help mitigate this situation. 5) Application of projects to other sectors A systematic review of the IBDA list of successful projects could be a source for additional export development ideas that might be effectively applied to other sectors. For example; “BioPartnering” is very successful in Life Sciences – why not try something similar in other sectors? 6) Review of successful models Norway provides an interesting model for Atlantic Canada (now has the highest GDP per capita of any major country) – it has a small population, a similar coastline to Atlantic Canada, a similar resource base and a somewhat similar export profile.

MRA Research Group

4

Atlantic Canada Export Overview Top Atlantic Canada Exports ($Cdn 000) Distilled/Liq Petro

14,000,000 12,000,000

Crude oil /Nat. gas

10,000,000

Iron,cop,zinc,salt

8,000,000

Lob,crab,shrimp

6,000,000

Paper/new sprint

4,000,000

Rubber tires

2,000,000

Wood pulp

0 2001 2003 2005 2007

2009

Potatoes - Froz Lumber - Softw d

The above export categories reflect the top 25 product codes (HS-6) that accounted for 82% of Atlantic Region Exports in 2010. Led by distilled/liquefied petroleum products, exports have increases by almost 300% (in current dollars) since 2001. Percentages by category are expressed below. Major Atlantic Canada Export Categories Export Category 10-Year % Increase (Decrease) Distilled/Liquified Petroleum 11,488 Crude oil /Nat. gas 323 Iron,copper,zinc,salt 372 Lob,crab,shrimp (96) Paper/newsprint (75) Rubber tires 127 Wood pulp 139 Potatoes - Froz (90) Lumber - Softwd (40) Average 292 Knowledge-based industries often play a strong supporting role in the above major export categories (e.g., offshore energy development). Further, much of the remaining 18% of exports are directly accounted for by SMEs in the promising sectors investigated in this report, as follows: • • • • • •

Information and Communication Technology Clean Technology Ocean Technology Aerospace and Defence Life Sciences Agri-food, Fisheries and Aquaculture

MRA Research Group

5

2.0

INFORMATION & COMMUNICATION TECHNOLOGY (ICT)

INTRODUCTION The total Canadian ICT industry is massive and permeates all sectors of the economy with $26.7 billion of exports in 2009. Atlantic Canada’s (ACs) many ICT product and services providers have a strong history of innovation and expertise in the ITTelecommunications realm. The continued convergence of information technology, telecommunications and media represent unprecedented economic opportunity for Canada and the Atlantic Region as a whole. Moreover, the ICT sector underscores new developments in all Atlantic Canada knowledge-based industries.

SECTOR DEFINITION Statistics Canada defines Information & Communication Technologies (ICT) as industries primarily engaged in producing goods or services, or supplying technologies, used to process, transmit or receive information. For manufacturing industries: an industry's products must be intended to fulfill the function of information processing and communication including transmission and display; or use electronic processing to detect, measure and/or record physical phenomena or to control a physical process. For services industries: an industry's products must be intended to enable the function of information processing and communication by electronic means.1 . The sector comprises many subsectors relevant to Atlantic Canada as described below.

IT Services Broadly defined, IT Services can be any service an ICT company provides to customers such as technical support, computer system support, networking, systems administration, applications, Internet services, such as Web hosting, e-mail, and social networking websites. The terms "technology services" and "information technology services" (ITS) are often used interchangeably. Technology services may also include telephone and cable TV services; graphic design and video production may be considered technology services, since they involve modern technology. Because technology services covers such a broad range of industries and occupations, its scope cannot be easily defined or quantified.

Business Solutions Business solutions encompass a wide range of ICT solutions to address business needs including business intelligence, enterprise resource planning, product lifecycle management, security, and strategy and change; as well as specific business issues such as business process management, collaboration, cost management, data management, disaster recovery, distribution management, energy efficiency, enterprise integration, enterprise architecture, information governance, regulatory compliance, security, systems management, virtualization, workforce productivity. 1

This definition was originally developed by the Organisation for Economic Co-operation and Development (OECD) as a standard for monitoring ICT development, for making international comparisons and for developing policies. The OECD definition was based on the International Standard Industrial Classification and has now been converted to NAICS. http://www.statcan.gc.ca/concepts/definitions/intro02-eng.htm

MRA Research Group

6

Advanced Technology Advanced technology applies broadly to ICT products and processes including, for example, biomedicine and biotechnology, energy generation and storage, environmental monitoring and conservation, homeland defence and security, information technology and communications, innovative materials including meta-materials and nanotechnology, lasers and electro-optical devices, medical diagnostics and devices, and pharmaceuticals and therapies; among others.

Security Security applies to all aspects of safeguarding or protecting information or data in some form. Computer and network security, information technology (IT) security, information systems security, information and communications technology (ICT) security are all subsets of information security. Information security also covers all infrastructures that facilitate its use - processes, systems, services, technology, etc., including computers, voice and data networks. Historically, confidentiality was the most important element of information security, followed by integrity, availability and since 2001, safeguards against all sorts of malice and service attacks.

E-learning E-learning comprises all forms of electronically supported learning and teaching. Elearning is essentially computer and network-enabled transfer of skills and knowledge. E-learning applications and processes include Web-based learning, computer-based learning, virtual classroom opportunities and digital collaboration. Content is delivered via the Internet, intranet/extranet, audio or video tape, satellite TV, and CD-ROM. It can be self-paced or instructor-led and includes media in the form of text, image, animation, streaming video and audio. CBT (Computer-Based Training), IBT (Internet-Based Training) or WBT (Web-Based Training) are used as synonyms to e-learning.

Digital Media Digital media refers to any electronic media that is created and displayed using computer technology, such as digital audio, digital video and Internet content like computer games, internet technology, communication (email) & social interaction, and other technologies used to create and distribute digital "content". Digital media is more flexible than analog media, and digital content can be easily reproduced or combined to make new forms of content. Digital media technologies have revolutionized the way content is distributed, enabling media files to be copied in unlimited quantities and made available for download over the Internet or smaller networks using file sharing software. Any type of information stored in the computer, including data, voice and video, is digital media.

Geomatics Geomatics includes the tools and techniques used in land surveying, remote sensing, cartography, Geographic Information Systems (GIS), Global Navigation Satellite Systems (GPS, GLONASS, GALILEO, COMPASS), photogrammetry, and related forms of earth mapping. The field of geomatics is wide in scope and may include: airborne and

MRA Research Group

7

terrestrial laser scanning, cartography, digital terrain modeling, geodesy, geographic information systems, geospatial, Global Positioning Systems, hydrographics, mapping, mathematics, navigation, networks, photogrammetrics, positioning, remote sensing, surveying, and wireless location. Applications areas include: air navigation services, coastal zone management and mapping, disaster informatics for disaster risk reduction and response, the environment, infrastructure management, land management and reform, natural resource monitoring and development, subdivision planning and urban planning.

GLOBAL PERSPECTIVE The ICT sector is expanding globally and this trend is expected to continue over the long term. Macro factors such as demographics, population growth, globalization of trade and commerce, emerging economies and technology advancements all impact the supply and demand. In terms of technology, growth is driven by various factors: ubiquitous computing, technology miniaturization, integrated circuitry, nano-technology, biometrics, smart technology, portability, mobile technology and specialised applications like on-line gaming, among others. The continuous demand and quest for productivity improvements and cost savings though increased use of ICT are also drivers. Application Service Provider’s (ASP’s) are transforming the market. ASP’s provide computer- services/access to application programs for customers over a network (on-demand software). The trend is driven by increasing costs of specialized software and the need to minimize costs in distributing software to end-users. In the ASP model, upgrading becomes the responsibility of services providers and includes built-in technical support, security and flexibility. The proliferation of content, integration of content media, and interdependence of content media and medium, digital media and social media also contribute to sector growth. Technology is becoming increasingly pervasive through devices like smart phones, tablets, ipads and Personal Digital Assistants (PDAs). Innovation is key to this growth. Telecommunications infrastructure, such as broadband, satellite and wireless connecting rural communities and remote areas are key enablers, involving both a local and global focus. The convergence of ICT and other sectors is expected to accelerate. The lines between ICT and other technology driven sectors are increasingly hard to define: financial services, green/clean technology, biosciences and all forms of engineering sciences – such as marine, geosciences, environmental and petroleum, are all growth subsectors. Although overall growth may lag if the global economy remains depressed, it will still not limit the need for ICT solutions in developed markets: it is also buffered by demand patterns that are increasingly user driven, and influenced by demographics in emerging markets. Young people will drive the pace of growth in parallel with business.

Clusters Clusters have characteristically played an important role in developing the ICT sector. The biggest geographical clusters are in the US, China and India – with many smaller

MRA Research Group

8

specialized clusters throughout these and other locations including Ireland, Sweden, Japan, Israel, EU, and parts of Asia. Within North America, the US West Coast in general continues to dominate; California is still the biggest player, and San Francisco, New York, New Jersey and Boston (for Bio and e-Health) are well known clusters. The biggest cluster in Canada is Kitchener-Waterloo, followed by smaller, specialized clusters in Ottawa, Montreal and Vancouver (the gaming subsector, for example). While clusters remain important, they are relatively less so as information-based services lessen the need for proximity and people are more transient which hinders development of clusters. An increasingly key aspect of sector development is access to a skilled labour supply, followed by tax incentives and overall economic climate.

Emerging Trends • • • •

•

•

Technology miniaturization and integration/refinements - ability to do more with same devices Shifts in markets from developed (US and Europe) to emerging economies (BRIC countries – Brazil, Russia, India and China – Africa and elsewhere) New trade agreements with Europe, China, India - borders will open, but standards will be more important Technology advancements - virtual technology, social media, multi-media, digital and interactive media, simulation, mobile technology, thermal optics, voice recognition, (Internet TV) IPTV Delivery models and supply chains - broader ability to deliver services worldwide, cloud computing, shared services models, hosted applications, direct marketing to consumers, multi-platforms, and digital distribution that will allow more products to enter the market much faster Changes in the policy and regulatory environment that are creating new demand sources - for example significantly increased government spending in the Health sector (US and Canada) on ehealth – on everything from records management to diagnostic imaging across the spectrum.

There is widespread perception that ICT will outpace many other sectors worldwide, that the sector is somewhat insulated from most negative global impacts, that consumer goods will possibly outpace business uses, that there is likely to be significantly more consolidation of players, and many emerging niches, such as low-cost tablets and other personal devices. Growth is largely dependent on affordability and availability of Internet access, broadband, wireless, satellite and distributive technology.

Markets Overall there is a shift in principal global markets from the US to China and India, driven by a huge emerging middle class in China especially. Access to China is moving closer to reality in terms of an international trade agreement. The BRIC countries collectively represent an enormous market for ICT, as do developing nations in Africa, parts of Europe, South Korea, Central and South America, and Caribbean for IFI capacity building initiatives. The US will continue to be a big market for Canada based on established trade patterns, proximity and existing relationships, and remains an undertapped market for many Canadian companies.

MRA Research Group

9

Subsectors In terms of subsectors, ehealth is potentially a huge market and Canada’s advantage is proximity to the US and Europe to a lesser extent. Green and Clean tech are huge markets in Europe and China. Mobile gaming, biotechnology, geomatics, social media, e-learning, end-to-end business solutions and tools are growing markets. Companies with a strategic advantage in these subsectors are well poised for growth.

CANADIAN PERSPECTIVE Overall Canada’s ICT sector continues to perform well and holds significant potential. For the country to be a net exporter the ability of other countries to purchase Canadian ICT goods and services is a major factor subject to a wide array of global influences. The economic downturn, and slow pace of recovery in the US, Canada’s largest export market, continue to have an adverse impact on demand by curtailing expenditures and investments in ICT. On the other hand the recession has had some positive impacts by highlighting the need to be more creative and competitive, identifying new ways of adding value and increasing productivity, creating a fertile climate for start-ups.

Challenges and Issues The world is becoming increasingly competitive with escalating pressure for value-added technology and services, and focus on innovation to create opportunity, wealth, and cost savings. The cost of energy is a key factor, as the price of oil potentially threatens global demand and growth in Canada. There are Intellectual Property (IP) issues in some foreign markets that the federal government is taking steps to address. Capacity in the domestic market, especially in the health care sub-sector, is considered a barrier to export growth. One of the biggest challenges is access to talent; growth could be threatened by skills shortage suggesting the need for greater collaboration between industry and academic institutions to ensure that there is adequate skilled labour to meet the demand. There is a perceived disconnect between universities and industry. The universities in general are lagging in the commercialization process, with a notable gap between research and commercialization. Industry is quite aware of the benefit of linking with universities, but universities are not necessarily able to respond. Their major technology transfer job is to get university IP information into the world; on the other hand, industry typically has a unique problem it is trying to solve and respective priorities are not necessarily aligned. Some universities have people doing a high level of outreach, but capacity is always a challenge. Universities focus more on academic or pure research, while the focus of industry research is more applied. The result is less commercialization of technology coming from the academic community then is ideally desirable. Canada lags behind other countries in terms of R&D investment as a percentage of GDP (about 1%), roughly half of what the US spends, and 1/3 of others such as Japan. Ontario is the leader among the provinces at about 1.5%. Canada’s share of global R&D investment is around 3%. Cited reasons are low R&D investment by industry, extent of foreign ownership and the small size of many businesses. The majority of private sector R&D investment in Canada is concentrated in a small number of large companies. There

MRA Research Group

10

are many funds and grants available that can be leveraged by companies. However, for various reasons the uptake is not where it could, or should, be. Both ICT goods and services are poised for growth. In general, products are typically more export focused than services, and opportunity driven, rather than market driven. Services can be more challenging to export, unless very unique. It is difficult to be globally competitive just on services, and a commonly held view is that success internationally is dependent on having a product so that a company can better differentiate itself in the market. There will also likely be less need for customer support over time as technology becomes more ubiquitous, products more sophisticated and users more technically adept. One of the country's leading professional services firms, Deloitte Canada, recently released a Technology, Media & Telecommunications (TMT) report on trends purported to affect Canadian businesses and consumers in 20112. These include: •

Smartphones and tablets - more than half of all computing devices sold globally will be smartphones and tablets, not PCs;

•

Tablets for enterprise (business use) - more than 25% of all tablet computers will be bought by business enterprises, driven in part by the retail, manufacturing and healthcare sectors (due to the device’s ease of use, long battery life, lack of moving parts, minimal need for training and rapid application-development environment, and the fact that enterprise software providers are quickly responding to Fortune 500 customer requests for tablet-specific software);

•

Operating system diversity - with no standards on smartphone or tablets there will be a huge scope of opportunity for niche application developers;

•

TV, including personal/digital video recorders (PVRs) will dominate the media market - with worldwide TV advertising predicted to increase by $10 billion and the global TV audience growing by 40 million to 3.7 billion viewers, new PVRs will proliferate in the market with more than 50% of television owners in the US and UK expected to own one;

•

Interactive TV, incorporating Wi-Fi access - increased Wi-Fi proliferation into retailing, chips in portable data devices, easier access, partnerships between hotspot providers and mobile providers, growing awareness of Wi-Fi capabilities in existing devices, superior battery life in some contexts and a steady shift toward tiered mobile data pricing.

•

Continued growth in social networking - while advertising revenues remain below 1% of global advertising revenues.

The Information Technology Association of Canada (ITAC) has identified priority areas for Canada3: •

Global competitiveness – setting targets for where Canada's knowledge economy should be compared to key peer/competitor nations;

2

http://www.deloitte.com/assets/DcomCanada/Local%20Assets/Documents/TMT/ca_en_TMT_Canadian_Predictions_2011_011811.pdf 3 http://itac.ca/site/priorities

MRA Research Group

11

• • • • • •

ICT adoption by Canadian businesses for competitive advantage, productivity and growth; Public sector procurement practices to encourage leadership in ICT use; eHealth – to make the Canadian healthcare system a world-leading user of ICT to achieve superior patient outcomes and cost-effectiveness, as well as fostering development of a world-leading Canadian health ICT industry; Smart Regulation – to ensure Canada's laws promote leadership in development and use of advanced technology; Talent – for Canadian companies to continue to compete worldwide, promoting policies that will ensure a steady supply of talent for the ICT industry; Work with industry as well as with Federal, Provincial and local governments to establish initiatives to support this goal.

Canada’s Advanced Research and Innovation Network (CANARIE) recently launched Digital Accelerator for Innovation and Research (DAIR), a research and development environment where small- and medium-sized ICT companies and researchers can develop, test and demonstrate innovative ICT products, services, protocols and nextgeneration technologies aimed at increasing the sector’s global competitiveness by leveraging CANARIE’s advanced research and education fibre-optic network.4 The DAIR initiative, coupled with ITAC’s priorities, illustrate and underpin the opportunities and challenges within the ICT sector from a global, national and regional perspective.

ATLANTIC PERSPECTIVE Overall, the ICT sector in the AC region can be characterized as consisting of a large number of small companies doing many different things. Some are niche exporters and a few are large companies. Although company capabilities and strengths vary from province to province, the core ICT skills are much the same. There are quite a few sizable, successful companies (examples in the table below), but no real ICT economy. Of the few large firms, such as Blue Cross, CGI, RIM, and Aliant, only a couple are headquartered in Atlantic Canada. At one time the region had a competitive lead in telecommunications, but after various mergers and consolidations, this is no longer the case. Differences among the provinces in terms of overall ICT capability, number and size of companies, niche strengths, market focus, research focus and R&D spending makes it challenging to find common ground for sector development. The structure of industry in the region is a limiting factor making it difficult to foster collaboration and cluster development. At the same time there are clearly identifiable strengths, capabilities, world class expertise and niches that are well aligned with global opportunities and demand, and significant supporting infrastructure and assets. Successful ICT companies have capitalized on strategic assets, such as the National Research Council’s Institute of Information Technology (NRC-IIT), industry linkages and 4

http://itac.ca/media_details/1885/

MRA Research Group

12

strengths in financial services, forestry, oceans, health, defence, oil and gas, and energy to develop niche products and services, and advanced technology for those markets. ICT in the region has grown well in the past and has the potential to do so in future, but could lose ground over the longer term without more attention to recognized weaknesses, challenges, and needs. There is a solid core of companies and rising stars in all four provinces, seemingly huge potential for more, and a perception that ICT in the region is not where it should be given capabilities and assets. Future growth is dependent on many factors ranging from increased promotion of the sector, addressing skills shortages, fostering collaboration, supporting cluster development in niche areas, and focusing on strengths. ICT sector development is also influenced by the business culture, economic development policy and support programs across the region. This includes the balance between helping existing successful SME’s to grow and attracting companies from outside. Further, the role of community colleges in applied research needs to be aligned with industry training needs, as well as the role and contribution of universities to ICT economic development. The later is a strategic consideration given the number of postsecondary institutions and the fact that ICT is innovation and competitively driven. The relative amount of private sector investment in research in comparison to other parts of the country is low, with the result that universities now fund a disproportionate share in comparison to the private sector. This is also a hindrance since universities are typically slower to commercialize than the private sector. Examples of Successful Regional Firms AG Research Lexitech Ambir LGS Inc Barrett Explore Lottomatia BMT Mariner Partners C Core Membertou Geomatics Consultants CARIS Oceans Advance Centrebeam Plato Cogsdale Roberts Group Dealermine Rudder DeltaWare Skillssoft Encore Interactive Spielo Gaming Gaming TGEC Swift Radius Gateway Geomatics T4G Genesys telecom White Hill Gaiamatics Solutions Zed Innovatia Lexitech Innsystems

MRA Research Group

13

Examples of Rising Stars Blue Drop Blueline Innovations Lidar Lymbix Medrunner Radian 6 Red Ball Internet Screenscape Timelessmedical Verafin

RECENT SECTOR PERFORMANCE (EXPORTS) Definitions ICT Goods For trade of ICT goods, NAICS codes are only used as indicators of product groups. Trade figures for goods are collected on a commodity basis (HS codes) and then associated to a specific manufacturing industry (NAICS codes) using Statistics Canada internal concordance. In the case of exports, the exported commodity may be associated with an industry other than the one that produces it. Goods that are exported (or imported) by wholesalers are captured under the manufacturing industry codes.

ICT Services These data include three categories: Software and Computer Services, Telecommunications Services and Information Services. The combination of Software with Computer Services includes prepackaged and custom software and contains both medium (HS codes) and content/royalties values. Telecommunications Services exclude the non-ICT related postal and courier services usually included in the broader Communications Services category. Information Services may be slightly overstated because of the inclusion of news agency services, which are not part of the ICT definition. Trade of services strictly refers receipts (exports) for cross-border services. When a subsidiary of a Canadian company located abroad either sells or buys a service in its local market, or trades a service with a third country, the transactions are outside the scope of the cross-border figures reported in this document. Also, the domestic sales and purchases by Canadian subsidiaries of foreign companies with residents here in Canada are excluded from cross-border measures of trade, being resident-to-resident transactions. Statistics Canada data on trade in services is often collected by periodic surveys of large corporations.

MRA Research Group

14

Canada had ICT exports of $18.6 billion (goods) and $8.1 billion (services) - 2009 Canada Exports of ICT Goods, ($ Mil)

NAICS

33331 33411 33421 33422

Goods

2002

Commercial and Service Industry Machinery Computer and Peripheral Equipment Telephone Apparatus (Wired Communications Equipment) Radio and Television Broadcasting and Wireless Communications Equipment

33431 Audio and Video Equipment 33441 334511 334512 33592

Semiconductors and Other Electronic Components Navigational and Guidance Instruments Measuring, Medical and Controlling Devices Communication and Energy Wires and Cables

2003

2004

2005

2006

2007

2008

2009

2,370

2,061

2,249

2,302

2,608

2,377

2,878

2,439

4,583

4,013

4,191

4,060

4,025

4,016

3,824

3,015

4,263

3,466

3,966

4,773

5,487

4,856

3,158

2,213

2,177

1,969

2,248

2,621

2,706

2,794

3,006

2,773

567

514

555

626

700

760

858

1,038

3,673

3,414

3,781

4,177

3,326

3,248

3,676

2,955

312

310

352

330

380

432

573

570

2,839

2,828

3,212

3,463

3,775

3,802

3,890

3,353

259

194

221

241

265

298

272

223

Total ICT Goods Exports

21,043 18,770 20,775 22,594 23,273 22,583 22,135 18,578

Total Exports of All Goods

396,381 381,071 412,290 436,257 440,266 450,699 483,793 358,788

Exports of ICT Goods as a % of Canadian Exports of All Goods

5.3%

4.9%

5.0%

5.2%

5.3%

5.0%

4.6%

5.20%

Total does not include Miscellaneous Communications Equipment (NAICS 33429) Source : Statistics Canada.

Canada Exports of ICT Services, ($ Mil)

NAICS

Goods and Services

2002

2003

2004

2005

2006

2007

2008

2009

Telecommunications Services

1,473

1,463

1,490

1,373

1,390

1,444

1,463

1,585

Software and Computer Services¹

5,141

5,358

5,314

5,523

5,858

5,968

5,996

5,848

389

446

368

564

989

1,018

851

696

7,003

7,267

7,172

7,460

8,237

8,430

8,310

8,129

Information Services² 1,2

Total ICT Services Exports Total Exports of All Services

34,246 35,513 35,765 37,439 38,395 39,627 39,974 39,681

Exports of ICT Services as a % 20.4% 20.5% 20.1% 19.9% 21.5% 21.3% 20.8% 20.50% of All Services Total ICT Goods and Services 28,046 26,037 27,947 30,054 31,510 31,013 30,445 26,706 Exported1,2 Total Canadian Exports (all 430,627 416,584 448,055 473,696 478,661 490,326 523,767 398,469 Goods and Services) ICT Exports as a % of Canadian 6.5% 6.3% 6.2% 6.3% 6.6% 6.3% 5.8% 6.70% Exports ¹ Including custom and prepackaged software (medium and content/royalties). ² Including news agency services, which are not part of the ICT definition. Due to rounding, numbers may not sum exactly to totals. Source: Statistics Canada.

MRA Research Group

15

The largest component of Canadian exports is in software and computer services (22%), closely followed by communications equipment (19%) and instruments (15%).

Canada: ICT Exports by Product and Services  Groups, 2009 (Total: $26.7 Billion)  7%

22%

6%

Softwa re/Computer Servi ces *

9%

Communi ca ti ons  Equi pment** Ins truments *** El ectroni c Components 11%

Computer/Peri phera l  Equi p Commerci a l  Ma chi nery Tel ecommuni ca ti on Servi ces 19%

Other

15%

11%

*Including custom and prepackaged software (medium and content/royalties). ** Aggregation of NAICS 33421 and 33422. *** Aggregation of NAICS 334511 and 334512. Source: Statistics Canada.

Atlantic Canada has less than 1% share of Canadian ICT Exports

Canada: Regional Share of Exports of ICT Goods, 2008 (2009 = $18.6 bil) 5%

5% 1%

1% Onta ri o Quebec BC Al berta Pra i ri es

24%

64%

Atl a nti c*

Source: Statistics Canada.

MRA Research Group

16

Atlantic Canada: ICT Goods Exports, 2005 - 2009 ($ 000,000's)

Province Newfoundland Prince Edward Island Nova Scotia New Brunswick Newfoundland Prince Edward Island Nova Scotia New Brunswick Newfoundland Prince Edward Island Nova Scotia New Brunswick Newfoundland Prince Edward Island Nova Scotia New Brunswick Newfoundland Prince Edward Island Nova Scotia New Brunswick Newfoundland Prince Edward Island Nova Scotia New Brunswick Newfoundland Prince Edward Island Nova Scotia New Brunswick Newfoundland Prince Edward Island Nova Scotia New Brunswick Newfoundland Prince Edward Island Nova Scotia New Brunswick

NAICS 33331

33411

33421

33422

33431

33441

33451

33592

Total ICT Goods Exports

2005 2006 2007 1.6 1.0 0.3 0.6 0.1 1.2 5.8 7.5 5.3 6.6 4.3 4.5 7.3 11.9 18.1 0.4 0.2 0.4 2.7 3.0 3.1 8.1 7.5 4.2 1.0 0.6 1.4 0.3 0.4 0.2 7.5 9.4 5.9 0.8 0.7 0.5 4.2 2.8 0.1 0.1 0.1 0.2 22.5 28.0 22.3 1.1 1.5 2.0 3.1 3.3 0.4 0.0 0.0 0.0 0.6 0.4 1.3 0.1 0.3 0.1 0.2 0.4 0.1 0.0 0.1 0.2 1.1 0.9 1.1 1.6 1.6 0.4 7.2 11.3 4.9 3.4 2.0 0.7 62.9 63.7 69.2 8.3 8.1 8.7 0.1 0.3 0.1 0.7 0.8 0.9 1.6 0.9 0.9 0.2 0.2 0.1 24.6 31.7 25.5 5.6 3.7 3.8 104.8 113.8 109.1 26.6 24.4 20.5

2008 1.4 0.2 8.6 4.3 11.4 0.4 5.6 4.7 0.1 0.3 7.3 0.5 1.6 0.0 32.3 1.2 0.3 0.1 0.9 0.1 0.2 0.1 2.5 2.0 5.9 5.3 78.7 9.6 0.0 0.8 1.6 0.0 21.0 7.3 137.5 22.4

2009 0.1 0.1 7.1 2.2 7.8 0.5 1.6 4.2 0.9 0.0 7.6 0.3 1.1 0.1 31.7 1.7 0.1 0.0 0.7 0.7 0.0 0.2 1.0 0.8 5.7 7.9 76.5 9.9 0.0 1.2 1.7 0.1 15.7 10.0 127.8 19.9

% Change ('08'09) -92.8% -35.5% -17.7% -47.6% -32.0% 22.0% -71.2% -11.0% 536.2% -85.6% 5.2% -27.1% -34.5% 154.3% -1.8% 44.6% -68.1% -94.1% -29.4% 510.4% -89.5% 30.4% -61.2% -58.4% -2.2% 49.6% -2.8% 2.5% 175.0% 49.5% 4.5% 68.1% -25.2% 38.3% -7.0% -11.0%

Source: Statistics Canada

MRA Research Group

17

Atlantic Canada ICT export growth of 37% over the decade

Source: StatsCanada

Atlantic Canada ICT export growth led by NS (74% of exports)

Source: StatsCanada

MRA Research Group

18

Exports of Telephone Apparatus and Markets Atlantic Canada Telephone Apparatus Mfg Exports ($Cdn)

Atlantic Canada Telephone Apparatus Mfg Markets 2010

14,000,000 12,000,000 10,000,000

NL

8,000,000

PEI

6,000,000

NS

4,000,000

NB

2,000,000

Australia 4%

Norway 2%

France 2%

UK 29%

US 63%

0 2001

2003

2005

2007

2009

Source: StatsCanada, NAICS 33421

Exports of Broadcasting Equipment and Markets Atlantic Canada Broadcasting Eq. Mfg Exports ($Cdn)

Atlantic Canada Broadcasting Eq. Mfg Markets 2010

35,000,000 30,000,000 25,000,000

NL

20,000,000

PEI

15,000,000

NS

Saudi Arabia 16%

UK 4%

Australia 3%

NB

10,000,000

US 77%

5,000,000 0 2001

2003

2005

2007

2009

Source: StatsCanada, NAICS 33422

Exports of Misc. Communications Equipment and Markets Atlantic Canada Misc. Communications Eq. Mfg Exports ($Cdn)

Atlantic Canada Misc. Communications Eq. Mfg Markets 2010

3,500,000 3,000,000 2,500,000

NL

2,000,000

PEI

1,500,000

NS

1,000,000

NB

500,000 0 2001

2003

2005

2007

2009

UK 4%

Australia 1%

US 95%

Source: StatsCanada, NAICS 33429

MRA Research Group

19

Advanced technology Broadband Business Solutions Digital media E-health e-learning Financial Solutions Gaming applications

Examples of Capabilities and Expertise Geomatics Oil and gas technology Geomatics - ocean IT Security related Simulation and training Health Care Management Social Media Health records Solutions for cold climate managements / harsh environments Human genetics Systems integration IPTV and mobile TV Marine geosciences Medical technology Diagnostics Ocean technology

SUPPORTING GROWTH INFRASTRUCTURE Universities and Colleges* 1. Acadia University 11. Nova Scotia Agricultural College 2. Cape Breton University 12. Nova Scotia Community College 3. Collège communautaire du Nouveau13. NSCAD University Brunswick 4. College of the North Atlantic 14. Saint Mary's University 5. Dalhousie University 15. St. Francis Xavier University 6. Holland College 16. St. Thomas University 7. Memorial University 17. Université de Moncton 8. Mount Allison University 18. University of New Brunswick 9. Mount Saint Vincent University 19. University of Prince Edward Island 10. New Brunswick Community College *Springboard Atlantic Membership -a network mandated to support the commercialization of research that provides resources to Atlantic Canadian universities and colleges to encourage the transfer of knowledge and technology to the region's private sector. As of April 1, 2008, members included fourteen universities plus the five provincial community colleges. Research Centres and Support Facilities* • Natural Sciences and Engineering • Atlantic Technology Centre Research Council of Canada • Centre of Excellence for Advanced • New Brunswick Innovation Foundation Learning and Technologies (CEALT) • College of Geographic Sciences (COGS) • Nova Scotia Community College (NSCC) Genesis Centre • InNovaCorp • PEI - Food Technology Centre (FTC) • Institutes of Applied Learning and • Research and Development Corporation Training (IALTs) (RDC) • National Research Council - Institute for • Research and Productivity Council (RPC) Information Technology (NRC-IIT) *Mentioned during the company interviews as providing an important and strategic role in sector development.

MRA Research Group

20

SWOT ANALYSIS (Industry View) STRENGTHS • Highly skilled, world class talent • Steady, loyal workforce • Seasoned business people • Small size of companies can be an advantage, being agile, responsive to market demands • Strong academic institutions • World class infrastructure that has been a huge asset, catalyst for growth • Research and Development Institutions – among the best in the world • Atlantic Innovation Fund (AIF) is making an impact • Solid companies in niche markets • Support available for firms in terms of coaching, export development • Excellent collaborative climate, network of people who are ready and willing to give their time to help companies who need it • Available money for start-ups - assistance in the $30-50K range • Companies have a good understanding of the market • Proximity to the US is an advantage for outsourcing, software development with similar culture, time zones and business environment • Ideal near shore location situated between major North American and European locales • Recognized global technology leaders across many subsectors • Capabilities, expertise and core strengths that are in global demand • Greatest strategic advantage for the region in the long term is stable low cost energy WEAKNESSES • Size of companies, many have under 10 employees, very few big players • Lifestyle, mindset, many companies are choosing to stay small • Companies are not as savvy, or export ready as they should be • Companies do not have capacity to aggressively, consistently pursue new markets • Not investing enough in new ideas • Not enough start-ups • Not enough spending on R&D, larger companies need to be more focused on R&D • Biggest challenge is HR – in some parts of the region the industry is not growing not because of lack of opportunity but because of skills shortage • Enrolments in IT are lower than previously; and many IT graduates do not go into the IT industry but chose to applying their IT skills in other industries, like financial services and health administration • To address skills shortages requires a communications campaign at all levels – starting in high schools to attract people into IT, grow the talent supply • Not enough large companies to create a cluster of the magnitude needed to have an impact; most of the larger companies are not local to the region – there are no indigenous RIMs here • Industry associations are not as effective as they could be for various reasons • Not enough good ideas worth exporting in terms of services - need more valued – added services; • Senior deal closing skills are lacking; also need sales training

MRA Research Group

21

• • • • • • • • • • • •

Partnerships are not where they should be - companies are networking but not necessarily solidifying partnership relationships to mutual advantage In terms of IP / commercialization – there is a need for more industry partners Not enough collaboration between post secondary institutions There is a disconnect between the post secondary institutions and the needs of industry, especially for specialized programs The absence of a tax credit for non-digital media is compromising competitiveness in the gaming industry Companies are not well positioned to take advantage of emerging opportunities; many are weak in marketing skills and basic business skills IT graduates are weak in math skills and are not trained in the fundamentals for programming – the basis of IT Companies do not take advantage of what is here in terms of IT assets/capabilities Shortage of industry champions, strategy, vision Lack of venture capital - brings not only money but also leadership, mentoring, connections, clout, sales skills, among others Insufficient collaboration between provinces, too much competitiveness Scale is a disadvantage for projects that require a large staff to deliver

OPPORTUNITIES • There is a lot of potential for new companies, start-ups - they could best be encouraged by linking new companies with globally sophisticated mentors • Opportunity for large scale employment in the ICT sector as a whole • Huge opportunity in the IPTV space • Big opportunities in healthcare sector; huge budgets and expenditures • Major opportunity in the Smart Grid space • Clean energy analytic tools • Changes in regulatory environment are creating opportunities in clean tech • Maritime security and Arctic sovereignty • Low cost technology centers • Targeted specialized technology • Enterprise content management • e-health - health management, records management, diagnostics specializations • Disposal of old technology • Data centres • Near shore outsourcing • Cloud computing THREATS • Skills shortage, access to the labour • Salary and mobility of workers are affecting supply • Industry fragmentation and lack of focus • Not enough local innovation • Smaller companies can be threatened by larger players, e.g. Microsoft, Google, • Competition is becoming significantly more intense - Central Canada, US, UK • Companies and government both invest too little in R&D – not keeping pace (Canada is behind the world and the region is even further behind) • Global standards development, supply chain requirements • Protection of intellectual property is a challenge in foreign markets MRA Research Group

22

SECTOR ASSESSMENT KEY SECTOR ATTRIBUTES Information & Communication Technologies FILTER ASSESSMENT COMMENTS Although highly dependent on Strength and Sustainability Very Good capacity building and addressing of Future Market Demand pressing issues in skills availability. High Labour shortage, small size of Potential Economic companies, and fragmentation across Impact: revenue the region restrict potential; huge generation, innovation, job potential niche opportunities creation, trade expansion High ehealth Cluster Potential environmental technology clean technology geomatics Moderate advanced technology ocean technology digital media (social media, gaming) Mixed Labour availability, skills training, Magnitude of business marketing and management, challenges facing SME’s company size, venture capital Very High Much of the ICT technology has Existence of Cross broad, multipurpose application – applications many examples in aerospace and defence/oceans, geomatics, forestry/ehealth, gaming/military, bioinformation / informatics, nanotechnology/ ocean tech/ ICT/ aerospace/life sciences Because of size most companies in the region have to be flexible so have a strong history of cross-purpose Good At a high level – ICT, but less so at Compatibility with IBDA the subsector (and Other) Support Mechanisms/Resources Good Immediacy of Results Extent of Pan-Atlantic Participation

Moderate

Number of Potentially Supportable Atlantic SMEs

High

Overall for the region moderate, but varies within the subsectors

SUBSECTOR SUMMARY There is a narrow, but thriving assortment of companies across the region in all the identified ICT subsectors - IT services, digital media, e-learning, security, geomatics, advanced technology, and business solutions. Within these subsectors are further pockets of concentration, such as ehealth (erg. hospital records, health care MRA Research Group

23

management, diagnostic imaging,) advanced training, security, informatics, gaming technology, social media, financial services, aerospace, wireless and mobile applications among others. Generally there is very limited cluster effect or critical mass to any of these in a particular province or region. The overlap among sectors, particularly between ICT and, for example, clean technology, ocean technology, aerospace and defence, environmental technology, and biotechnology, also makes it challenging to delineate clusters of similar activity. NRC plays a leading role in helping to increase capacity in key technology fields through jointly developed innovation strategies. Examples include: Halifax, Nova Scotia - Life Sciences Cluster5; Fredericton and Moncton, New Brunswick - Information Technology and e-Business Cluster6; St. John's, Newfoundland and Labrador - Ocean Technology Cluster7 A large portion of ICT companies in Atlantic Canada can be characterized as IT Services and Business Solutions, including many independent hardware and software third-party vendors. The US has been, and continues to be, one of the biggest export markets for Canadian companies in IT services and business solutions. However, it is a very competitive market and generally only companies with a niche solution or service are able to successfully penetrate the market and maintain a competitive edge. Where lower salaries in Atlantic Canada (compared to New York, Washington or Silicone Valley) once offered a competitive advantage, this is now eroded by a stronger Canadian dollar and skill shortages in the region. The Canadian Advanced Technology Alliance (CATA)8, described as Canada’s largest high-tech trade association, indicates that about 80% of its 1,100 members are exporters, of which about 10% are located in Atlantic Canada. CATA Atlantic, a subsidiary organization, has about 65 Atlantic member companies and representatives in each Atlantic province facilitating companies’ growth by fostering partnerships and investment opportunities. Several sub-sectors in Atlantic Canada can be characterized as advanced technology, including many in e-health, e-learning, digital media and geomatics. For additional information and case studies in these subsectors, see Appendix 3.

IMPLICATIONS FOR TRADE DEVELOPMENT SUPPORT Training • Some ICT companies could benefit from more specialized training, such as VC boot camp, by experts in specific niche markets - such as NYC, Boston, Silicon Valley; • High end IT sales skills -how to close the deal; • Companies are not aware of what it is they need for exporting; e.g., FITT skills; • Training as value-added re-sellers; • Companies do not know how to sell compared with best-in-class IT; 5

http://www.nrc-cnrc.gc.ca/eng/clusters/halifax.html http://www.nrc-cnrc.gc.ca/eng/clusters/fredericton-moncton.html 7 http://www.nrc-cnrc.gc.ca/eng/clusters/stjohns.html 6

8

http://www.cata.ca/About_Cata/

MRA Research Group

24

• • • • •

Business training – more emphasis on the business fundamentals, sales funnel; Management skills are lacking, marketing, finance, project management, strategy Many companies do not have the business skills to go from ideas to success; Productivity is constrained by the fact that people do not sufficiently value their own services Many companies do not follow industry best practices

Entrepreneurship • Not enough encouragement or motivation for people to start their own companies • Not a lot of examples of successes, many more examples of those that are struggling, offset by lots of good opportunities for well-paying positions within government, within other sectors (such as oil and gas, financial services • Need better understanding of the opportunities, more entrepreneurial orientation Skills / HR Shortage • There is a significant need for assistance to address the skills shortage, through a multi-faceted, collaborative approach • Regional approach to post secondary recruitment in the field of IT to attract more students to enable the sector to grow and flourish • Labour market development-get people back into IT enrolment; skill shortages a big issue; • Help with hiring recent graduates to mitigate the risk for employers and the associated overhead while they are learning the skills necessary to be productively engaged • Increase enrolments in IT by making it a priority, subsidize students if necessary • Universities do not focus on programming skills, which they see as being more suited to the community college level; rather they focus on technical architecture or project management, although programming is at the core of IT innovation • Educate the population – more focus on education overall and IT in particular • Assistance to offset the costs of bringing people to the region - relocation costs; finding, recruiting and retaining skilled people; • Assistance to support the hiring of foreign workers • There are hundreds of unfilled IT positions since fewer students are going into IT; students are discouraged from the IT field due to concerns over job security and opportunity and this attitude has to change • Enrolment in some institutions is way down; companies are very concerned and threatened by not having access to skilled resources, but some colleges are introducing new IT programs to help address shortages • Increased focus on immigration is one solution, however, language/communication remains a barrier • Atlantic Canada universities are now less attractive for foreign students; need to establish partnerships with foreign universities, IT and engineering • Challenge is how to attract and keep the best and brightest talent – professors and students • Need tax incentives and education incentives to get more people into IT

MRA Research Group

25

Collaboration • Need a better model to accelerate technology commercialization and for industry – university collaboration; definitely room for improvement in relationships. • Springboard is a useful organization but has limitations - it serves two purposes: foster technology transfer from academic institutions to the private sector, and broker relationships between institutions, and between institutions and private sector - but in reality seems more focused on institutional collaboration than on private sector engagement, and has not tried to identify or get involved in any key sectors • There is a need for greater collaboration between the industry and academic institutions to ensure that there is adequate skilled labour to meet the demand, to leverage assets for more R&D, and to engage institutions as an economic development tool and asset to a much greater extent • Good supporting infrastructure, but needs better alignment across the sectors • Need to focus more on developing work plans together – shared priorities • A couple of sectors are working together, but no collaborative process; mostly project based • Need a process where there is greater continuity • Initiating the right partnerships is key • Breaking down the silos is important across government More R&D • Government needs to attract investment that is R&D intensive, not just creating short term jobs • Better leveraging the university research and skills, industry partners, more cohesive • More use of National Centers of Excellence, to develop the sector • Need a strategy around R&D • Need to create more R&D awareness • Need more R&D incentives to speed up research • IRAP is a popular and well used program but not enough companies are engaged • AIF is very effective in supporting companies, but could be improved by being more strategic with what it does; AIF is a magnet for ideas, but no indication that the ideas get re-cycled if they do not fit with the AIF program • The amount of research funding/spending in the region needs to double ICT Strategy • Need a regional ICT strategy – how to bring value, innovate and compete • Need a sector action plan - because of geography and scale this needs to happen at the regional level, rather than provincial. • Need a regional approach: 4 provinces working together – common standards, build economies of scale • Need to assess the region in relation to Canada’s strategy – where does it fit • Need a trade and investment focus to ICT • Be more proactive in supporting the ICT industry as an engine of growth, focus on strengths and supporting assets • Nurture indigenous companies – more potential and future by growing what is here locally; their roots are here and they continue to thrive, employ and sometimes spin off new companies; focus on attracting investment to the region - not companies • More attention needs to be paid to growing local companies; luring companies from outside the region is not sustainable

MRA Research Group

26

• • • • • • • • • • • •

Look at the Ireland Model for ICT – before the global economic collapse – good lessons leaned on how to grow IT sector/ attract the outside investment Canada – EU trade agreement – attract companies to set up in Atlantic Region to give them access to Canada/US market To take advantage of emerging opportunities the region needs to focus on higher end expertise, such as areas where in the past they have a track record, especially telecommunications Reduce dependence on US export market; Brazil holds great potential, similar culture; as does Chile Access to markets needs to be addressed – lack of direct flights to major centres Foster a change in mind set – currently not IT oriented There is no data on the impact of the ICT sector on the economy of either the provinces or the region: this should be done to help position the industry and set priorities No one is setting policy for the ICT industry Lack of data on the impact of the ICT sector on the economy – provinces or region; this data is needed to help position the industry and set priorities No one is setting policy for the ICT industry - there are whole departments of government devoted to agriculture, mining, fishery – the old economy - there is no department of ICT – where the growth, jobs and future is…why not a Ministry of ICT? Focus on niche markets to better leverage expertise developed in specific areas Need to be more strategic in identifying and capitalizing on assets

Financial Assistance • Need some type of tax credit to support industry capacity building • Access to capital for growth is a problem - the financial models are broken: money for start ups, money to incent new comers from outside the region, but no money to grow the existing base of companies, to help them get to the next level of where they need to be and could be • Need a pool of money to help promising entrepreneurs to get a business in shape (e.g. $25,000 for start-up; plus $100,000 to take it to the next step) • Overall, more investment needed to prepare companies to ramp up capabilities. Trade Missions • Target niche markets, manage expectations, need a market development plan • Preparation is key, companies need to be export ready; need an in-market consultant who is knowledgeable in that sector in that market • Trade missions are introductory - need to repeat the same missions to the same geographic locations again and again • Destinations are often not on company’s radar; business is opportunity driven • Companies need to focus on local partners to be successful in foreign markets • Due diligence ahead of time Industry Associations • Industry itself needs to be more proactive • The Associations do not have the financial resources necessary to play a strategic role • Need more rationalization - too many associations across the region and insufficient resources to focus on each subsector - geometrics, life sciences, ICT etc.

MRA Research Group

27

• • • • •

Many of the associations do an excellent job, but more resources are needed to maximize value and make it relevant Companies have the experience and expertise, but are not sufficiently involved in the associations The associations are sometimes seen as serving government more than companiesneed greater industry involvement in development of the sector coupled with a better balance of public sector and private sector engagement An association may have an industry strategy but no plan or funds to implement In the current model, associations appear to expend considerable scarce resources trying to find sources of funding, they lack the core funding needed to think strategically and plan longer term, the result being a focus on tactical rather than strategic initiatives

Marketing • No one hears about the “cool stuff we have done” - it is not marketed or publicized. • Need to get the word out – more focused publicity around our expertise and accomplishments. • Strengths to exploit healthcare sector - huge budgets/ expenditures (admin., records mgt, diagnostics, training, special/other); geomatics, advanced technology (elearning, digital media, gaming); Maritime security, Arctic sovereignty.

PRIME MARKETS • • • •

US (still under-tapped) China and India BRIC countries, Chile, South Korea, Developing countries in Africa, parts of Europe, Central and South America, and the Caribbean for IFI capacity building initiatives.

MRA Research Group

28

3.0 CLEAN TECHNOLOGIES (Clean Tech) INTRODUCTION Energy efficiency, sustainable power, reducing the environmental costs of industrial and consumer activities are all considered part of the "clean tech" movement.9 With massive supplies of water, wind and biomass and leading edge “green” research across a myriad of sectors, clean technology is emerging as a leading growth sector in Canada, as the following exemplify: • • • • • • •

Hydropower, the country’s oldest green industry, produces about 97 percent of Canada's renewable electricity generation and nearly 13 percent of hydropower globally; Bio-energy, accounting for about 6 percent of Canada's total energy supply; Wind energy, Canada’s fastest growing renewable energy source; Solar power, growing strongly domestically and internationally; Ocean energy, Canada’s search for environmentally sound and cost effective ways to harness tidal and wave energy resources started in 1984 with construction of a tidal energy plant on the Bay of Fundy (Nova Scotia); Green building, an example being Leadership in Energy and Environmental Design (LEED) certifies venues that are built to maximize energy and water efficiency, while reducing waste and pollution; and, Green materials and manufacturing, using more environmentally-friendly ways to produce the materials industry needs to meet the ever-increasing demands of the global market place, such as cleaner, less energy-intensive solutions for traditional chemical products and manufacturing processes.

SECTOR DEFINITION The Cleantech Group, a leading global research and advisory firm focused on cleantech innovation, defines clean technology as new technology and related business models that offer competitive returns for investors and customers while providing solutions to global challenges. It is distinguished from greentech or envirotech in its ability to address the roots of ecological problems with new science, emphasizing natural approaches such as biomimicry and biology. While greentech has traditionally only represented small, regulatory-driven markets, cleantech is driven by productivity-based purchasing, and therefore enjoys broader market economics, with greater financial upside and sustainability. Applying this definition, cleantech represents a diverse range of products, services, and processes, intended to provide superior performance at lower costs, while reducing or eliminating negative ecological impact - at the same time improving the productive and responsible use of natural resources.10

9

Green Energy & Technologies. Green Solutions for a Sustainable World. Government of Canada http://media.investincanada.gc.ca/eng/information-and-resources/green-energy-and-technologies.aspx

10

The Cleantech Group. http://cleantech.com/about/cleantechdefinition.cfm

MRA Research Group

29

Cleantech Industry Segments as defined by the Cleantech Group Energy Generation • Wind • Solar • Hydro/Marine • Biofuels • Geothermal • Other Materials • Nano • Bio • Chemical • Other

Recycling & Waste • Recycling • Waste Treatment

Energy Storage • Fuel Cells • Advanced Batteries • Hybrid Systems

Energy Efficiency • Lighting • Buildings • Glass • Other

Energy Infrastructure • Management • Transmission

Manufacturing /Industrial • Advanced Packaging • Monitoring & Control • Smart Production Air & Environment • Cleanup/Safety • Emissions Control • Monitoring/Complia nce • Trading & Offsets

Transportation • Vehicles • Logistics • Structures • Fuels

Agriculture • Natural Pesticides • Land Management • Aquaculture

Water & Wastewater • Water Treatment • Water Conservation • Wastewater Treatment

Source: The CleanTech Group http://cleantech.com/about/cleantechdefinition.cfm

GLOBAL PERSPECTIVE Worldwide Total Energy Consumption 2009 (million MT oil equivalent)

Nuclear Energy 5%

Worldwide Renewable Energy 2009 (Installed Capacity 193,723 MW) Geothermal Energy Solar Energy 6% 12%

Hydro electric Ethanol 7% 0%

Coal 29%

Oil 35%

Natural Gas 24%

Wind Energy 82%

Source: Renewable Energy World, Feb., 2011

Worldwide total energy consumption from traditional sources (including hydro and ethanol) reached approximately 11,200 million MT of oil equivalent in 2009, led by oil (35%), coal (29%) and natural gas (24%). In addition, conventional fuel sources were supplemented by approximately 194,000 MW of installed capacity from renewable resources, primarily wind power (82%). The clean technology sector is expanding globally and this trend is expected to continue in the longer term. Developments in clean technology are commonly seen as the most

MRA Research Group

30

important technological developments in IT today with the sector expanding so quickly that countries are leapfrogging each other. Intellectual property rights (IPR) related to Environmentally Sound Technologies (ESTs) have been a point of contention with patent owners (the vast majority in developed counties) claiming that strong IPR protection is necessary to provide incentives to spur innovation, while developing countries claim that it is necessary to ensure IPRs do not become an impediment to development, diffusion, and transfer of technology.11 Using patents as a benchmark to gauge the pace of development reveals some notable trends. In wind power, there has been a dramatic increase in patenting of technologies since 2000 on everything from turbines to aspects of transportation, erection, maintenance, and operation. The industry is highly concentrated and leading firms with large patent portfolios have been aggressively enforcing their patents. Almost half of the filings are in the United States, Japan, and European Union. In wind sub-sectors (i.e., generators, drive-trains, gear boxes, offshore wind turbines, energy storage, and software or control systems) the majority of patents are from OECD countries. China has apparently evaded many IPR problems, while at the same time potentially flouting World Trade Organization (WTO) restrictions, by incorporating local content rules for supplying state-owned wind farms that are the main buyers of wind energy equipment in the country. Wind power giant Gamesa (Spain) is now reported to be training Chinese plant workers after deciding that the Chinese wind market was too big to pass on. Ontario, Canada has also tried to adopt the Chinese “playbook” by seeking 25% local content for wind energy projects, and 50% for solar power projects – a move that brought a WTO complaint from Japan, although Japan has not (yet) objected to China’s local content policy.12

Worldwide Windpower Installed Capacity Percent by Top Countries - 2010 France 3%

Others 17%

Italy 3% India 7% Spain 11%

China 24%

Germany 14%

USA 21%

Source: GWEC Mar., 2011

Global installed wind power capacity is now at 197,000 MW, with China adding approximately 18,000 MW in 2010 and taking the lead as the country with the highest installed wind power capacity of 44,700 MW. The US is second with about 40,000 MW, 11

http://www.policyinnovations.org/ideas/briefings/data/000162 “To Conquer Windpower, China Writes the Rules” http://www.nytimes.com/2010/12/15/business/global/15chinawind.html?pagewanted=1&_r=2&hp 12

MRA Research Group

31

while Canada (not shown in Chart above) has approximately 4,000 MW. Europe is the leading continent with 44% of installed world capacity, followed by Asia (31%) and North America (23%) (Source: Global Wind Energy Council). China’s sudden ascendancy as world leader in wind power followed a 75% increase in installed capacity in 2010 over 2009 and accounted for almost 50% of the total global wind power capacity installed in 2010. At the same time, installed wind power declined by 7% globally over the previous year13 (50% in the US and 10% in the European Union14). In the US, wind power advocates blamed a lack of government policy and competition with subsidies to fossil fuel industries for the downturn. In Europe, a lack of government financing is generally blamed. (New growth regions for wind power in 2010 were noted as India, Brazil, Mexico, North African countries and offshore Europe.) In solar power, the prevalent core technologies  silicon-wafer based or thin-film photovoltaic (PV) technology  are available in the public domain, enabling developing countries to conduct R&D on technology for utilizing solar energy. However, advancements are expected to be based on the next generation of PV technologies such as nanotechnology and dye-sensitized approaches, with innovations likely to lead to extensive patenting activity. Since the mid-1990s more than half of the worldwide patent filings on PV have been in the United States and Japan. Solar power research, development and commercialization displays much the same process as wind power in that much of the early research has been conducted in Europe and North America, but much of the production is now carried out in China. China is the world’s leading producer of PV solar panels, of which 95% are exported.15 Much has been reported in the US media of solar panel companies that received grants and or loan guarantees packing up and moving to China. According to one report, it is not the attraction of cheap labour (as plants are mostly automated), but the financial assistance offered new companies in China where (especially) bank financing is tight elsewhere.16 The net result is that PV solar panels produced in China can be imported cheaper than produced locally. As the price comes down, this market can be expected to expand. Much of the technology for producing the first generation biofuels is in the public domain - such as bioalcohol, ethanol, biodiesel and biogas. Increasing demand is stressing sources – mainly food and feed crops – driving innovation to develop biofuels from new, alternative sources, mainly from second and third generation processes such as residual non-food parts of crops, non-food crops and wastes that can produce biofuels like bioethanol, and by designing varieties of biomass crops that are more readily amenable to bioconversion processes by embedding particular enzymes into the crops. Thus, developments in biofuel technology will be influenced to a large extent by biotechnology and synthetic biology.

13

http://www.gwec.net/index.php?id=30&no_cache=1&tx_ttnews%5btt_news%5d =279&tx_ttnews%5bbackPid%5d=4&cHash=ada99bb3b6 14 “E.U. wind plummets with 10 percent drop in new builds” http://www.ecoseed.org; MAKE Consulting downgrades US 2010-2015 forecast by 23%, reflecting adverse macroeconomic conditions and an unfavorable policy environment. (Source:http://www.makeconsulting.com/fileadmin/pdf/2010/100920__US_installs_set_to_stall_in_2011.pdf) 15 http://www.guardian.co.uk/world/2009/may/26/china-invests-solar-power-renewable-energy-environment 16 “Solar Panel Maker Moves to China,” Jan.. 2011, NY Times http://www.nytimes.com/2011/01/15/business/energy-environment/15solar.html?_r=1&pagewanted=2

MRA Research Group

32

Many biotech firms are researching new varieties of biofuel crops, and transnational seed companies have shifted their R&D resources to new hybrids that can produce more biofuel, with the result that an increasing number of patent applications are being filed, particularly in United States, European Union, and Japan and substantial increases are expected. Algae may be a particularly attractive fuel source as some species are high in oil content, grow fast, don't need much land or water (footprint), need little in the way of raw materials, don’t compete with other food crops, may be grown locally anywhere (no transport costs) and consume carbon dioxide as fertilizer. Exxon has already invested heavily in this potential new source of fuel, as has at least one Atlantic Region marine biotech company. There is also increased patenting in the field of synthetic biology that involves custom designing a microorganism that can perform multiple tasks by incorporating built-in cellulose degrading machinery, enzymes that break down glucose, and metabolic pathways that optimize efficient conversion of cellulosic biomass into biofuel. IP claims on synthetic biology extend to computers and software and extremely broad patents have been granted on many of the products and processes - raising concerns that this could stymie technological development, as well as having potentially negative ecological and systemic impacts on food sovereignty. However, concerns about IPR are tempered by overall globalization as access to, and sharing of information means “developing countries ... can ‘leapfrog’ directly to ‘frontier’ technologies which are more effective, cleaner, and less costly than the usual infrastructure.”17 Clean technologies address several issues, including energy waste and economic efficiency; but two core drivers are often perceived as 1) curbing CO2 as a major cause of anthropological global warming (AGW) and 2) curbing other types of pollution. Recently there has been renewed debate about the role CO2 plays as a contributor to global warming and both the science and politics behind this issue seem far from settled. The European and North American publics have also indicated that their tolerance for increased energy costs has its limits as approximately two-thirds of respondents in a worldwide Financial Times-Harris poll stated they would not want to pay more than 5% to 10% in increased energy costs from renewable resources.18 While the extent of growth in clean technology depends on how broadly the sector is defined, indications are the market for renewable energy and clean technologies, in one form or another, will continue to expand. Recent momentum, particularly in wind and solar energy, has been tempered by a slow-down in government subsidies and competition from cheap natural gas that accounted for 51% of new installed energy in Europe in 2010 (Source: GWEC).

17 Knowledge Networking for Technology BY PROFESSOR NAZLI CHOUCRI Massachusetts Institute of Technology Department of Political Science http://ssc.undp.org/uploads/media/cop9827.pdf 18 http://www.smartplanet.com/business/blog/smart-takes/poll-wind-power-bio-fuel-in-but-nuclear-mixedprices-are-key/11457/ October, 2010

MRA Research Group

33

A major index for renewable energies has been down since 2007 New Energy Global Innovation Index (NEX $US) 500 400 300 200 100 0 2005

2006

2007

2008

2009

2010

The WilderHill New Energy Global Innovation Index (NEX $US) is comprised of companies worldwide whose innovative technologies and services focus on generation and use of cleaner energy, conservation and efficiency, and advancing renewable energy generally. Included are companies whose lower-carbon approaches are relevant to climate change, and whose technologies help reduce emissions relative to traditional fossil fuel use. (Source: NEX)

Renewable energy resource growth is dependent on many factors. An increase in the price of natural gas could revive the market for wind power (some see a price of about $US 8/million Btu as a tipping point – about double the present price).19 Continuing price drops in solar power (as is happening) could also trigger new markets. Since energy and economy are interconnected, negative global conditions, such as economic instability, can slow down the pace in particular countries. However, the wide reaching industry scope – solar, wind, hydro, tidal, biofuels and others – and evidence that many counties are committed to clean technology solutions to reduce pollution and conserve fossil fuels, suggest growth will continue for the foreseeable future. Rapidly developing technology, evidenced by the amount of research happening in the US, China, Japan and Europe, suggests the clean technology sector will continue to grow, albeit at a reduced rate in developed countries under present economic/market and political conditions. Meanwhile, many developing countries are now showing an appetite for growth in this area. Associated technologies that enable clean technologies could also either accelerate or thwart expansion. The Trends Journal (Winter, 2011) highlighted several new alternate energy sources that could be game-changers if they are viable and/or obtain US patent recognition. Generally these technologies highlight 1) low energy nuclear reactions (LENR) – also known as “cold fusion,” a term unacceptable to the US Patent Office – and associated with MIT engineers and the US Naval Research Lab, 2) energy produced from hydrogen and other atoms (e.g., Catalyst Induced Hydrino Transition, or CIHT) already licensed with “backing from the US Military” and 3) power from magnetic fields “verified by Underwriters Laboratory.”

19

“Pickens Wind Plan Hits Snag,” http://money.cnn.com/2008/11/12/news/economy/pickens/index.htm

MRA Research Group

34

Clusters The biggest clusters today are in Europe and, to a lesser extent, the US. Europe is the world’s leader and “center of excellence” in renewables, largely policy led, focused on sustainability and significantly ahead of North America. Clusters are important as new opportunities are spawned from shared knowledge and test sites. In the case of clean technology, clusters can be either geographic or around energy types, such as wind, solar or tidal where the natural characteristics have a bigger impact. Key clusters in Europe include Eco World Styria, Austria, home to more than 150 cleantech companies with many world leaders in their field; Lahti, Finland with over 250 Cleantech companies accounting for 60% of the country’s cleantech business and 80% of its research; Copenhagen, Denmark, aiming to become the world’s first CO2-neutral capital, the country being one of world’s largest exporters of cleantech as measured by GDP; and Stockholm, Sweden, named 2010 Environmental Capital by the European Commission and home to a cluster of cleantech industries. Within the United States, clusters of note are located in Cambridge, Massachusetts, led by the New England Clean Energy Council, whose mission is to accelerate New England’s clean energy economy by building a world-class cluster of clean companies; Syracuse, New York host to a cutting-edge clean energy incubator that links entrepreneurs, investors and academic researchers; San Diego, California, with an estimated 650 cleantech firms, emerging as a global leader; and San Jose, California, which since 1994 has focused on technology commercialization, in recent years specializing in assisting clean energy and emerging energy efficiency companies. Austin, Texas (“Green City”) has taken another approach by addressing clean tech issues at the community level. One of the recognized market development challenges is that much of the world is developing this sector at the same time. Globally, the greatest growth will come from markets with supportive policy frameworks to guarantee expansion regardless of fluctuations in the price of fossil fuels or other variables. Ultimately market leaders will emerge on the supply side. These might all be in China – Sinovel Wind Group, for example, has set a goal of being world leader by 2015. While growth will be spread between services and products, products are expected to lead demand, but the ideal scenario from an exporter perspective is to have a product while also selling services. Europe is considered the strongest market, driven by the policy and regulatory environment, but also the biggest competition. India and China are strong markets driven by inability to meet internal energy needs. Germany and Scotland are significantly ahead of North America in certain market segments. Netherlands is a pioneer in initiatives such as a "green" road tax aimed at cutting carbon emissions, as well as the supporting solutions for tracking and billing. Norway, while a potential market, is challenged to develop a favourable pricing strategy. The Americas, Brazil, Caribbean, Africa - developing regions where population is exploding – represent strong potential markets tempered by the variables that typically impact emerging and developing economies. Within the US, California represents formidable competition as both a policy and technology leader. The southern US is potential market for clean energy solutions such as wind, solar and hydropower. Alaska, Nordic countries, Russia, northern India and northern China are potential markets for wind in cold climates.

MRA Research Group

35

Offshore wind is attracting attention and was the only growing segment of this sector in 2010 (GWEC). Atlantic Wind Connection, for example, is proposing a 6,000 MW transmission line project in New England20 that could be constructed starting in 2013 off the East Coast of the United States to service off-shore wind farms. Google Energy and Japanese trading firm Marubeni are among the investors in what could be $multi-billion project.

EMERGING TRENDS Electricity distribution, energy production, energy storage, energy conversion (from one form of energy to another, such as solar to electric) and atmospheric engineering are all on the horizon. Renewable energy technologies, such as the solar water heating systems and solar air heating systems are expected to expand. Energy efficiency technologies are poised for growth due to the economic benefits. Combining renewable energy and ICT with electric thermal storage for space heating and water heating, utilityscale energy storage, battery electric vehicles to meet the energy demands and address caps on GHG emissions are emerging trends. Another technological development on the horizon is biomimicry, as a model for heat exchange based on how nature best disperses heat and natural occurrence. The global economic downturn caused energy demand to drop and oil prices to plummet from historic heights. An abundance of offshore oil and gas, including in the Arctic region, untold carbon reserves in the US (e.g., Bakken Shale), and unconventional oil and shale gas in Western Canada that are attractive to investors and create jobs temper pressure for alternative clean energy.21 Nevertheless, renewable energy such as wind, solar, solar PV, wave, tidal and hydro are expected to expand as a substitute for fossil fuels overall, as conditions come into play. Emerging trends expected to impact supply, demand and specific markets are: • Increasing energy needs due to global population growth and emerging, developing economies • Rising costs of traditional energy sources and concurrent need for economic efficiencies • Global environmental concerns about pollution, global warming and natural disasters • Policy direction of governments in response to consumer advocacy for more sustainable energy systems, energy conservation, as well as sovereignty concerns about supply • Development of mature renewable energy resources and technologies in several subsectors such as wind and solar; innovation stages such as in biofuels, or commercial stages of development, such as tidal. • Advancements in smart grid technology, among numerous other specialized technologies across a broad spectrum of goods and services that comprise the clean technology sector • The regulatory environment is an especially notable driver, with EU the global leader, the US leading Canada, California leading the US exemplified by initiatives like carbon tax, carbon incentives and carbon credit trading • Clean technology is also promoted as a big job generator, and an investment rather than a cost, although these assertions have often been questioned (e.g., “Denmark 20 21

Atlantic Wind Connection (AWC) http://atlanticwindconnection.com/news/37-2/ “There will be Fuel” http://www.nytimes.com/2010/11/17/business/energy-environment/17FUEL.html?_r=4

MRA Research Group

36

needs a proper debate and a thorough re-appraisal of the (renewable) technologies that need to be invented, developed and costed before forcing the country into a (wind power) venture that shows a high risk of turning into an economic black hole.” – CEPOS Study, 2009). 22

Overall, the clean technology sector is predicted to outpace many other sectors worldwide in the foreseeable future and, like ICT, is increasingly ubiquitous with few industries that do not have a clean tech component. Competition is becoming more intense on a global basis and companies have to be responsive and agile to seize emerging opportunities. While renewable energy may fare weaker than earlier expected compared with coal, oil and gas sectors, that trend is counter to the present global goal of countries reducing greenhouse gas emissions. An economic upturn and/or concurrent rebounding of fossil fuel prices (particularly coal and gas) could easily result in increased demand for clean technologies. A supporting policy and regulatory environment are considered to be very important drivers and key motivators to developing the industry. It has been widely noted that changes in regulatory policy in Canada could improve the market significantly, but have been slow to evolve.

CANADIAN PERSPECTIVE A recent report on the clean technology industry,23 suggests Canada’s emerging clean technology companies are poised for growth. Canada is home to some of the most advanced science and technology companies in the world with total R&D investment in 2007 of $29 billion, including $15.8 billion invested by the private sector. Further, government subsidies, and research and development tax credits, make Canada an attractive jurisdiction in which to conduct research; and over 300 cleantech firms already have commercialized products and services. At the same time the report cited the need for improvements in the business environment for investing; the management capacity of companies; supportive government policies with an emphasis on investment in commercialization; better access to capital; taxation changes; policies to stimulate green procurement; creative financing vehicles and regulation of greenhouse gases – a key driver for clean technology worldwide. Canada is leading on three energy management pilot projects under the Global Superior Energy Partnership Initiative. These pilots are also intended to support the development and implementation of ISO 50001, the new international standard for energy management that will allow energy users to identify energy savings and to develop and implement actions to maximize energy performance. Sustainable Development Technology Canada (SDTC), a Government of Canadafunded initiative whose mission is to develop and commercialize clean technologies24 and a key sponsor of the referenced ‘cleantech’ sector report, has received $1.05 billion as part of the government’s commitment to create a healthy environment and high quality of life for Canadians. 22 “Study on the Effects on Employment of Public Aid to Renewable Resources” Spain; Universidad Rey Juan Carlos, Mar., 2009; “Wind Energy: The Case of Denmark ,” CEPOS, Sept. 2009; “Economic impacts from the promotion of renewable energies: The German experience” RWI, 2009 23

2010 SDTC Cleantech Growth and Go-To-Market Report,(Apr.2010) http://www.cleantechnologyreport2010.ca/en/ 24 http://www.sdtc.ca. The qualitative research is based on input from 168 Canadian cleantech companies, complemented by an on-line database of 436 companies.

MRA Research Group

37

SDTC operates as a not-for-profit corporation and has been working with the public and private sectors including industry, academia, non-governmental organizations (NGOs), the financial community and all levels of government to achieve this mandate. SDTC operates two funds aimed at the development and demonstration of innovative technological solutions: the $550 million SD Tech Fund™ supports projects that address climate change, air quality, clean water, and clean soil; and the $500 million NextGen Biofuels Fund™ supports the establishment of first-of-kind large demonstration-scale facilities for the production of next- generation renewable fuels. With over 200 projects, SDTC reportedly has one of the largest clean technology portfolios in the world, putting Canada in a strong position to take advantage of the rapidly emerging global clean-tech market, some $4 trillion annually. Industry advocates also note, however, that having a supportive policy framework and procurement strategy are important to adequately sustain and encourage clean technology innovation.25 Three Canadian Environmental Technology Advancement Centers (CETAC), established with the help of SDTC funding, have been supporting the development of environmental technologies by supplying companies in the environmental industry with professional services required during the various steps leading to the commercialization of their applications: Enviro-access (http://www.enviroaccess.ca/index-en.html); the Ontario Center for Environmental Technology Advancement (OCETA) and (http://www.oceta.on.ca/); and the Canadian Environmental Technology Advancement Corporation - West (CETAC-West) http://www.cetacwest.com/. There are numerous examples of Canadian knowledge and expertise in clean technology being used in Canada, as well as being transferred and applied in other countries, such as United States, Sri Lanka, UAE, UK, Poland, Turkey, China, Australia, India, Costa Rica, Honduras, and Guatemala. These range from carbon capture and storage to tidal power, wind farms, and solar communities to name a few. 26 The introduction of additional supportive policy in Canada (e.g., more stringent emissions regulations and aggressive targets) could further drive the sector and significantly change market dynamics and reshape the competitive landscape. The Government of Canada has also invested in the Asia-Pacific Partnership on Clean Development and Climate (APP), a public-private partnership of seven countries Australia, Canada, China, India, Japan, South Korea and the United States - that seeks to accelerate the development and deployment of clean energy technologies. Together, the APP partners represent more than half of the world's population, economy and greenhouse gas emissions.27 Canadian provinces are launching various initiatives to stimulate development of a Clean Tech sector. For example, CleanWorks BC is a collaboration to promote British Columbia's clean technology and services sectors, and includes the Independent Power Producers Association of BC and the BC Technology Association. This organization is also supported by the province, the Vancouver Economic Development Commission and the University of BC. 25

http://www.sdtc.ca/uploads/documents/en/SDTC_Globe%20and%20Mail%20Special%20Report_FINAL.pdf 26 http://www.cleanenergy.gc.ca/index.cfm?action=proj.summary&etid=8 27 http://www.ec.gc.ca/default.asp?lang=En&n=714D9AAE-1&news=62D20BAE-EE90-4D91-A46B84DBCE66A6E5

MRA Research Group

38

The Ottawa Cleantech Initiative, an offspring of the Bioproducts Business Network initiated in 2004, aims to promote and strengthen the clean technology industry in the Ottawa and Eastern Ontario region and is positioning to support a growing stakeholder base of clean energy and environmental technology companies in addition to bioproducts. Some provincial jurisdictions in Canada, as well as US states are turning to green tax incentives and credits, and other ways to simultaneously meet broader environmental sustainability goals while driving industry demand for green technology products and services. Canadian examples include Ontario’s Feed-in Tariff Program and Government of British Columbia’s Clean Energy (ICE) Fund.

ATLANTIC PERSPECTIVE In its Economic Outlook for the Atlantic Region (Fall 2011), the Atlantic Provinces Economic Council (APEC) states that although Atlantic Canada’s economy remains relatively stable, the three Maritime Provinces will continue to underperform, noting that the region continues to face “important structural challenges, specifically global orientation and fiscal situation....and that Atlantic exports show little progress in diversifying from a weak U.S. market.” An earlier APEC report highlights the fact that ocean/offshore technologies (including energy), ICT and biosciences are among those that are transforming the Atlantic economy28. While energy is an important sector based on output, direct employment in the sector is relatively small (estimated at 18,000), comprising less than 2% of the region’s labour force compared to a 11% share of output. The report cites the need for “innovation/R&D and training (human capital) for knowledge-based industries” to spur growth in these sectors. Previous research has identified Atlantic Canada as one of Canada’s key environmental technology clusters.29 The region’s knowledge and capabilities are well regarded in other jurisdictions, recognized and competitive on a national and international scale. Environmental products and services include remediation systems, air/soil/water quality testing units, solid waste management programs, and hazardous waste management facilities, environmental audits, laboratory services, environmental health and safety education /training among others. Of the eighteen Clean Tech projects funded under Sustainable Development Technology Canada’s $40 Million investment round announced in July 2010, two were located in Atlantic Canada,30 one in agriculture, and the other energy exploration and production. Another company received up to $15.9 million in July 2010 through Canada’s Clean Energy Fund to establish an innovative smart grid demonstration project that includes three Maritime Provinces and a number of communities.31 28

Atlantic Provinces Economic Council. Atlantic Report. Behind the Economic Recovery: Fundamental Changes Underway in Atlantic Canada. Winter 2010 29 Canada – A Strategic Choice Canada as an Investment Destination for Environmental Technology. KPMG LLP (Canada) for Invest in Canada (2007). 30 Source: http://www.cleantechcorner.com/sustainable-development-technology-canada-invests-40-millioninto-18-canadian-clean-tech-projects 31 http://www.nrcan-rncan.gc.ca/media/newcom/2010/201058-eng.php

MRA Research Group

39

A survey undertaken as part of the above mentioned Cleantech Growth and Go-ToMarket Report (Apr.2010) identified twenty-eight clean technology companies in Atlantic Canada, broadly categorized across nine clean technology sectors; the largest number being power generation and energy efficiency, followed by water and wastewater, and process efficiency. The report noted that many of these companies were located in rural areas; were on average 13 years old; most worked with “under-developed or nonexistent distribution channels,” all indicated that a founder’s invention was the Intellectual Property on which the company was created and all expressed intent to compete globally, directly or indirectly.

Hydro development in Labrador could increase electric power exports from Atlantic Canada Electric Power Exports ($Cdn) 300,000,000 250,000,000 NL

200,000,000

PEI

150,000,000

NS

100,000,000

NB

50,000,000 0 2001 2003 2005 2007 2009 Source: StatsCanada NAICS 22111

A $6.2-billion partnership deal announced in November, 2010 between the Government of Newfoundland and Labrador (Nalcor Energy) and Emera Inc. signals development of Muskrat Falls, the Lower Churchill River Hydroelectric Development. This project will result in power being transmitted from Labrador across the Strait of Belle Isle for use on the island of Newfoundland, with surplus transmitted to Nova Scotia Power, a subsidiary of Emera, across the Cabot Strait into Lingan, Nova Scotia. This arrangement complements the partnership already in place between Nalcor and the Innu Nation, and bypasses a historical roadblock at the Quebec border to supply energy to Newfoundland and Labrador, Nova Scotia and possibly beyond, including to the US market. This milestone project potentially helps to reduce the cost of energy in the region, enabling provinces to meet clean energy targets, diversify the clean energy supply, and possibly increase exports, potentially turning Atlantic Canada into an energy powerhouse. 32 The Federal and Provincial Governments are involved in a number of initiatives linked to the Clean Technology sector. These include the Atlantic Energy Gateway Initiative,33 aimed at making Atlantic Canada a leader in clean and renewable energy; the Atlantic Canada Energy Office, an energy sector advocacy group; and Team Atlantic Environment Committee to advance export development in the environment sector. They are also partners in several innovative demonstration projects in the region that illustrate the broad range and scope of Atlantic Canada’s diverse clean technology sector. 32 http://www.nalcorenergy.com/assets/news%20release%20%20lower%20churchill%20project%20to%20become%20a%20reality%2011.18.2010.pdf 33 http://mediaroom.acoa-apeca.gc.ca/e/media/press/press.shtml?4320

MRA Research Group

40

Ramea Island - Wind-Hydrogen-Diesel Energy Project34 The Province of Newfoundland and Labrador’s flagship renewable energy technology project is a wind-hydrogen-diesel energy system located in the town of Ramea on Northwest Island off the southwest coast of the province. This research and development project is using wind and hydrogen technology to supplement the diesel requirements of this isolated, off-grid community, one of 26 communities in the province that have no access to the electricity grid. Partners are Nalcor Energy, Newfoundland and Labrador Hydro, ACOA, Government of Newfoundland and Labrador, Natural Resources Canada, Memorial University, University of New Brunswick and Frontier Power Systems. A state-of-the-art project, unique to Canada, initiated in 2007, the system will allow shutting down of all diesel generators during periods of low energy demand. Clean wind power will be provided, either directly via wind turbines, or from stored hydrogen, created by using excess wind-generated electricity. The system comprises a wind farm (turbines), a hydrogen electrolyser that converts the electricity generated by the wind turbines into hydrogen, which is stored on-site and a hydrogen powered generator that converts the stored hydrogen into electricity. A computer-based Energy Management System (EMS) will provide all automatic control and monitoring of each piece of equipment associated with the WHD Project - wind turbines, hydrogen electrolyser, hydrogen genset, hydrogen storage, and diesel plant to ensure safe and reliable delivery of energy to homes and businesses in Ramea. The EMS was designed and is being built by Hydro and Nalcor Energy will retain all intellectual property rights to this software. It will be operating as a pilot for three years and will be a marketable product for Nalcor, already sparking interest from other provinces, as well as internationally. The system plays to the province’s strengths in engineering and technologies for cold and harsh climates and is progressing towards becoming a fully operational, world-leading wind hydrogen-diesel integrated system, considered to have potential for adaptation in northern climates, such as Alaska, Nordic countries, India, China, and Russia and similar regions. 35 Through its involvement in this and other projects, Nalcor has spawned several successful, small innovative companies with expertise looking for access to the grid to provide sources of renewable energy, that need either funding or advocacy support, but also demonstrate potential for future development of the sector.

Wind Hydrogen Village – Prince Edward Island Canada’s first grid-independent Sustainable Energy Supply System for northern and remote communities has been developed in North Cape, Prince Edward Island. The system is designed to operate on the basis that when the wind is blowing, wind turbines supply power to connected loads including a hydrogen production system. When there are low or no wind conditions, stored hydrogen is used to fuel a back-up generator that keeps the electricity flowing without any disruption of supply. The PEI Wind-Hydrogen Village is intended to demonstrate an effective and sustainable means for addressing the intermittency of wind power in stand-alone applications. Hydrogen produced from 34 35

http://www.ieawind.org/wnd_info/KWEA_pdf/Oprisan_KWEA_.pdf http://www.nalcorenergy.com/assets/nalcorenergyrameareport_january2010.pdf

MRA Research Group

41

local wind and water is a clean and renewable energy carrier with potential for reducing dependency on imported fossil fuels for stationary power and transportation applications. Partners include the PEI Energy Corporation, AirLiquide Canada, ACOA, Natural Resources Canada, Frontier Power Systems, Saskatchewan Research Council, Wind Energy Institute of Canada and its predecessor the Atlantic Wind Test Site (AWTS)36 The project is garnering international attention, as evidenced by an article published in the August/September 2010 issue of Earth Resources Magazine, referencing it as one of the world’s leading energy testing sites, noted for its high wind, low turbulence, and remote location at North Cape with broad exposure to the Gulf of St. Lawrence being unique in Canada, and where the harsh marine environment, high corrosion rates and occasional icing create ideal testing conditions. Core technology developed though the project is an electrolyser that allows electricity from the turbines to be broken down into oxygen and hydrogen, with the hydrogen gas being the storage medium to store the wind energy, until the hydrogen is released to fuel a generator. Hence, when electricity is needed and the wind is not blowing, the generator takes over - thereby solving one of the most fundamental problems of wind energy, i.e., supply consistency. It will be the first project in North America to produce hydrogen directly from wind turbines and with development of a proposed automated control system will ultimately create a turn-key wind-hydrogen solution for sale around the world. The PEI Energy Corporation is partnering with the private sector to develop industrial markets (such as mining, oil and gas) for wind-hydrogen technology in northern and remote locations.37 The Atlantic Wind Test Site (AWTS), a subsidiary of the PEI Energy Corporation, was established in 1980 as Canada’s National Wind Energy Laboratory, becoming a cornerstone of Canada’s wind energy R&D program at the time when the United States and several European countries were also aggressively investing in wind turbine development and commercial generation projects. Many developing countries also realize that wind energy can help them meet their rapidly increasing demands for electricity. With a huge land base, Canada’s wind resource is immense. Wind energy can provide large amounts of energy to existing utility systems as well as providing many additional benefits if appropriate technologies are developed. Canada is also interested in developing wind energy systems for its many remote and northern communities where the operation of conventional diesel plants is costly. Collaborative projects are advancing technology by combining the strengths of Hydro Quebec IREQ (the research agency of Hydro Quebec) to demonstrate the feasibility of IREQ’s “High Penetration No Storage Wind-Diesel System” using AWTS’s wind-diesel test bed and the University of New Brunswick (Department of Electrical and Computer Engineering) in the design and testing of innovative inverters to efficiently convert variable wind and solar power to stable utility grade electric power. AWTS evolved into the Canadian Wind Energy Institute (CanWEI), launched in 2005, as a partnership between ACOA, Natural Resources Canada, the PEI Energy Corporation, owner/operators of the North Cape Wind Farm and the Province of Prince Edward Island.

36 37

http://www.gov.pe.ca/photos/original/wind_test_site.pdf http://www.windh2.ca/

MRA Research Group

42

Fundy Tidal Energy Test Centre The Fundy Ocean Research Center for Energy – FORCE – was established by Nova Scotia as Canada’s leading test center for tidal energy technology, working with the developers, regulators, and researchers to study the potential for tidal turbines to operate within the Bay of Fundy environment. FORCE provides a shared observation facility, submarine cables, grid connection, and environmental monitoring at its preapproved test site. The site is considered ideal for testing, with water depths up to 45 meters at low tide, a sediment-free bedrock sea floor, straight flowing currents, and water speeds up to 5 meters per second. Partners include the Government of Canada, the Province of Nova Scotia, Encana Corporation, and participating developers. 38 Commencing in 2009, Nova Scotia initially selected three demonstration participants, with NS Power deploying the first commercial scale device in North America at the FORCE test site in partnership with OpenHydro; adding two more developers ALSTOM (with Clean Current) and Minas Basin Pulp and Power (with Marine Current Turbines). A fourth participant was announced in February 2011, an international consortium comprising Atlantis Resources Corporation (a world-leading tidal technology and project development company), working in partnership with Lockheed Martin and Irving Shipbuilding. The purpose of each participant is to customize, build, deploy, test and monitor prototype tidal turbines at FORCE's Minas Passage so that full-scale models can be developed. Together these projects bring the province a step closer to its goal of becoming a North American leader in the development, supply and commercialization of tidal energy and products  a potentially predicable and strong source of power.39 Building on this momentum, Nova Scotia is encouraging small-scale technology (up to 0.5 megawatts) as a community-based energy solution, using devices to connect at the distribution level at a fixed price for their output. Fundy Tidal Inc., based on Brier Island in the Bay of Fundy, is moving forward with plans to develop small arrays and other developers (both local and international) are proposing similar projects along the province’s coastlines and rivers. There are also expressions of interest in developing lagoon or barrage projects in the Bay of Fundy using technology akin to conventional dams, potentially resulting in projects of significant scale and energy capacity.

Electricity Load Control Demonstration Project Power Shift Atlantic, a consortium of Maritime electricity companies, has launched a $32 million research project on behalf of the power producing companies in the region to document the energy consumption pattern of residential and business consumers. The goal of the four-year project, launched in August 2010, is to examine how changing patterns in energy consumption can help utilities transform energy production to reduce greenhouse gases. The research will track usage of equipments such as air-conditioning or refrigeration or some other process related usage, with further research devising means to leverage the usage of such equipments and process patterns linking them with 38

http://fundyforce.ca./ Recent findings suggest that Fundy tidal power potential (in terms of flow rates) may have been significantly underestimated. As water is approximately 784 times denser than air, a doubling of the tide flow rate produces 8 times more generating power – the result of increased flow rates means a potential for shorter turbine blades and improved economics. (Source: NSPI-quoted in AllNovaScotia.com, Feb. 9, 2011). 39

MRA Research Group

43

the availability of wind power production. The project is funded to $15.9 million through the Government of Canada's Clean Energy Fund. 40 This project will combine the latest digital smart grid technology for managing the delivery of renewable electricity across communities in Nova Scotia, Prince Edward Island, and New Brunswick. It will allow utility companies to better understand how customers will react to smart grid technologies and which electricity loads can be managed better by real-time demand. It will also assist these utility companies in understanding how to make the best use of renewable energy resources in the region. Up to 2,000 customers will have new data on consumption that will affect behaviour and save them money. Further, the utilities could have new power system options resulting in operating savings and environmental benefits. In a complementary initiative, researchers at the University of New Brunswick have undertaken an exploratory study about the wind blowing pattern of the region. Understand peak wind times will enable them to advise clients on planing their utility usage, thus optimising energy provision options to clients.

SUPPORTING GROWTH INFRASTRUCTURE Post Secondary Institutions Acadia University Dalhousie University Holland College Memorial University of Newfoundland New Brunswick Community College Nova Scotia Community College St. Francis Xavier University St. Thomas University University of New Brunswick University of Prince Edward Island Examples of Research Centres and Support Facilities Wind Energy Institute of Canada Efficiency NB Flux Lab. Earth Sciences St. Francis Xavier University St. FX Environmental Sciences and Research Centre Atlantic Centre for Energy Fundy Ocean Research Centre for Energy (FORCE) Acadia Centre for Estuarine Research

40 http://www.businessreviewcanada.ca/sectors/utilities-electric/powershift-atlantic-electrified-159minvestment

MRA Research Group

44

Examples of Companies Active in Clean Technologies Advanced Glazings Ltd. Lunenburg Foundry AirLiquide Canada Maritime Geothermal Ltd. ANS Technologies Maritime Electric Atlantic BioEnergy Corp. Minas Basin Pulp and Power Atlantic Combustion Technologies Inc. Nalco Atlantic Communications NB Power Atlantic EcoWorks, NL Power Atlantic Hydrogen Inc. NS Power Atlantic Nuclear Nu-Air Ventilation Systems Inc. Barrett xplore Ocean Nutrition Cansolair Inc Phase Separation Solutions Enbridge Polycello Energy Systems and Design Ltd. ProCare Water Treatment Inc. Frontier Power Systems Pure Energy Batteries Fundy Tidal Inc. Renewable Lifestyles Gorman Controls Ltd Renewable Energy Services Ltd. Green Power Labs Inc. ThermEnergy Systems Inc. Highland Energy Inc Seaforth Energy Inc. HSM Systems Inc. SEC Heat Exchangers LED Flex Lighting Co Southside Air Inc LED Roadway Lighting Ltd. Thermodynamics Atlantic Canada has renewable energy strengths in many niche areas with major strengths lying in the diversity of the mix and a long history of export consulting expertise in conventional domains such as Water and Wastewater Treatment and others: • • • • • • •

•

Energy Generation: Wind – Examples PEI and NL Energy Storage: Hybrid Systems – Examples PEI and NL Energy Efficiency: – already on the company list; Advanced Glazings Ltd., LED Roadway Lighting Ltd., Green Power Labs, Nu-Air Ventilation Systems Inc Energy Infrastructure: example – Smart Grid being proposed for the Region – all utilities involved Manufacturing /Industrial: – Advanced Packaging – PolyCello; Recycling & Waste: – Nova Scotia is a recognized leader in this; many companies, Phase Separation Solutions Air & Environment: – Many existing companies already recognized in reports as forming a “centre of excellence” for these technologies; examples of innovative new companies include Enovex, Blueline Innovations, Shift Energy Inc., Atlantic Combustion Technologies and Carbon Sense Solutions. Water & Wastewater: – same as above; Atlantic Region is already recognized in other reports as a “centre of excellence” for these technologies; an example is ProCare Water Treatment Inc.

Company capabilities and expertise are wide ranging and include: cold climate engineering and technology; environmental consulting; engineering consulting; geosciences; water and wastewater treatment; water resource management; air monitoring services and technologies; solid waste management; clean energy systems;

MRA Research Group

45

remediation; energy efficiency monitoring; harsh environments; wind technology and carbon sequestration. While there are common capabilities within the sector, they are not all uniformly distributed among the four provinces; rather there are strengths and areas of focus, especially in renewable energy. This diversity of mix in renewable energy is widely considered to be one of the regions greatest strengths and a significant natural strategic advantage. The mix of energy sources creates an ideal grid, with few regions of the world considered so advantaged. In terms of the sector overall, there is a perception that Atlantic Canada is behind the rest of the developed world, but not far behind. The ability to keep pace with worldwide growth overall during the next five years is uncertain. On the one hand there are pockets of knowledge and momentum across the region, and all four provinces are engaged in innovative initiatives, but they are not all at the same level or conducting the same types of activities. Rather, clean technology activities are generally aligned to each province’s energy sources and mix. The Atlantic Region has one of the most diverse sources of energy on the continent – nuclear, hydro, refined oil, natural gas, electricity, wind, tidal, solar, biomass, shale, coal/CB methane, coupled with other natural resources – making the region an underutilized energy powerhouse. This amount of diversity in such a small area and population is unprecedented. However, to leverage strategically from a regional perspective would necessitate each province harnessing each other’s expertise and sharing knowledge and lessons learned in a systematic fashion. In terms of the private sector, companies across the region are generally at different stages of advancement and maturity. There is definitely potential for new companies based on potential market drivers and demand, evidence of continued investments in the industry, putting the systems in place and responding to the needs of the marketplace. Scenarios and events that could impact the type and pace of growth in the region are noted below. • •

• • • •

Wind, solar, tidal and hydro are scalable sources that can be integrated across the region to increase the reliability of using more renewables as well as achieve other targets and goals. Transmission system operators and planners in the region may expand line capacity and interconnectors more rapidly than predicted (for example to bring online vast wind resources from Newfoundland and Labrador to the Maritimes and New England). A combination of energy storage devices, such as thermal devices and batteries for electric vehicles, works to increase the amount of renewable energy in the mix. The large-scale deployment of smarter, energy efficient and renewable energy technologies can create thousands of skilled jobs across Atlantic Canada and trade expansion opportunities with New England and beyond. Atlantic Canada can potentially develop a robust, renewable power grid that is interconnected and optimized within the region and beyond. If the region is seen as a leader, synergies flow as expertise can be exported and regional manufacturing can potentially gain a stronger competitive advance.

MRA Research Group

46

• • • •

The region holds the potential for an energy system that is largely derived from clean, renewable sources, and momentum can steepen growth curves for renewable energies. A clustered approach could create benefits and cost advantages for local manufacturing, increasing global exports and competiveness. The Atlantic Provinces are moving toward targets for renewable energy, motivated by rising costs of energy and considerations for the environment, which directly and indirectly serve to stimulate and develop the clean technology sector. At least three provinces are currently investigating the feasibility of a clean technology cluster, identifying the players, key strengths, assets and related considerations.

Following are some additional factors that help to characterize clean technology within a regional context: The Bay of Fundy is a world-class resource for tidal power, with four pilot-projects in play, but the technology has yet to be proven. However, tidal energy may represent Nova Scotia’s most significant focus in terms of clean technology (along with wind and imported hydro), in meeting the Provinces renewable energy targets. The government of Prince Edward Island owns most of the wind farms in the province and has most of the expertise. Currently the government is seen to be the leader and best positioned to drive the sector. While this can be positive in terms of public sector leadership and management, it potentially hampers private sector involvement, entrepreneurship and leveraging of expertise – without specific measures to shift the balance toward more toward the private sector. With the exception of the Lower Churchill Hydro Project, offshore energy development continues to receive most of the attention in Newfoundland and Labrador. Given the magnitude of ongoing and proposed projects, it is natural that offshore development would overshadow many other renewable energy alternatives. However, the province may ultimately have more energy potential in wind than in offshore oil. New Brunswick appears to be focusing more on energy efficiency, smart grid and carbon capture, linking clean technology and the green economy, whereby clean technology is seen as a subset of ICT and a driver of knowledge-based industries. This is reflective of the many, specialized, small firms comprising the ICT sector in the province.

SWOT ANALYSIS (Industry View) STRENGTHS • AIF has been an enabler for many companies, and key tool in the Atlantic innovation process • Significant, diverse resource base - mix of energy types across the region: oil, wind, hydro, natural gas, solar, tidal, refined oil, electricity, nuclear, wind. • Transferable expertise and experience, such as dealing with icing, cold climates, oil and gas, offshore development • Body of knowledge amassed over two decades in oil and gas • World class technology, engineering consulting and expertise

MRA Research Group

47

• • • • • • • • • • •

Energy resources that can help meet the demand within the region and in New England. A 100% renewable energy mix should be possible by choosing the right technologies Community colleges are gearing up to take a more active role in responding to the needs of the clean tech sector with specific programs Companies with a proven track record and global experience Supporting infrastructure that is good to above average, with lots of capacity University system is excellent and with deep expertise in renewables R&D facilities within the universities. Large, international companies with a presence Two decades of experience in tidal in the Midas basin Two decades of experience in the offshore petroleum industry Atlantic Canada could be a leader in rare earth minerals, critical to clean technology R&D

WEAKNESSES • No strategy to develop the sector • Lack of marketing skills • Not enough awareness of the opportunity, knowledge of how to take advantage of the assets and capabilities • Lack of qualified resources, including engineers • Capacity for diversification, product or market development to take advance of emerging opportunities • Geographic location in terms of market access, distance to markets costly • Labour costs for manufacturing are high compared to low cost zones like China • Government investment is relatively small • Universities are behind in terms of training specific to the Clean Tech sector • Lack of early stage start up funding, venture capital, • Utilities are inward focussed, do not have the international marketing skills • Not enough R&D funding • Product development, getting to production, proof of concept • Attracting early innovators • Linking industry and academia • Lack of supporting policy environment to drive the sector, such as time of use policy OPPORTUNITIES • Bioenergy technology • Biofuels • Biomass • Borehole thermal energy storage systems • Carbon capture and storage • Clean, renewable energy in all forms: wind, hydro, tidal, solar, geo-thermal • Contaminated sites clean-up • Energy efficiency technologies • Green buildings • Green roofs • Hydro • Hydrogen storage

MRA Research Group

48

• • • • • • • • • • • • • • •

LEED (leadership in energy and environmental design standard) NH3 Photovoltaic technology Remediation Retrofitting Smart grid technology Solar thermal collectors for water heating, space heating Solar water heating Storage Thermal storage Wastewater treatment Water treatment Wind farms Wind in cold climates Ocean thermocline electrical conversion (Lockheed Martin)

THREATS • Other regions have a head start, for example, in large scale wind turbine manufacturing • Economic uncertainty due to market forces • Speed of global innovation • Protection of intellectual property • Strong Canadian competitors such as Pulse Energy, specialists in energy management • Having to compete against more advanced locations like Japan and US, where companies can compete on technology, but not on cost. • Motivation - have not yet saturated local markets • Having to adapt to a new business culture – clean tech is a combination of engineering and IT; don’t always share the same language or work culture • Recruiting, retaining engineers due to competition from other well paying sectors • Lead time to develop new products is lengthy

SECTOR ASSESSMENT

FILTER Strength and Sustainability of Future Market Demand Potential Economic Impact: revenue generation, innovation, job creation, trade expansion Cluster Potential

MRA Research Group

KEY SECTOR ATTRIBUTES Clean Technology ASSESSMENT COMMENTS Very Good Although the pace is dependent on global factors beyond the region High

Hugh potential opportunities, but economic impact is dependent on capacity building to develop the sector

High

Wind, tidal, smart grid, carbon capture, carbon storage – the challenge is whether the cluster is broadly defined,

49

Magnitude of business challenges facing SME’s

Mixed

Existence of Cross applications

Very High

Compatibility with IBDA (and Other) Support Mechanisms and Resources Immediacy of Results

Good

Medium

Extent of Pan-Atlantic Participation

Moderate

Number of Potentially Supportable Atlantic SMEs

Moderate to High

narrowly defined, by energy type or other; size is challenge (both company size and cluster size, i.e. # of companies – not many in each subsector/category); also how to align with the industry associations, due to crossovers into environment, ICT, oceans Same as in all sectors in the region – labour availability, skills training, marketing, managements, company size, venture capital, compounded by the fact the technologies are themselves emerging for multi-purpose technology, and those that can be used in conjunction with each other – for example, smart meters can have multiple applications • examples – military, ocean industry, aerospace and defence, environmental technology (many overlapping companies and technologies) • a long history of cross purpose technology – oceans, oil and gas, marine sciences, aerospace Lots of export potential

Some technologies will take quite some time to test and market; also impacted by the pace of government policy and regulation, which are unpredictable Due to the eclectic mix that comprises the sector across the region, necessitating an asset map and sector development strategy

IMPLICATIONS FOR TRADE DEVELOPMENT SUPPORT Training •

Training in “smart grid”; IT in clean technology, advanced technology, gaining access to the markets

MRA Research Group

50

• • • •

More investment in people – skills development More education on the research side Training across the spectrum: hydro, solar, tidal, sub-sea, wind. Have hardly scratched the surface. Skilled work force is vital

Entrepreneurship • Entrepreneurs do not realise what they have, value of assets, how to capitalize Skills / HR Shortage • Labour force needs development, • Where to get the specialized teachers is a problem; the amount of money available to attract them to the province/region is not enough; occasionally there are funded Chairs, but only for a time, not long term. Collaboration • One of the greatest needs is for more collaboration between the provinces. There is a perception in the region that for someone to win, someone else has to lose and this is counterproductive to the industry and the region as a whole; the key to success is more coordination and integration •

This is already happening within some of the pilots where there is potential for shared clean energy sources to meet clean energy targets; collaboration is very important to developing the sector; the region is small enough that companies should be able to connect but need encouragement and mechanisms to do so.

R&D • The application process for R&D funding is perceived by some to be too onerous and expensive and so they do not apply; they would have to hire consultants as they don’t have the time or expertise in-house to prepare the proposals. • R&D is important but not sufficiently engaged • Challenge is how to better connect R&D with industry • Need to get universities out of their current competitiveness mode and let them each focus on their own unique niche Strategy • How to make it sustainable • How to measure it • Supportive regulatory environment - Feed-in-tariffs for renewable electricity (if justified), potentially with benefits for local content; a fuel switching strategy towards renewable energy (electric thermal storage, battery EV incentives) • Policy and incentives • Need to make it easy for companies to locate here and work here • More focus on innovation • How to capitalise on these assets (NB Utility was almost sold; Emera owns part of Bangor Hydro) • Make what we have now more sophisticated, more globally relevant; global measurements, international standards • Need an asset map of the clusters, an inventory

MRA Research Group

51

• • • • • • • •

Strategies to improve innovation within firms The ‘Smart Grid” is a critical component of sector growth Governments – all levels – need to be model users More Public-Private partnerships Need more investment in infrastructure (regional transmission system) More spending on research The region needs to understand the potential of a sustainable energy system and that it can be achieved at a reasonable cost to consumers. Need a Sector Export Strategy for success

Financial Assistance • Some costs are prohibitive- such as LEED; only one building certified in PEI because of the excessive costs – owned by Public Works. This has to be brought under control; too expensive to meet the standards is not good for the industry • There is Venture Capital; but very competitive; always a need for more • VC needs to be a revolving fund to encourage innovation • Proposal to set up a Side Car Fund – should be supported and promoted Industry Associations • Industry associations are not active enough Marketing • Need more promotion of clean technology, more focus on the sector • Creating awareness outside of the Province; • For a niche product in clean tech, best to use specialist company that provides expertise in the sector. These do not exist in NL or in Atlantic Canada to help with market positioning and the branding. There are good marketing companies here but this is not their specialty. Need to use specialists that are active and familiar with the target sector and geographic market. • To help the sector reach its potential needs highly focussed messaging and communications aimed at bringing about a change in social behaviour • Encourage new rising stars by wider recognition, communication, showcase successes, constant messaging • Needs more communication to the public about conservation • More marketing at the global level • Awareness is improving but not there yet sufficient to create or drive a local market • Key product/service areas - energy efficiency technologies; smart grid; contaminated sites clean-up; carbon capture and storage, wastewater treatment, bioenergy technology, biofuels (algae). PRIME MARKETS • • • •

US Europe India China

MRA Research Group

52

4.0 OCEAN TECHNOLOGIES SECTOR (Ocean Tech) INTRODUCTION Canada has the world’s longest coastline and Atlantic Canada accounts for almost 17% of that coastline, with Newfoundland having the lion’s share (72%). The Atlantic Region also oversees much of the Arctic coastline of Canada in terms of aerospace and defence, fisheries and resource management, as well as in hydrographic, cold ocean and other research efforts. In summary, this sector presents major challenges and unusually large opportunities for business development in Atlantic Canada. The ocean technology sector has been identified as a strategic priority by economic development agencies in many countries and regions around the world, for a number of reasons, including: • • • • • • •

high annual growth rate with projections of continued growth (estimated at 16% in Atlantic Canada41) high R&D investment in innovation significant cluster potential significant export potential well-paid and well-educated workers strong linkages with post-secondary education resources potential to deliver significant economic and infrastructure benefits

SECTOR DEFINITION A general definition of the sector is offered by Industry Canada; i.e., the Canadian Ocean Technology Sector “comprises knowledge-based companies that invent, develop and produce technological products for specific use in or on the ocean; or provide knowledge-intensive, technology-based services, unique to the ocean.” The sector is not easily defined using typical classification systems such as in the North American Industrial Classification System (NAICS) and Harmonized System (HS); however, it is considered a subset of the total Ocean Industries Sector, which also includes shipbuilding, offshore energy, marine transportation, defence and fisheries/aquaculture and others. These latter industries are consumers and drivers of ocean technologies, but are not usually classed as part of the ocean technology sector. A key to differentiating organizations in this sector from general ocean industry hardware suppliers is that they are “technology-based,” knowledge-based” and “innovative.” For these reasons, they have much in common with the aerospace and defence sector suppliers (which are also technology-based), and indeed, many companies in Atlantic Canada do work in all three sectors. Moreover, as a knowledge-based sector, a relatively high component of the work is in conducting research (R&D), and in supplying services, as well as products.

41 See Oceans of Opportunity, NL Dept. of Innovation Trade and Rural Development (2006) and THE OCEAN TECHNOLOGY SECTOR IN ATLANTIC CANADA, Volume 1 and Volume 2, ACOA (2006)

MRA Research Group

53

SECTOR PROFILE42 Goods Profile •

marine technologies and equipment such as robotics, subsea vehicles, navigation, imaging equipment, oceanic sensors, marine applications programming and information systems used in ocean operations;

•

communications and electronics equipment frequently used in navigation.

Services Profile •

professional services such as electronic and environmental engineering, offshore platform design, materials and structural design, systems integration, oceanography, meteorology, and ocean surveying and mapping;

•

environmental impact and coastal management.

The Industry Canada Oceans Technology Sector Map presently identifies about 100 organizations supplying 233 different ocean tech products and services from Atlantic Canada to the Atlantic Region and global ocean industries demand sector (with some organizations supplying more than one ocean industry subsector). The greatest demand for ocean technology products and services is for ocean observation and science (29%); followed by offshore energy (22%), defence (18%), fisheries/aquaculture (18%) and marine transportation (16%).

Ocean Science and Offshore Energy are Prime Drivers Atlantic Canada Ocean Tech Suppliers by Ocean Industries Sector (%) Marine Recreation Education and 1% Training Aquaculture 1% Fisheries 3% 10% Marine Transportation 16%

Defence and Security 18%

Ocean Observation and Science 29%

Offshore Energy 22%

Source: http://ocean.cinmaps.ca/asset_map

Based on an analysis of suppliers, about 50% of total Atlantic Canada ocean tech capacity is for providing commercial services with another 17% supplied to government and education sources (mixed products and services). The remaining 33% of demand is for products. 42

Much of the following information is source from Industry Canada, http://www.ic.gc.ca/eic/site/icoticto.nsf/eng/h_to00007.html

MRA Research Group

54

More than 90% of the reported demand by offshore energy companies is for services. Many of these companies are internationally-based. About 60% of total ocean tech supply sources in Atlantic Canada are based in Newfoundland and Labrador, followed by Nova Scotia (37%) and New Brunswick and PEI with approximately 2% and 1%, respectively. A study published in February, 2006 identified 137 ocean technology firms in Atlantic Canada with annual sales of $329.2 million (circa 2004) and with an expected growth rate of 16% per annum – suggesting potential sector sales of approximately $800 million in 2010 and approaching $1.7 billion by 2015.43 The sector is characterized by SMEs (average 33.6 full-time employees and 1.5 parttime employees in 2005); on average 70% of total sales reported by OT firms were related directly to ocean technology. 37 R&D is a core activity of most ocean tech companies. R&D is reported to account for 30% to 50% of company annual expenditures and almost 1/3 of the workforce. Cluster potential is significant, driven by Centres of Excellence and increased networking and cooperation between public and private interests, especially in Newfoundland.

Export Activity The “average” export activity reported by 137 Atlantic Canada ocean technology firms was 52% - with about half of this (24%) to the US, 16% to the rest of the world and about 10% to other places in Canada. 37 However, many core firms are primarily exporters, with some reporting up to 95% of sales out of country (www.ic.gc.ca/eic/site/icoticto.nsf/eng/h_to00007.html). Although it is difficult to identify export measures of specific ocean technology products and services, the following product export categories are core indicators of this sector.

US is Main Market for Core Ocean Tech Products Navigational & Guidance Instrument Exports ($Cdn 000)

Navigational and Guidance Instruments Mfg Markets 2010

60,000 New Zealand 2%

50,000 NL

40,000

Australia 3%

PE

30,000

NS

20,000

NB

10,000 0 2001

2003

2005

2007

2009

Norway 6%

UK 21%

Denmark 1%

US 67%

Statistics Canada NAICS 334511 (The above includes, in part, sonar equipment, echo sounders, bottom profiling equipment, fish finders, cabin sensors and navigation transmitters, sensors and displays.)

43

THE OCEAN TECHNOLOGY SECTOR IN ATLANTIC CANADA, Volume 1 and Volume 2, ACOA (2006)

MRA Research Group

55

Boiler, Tank and Shipping Container Mfg Exports ($Cdn)

Boiler, Tank and Shipping Container Mfg Markets 2010

14,000,000 12,000,000 10,000,000

NL

8,000,000

PEI

6,000,000

NS

4,000,000

NB

Jordan 17%

Cuba 9% US 47%

2,000,000 0 2001

2003

2005

2007

2009

Poland 27%

Statistics Canada NAICS 3324 (The above includes, in part, tanks, containers and ocean boilers for ships and platforms.)

SUBSECTOR PROFILE Acoustic Systems and Equipment • Sonars • Echo Sounders • Sub Bottom Profilers • Data Acquisition and Processing Systems Defence • Sonobuoys • Naval Equipment and Systems • Search and Rescue • Surveillance Equipment and Systems Imaging • Remote Sensing Data Acquisition • Image Analysis • Geomatics Instrumentation and Information Systems • Buoys (moored and drifting) • Oceanographic and Meterological Sensors • Optical Sensors • Data Collection and Information Systems Marine Communications • Shipboard • Wireless • Subsea Platforms and Vehicles • Remotely Operated Vehicles • Autonomous Vehicles • Manned Submersibles • Handling Systems • Diving Contractors

MRA Research Group

56

Services • Training • Consulting • Vessel Operations and Survey Companies • Navigation and Positioning • Naval Architecture and Marine Engineering • Testing and Simulation • Other Ocean Related Services

KEY SECTOR DRIVERS •

offshore oil and gas exploration and development

•

fisheries, aquaculture and fish processing

•

ocean exploration

•

defence and security

•

marine transportation and construction

•

shipbuilding and repair (specialized equipment)

•

port operations

•

coastal zone management

•

mapping and tracking

KEY SUBSECTOR DRIVERS •

ocean science and engineering research into such areas as the environment, icebergs and ice, aquaculture and oceanography

•

development of navigation systems and ocean mapping for increased use of electronic chart systems and improved accuracy of satellite positioning systems

•

marine communications development for increased use of data communications at sea and development of new satellite communications systems to offer wider bandwidth and lower costs

•

high volume data base management;

•

inter-operability of data and meta-data;

•

marine sensors systems and deployment platforms for better data, at a lower cost and more accurate satellite positioning (i.e. intelligent buoys, sonars, ROVs);

•

creation of knowledge for base data sets for coastal zone management;

•

niche application data processing and synthesis (for example, Lidar, seabed classification);

•

increased regulation in the shipping industry, which creates opportunities for innovative, cost effective technologies that can be supplied by Canadians; i.e.,

MRA Research Group

57

electronic charts and display systems (ECDIS), vessel data recorders (VDRs) and offshore communications, especially automatic identification systems (AIS) •

international regulations such as those established by the International Maritime Organization (IMO) under conventions such as safety of life at sea (SOLAS).

GLOBAL PERSPECTIVE   • • • •

• • • • •

• • • • •

OT sector will certainly be a growth sector compared to others and will fare well. Much of the oceans are still “virgin territory”. Growth will be driven by O&G (deep water, harsh climates), Marine Science (climate change as oceans are a moderator), transportation (cheapest method of moving products); Growth dependent on global economy, defence (including surveillance, sovereignty, mapping) Clusters in Canada (St. John’s, Halifax, Rimouski, Vancouver), US (Woods Hole, Scripps Institute, Florida), Europe (Southampton, UK, Breast, France, Hamburg, Germany). Important as they provide a critical mass of companies that feed off each other. Also assists companies to match strengths and eliminate weaknesses by working collaboratively; Greatest growth foreseen in Central/South America, US, Asia (China & India); Subsectors indentified for growth opportunities include ROV’s and Ocean Observation (Defence, sovereignty, science); Products and services feed off each other and will grow together; Multiple applications will be significant between military and commercial sectors; Important developments will include application of U/W vehicles in O&G and will drive this sector by opening up deep water activities; no major changes seen in shift in markets but two major market segments will benefit – offshore O&G and commercial sectors. Fisheries will remain stagnant; Value chains will be driven to China & India due to costs, but this is not sustainable as they lack strength in R&D of new products, time, strategies, technology and clusters; Regulatory regimes changing due to Law of the Sea and mapping. Canada has until 2013 to complete its mapping claim; China will provide competition in OT and could become an influence in lowering price of products; Present important geographic markets include US (San Diego, New England and Northwest), Spain, South-eastern UK and Europe; OT sector will show continued growth highlighted by Arctic technologies and improved ROVs.

ATLANTIC PERSPECTIVE • •

Sector growing 16%/year in NL and expected to top $1 billion by 2015; Important assets include Atlantic Innovation Fund, partnering and more university participation;

MRA Research Group

58

• • • • • • • • • • • • • • •

Atlantic Canada may actually outpace global growth, which will be aided by our growing cluster concepts in NL & NS (other countries will copy our strategies); Important assets include our clusters, knowledge capabilities, government investments, universities with an ocean focus and academic programming; Assistance necessary in additional government investment, increased market development funding, product development and commercialization; Capabilities mainly between NL and NS but NB is growing and has potential; Leaders include Marport, Ican, GRI Simulations, JouBeh, Hawboldt’s, many others; these companies focus on niche areas and are non-competitive and cooperate well; Rising stars include companies producing high definition cameras U/W Acoustics in NL), subsea controls for ROV’s; Absolutely opportunities for new companies to become established as many new niche areas are opening up; Need for assistance in the financial costs of setting up operations; Expect substantially more employment in next 5 years (up by as much as 50%); Employees will be more productive (have to be) as companies must focus on their markets and commercialization of products developed in educational institutes; Strong opportunity to take advantaging of emerging opportunities as sector is underserviced globally (short window to be there “first” and carve out niches); Infrastructure has improved; training must be high priority; development of Centres of Excellence very important; Never say “No” to training. NL has established Masters Degrees in Technology Management and now has 4-year Bachelor Degrees in Ocean Mapping and Ocean Observing; Additional training should focus on UW Technology, satellite technologies, GIS and interpretation of data; Biggest challenges are cost competitiveness (focus on boutique products as customers will pay a premium) and “Our own perception” (We are a major player and have made a name for ourselves).

SUBSECTOR OPPORTUNITIES • • • • • •

Those identified include Marine Transport; Defence; Ocean Energy; Aquaculture & Biotechnology; Ocean Science; Greatest growth opportunities in Ocean Science and Ocean Energy (offshore O&G and renewable energy); Sub-segments with strong growth opportunities include ROV’s, AUV’s. Important technological developments include U/W robotics (enabler for a number of industries) and Ocean Networks (Acoustic); AC is in good position to capitalize due to our present cluster strengths and export markets (domestic market is relatively small and our companies are strong global players); Good opportunity to attract new companies which bring new ideas and vitality to existing companies;

MRA Research Group

59

•

Risks include competition (globally and from other clusters) and availability of skilled personnel (shows need for appropriate training programs and appropriate remuneration). There is competition among sectors offering increased wages.

CLUSTER STRENGTH • •

Oceans Advance is a cluster representing about 50 Ocean Tech companies throughout NL, but mainly focused in St. John’s area; Oceans 2014 has been awarded to St. John’s, NL. Need for all levels of government to support this important North American trade show and conference, which will attract numerous companies and show off our capabilities which should attract new business to AC.

INDUSTRY LEADERS Newfoundland & Labrador • Marport • GRI Simulations • PanGeo • Virtual Marine Technologies • E-Sonar • PAL • Rutter Technologies • Northstar Technologies • Compusult Nova Scotia • MetOcean Data Systems • Ultra Electronics • Moog/Focal Technologies • Rolls-Royce Undersea Systems/Brooke Ocean Technologies • Satlantic • Nautel • Instrument Concepts • Romor Atlantic • JouBeh Technologies • Vemco New Brunswick • Caris • IVS 3D

Ocean Technology Research and Education Institutions Bedford Institute of Oceanography (BIO) C‐CORE Canadian Centre for Fisheries Innovation (CCFI) Centre for Aquaculture and Seafood Development (CASD)

MRA Research Group

60

Centre for Marine Simulation (CMS) Centre for Sustainable Aquatic Resources (CSAR) College of the North Atlantic Centre for Geographic Sciences (COGS) Dalhousie University (Faculties and Departments) Huntsman Institute Marine Institute ‐ School of Ocean Technology Memorial University (Faculties and Departments) NRC ‐ Institute for Ocean Technology (NRC‐IOT) Ocean Sciences Centre (OSC) Offshore Safety and Survival Centre (OSSC) Propel (formerly, Centre for Marine CNG) SafetyNet – Centre for Occupational Health and Safety Research University of New Brunswick (Faculties and Departments)

SWOT ANALYSIS (Industry View) The following are consistent responses from the 11 Ocean Tech companies/ associations/government representatives interviewed: STRENGTHS • • • • • • • • • • • • • • •

Global growth expected to be in the 15-25% range over the next five years with Atlantic Canada doing as well as, if not better than this estimate (AC estimates as high as 50%); Cluster development in NL and NS has strengthened sector by providing opportunities for collaboration, networking support, R&D and new product development; Sector development has multiple applications including military, environment, port security; AC is strong in R&D, especially in the development of new products and services with the support of educational institutions and research laboratories; “The oceans are virgin territory” with less than 3% explored; AC companies posses strong knowledge capabilities, good technicians and strong graduate students; Government has made investments in sector including universities with an ocean focus; Strong opportunities for employment growth for high wage positions; Strong in development of underwater robotics, AUV’s and ROV’s; Our companies have proven they are strong global competitors; Our OT companies have “vision”; Solid growth continues in sector, especially SME’s employing less than 50; AC has close proximity to markets; OT has a well educated workforce; Sector experiences very cooperative liaison and support from all levels of government.

MRA Research Group

61

WEAKNESSES • • • • • • • • • • •

Need for an Atlantic strategy for OT sector; Growth of markets in China/India likely to lower prices of high tech products; Only NL and NS have well developed sectors; Lack of better air connections to major US and EU cities; Need for competitive intelligence; Require access to adequate financing; Need for private sector to liaise with universities and research labs to develop strong commercialization opportunities; Lack of strong Atlantic Canadian “voice” to government and industry; Lack of internal (AC) networking opportunities; Companies lack good knowledge of government support programs; Costs of setting up a new business are high.

OPPORTUNITIES • • • • • • • • • • • • • • • •

Ocean Energy (O&G); Marine Science; Sovereignty and Surveillance; Robotics (AUV’s and ROV’s); Ocean Observation; Automated Data Collection, Distribution and Management; Environment (Arctic); Mapping (Coastal Zone); Intelligent Systems; Shifts in legislation regarding climate change and security; Marine Simulation (Crossover with Gaming Industry); Aquaculture; Turnkey ship platforms; Smaller sensors and components; E-monitoring; Disaster preparedness.

THREATS • • • • • • • • • • • •

Need for skilled workers, especially graduate student level and engineers; Competition from Asia; Potential global economic and political instability; Possible shift in markets towards Asia; Regulatory environments (Arctic, oil spills, shipping) and government policies; Taxation issues; Terrorism; Lack of solid market intelligence; Currency fluctuations; Import laws of many countries; ITARS (International Traffic in Arms Regulations); Availability of working capital to SME’s.

MRA Research Group

62

SECTOR ASSESSMENT KEY ATTRIBUTE

KEY SECTOR ATTRIBUTES OCEAN TECHNOLOGY ASSESSMENT COMMENTS

Strength and Sustainability of Future Market Demand

High

Potential Economic Impact: revenue generation, innovation, job creation, trade expansion Cluster Potential

High

High

Magnitude of business challenges facing SME’s

Mixed

Existence of cross applications

High

Compatibility with IBDA (and Other) Support Mechanisms and Resources

High

Immediacy of Results

High

Extent of Pan-Atlantic Participation

Moderate-High

Number of Potentially Supportable Atlantic SMEs

High

Driven by Offshore Energy and Ocean Science; modified by new competition from Asia Potential for strong growth on all measureable economic indices NL, in particular, already exhibits strong collaboration between private sector, governments and education R&D cycle is shorter than bio-science, but still capital intensive at mid-level financing and for small firms just starting up Digital communication principles common across all sub-sectors Majority of sales fall into an export category, which has been growing.

Significant potential for direct sales from trade initiatives Longer growth curve for new products and supply chain entry Primarily NL, NS; but potential in all 4 provinces and both NB and PEI are participating. Est. 125 private companies and 25 public organizations

SECTOR SUMMARY The above profile of the ocean technology sector corresponds highly with the experience of the consulting team. Respondents were highly enthusiastic about the prospects for sector growth, with forecasts of increased revenue tending to 5% per year over the next five years, but much higher with some companies. Moreover, the overall sector is expected to grow in response to the many opportunities for new companies to join. Some previous “land-based” companies are already reported as converts. The sector is viewed as dynamic with changes happening at breakneck speed, which some trace to rapid advancement in miniaturization, increased computer speed (real time usage) and automated data collection/retrieval/integration; all leading to increased productivity. Companies tend to view each other more as partners than competitors. More see growth in services than in products; however this might just be a reflection of the sampled companies.

MRA Research Group

63

Offshore oil and gas (O&G) exploration and development (especially in deep water) and Arctic exploration (to fulfill Canada’s mapping requirements under the UN Law of the Sea Convention) were two of the major drivers often mentioned. However, the multiplicity of perceived needs and potential applications companies are addressing seem almost endless (e.g., defence, port security, ocean transportation, climate change as related to oceans, ocean mapping, navigation, environmental monitoring, new regulations related to oil spills and Law of the Sea, renewable resources such as wave and tidal power, oceanography – science, commercialization of ocean data) - with cross applications in almost all subsectors - defence, O&G, fisheries, security. It was acknowledged that Canadian government policies can have some effect on demand, but almost nothing else would seem to dent prospects. Some of the technical areas companies are addressing include: • • • • • •

ROVs, AUVs, robotics generally nano technologies microsystems intelligent ships data modeling and visualization wireless video for remote operations

Markets are many and wide-spread, with some emphasis on Central/South America (Brazil, Chile), Asia (China and India), the US (Gulf, West Coast), Europe (UK, Norway, Spain, Russia) and Canada (Arctic, Newfoundland). Barriers or challenges include finding qualified personnel (post-graduate level), access to financing (two of the biggest); also management, marketing and technical skills training, market intelligence and marketing support (especially trade shows/missions), accessing Asian markets, air links (particularly NL), understanding regulations, understanding government programs and how to move from research to commercialization.

INDUSTRY STRUCTURE Newfoundland and Labrador (NL) has an ocean tech industry association (“Oceans Advance”) with about 50 member organizations. However, outside of NL, data on sector composition is hard to come by. Part of the reason for this may be that the criteria for identifying ocean technology organizations are somewhat gray. For example, the present Industry Canada Company Capabilities Ocean Technology Directory includes a number of listings that, on the surface, would not appear to qualify as “innovative,” “knowledge-based” or “technologically-driven” organizations. Another reason is that this Directory requests company self-registration. The current directory shows 51 organizations based in Nova Scotia, 25 in Newfoundland and Labrador, 15 in New Brunswick and 5 in PEI. Many of the new upstart companies in NL are not represented and it is obvious that some from NS are not either. As Industry Canada rigorously updates this Directory every year, all Atlantic OT companies should be encouraged to list in it. This overlooks the fact that at least one industry association is also needed on the Mainland. Ocean technology in NL is “firing on all cylinders,” not the least because of its industry association, but also because of the close ties this association has with government agencies and educational/research centres (cluster at work). The consultants estimate that there may be as many as 100 organizations in NS, NB and PEI that could benefit.

MRA Research Group

64

NEED FOR TRAINING •

Need to promote OT sector and entrepreneurship amongst students at the Junior High and High School levels; Additional training required in areas of managerial skills, export market and sales.

•

FINANCING •

Several companies indicated that access to sufficient capital was a major problem – needed for R&D, commercialization and market accessing.

MULTI-DISCIPLIARY POTENTIAL •

AC companies focus on niche markets and are non-competitive and cooperate well together; Greater opportunities for increased partnerships amongst our companies need to be encouraged and promoted; The growth pattern of the OT sector in AC has been well established over the past ten years and will continue with government support and planning.

• •

INCREASED TRADE OPPORTUNITIES • • • •

In the O&G field, deep water opportunities will drive ROVs and AUVs; Subsea controls for ROVs; OCEANS 2014 to be held in St. John’s in 2014; Multiple dual applications with Military, O&G, Fisheries, security (i.e. - mapping, tracking, navigation); Although government has been extremely supportive, additional need for continued support at International trade shows and continued development of “Atlantic Canada as a Centre of Ocean Technologies’; Companies that specialize in Ocean Observation, O&G, Security and Defence; Development of increased intelligence in Asia and the Pacific Rim, Central & South America to assist in identifying opportunities for our products and services.

• • •

IMPLICATIONS FOR TRADE • • • • • • •

There is great potential to establish new companies; increased employment and economic growth; Sector’s supporting infrastructure include quality training facilities and Industry/Government cooperation (solid cluster in NL); Assistance is required in market intelligence and marketing support; Training should stay focussed on industry needs; Industry needs early promotion of opportunities to students in J. High School; Barriers and challenges include proximity to markets and we are “a small fish in a big ocean.” Use Norway as a model (similarities in O&G and coastline) selling OT worldwide.

MRA Research Group

65

MARKET EVALUATION • • • • • • • •

US (San Diego, New England and the Northwest) - Good opportunities Canada - Good opportunities in Arctic China & India - Moderate opportunities - need strong market intelligence Europe - Stable opportunities, especially Spain, UK and France North Sea, Good opportunities Central/South America - Higher risk, Brazil appears to be best prospect Russia - Higher risk West Africa - Higher risk

NOTABLE COMMENTS • • • •

The Ocean Technologies Sector will be one of the top three growth sectors in the world over the next five years; High growth, high tech, solid prospects; The Ocean is our backyard; We have developed the technology to allow a ship to drop off an Autonomous Underwater Vehicle (AUV) at the edge of the Arctic ice sheet, release it and then have it come back to the exact location 6 weeks later… the AUV pops up at the appointed time after travelling and mapping thousands of miles under the Arctic ice sheet.

MRA Research Group

66

5.0 AEROSPACE & DEFENCE (A&D) SECTOR INTRODUCTION In Canada, there is a considerable overlap of companies that do work in the Aerospace sector and the Defence sectors as well as in the Industrial Marine and Security sectors; including both products and services. Many companies in this group belong to industry associations, or can be found in directories, that broach all segments of the grouping; e.g., aerospace, space, defence, industrial marine and security. Aerospace goods manufacturing is the only segment of the overall grouping that is identified by a NAICS product code (336410 - products and parts). A 2007 Statistics Canada Survey found the aerospace sector (including both commercial aerospace activities and aerospace activities related to defence) reported total sales of $18.9 billion in 2007. The defence sector (which also includes aerospace products and services related to defence) had total sales of $7.6 billion. The industrial marine sector had sales valued at $1.3 billion, while the industrial security sector had sales of $684 million (see Table below).

Canadian Aerospace and Defence Overview by Industrial Sector, 2007 Overview Item

Aerospace Sector1

Defence Sector2

Industrial Marine Sector

Industrial Security Sector

$ (millions)

Domestic sales Export sales Sales Research and development in new or existing product or process improvement Employment 1

4,931.1 3,508.8 14,014.3 4,057.7 18,945.4 7,566.5 $ (millions) 700.8 152.6

number of employees 73,750 31,750

731.0 548.7 1,279.7

331.1 352.4 683.5

20.8

27.6

6,500

3,800

The aerospace sector includes both commercial and defence related aerospace activities. The defence sector also includes aerospace. Source: Statistics Canada, Nov. 2009 2

SECTOR IDENTIFICATION Information on these sectors is provided mainly by periodic surveys of upwards of 1,500 companies, conducted by Statistics Canada on behalf of Industry Canada; supplemented by information collected by industry associations and/or other stakeholders. Hence, information reported on all these sectors is generally presented as a group. The grouping is highly populated by knowledge-based, technology-driven organizations.

MRA Research Group

67

Sales and employment in the aerospace sector are concentrated in Quebec, while the same in the defence and industrial security sectors are concentrated in Ontario. Sales of aircraft and aircraft structures accounted for the largest percentage of sales (39%) in the aerospace sector, while combat vehicles and components were the leading product sold by the defence sector (29% of all sales). In the industrial marine sector, 43% of all sales were of products and services related to repairs and fabrication, while detection and surveillance systems represented the single largest portion of sales by the industrial security sector, accounting for 29% of all sales.

SUBSECTORS The overall Aerospace and Defence grouping is comprised of the following sub-sectors:

Aerospace Major Aircraft Systems • Avionics • Cockpit Display Systems • Communication Systems • Electrical Systems • Environmental Control Systems • Flight Control Systems • Fuel Systems • Hydraulic Systems • Landing Gear Systems and Components • Navigation Systems • Safety Equipment Aircraft Structures • Actuators • Bearings • Cables • Electrical Wiring • Fasteners • Major Aircraft Components • Panels • Valves Engines • • • • •

Auxiliary Power Units Engine Nacelles Engines and Components Exhaust Systems Ignition Systems

MRA Research Group

68

Maintenance, Repair and Overhaul (MRO) • Aircraft Maintenance, Repair and Overhaul • System and Component Maintenance, Repair and Overhaul • Advanced Repair Development • Engine Maintenance, Repair and Overhaul Aerospace Services • Air Navigation and Air Traffic Control Aircraft Interiors • Interior Furnishings • Interior Panels Metal Fabrication, Machining and Processing Composites and Plastics Testing, Training Services and Equipment • Simulators

Defence On Land • Ammunition & Munitions • Armoured Vehicles & Components • Communications • De-mining • Drivetrain & Components • Engineering & Logistics • Maintenance, Repair, and Overhaul (MRO) • Modification & Design • Nuclear / Biological / Chemical • Other • Personnel Support • Utility Vehicles & Components At Sea

• • • • • • • • • •

Ammunition & Munitions Combat Systems Communications Damage Control Systems Maintenance, Repair, and Overhaul (MRO) Other Personnel Support Remote Sensing Ships & Ship Systems Simulation

MRA Research Group

69

In the Air • Aircraft Avionics & Electronics • Aircraft Structures & Propulsion Systems • Ammunition & Munitions • Communications • Maintenance, Repair, and Overhaul (MRO) • Other • Personnel Support • Simulation

Security • • • • • • • •

Access Control Asset Protection Denial Detection Systems Information & Communication Channels Protection Intellectual Properties Protection Nuclear / Biological / Chemical / Radioactive Personal Protection

Industrial Marine Except for marine hardware, many of these companies would overlap with the Ocean Technology sector. The sector is comprised of a diverse range of products and services including: • • • • •

Naval architectural, engineering, project delivery services/software; Navigation/communications equipment and software; data recorders; Security, monitoring, and night vision equipment; Underwater vehicles; specialized marine industrial/defence equipment; Traditional coatings; valves; hydraulics; winches; safety; lighting; etc.

AEROSPACE AND DEFENCE GLOBAL TRENDS44 In 2009, global military expenditures totaled approximately $US1.5 trillion with the US accounting for about 43% of the total; followed by China (6.6%), France (4.2%), UK (3.8%), Russia (3.5%) Japan (3.3%), Germany (3%), Saudi Arabia (2.7%), India (2.4%), Italy (2.3%), Brazil (1.7%), South Korea (1.6%) and Canada (1.3%).45 The size of the global aerospace industry, which includes both military and civilian sectors, was estimated at approximately US$382 billion in 2009. This includes all components of the value chain ranging from aircraft and aircraft parts (“A&AP”) to aircraft maintenance, repair, and overhaul (“MRO”).

44 45

Source: AIAC - October, 2010 Executive Summary SIPRI Yearbook 2010

MRA Research Group

70

The global civil aerospace sector (“CAS”) was estimated to comprise 46% ($US176 billion) of aerospace industry revenue, while the military aerospace sector (“MAS”) constituted approximately 54% ($US 205 billion) of total revenue in 2009. CAS manufacturing is concentrated in North America (48.5% of revenue) and Europe (43.0% of revenue). However, a shift is underway towards low-cost areas in the AsianPacific and Latin America regions. In 2009, major CAS markets included the world’s 500 major airlines (78.5%), followed by freight (10%), and other end-users at 11.5%. The top three CAS revenue-producing countries in 2009 were the United States, France and Canada. The world’s largest civil aerospace companies are EADS (Netherlands – 34.5%), Boeing (US – 23.6%), United Technologies (US – 8.8%), General Electric (US – 7.4%); Bombardier (Canada – 6.1%); Rolls-Royce (UK – 5.5%) Embraer (Brazil – 3.8%) and all others (10.1%).46

AEROSPACE AND DEFENCE NATIONAL TRENDS 47 The Aerospace Industries Association of Canada (AIAC) is the national trade association, which represents more than 500 Canadian aerospace manufacturing and service companies. AIAC has 79 direct members, with most other aerospace-related companies belonging to aerospace industry provincial associations. In 2009, the Canadian aerospace industry is estimated to have grossed $Cdn 22.2 billion in revenues. The industry is dominated by a small group of large companies; the 14 largest aerospace companies in Canada generated 73% of revenues ($Cdn 16.1 billion) in 2009. The Canadian aerospace industry employed an estimated 78,965 people in 2009, with the 14 largest aerospace companies generating 40,738 jobs (51.6% of total aerospace employment) and C$3.0 billion in payroll (64.9% of total aerospace payroll). The types of jobs generated by the Canadian aerospace industry fall into four main categories; production staff, engineering/scientific staff, technicians/technologists and all others. Production staff is the largest category, estimated at 47.2% of the total workforce. Canada’s Aerospace Industry is largely focused on civilian aircraft production. In 2009, Canada spent $US 20.5 billion on total military expenditures (1.3% of GDP) versus ~$US 700 billion (4.3% of GDP), but CAS accounted for 83.4% of revenues compared to only 16.6% generated by MAS (military). This same year, the aerospace industry invested an estimated total of $Cdn 1.4 billion in R&D. The Canadian aerospace industry is largely export based, with an estimated $Cdn 17.3 billion (77.9% of total aerospace revenues) generated from sales to foreign markets in 2009. The largest export market for Canadian aerospace products and services is the US, accounting for an estimated C$9.9 billion in revenues (57.0% of total exports).

46 47

IBIS World, 2009 AIAC - October, 2010 Executive Summary

MRA Research Group

71

The largest sub-sector of the Canadian aerospace industry is the manufacturing of aircraft and parts (A&AP), which generated revenues of approximately $Cdn 11.0 billion in 2009. Aircraft Engines and Parts (AEP) and Maintenance Repair and Overhaul (MRO) accounted for 15% and 18% of revenues, respectively.

Aircraft and parts is the largest aerospace sub-sector 2008

Size (%) of Aerospace Subsectors Simulation & Training Avionics & 4% Space Electro 2% Systems 6% Aircraft Engines & Parts 15%

Other Products & Services 2%

MRO 16%

Aircraft & Aircraft Parts 55%

Source: AIAC

Canadian aerospace companies are considered global leaders in regional aircraft, avionics, business jets, commercial helicopters, aircraft engines, flight simulation, landing gear and space systems. They are also globally competitive suppliers of: • • • • • • • •

Airframe structural assemblies Wing structure assemblies Power conversion and distribution systems Integrated electronic controls Environmental conditioning systems Air traffic control and management systems Aviation communications systems Aircraft maintenance, repair and overhaul services

Industry experts believe that, going forward, the global aerospace industry will continue to expand in developing countries such as China and India, Brazil, Mexico, and other countries, which are expected to grow both as suppliers within the global aerospace supply chain and as consumer markets – about 50% of Canadian aerospace firms expect their export sales to be affected by these new suppliers. Canadian defence exports, particularly to the US, are protected by confidentiality agreements and are not well reported. Military exports to other countries totaled $542 million in 2009, with approximately 50% to NATO countries including the UK (top destination); Belgium, France, Germany, and Norway.

MRA Research Group

72

Another 25% of military exports went to non-NATO friendly countries on the Automatic Firearms Country Control List (AFCCL); i.e., Australia, New Zealand, and Saudi Arabia. South Korea and Malaysia were the destination of the remaining (about) 25% of military exports. Canada’s potential military markets are normally restricted to countries participating in the Wassenaar Arrangement on Conventional Arms and Dual-use Goods.

AEROSPACE AND DEFENCE ATLANTIC PERSPECTIVE The Aerospace and Defence Sector in Atlantic Canada is a dynamic and growth orientated sector that is home to an estimated 200 companies (source: Atlantic Alliance) and such industry leaders such as General Dynamics, Honeywell, Pratt & Whitney, IMP, PAL and Vector Aerospace (now Eurocopter, div. of EADS) and is gaining worldwide recognition for its expertise in the industry. Atlantic Canada’s growing Aerospace Sector represents about 4.5% of Canada’s facilities and about 2%-3% of the nation’s total revenues and workforce. (See Table)

Aerospace Product and Parts Manufacturing (NAICS 3364) Number of Establishments by Type and Region, 2009 Province Facilities or Contractors/ Total % of or Territory Employers Other Canada New Brunswick 4 0 4 0.8% Newfoundland and Labrador 1 1 2 0.4% Nova Scotia 9 2 11 2.2% Prince Edward Island 5 0 5 1.0% Other Provinces 76 72 148 29.3% Ontario 104 112 216 42.9% Quebec 74 44 118 23.4% CANADA 273 231 504 100% Percent Distribution 54.2% 45.8% 100% Source: Statistics Canada

CLUSTER STRENGTH Atlantic Canada has four business parks focused on aerospace and defence, along with four international airports supported by excellent training and research facilities and programs. Atlantic Canada also has a strong presence in the defence sector with 7 military bases (including 3 super bases) employing 24,000 staff and an annual operating budget of $Cdn $1.6 billion. Total employment in Atlantic Canada’s defence sector is now estimated at more than 10,000 with annual revenues of more than $Cdn 1 billion and export growth doubling in the last decade.

MRA Research Group

73

Atlantic Canada strengths are reflective of natural, historical (military) and demographic realities – NS has strength in naval programs; NB has land systems; NL has OT and O&G; PEI has MRO (Maintenance, Repair & Overhaul). NS – The Aerospace and Defence Association of Nova Scotia (ADIANS), with about 40 members, reports the industry employs approximately 6,000 skilled and experienced workers and generates approximately $600 Million in revenues. Sector focus is on both the defence and commercial aerospace markets and “emerging sectors such as marine security, ocean and space technologies and working to create a cluster of advanced technology companies that align with Nova Scotia's interest in driving a stronger innovation culture.” PEI – Aerospace PEI (APEI), with 8 members, reports collective sales for the aerospace cluster in the Province “reached an all time high in 2009 with revenues exceeding $355 million, representing a 12% increase” over the previous year. The sector is “identified as one of the key pillars of the Island’s Prosperity Strategy” and “is well positioned for future growth and success.” NB – New Brunswick Aerospace and Defence Association (NBADA), with about 30 members, reports the aerospace industry “contributed over $130 million dollars in annual revenues to the provincial economy and export sales amounted to $100 million in 2008.” NL – The Aerospace and Defence Industry Association of Newfoundland and Labrador (ADIANL) “is comprised of 18 firms representing in excess of 1300 direct related employees.” The Atlantic Alliance of Aerospace and Defence Associations (AAADA) is an alliance of the above 4 industry associations that provides a leadership role as a “facilitator of strategic industry management and growth in Atlantic Canada.”

SECTOR PERFORMANCE

Atlantic Canada exports averaged $100 million per year over the decade and $136 million in 2010 - US main export market in 2010 Aerospace Manufacturing Exports ($Cdn) 100,000,000 90,000,000 80,000,000 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 0

Aerospace Export Markets 2010 ($Cdn)

NL

France 5%

PEI NS NB

Holland 1%

China 1%

UK 15% US 78%

2001 2003 2005 2007 2009

Source: Statistics Canada, 2009

MRA Research Group

74

Training and Research Support College of the North Atlantic (NL) Aircraft Maintenance Engineering Technology Aircraft Structural Repair Electronics Engineering Technology Holland College (PE) Aircraft Gas Turbine Engine Repair and Overhaul Electromechanical Technician Precision Machining Memorial University of Newfoundland (NL) Bachelor of Marine Studies Marine Engineering Naval Architecture Mount Allison University / Moncton Flight College (NB) Joint Bachelor of Science (B.Sc.) in Aviation New Brunswick Community College (NB) Aircraft Maintenance Nova Scotia Community College Aviation Institute (NS) Commercial Pilot and Aircraft Technician Aircraft Flight Dispatcher Composites Technician University of New Brunswick (NB) Bachelor of Business Administration with a concentration in Aviation and Operations Management Moncton Flight College (NB) Aviation Technology Pilot Training GFT Aerospace College (NL) Pilot Training (fixed wing and helicopter) Composite Repair Aviation Welding

Research Support The National Research Council (NRC) is the Government of Canada’s premier organization for research and development and has R&D facilities, industry partnerships, and innovation-to-commercialization offices throughout Atlantic Canada. The NRC provides financial and management support to innovative companies through its Industrial Research Assistance Program. Defence Research & Development Canada - Atlantic (DRDC) is a branch of the Department of National Defence and the leading Canadian centre in sonar technology and torpedo defence. The Centre is conducting naval platform research and development for torpedo detection and counter-measures. DRDC also supports the design, operation and maintenance of the Canadian Navy’s ships and submarines. Atlantic Canada Opportunities Agency (ACOA) supports research and development efforts in Atlantic Canada through the Atlantic Innovation Fund and the Business Development Program (BDP). These programs support R&D projects and activities of

MRA Research Group

75

the region’s private sector and research institutions that lead to the development and commercialization of new products, processes or services. The BDP is designed to help establish, expand or modernize businesses in Atlantic Canada. Businesses may be eligible for unsecured, interest-free loans for up to 75% of costs related to researching and developing new or improved products, services and processes. Canada Revenue Agency administers the Scientific Research and Experimental Development (SR&ED) program, which provides investment tax credits of 20-35%. This program is designed to encourage Canadian businesses to conduct R&D in Canada that will lead to new, improved or technologically advanced products or processes.

INDUSTRY VIEW OF GLOBAL SITUATION • •

•

• • • • • • •

• •

• •

Global economy for A&D will definitely be expanding as military spending has increased from 2009 and markets are growing in EU countries in spite of reductions in overall spending; Timing will depend on government spending as well as the world economic conditions. This will be driven by government military procurements (US budget spending in 2011 will be in $725 billion range). In commercial field, there will be additional mergers amongst US airline companies resulting in major demand for aging equipment replacements; Major clusters exist in the US (world’s largest), UK, France and Canada (Quebec).These are important as they expand global market chains and encourage strategic partnerships and alliances which are key to the development of new companies and company expansions; Many countries worldwide are emulating cluster concept; provide ongoing growth through opportunities for collaboration and potential partnerships; Greatest growth in civilian markets will be US, Mideast, Asia, Pacific Rim and South America. US will continue to be largest market for military procurement; Greatest growth foreseen in High Tech intelligence equipment (border issues), security and knowledge-based companies; Products will lead services in growth; services applications flow from products; Multiple applications especially with OT, O&G and Security; Important changes foreseen include IRB (Industrial Regional Benefits) policies focusing on priority technologies (always endeavouring to encourage development of world class technologies); US will remain our most important market; regulatory environments will become more stringent; manufacturing processes will continue to change and improve; ITARS will have a significant impact, documentation will become more onerous; a stronger reliance on global partnerships and alliances; “we must work together”; Drivers include evolution of aeronautics and military needs which can cause rapid new technologies and innovation; Military spending has been sheltered from the recent credit crunch due to the long term nature of these contracts. This could change as A&D catches up with other sectors (The MHP – Maritime Helicopter Program – took over 10 years to finalize contracts). Civil aviation will be driven by world demand (economies); Growth in demand expected to come from emerging countries – India, China and South America;

MRA Research Group

76

• • • • •

• •

Sector is dependant on national stabilities (military), increased population base (commercial) as well as growth of China and India; Growth in subsectors include military (government contract initiatives such as Canada First Defence Strategy), subsea activity (OT), Arctic development and Deep Sea research & development; Services applications flow from product development; Multiple applications are high from military to commercial sectors. Large percentage of R&D is conducted for the military; Important changes over next 5 years include steady new product developments, workforce skill sets improving. A full 50% of workforce positions not even conceived of yet!; a shift in markets toward Asia (China and India) and South America; rationalization of resources; regulatory changes (ITARS have a great impact); worries about return to stability of US market and China’s future growth; A&D sector will outperform other sectors due to pace of their innovations and global requirements. Companies are putting over 15% of their revenues into R&D as they are compelled to excel and be highly competitive. Threats include lack of funding to enable R&D, taxation, supply of skilled labour and regulatory issues;

REGIONAL / COMPANY PERSPECTIVE • • • • •

•

• •

•

AC growth will keep pace with global growth. (In Canada alone there will be $52 billion in military procurement contracts coming up.); The overall Atlantic sector will expand over the next 5 years by 5-10% (new Federal shipbuilding policy and elections could influence this one way or other); Our companies have capabilities equal to other areas of Canada; In-service support will provide many AC companies with continuing work over next 25 years; Important assets include strong network of supporters and enablers; our knowledge based companies, skilled and productive workforce, our industry is based on exports; AC has strong MRO clusters and we are close to international markets; Assistance required includes programs for prototype development, bridge financing to move to production from prototype, increased investment in R&D (and non-recurring costs related to R&D), certifications, third party liability, need to continue to monitor regulatory issues and export controls, additional marketing support by governments for marketing in Asia and increasing our management capabilities to deal with new foreign markets; assistance with soft skills – assist associations develop profiles, which will help companies become more attractive to global markets in purchasing products and services and create collaborative marketing and inward investment opportunities; Capabilities spread over AC: NS – OT, MRO, overall leader; NB – e-learning and geomatics; PEI – commercial aircraft capabilities and NL – OT and military; There is very good potential for more new companies to become established; which could be enhanced by a capital equipment program, tax incentives, training support, bridge financing, mentoring and “focused conferences on export and other Federal/Provincial programs for A&D”; Encouragement could be offered by promoting partnerships and alliances; attracting a Systems Integrator would be a major plus for our industry;

MRA Research Group

77

•

•

• •

•

• • •

Forecast employment could double in next 5 years; employees will be more productive as we have strong knowledge based companies offering advanced technologies. Employees are passionate about their efforts and drive company efforts to expand and attract new business; Our ability to take advantage of emerging opportunities could be stronger. More emphasis required on R&D and teaming with academic institutions and research facilities. Companies must continue to improve their networking efforts and governments need to provide more collaborative market intelligence; Always a need for more training in all facets of business; Barriers and challenges include a small domestic market which is difficult to crack (Atlantic region biased towards defence expenditures). ACOA, Ottawa provide companies with support to help in the development of linkages and contacts; but lack of a Tier 1 Systems Integrator. Supporting infrastructure is moderate to good, but could always be stronger; however NSDCC is very adaptable; positive developments in relations with universities; a review of Government programs would be timely as many SME’s find program requirements very onerous; Most important markets are US, EU, Asia, rest of Europe, South Africa and South America; growth opportunities include traditional markets (US/EU/UK) with our larger companies focussing on South America, Asia and Mid-East; Training is provided between all levels of governments but a “One Stop” information service would be very helpful; Types of necessary training include management skills, project management skills, divergent or “out of the box” conceptual skills; Asian market fundamentals.

INDUSTRY LEADERS Newfoundland & Labrador • Northstar Technologies • Provincial Aerospace Limited • Rutter Technologies • Bluedrop • Compusult Nova Scotia • • • • • • • • •

IMP Ultra Electronics Lockheed Martin L-3 Communications Pratt & Whitney Canada Rolls-Royce Undersea Systems/Brooke Ocean Technologies Eduplus Irving Shipbuilding Nautel

New Brunswick • APEX Industries • CARIS • CE3 Custom Electronics • DEW Engineering

MRA Research Group

78

•

Lexi-tech International

Prince Edward Island • Vector Aerospace • Marand Engineering

SUBSECTORS •

•

Industry leaders are expert in three areas – 1) MRO (fixed and rotary wing, engines, ships; 2) Advanced Technologies – Modelling & Simulations, Avionics; 3) Design & Engineering – engines, ship design, structural components, surveillance; Rising stars include Mil-Aero, Akoostik, CarteNav, Armament Technologies, Apex and Nautel;

SWOT ANALYSIS (Industry View) The following are consistent responses from the 11 Aerospace & Defence companies/ associations/government representatives interviewed. It should be noted the A&D sector is the combination of Military and Commercial fields: STRENGTHS • • • • • • • • • • • • • • • • • • • • •

The A&D sector will grow up to 50% overall in next 5 years; Multiple applications with military/commercial, OT, O&G, Security; Our “Canada First Defence Strategy”; The proximity to the major OEM’s (US); Strong transportation links; Employment increases in AC in range of 30 - 80% over next 5 years; Our workforce skill sets are improving; AC exudes an “Entrepreneurial Spirit”; Good cooperation amongst AC companies in the utilization of resources; Solid in niche marketing; Composites are the way of the future; AC has a quality service sector; AC has a major shipbuilding yard; AC has excellent living conditions; AC is considered a relatively low-cost producer; Our companies have shown a strong ability to collaborate; We have the speed to adapt to changing conditions; Having a major DND presence in AC; Halifax International Airport is a key asset; Strong network of supporters and enablers; AC has a strong base of knowledge based companies.

MRA Research Group

79

WEAKNESSES • Supply of skilled labour; • Accreditation/Certification costs high; • Cost of R&D; • Overhead costs; • Ability to keep up with OEM specifications; • Long length of procurement cycle; • Lack of “Centres of Excellence”; • Lack of long term government marketing support; • Lack of advocacy; • Access to financing (payback time set by ACOA is too short); • Lack of Centres of Excellence, tax regimes and government funding. OPPORTUNITIES • MRO (Maintenance, Repair & Overhaul) • Simulations & Training • Homeland Security • Unmanned vehicles • Replacement of older aircraft • Assemblies for OEM’s • Smaller Regional Jets • New engine technology • Arctic development • Deep Sea Research & Development • Airframe and helicopter repair (MRO) • Composites and bonding • Armoured vehicles • Command & control electronics • Weather research (NOAA) • New markets in developing world • Green technologies THREATS • • • • • • • • • • • • •

Global economic instability Lower defence budgets Potential de-coupling of regional benefits (IRBs) in US F-35 defence contract could mean more or less work in Canada and/or Atlantic Canada ITARS (International Treaty on Arms Regulations) Foreign competition National stabilities (e.g., Egypt) Lack of R&D funding Developing world competition Taxation Regulatory Issues Corruption (developing countries) Cost of aviation fuel Access to financing

MRA Research Group

80

SECTOR ASSESSMENT KEY SECTOR ATTRIBUTES AEROSPACE AND DEFENCE ASSESSMENT COMMENTS

KEY ATTRIBUTE Strength and Sustainability of Future Market Demand

Mixed

Potential Economic Impact: revenue generation, innovation, job creation, trade expansion

Medium-High

Cluster Potential

Medium-High

Magnitude of business challenges facing SME’s Existence of cross applications

Mixed

Compatibility with IBDA (and Other) Support Mechanisms and Resources Immediacy of Results Extent of Pan-Atlantic Participation Number of Potentially Supportable Atlantic SMEs

High High

New markets and new competition in developing countries. Financial instability in developed countries. Potential for strong growth on all measureable economic indices. Atlantic region activity is highly defence-related and budget sensitive. Overlaps in many specialties, especially electronics, defence capabilities and location; lack of Centre of Excellence R&D and procurement life cycle is capital intensive for small firms. Electronic and digital principles common across sectors and sub-sectors. Defence sales more likely to be in-country and the US.

Medium

Generally long procurement cycles.

High

All provinces can benefit from unified export marketing efforts Est. 200 private companies

High

SECTOR SUMMARY The A&D sector in Atlantic Canada is a strong cluster of organizations that primarily service the defence industry at present. There are perceived growth opportunities in airframe structures and engines, MRO, bonding and composites, software development and IT, green technology and ship building. The sector has a lot of expertise and, while small on a global scale (and even a national scale), it is world class. In-country work seems to be the bread and butter of the sector, as exports show volatility across all Provinces. If presently planned Canadian defence expenditures proceed, the Atlantic region could be poised for a windfall of work.

MULTI-DISCIPLIARY POTENTIAL • • • • •

Many specific A&D skills and knowledge-based engineering applications overlap sectors; Development of new skill sets (future technologies); “One Stop” information service to help employers gauge the available training programs which would be beneficial to their company; Management skills;

MRA Research Group

81

• • • •

Project Management skills; Divergent or “Out of the Box” conceptual skills; Marketing to Foreign Governments; International Business Development.

COLLECTIVE EFFORTS • • •

Need to support efforts of NRC; Need for more networking opportunities amongst AC companies; Closer liaison between Governments, AAADA and Provincial Ass.

INCREASED TRADE OPPORTUNITIES •

DFAIT needs to take the lead in identifying potential partnerships and/or alliances;

•

AC companies have the desire to capitalize on partnerships and collaborative ventures due to our location and overlapping interests.

•

Growth areas: MRO (Maintenance, Repair & Overhaul), simulations & Training, unmanned vehicles, composites and bonding, new engine technology.

•

Regional efforts would be assisted by a systems integrator and prime contractors

PRIME MARKETS EVALUATION • • • • •

Asia (China & India) United States (still No. 1) Middle East South America (Brazil & Chile) Western Europe

NOTABLE COMMENTS • • • • • • •

An “Action Now” focus is necessary to prepare for future (employment); We do not give ourselves enough credit for what we accomplish; We are more productive because “there is no room for error” in this industry; Our most important asset is our people (highly qualified and motivated); Our employees are more productive as we have strong knowledge-based companies offering advanced technologies; Companies must continue to improve their networking efforts and governments need to provide more collaborative market intelligence; Our companies have capabilities equal to other areas of Canada.

MRA Research Group

82

6.0 LIFE SCIENCES SECTOR INTRODUCTION One industry leader48 has described the 21st Century as the “Bio Century”. Without question, the Life Sciences sector has become a principal growth engine for every major global economy, as well as a central strategic priority for economic development agencies in many countries and regions around the world. The sector boasts many benefits: • a high annual growth rate • projections of continued growth • significant direct, indirect and induced economic impacts • well-paid and well-educated workers • strong linkages with post-secondary education infrastructure • high research and development spending • potential to deliver significant economic, health and environmental benefits Worldwide, the Life Sciences sector is also one of the best examples of the potential for industry cluster formation. While clusters are not in and of themselves a guarantee of economic well-being in any area, they act as anchors, spinning-off other companies and effectively building the business community. They also link symbiotically with the talent pools and technologies of universities and research organizations, and help to maximize commercial opportunities flowing from them. Perhaps unsurprisingly, a Life Sciences industry cluster is sometimes referred to as “the Holy Grail” by individuals and organizations looking to create regional economic growth and drive innovation. The Life Sciences sector also has an inherently strong export orientation and is arguably among the most internationalized industries in the world today. Few life sciences companies operate on a strictly local basis; most firms generate significant parts of their revenues from overseas markets. It is truly a global industry, with growing worldwide markets. As such, supply chain and partnership opportunities are abundant for large and small companies with the right products, technologies or services – combined with the necessary marketing, management and financial capabilities.

SECTOR DEFINITION In recent years, Life Sciences has grown to become an exceptionally diverse field encompassing, by definition, all disciplines that involve the scientific study or utilization of living organisms – a list of literally hundreds of specialties and sub-specialties “from Agrotechnology to Zoology”, and each reasonably considered an industry subsector under the Life Sciences umbrella. These branches often extend beyond the Life Sciences realm, reaching broadly into other sectors and disciplines such as agriculture, forest products, information technology, energy, engineering, environmental industries and others.

48

From Batelle Technology Partnership Practice: http://www.bio.org/local/battelle2006/

MRA Research Group

83

One common, high-level means of describing the Life Sciences sector is to differentiate it into the following three principal industries (with definitions adapted from the Canadian Life Sciences Database49): 1. Pharmaceuticals – commercial enterprises that research, develop, produce and sell drugs and other medicines 2. Medical Devices and Diagnostics (MD&D) – companies involved in research, development, production and marketing of systems, devices and technologies for medical applications in humans and animals. 3. Biotechnology – companies that employ living organisms or biological substances for the development of products and services in many fields. The latter segment, Biotechnology, is in itself a diverse collection of subsectors, many of which are of particular importance in Atlantic Canada. Considered in its broadest perspective, the biotechnology industry includes businesses engaged in agricultural biotechnology, marine biotechnology, bio-energy, biomaterials, bioinformatics, genomics, horticulture, environment, forestry, and many others. These can be further grouped within a set of principal biotechnology subsectors, adapted from BIOTECanada50: ● ● ● ● ●

AgroBio (including Food and Nutraceuticals) Industrial and Environmental Therapeutics Bioinformatics, Analytical, Genomics and Proteomics Other research and manufacturing services

In addition, the Biotechnology sector encompasses other important organizations such as biotech suppliers and engineering providers, public and non-profit sector institutes, science and technology parks, hospitals, university research centres, biotech departments and labs, commercialization enablers and industry associations. As an additional point of clarification, the healthcare industry – referring to organizations and professionals providing diagnostic, preventive, remedial, therapeutic and other health-related services to individuals – is another widely-used agglomeration of subspecialties under the Life Sciences umbrella, especially from an investment perspective. The healthcare industry pervades large proportions of the pharmaceutical, biotechnology and MD&D segments, and is widely considered to be the major economic driver underlying Life Sciences. However, it is also too broad to stand alone or to meaningfully analyze as a single entity.

Subsectors Most Life Sciences industry subsectors can be accommodated under one of the three foregoing industry groupings without difficulty, including the six Life Sciences subsectors specifically identified in the project’s terms of reference as examples of new specializations and opportunities in the Atlantic Region: 49 50

http://www.canadianlifesciences.com/ca/db/index.php http://www.biotech.ca/en/what-biotech-is/facts-figures.aspx

MRA Research Group

84

● ● ● ● ● ●

Pharmaceutical and Therapeutics Functional Food and Nutraceuticals Medical Technologies and Diagnostics Medical Software Marine Biotechnology (Blue Biotech) Agricultural Biotechnology

These subsectors were given particular consideration in the course of the research and are also discussed in the Sector Summary, with a specific focus on the role, importance and opportunities related to Marine Biotechnology in the four Atlantic Provinces.

GLOBAL PERSPECTIVE Inherently complex, definitional issues and a sometimes broad overlap among the participating organizations make it difficult to accurately determine the size of the Life Sciences sector or its constituent subsectors. However, the Province of Ontario recently estimated that sales in the global Life Sciences industry exceeded $2 trillion in 2010 – a figure that is predicted to more than double by the end of the current decade51. These size and growth estimates are generally consistent with other analyses. With respect to its subsectors, a 2007 report by the consulting firm Frost & Sullivan52 estimated that the overall Life Sciences industry had a worldwide market capitalization for Pharmaceutical companies of roughly $1,094 billion, Biotech firms of $365 billion and MD&D companies $240 billion. While not immune to recessionary forces, the global Life Sciences sector tends to be more resilient than most, for several reasons: ● Expansion of the middle class in China and India ● Advancing age in affluent countries driving need for the sector’s products ● A growing interest in healthy living

Pharmaceuticals The global pharmaceutical industry has traditionally been the cornerstone of the Life Sciences sector. Overall revenues were expected to reach $830 billion in 2010 with a growth rate of 5 to 6 percent53. A group comprised of some of the world’s largest companies – so-called “Big Pharma” – dominates pharmaceutical manufacturing and also exerts considerable influence at all levels. The pharmaceutical industry in established regions such as Latin America, Europe and Japan is growing at a steady rate equal to that of the overall industry and the emerging economies of China and India are recording corresponding growth in double figures; albeit with total revenues still considerably smaller than those of the developed countries.

51

http://www.mri.gov.on.ca/english/documents/Life%20Science%20Strategy.pdf http://www.frost.com/prod/servlet/frost-home.pag 53 http://www.scribd.com/doc/44304514/Global-Pharmaceutical-Industry-Overview 52

MRA Research Group

85

Industry analysts predict that the pharmaceutical market will reach $1.1 trillion by 2015 with an average growth rate of around 7 percent. The United States is still the largest pharmaceuticals market in the world with a market size of approximately $300 billion, and expected to reach $370 to $390 billion by 2015. The Canadian pharmaceutical market is the eighth largest in the world, accounting for about two percent of the world market by sales54. The actual manufacturing of drugs is the last stage in a lengthy process, beginning with scientific research to discover new products and proceeding through a defined series of trials to ensure their safety and effectiveness, identify side effects and other factors. It is a high stakes, highly regulated industry, known for its extraordinary competition and also for marketing budgets in the order of its research and development expenditures. A period of unprecedented change in the pharmaceutical industry began several years ago. Several factors are at the heart of this upheaval: a more rigorous regulatory environment, a shifting of supply chains to emerging markets, a lessening in the number of new drugs in the pipeline and, most importantly, the effects of the “patent cliff” as many key drugs lose their patent protection. One noteworthy outcome has been the growing tendency of Big Pharma to outsource more of its research, recognizing that smaller companies can often be more adept at innovating, and moving new drugs to Phase I clinical trials. As such, partnering with Big Pharma is an emerging opportunity for some innovative firms; this doesn’t necessarily imply relinquishing a large equity stake – only the right of first refusal. At the same time, smaller companies can benefit greatly from these alliances, including financial and technical support and potential access to secure distribution channels.

Biotechnology The worldwide biotechnology industry demonstrated impressive resilience in the face of the challenges presented by the recent economic downturn55. It has been estimated that the global biotechnology market grew by 4 percent in 2009 to reach a value of just over $200 billion and, by 2014, the global biotechnology market is forecast to have a value of almost $320 billion, an increase of 59 percent since 2009. Medical/Healthcare is the largest segment of the global biotechnology market, accounting for close to 70 percent of the market’s total value. The Americas make up about half of the overall market. Several sources estimated that there are 400 to 500 biotechnology companies in Canada, although the majority of these are very small. In its most recent report, the Conference Board of Canada reported that 10 larger firms accounted for 70% of the market capitalization of all Canadian biotech companies and that overall Canadian biotechnology revenues are in the order of $4 billion56. Future growth worldwide will be boosted by increasing applications in areas such as crop biotechnology, bio-pharmaceuticals, clinical trials, biotech products, and bioscience development. Other drivers are expected to be changes in stem cell technology and gene therapy, the advent of personalized medicine and greater use of cloning technology. 54

http://www.researchandmarkets.com/reports/481975/canada_pharmaceutical_industry http://www.ey.com/Publication/vwLUAssets/Beyond_borders_2010/$FILE/Beyond_borders_2010.pdf 56 www.conferenceboard.ca/documents.aspx?did=1361 55

MRA Research Group

86

The regulatory landscape is expected to tighten further and the industry will likely face other challenges, especially a growing shortage within its skilled work force and patent related litigations. Resistance to genetically modified organisms, particularly from the European Union, may also play out negatively over the next decade. The net effect may be a transformation of many existing industries, although it is unclear how quickly these changes will take place, to what extent, or the magnitude of inherent implementation challenges. However, some widely-cited examples are: ● Converting existing petrochemical industries to those that are biotechnologybased ● Changing chemical processes to biotech processes in industries such as pulp and paper to reduce the impact of toxic chemicals ● Using corn as a precursor to numerous food additives and other products ● Biomass and biofuel options for energy production ● Increased non-food use of crops Significant economic activity is generated through biotechnology research and development that takes place in both public and private facilities. This is vitally important as a foundation for a biotechnology industry in any region; however the availability of sufficient quantities of appropriate natural feedstocks is at the heart of almost all manufacturing ventures of any significant scale. Exceptions exist, but for the most part a region must look to the renewable resources which are available nearby, or to its capacity to grow or produce them. In Atlantic Canada, the most logical focus is on Marine Biotechnology and the commonly-shared resources of the North Atlantic, or secondarily, on the products of primary agriculture in the region.

Medical Devices and Diagnostics A leading industry publication57 estimates that sales in the global Medical Device and Diagnostics market is now about $350 billion – about half the size of the worldwide pharmaceutical market, but growing at a faster rate than its drug counterpart. An estimated 20,000 medical device companies are in operation around the world, the majority based in the United States; however the top 25 MD&D companies generate over 60 percent of overall sector sales. While the U.S. and European markets are growing at 7 to 8 percent a year, the Indian and Chinese MD&D markets are growing at 25 percent a year. The MD&D industry in Canada consists of about 1,000 firms58, generally small in size and distributed across the country, although concentrated in Ontario and Quebec; four percent are located in Atlantic Canada. In 2008, the size of the Canadian medical device market was valued at $6.4 billion, increasing at about 2 percent annually. Canada's exports of medical devices increased 5.5 percent from 2000 to 2009. The United States is by far the primary export market, although there is evidence of increasing diversification of destination markets for Canadian medical devices. The sector’s growth has been boosted by many factors, including a growing urban middle class, an aging population, an increased incidence of lifestyle and chronic 57 58

http://www.mddionline.com/about-mx-medtech-executive http://www.ic.gc.ca/eic/site/md-am.nsf/eng/h_hi00071.html

MRA Research Group

87

diseases, and the need for innovations that reduce or eliminate hospital stays, remote healthcare and minimally-invasive treatments, among many others. In general, development times are shorter and there is somewhat less regulatory approval risk for MD&D firms than for pharma, albeit balanced by much shorter product life-cycles, firstto-market risks and needs for ongoing product development.

CANADIAN PERSPECTIVE Industry Canada describes59 Canada’s Life Sciences sector as being “at the very forefront of discovery” and suggests the country is developing global niches in biopharmaceuticals, medical devices and contract services, due largely to: ● World-renowned research institutes ● Biotechnology clusters ● 20-year patent protection ● A large pool of post-graduate and post-doctoral researchers Industry Canada further describes Canada as the country with the third-largest number of biopharma firms in the world – home to more than 390 pharmaceutical firms and 400 biotech companies that employed nearly 29,000 highly-skilled workers in 2007. Key subsectors and related niches are:

59

•

Biopharmaceuticals: Human health represents over half of all life science companies in Canada, 70 percent of all revenues and close to 90 percent of all R&D. Canada is globally recognized for: discovery and characterization of therapeutic molecules, genomics and proteomics platforms, vaccines and immunotherapeutics, regenerative medicine, stem cell research and drug formulation and delivery systems.

•

Medical Devices: Some 1,000 small and medium-sized firms employ 26,000 people in the sector in Canada. In 2007, Canadian medical devices companies generated total revenues of $4 billion and exports of $2.4 billion. Canadian firms benefit from strengths in related sectors such as advanced materials, microelectronics and telecommunications, among others.

•

Contract Services: Canada is home to high-quality contract research and manufacturing services utilized by the world’s top pharmaceutical companies. The country has become recognized for: advanced services in drug formulation and delivery systems, clinical trials, manufacturing and packaging, design and manufacture of high-value medical devices, and analytical services.

http://www.ic.gc.ca/eic/site/lsi-isv.nsf/eng/li00278.html

MRA Research Group

88

ATLANTIC PERSPECTIVE Provincial Clusters Each of the four Atlantic Provinces provided recent summaries of their respective Life Sciences sectors: ● New Brunswick: New Brunswick Biosciences Asset Inventory, BioAtlantech, 60 updated March 2010 ● Newfoundland and Labrador: A Profile of The Life Sciences Sector in Newfoundland and Labrador, Newfoundland and Labrador Association of 61 Technology Industries (NATI), 2008 ● Nova Scotia: Nova Scotia Life Sciences Assent Map, BioNova, 2007

62

● Prince Edward island: PEI Bioscience Cluster Overview, Prince Edward Island 63 BioAlliance , 2011 Key attributes of the sector in each province, drawn from these documents, is presented in the table below. Because of differences in the underlying research methodologies, the data cannot be precisely compared, but nevertheless present a realistic picture of the approximate size and importance of the sector in each province, as well as an estimate of the overall regional aggregates for each measure. Atlantic Provinces Private Sector Activity – Life Sciences

Estimated Number of Core Companies New Brunswick Newfoundland and Labrador Nova Scotia Prince Edward Island Atlantic Region

Reported Revenues ($M)

Reported Employment

20 10

20 13

535 185

50 30 > 100

180 80 ≈ $300 M

1,100 800 > 2,500

Source: Adapted by MRA from Industry Estimates

The region is also home to a very significant Life Sciences research community within its universities, hospitals and government labs. Regional data measures were somewhat inconsistent, but suggested overall additional public sector employment about twice that of the private sector – or another 5,000 full time academic, research and technical positions. While some informants identified research capacity within the private sector as a regional weakness, it should be noted that several large businesses in Atlantic Canada indeed undertake considerable internal research and development. 60

Internally commissioned document Internally commissioned document, © NATI 62 Available at www.bionova.ca 63 Provided at http://www.peibioalliance.com/overview.php 61

MRA Research Group

89

Perhaps the most striking contrast among the Life Sciences sector of the four Atlantic provinces is found in their inherent diversity: New Brunswick Four principal subsectors, generally clustered regionally within the province, form the backbone of New Brunswick’s economic activity in the sector: ● Agricultural biosciences / Forest biotechnology ● Marine biosciences ● Environmental biosciences ● Bio-medical sciences New Brunswick’s Life Sciences sector is directly aligned with its traditional industrial strengths, abundant feedstocks and clusters of excellence in food production, food processing and fibre production. Its 2008 Bioscience Asset Inventory identified 20 core firms self-identifying as biotechnology companies and 20 non-core companies using biotechnology as a tool to increase productivity and competitiveness. The latter group included many of the Province’s largest firms with significant activity in the agricultural, environmental and forest biosciences. The report also identified over 700 active projects in research institutions and universities, 210 products in the marketplace and 102 in the pipeline at various stages of development. Overall, it determined that New Brunswick’s Life Sciences industry generated $110 million in economic activity and close to 2000 FTE’s. The 250 firms in the New Brunswick Environmental sector also possess significant expertise and capacity in bioremediation, biogas development and soil detoxification. As well, more than 50 firms are classified under ICT in the province’s Health Services subsector. There are pockets of strengths in the bio-medical subsector, including biomedical engineering (prosthetics), cancer genetics/genomics, cancer diagnostics, clinical trials, and genomic platforms related to plant, fish and human diseases (vaccines, probiotics). Agricultural biosciences and marine bioscience are prominent targets of institutional research budgets. Key federal and provincial departments, institutions and non-profit stakeholders collaborate in providing business advice, partner facilitation, scientific research, intellectual property protection and evaluation of technologies for commercialization. Principal Supporting Infrastructure ● University of New Brunswick ● University of Moncton, Moncton ● Mount Allison University, Sackville ● Health Research Foundation, Fredericton ● Tech South East, Moncton ● New Brunswick Cancer Network ● New Brunswick Research and Productivity Council, Fredericton ● Coastal Zones Research Institute, Shippagan ● Huntsman Marine Science Centre, St. Andrews

MRA Research Group

90

● ● ● ● ● ● ●

Fisheries and Oceans Canada, St. Andrews Biological Station, St. Andrews Atlantic Dairy & Forage Institute, Fredericton Junction Atlantic Cancer Research Institute, Moncton Agriculture and Agri-Food Canada Potato Research Centre, Fredericton Atlantic Forestry Research Centre, Fredericton NRC Institute for Information Technology Bioinformatics Lab, Moncton BioAtlantech, Fredericton

Newfoundland and Labrador In its 2008 profile, the Life Sciences sector in Newfoundland and Labrador was described as “very young, relatively small [and] consequently focused on research and development activities with limited commercial development to date.” Nevertheless, the document goes on to describe a growing “cluster of companies” and “a broad spectrum of private sector firms… in health sciences, environment, agriculture, forestry, mining, information technology, aquaculture and other ocean-related industries.” These nascent NL companies are beginning to become established in specialized niches in the sector, many of which are looking to utilize local resources and waste products. Several firms are in place with core biotechnology business operations; the Genesis Group’s support for technology transfer and commercialization has proven a successful model for assisting in their development. Overall, a small number of companies now carry on business in each of the following subsectors: ● Health Sciences ● Environment ● Agriculture and Nutraceuticals ● Fisheries and Aquaculture R&D projects tend to focus on natural resources in relation to fisheries, aquaculture, and marine organisms in cold ocean environments. Memorial University and its constituent campuses have been at the centre of research activity; medicine represents, by far, the most prevalent field followed by fisheries and biochemistry. The most significant new thrust is in human health, driven largely by major technological advances relating to genetics, genomics and proteomics; the Province’s unique founders’ population is a considerable asset in genetic research. Overall, Newfoundland and Labrador’s Life Sciences industry is considered to have special expertise in two key areas; marine biotechnology and human genomics. Principal Supporting Infrastructure ● Memorial University of Newfoundland (MUN), St. John’s ● MUN Faculty of Medicine, St. John’s ● Core Research Equipment and Instrument Training (CREAIT) Network (at MUN), including: o Genomics and Proteomics (GaP) Facility o Centre for Chemical Analysis, Research and Training (C-CART) o Bio-molecular Imaging Facility ● Genesis Group Inc. (incorporated under MUN); Genesis Centre, St. John’s

MRA Research Group

91

● Newfoundland and Labrador Centre for Health Information, St. John’s ● Newfoundland and Labrador Centre for Applied Health Research, St John’s ● Marine Institute – Centre for Aquaculture and Seafood Development (CASD), St. John’s ● Atlantic Forestry Centre, Corner Brook ● Newfoundland Association of Technology Industries (NATI), St. John’s Nova Scotia The Life Sciences sector in Nova Scotia is grounded in a long history of research carried out in the province’s universities, government labs, hospitals and medical school – a framework which helped spawn and support the activities of local bioscience entrepreneurs over the past few decades. Four of these firms have grown to the point that they now account for over 80% of the province’s total sales in the sector; about 50 smaller firms are also considered to have a principal business activity within the Life Sciences sector. A preponderance of industry efforts in Nova Scotia go into creating products that aid in disease prevention, diagnosis and treatment. Expertise is concentrated in the following subsectors: ● Functional Foods/Nutraceuticals ● Pharmaceuticals ● Agricultural Biotechnology ● Diagnostics ● Medical Devices ● Contract Research ● Medical Software The majority of research and development work takes place in marine biotechnology and in biomedicine. At the public institution level, two-thirds of research projects are described as biotechnology – which may include biomedical, biochemical and bioagricultural endeavors. In 2007, Nova Scotia Life Sciences businesses reported that over 300 new products were at various stages of development, with a total revenue potential of $4 billion. A number of key organizations in the province are enabling the development and commercialization process of such Life Sciences products through: mentoring, incubation facilities, equity investment, partner facilitation, scientific research, intellectual property protection, as well as the identification and evaluation of appropriate technologies. Principal Supporting Infrastructure ● Dalhousie University, Halifax ● Dalhousie University Faculty of Medicine, Halifax ● Dalhousie University Industry Liaison and Innovation (ILI), Halifax ● InNOVAcorp Enterprise Centre, Halifax ● Nova Scotia Agricultural College; Atlantic BioVenture Centre (ABVC), Truro ● Seven other universities engaged in aspects of life sciences

MRA Research Group

92

● Brain Repair Centre, Halifax ● Genome Atlantic, Halifax ● National Research Council – Institute for Marine Biosciences, Halifax and Ketch Harbour ● BioNova, Halifax Prince Edward Island Bioscience was one of four industry sectors that the government of Prince Edward Island specifically targeted in its 2008 five-year strategy. Its development approach has been highly-focused; beginning from a science platform of bioactive compounds derived from natural sources, and broadening into human health, animal health and fish health. This is reflected in PEI’s key Life Sciences subsectors: ● Human Health: Diseases of aging and obesity, infection and immunity ● Animal health and nutrition products ● Fish health products for global aquaculture ● Human and animal health diagnostics Companies are concentrated in the creation of products such as pharmaceuticals and ingredients, natural supplements, animal feeds and vaccines, as well as bio-products which convert biomass to value-added products related to energy, materials, non-food crops and products for environmental remediation. Companies are also engaged in contract manufacturing and diagnostics. The veterinary field is a key element, while medical devices and “Big Pharma” are not important factors in PEI’s Life Sciences industry. Prince Edward Island bioscience companies and related research and academic institutions are concentrated in and around Charlottetown. A significant number of major bioscience research projects have been launched since 2000, many focused on the development of high value-added products from indigenous bio-resources, or stimulating partnerships between the Island’s research institutions and its primary industries. The underlying focus of the sector is on projects and business opportunities that link the resources of the land and sea with biotechnology. Principal Supporting Infrastructure ● University of Prince Edward Island (UPEI), Charlottetown ● The Atlantic Canada Network on Bioactive Compounds (at UPEI), Charlottetown ● PEI Health Research Institute (at UPEI), Charlottetown ● Atlantic Veterinary College (AVC) – and ancillary programs and resources ● National Research Council, Institute for Nutrisciences and Health, Charlottetown ● Canadian Food Inspection Agency, Centre for Animal & Plant Health, Charlotte ● PEI Food Technology Centre, Charlottetown ● Holland College , Charlottetown ● Agriculture and Agri-Food Canada, Crops and Livestock Research Centre, Charlottetown ● Institute for Human Health Research, Charlottetown ● Duffy Research Centre, Charlottetown ● BioCommons Research Park (est. completion 2011), Charlottetown ● Prince Edward Island BioAlliance, Charlottetown

MRA Research Group

93

National / Regional Sector Support ● Atlantic Canada Bio-Industries Alliance (ACBA) ● ACOA / Atlantic Innovation Fund (AIF) ● Foreign Affairs and International Trade Canada (DFAIT) ● Industry Canada ● Business Development Bank of Canada (BDC) ● Provincial Government Departments and Agencies ● NRC / Industrial Research Assistance Program (IRAP) ● National Sciences and Engineering Council (NSERC) ● Canadian Institutes of Health Research (CIHR) ● Canadian Foundation for Innovation (CFI) ● Springboard Atlantic Inc. ● Revenue Canada Scientific Research and Experimental Development (SR&ED)

SWOT ANALYSIS (Industry View) Strengths ● A sector with greater resistance to recessionary influences than most ● Steadily growing demand worldwide for treatments and diagnostic tests ● Well-paid, knowledge-based jobs ● Clean, environmentally friendly ● Unique, indigenous biodiversity in Atlantic Canada, including several “strategically limited” assets such as oysters, mussels and blueberries ● An accomplished research community ● Good university and public research infrastructure ● Some significant recent successes in pulling science out of Universities and pairing with commercial partners ● Effective business incubators; provincial commercialization support through Springboard Atlantic, AIF, IRAP and other programs ● High value products ● Exceptional export potential ● Logistics typically less of an issue than in other sectors; easy physical access to worldwide markets ● A generally favourable tax regime ● An academic stream producing significant numbers of science and technology graduates ● A base of existing companies with demonstrated competitive advantages ● An informal, regional pattern of adding value to natural resources ● A loyal, well-educated workforce ● A sector with excellent potential to cross rural-urban boundaries ● Exceptional attributes for clinical trials within the Atlantic population base Weaknesses ● Product development cycle very long, costly and fraught with risk, especially for drugs and medical devices requiring complex, multi-phase approvals ● High marketing costs

MRA Research Group

94

● Intense global competition; limited access to markets for “me-too” products ● Very difficult to secure venture capital; such deals are very rare in the Atlantic Canada Life Sciences sector ● Early-stage companies often face critical cash shortfalls ● Limited access to strategic partners ● Reluctance to use collaborative networks ● Few scientists with management skills; few experienced entrepreneurs coming forward to participate in the sector ● Small number of companies in Atlantic Canada; little strength in numbers ● Limited private research activity in Atlantic Canada; few firms with in-house research and development capability ● Patent system / intellectual property protection regime promote uncertainty, delay and additional costs ● Relatively low numbers of students enrolling in science-based, post-secondary education; insufficient biotech skills in the region to support substantial growth; growing reliance on immigration to acquire skills ● Limited resident legal expertise in the region related to bio-based activities, including IP protection ● Provinces tend to be in silos; no major cohesive activity / no regional strategic focus ● No effective regional sector champion; little cohesive sector support at political, government or industry levels; loose, informal regional industry association ● Ongoing challenges linking publicly-funded research with private sector commercialization ● Industry is still relatively young, with significant dependence on research and development expenditures Opportunities ● A myriad of emerging bio-products from various natural sources, including: adhesives, biochemicals, biofuels, biodegradable plastics and paints, essential oils, flavours, fragrances, textiles, artificial sweeteners, gels, plastics, foam insulation, among many others ● Exploiting the convergence of Bio and IT; building upon the growing bioinformatics base in the Maritimes ● Emerging needs for new hospital and healthcare services; new remote service delivery and communications tools; E-health ● Military market: bio-weapons, biohazard protection, bio-garments, delivery of medicines in the field, treatments for the effects for bio-weapons, etc. ● The emerging field of personalized medicine ● The coming geriatric wave and treatments related to aging and obesity ● Industrial biotech and environmental biotech ● Using agricultural biotechnology to increase yields, increase crop values, convert by-product streams to value-added products ● Exceptional potential in functional foods and nutraceuticals ● Using marine biotechnology to develop drugs and diagnostics ● Applications of marine biotechnology in managing marine environments and promoting a sustainable fishing industry

MRA Research Group

95

● Good inward investment potential; entry point to North American market ● Big Pharma investing or partnering in the region’s research Threats ● Failure to recover adequately from the economic downturn ● Ongoing constraints in financial markets which reduce the supply of risk capital and limit sector growth ● Intense competition from China, or other emerging market(s) ● Inability to get new products to market in advance of potential competitors ● Inability to develop products that meet market needs ● Inability to attract and retain key employees ● Negative ramifications from the regulatory overhaul of the US Food and Drug Administration; business environment becoming more risk averse; approval process becoming even more onerous and expensive; full regulatory review required of more products ● Present restructuring among Big Pharma having unforeseen adverse consequences; significant mergers resulting in Big Pharma becoming more selective, less open to partnering or outsourcing research ● The school of thought that all the easy discoveries have now been made and that me-too opportunities are all that realistically remain ● A “disruptive technology” that changes everything, including the way the market works, perhaps by dramatically lowering prices or altering consumption ● Entrepreneurs moving forward without being absolutely certain something is new and novel; inadequate market research; inadequate patent review ● An extraordinary rate of change and evolution in the sector; innovations which can quickly jeopardize the apparent opportunity of almost any technology ● Failure of large numbers of biotech businesses due to market conditions, financial constraints or other business fundamentals ● A groundswell in global propensity to natural products and organic approaches; disdain for biotechnology; an escalating GMO-like backlash ● Reductions in research and commercialization funding; decaying research infrastructure ● Outmigration of key technical and professional staff

MRA Research Group

96

SECTOR ASSESSMENT KEY SECTOR ATTRIBUTES LIFE SCIENCES

ATTRIBUTE

ASSESSMENT

COMMENTS

Strength and Sustainability of Future Market Demand Potential Economic Impact: revenue generation, innovation, job creation, trade expansion Cluster Potential

Very Good

Inherent needs for health products across all major industry segments Expected to be a principal economic driver within most economies; positive impacts in each respect

Magnitude of business challenges facing SME’s Existence of Cross applications

Very high

Very good

High

Very significant

Providing that a focused strategy can be successfully implemented Sector has difficult product development and market entry hurdles Dual applications clearly evident across many sectors, especially Agriculture and Agri-Foods, IT and Environment

Compatibility with IBDA (and other) Support Mechanisms and Resources

Fair

Immediacy of Results

Mixed

Extent of Pan-Atlantic Participation Number of Potentially Supportable Atlantic SMEs

All provinces

Does not integrate well with traditional market development programs; companies’ principal expressed need is for financial support; limitations of ACBA as implementing body Depending on target companies and project focus NL sector more nascent than others’

Low

About 100 companies in sector

SECTOR SUMMARY Structure The Life Sciences sector in Atlantic Canada is presently made up of a relatively small number of participating core business – approximately 100. It is a new industry, and almost all of these firms have established within the past several decades. The sector is being driven by the incredible pace of innovation in the biosciences and a strong undercurrent of market demand for related products and services. Life Sciences companies possess a set of characteristics that are highly desirable from an economic development perspective, including a virtually exclusive export orientation. Overall, the sector offers enormous potential for long and short-term growth, as well as the capacity to support the development (perhaps transformation) of other key sectors.

MRA Research Group

97

Support Constraints Life Sciences businesses have some significant needs and challenges, many of which are unique to the sector and its underlying technologies. To its benefit, the Atlantic region has good support mechanisms already in place to help meet these needs, as well as first-class infrastructure and available resources to serve as platforms for further growth. In this respect the role and effectiveness of the Atlantic Innovation Fund (AIF) was widely recognized by many research informants. The four Atlantic Provinces have embarked on individual economic development paths for their Life Sciences sectors, consistent with inherent strengths and available resources. The diversity of these approaches and the range of opportunities pursued by companies in each province are considerable. As such, there is somewhat limited common ground to effectively apply a Pan-Atlantic support mechanism such as the IBDA, while fully meeting the specific needs of each province. At a macro level, the global Life Sciences sector is large, complex and rapidly evolving, while the micro level perspective in Atlantic Canada is very different, possibly even opposite, in terms of size and complexity. The small number of participating companies within the region begs the fundamental economic development decision of whether to focus on building or growing. At the same time, and as discussed below, the sector does not lend itself particularly well to traditional support tools such as trade missions, or indeed the selection of unique geographic target markets. Subsector Opportunities Opportunities abound in the two trillion dollar Life Sciences industry worldwide, and a great deal of public information and research is available to scope the size and extent of global opportunities in various subsectors. One report, by the government of Scotland64, provides a concise summary, stating that “the subsectors which offer most potential are drug discovery/development, stem cells and regenerative medicine, translational and clinical medicine (basic research transitioning into practical treatments), and medical technology.” Others drill deeper, or offer variations on the theme, but the Scottish view seems a consistent generalization. There are also continuing attempts to identify opportunities and promising new subsectors by forecasting the future direction of technology. One such example65 graphically illustrates what may be evolving in various fields, including Life Sciences – thought-provoking information overall, but not a means of specifically pinpointing opportunities. One practical difficulty in applying information about globally promising Life Sciences subsectors or emerging technologies in the Atlantic Canadian context is the limited private sector capacity available to exploit it. Again, only a small number of companies (in the order of 100) have a principal business activity in the regional Life Sciences sector and aren’t easily grouped in homogenous subsets of any considerable size. As well, industry focus differs considerably from province-to-province.

64 65

http://www.scotland.gov.uk/Publications/2010/01/26105228/5 http://michellzappa.com/map/

MRA Research Group

98

Without this critical mass, promising subsectors may best be targeted by looking to the strengths of the region and how well these fit with global opportunities. Another key consideration is the degree to which the four provinces share in these strengths. Against this background, the six originally-identified subsectors were evaluated to determine which may have the greatest potential: ● Pharmaceuticals and Therapeutics was generally seen as the most difficult and risky to develop; targeted support is not feasible ● Functional Food and Nutraceuticals has demonstrated impressive growth and has potentially important implications for the regional agriculture and agri-food sector, as discussed elsewhere in this report; it has excellent potential ● Medical Technologies and Diagnostics, the major MD&D classification discussed earlier carries little presence in any of the provinces except Nova Scotia, where several smaller enterprises have developed innovative applications, but have been challenged in achieving significant market penetration; a promising subsector, but limited overall regional potential at the present time ● Medical Software is a burgeoning but highly competitive field; in the broader IT context, opportunities exist in medical records automation, bioinformatics, and specific health-related applications; a significant number of regional IT companies are pursuing applications related to Life Sciences; it has excellent potential for global growth ● Marine Biotechnology (Blue Biotech) and Agricultural Biotechnology focus, respectively, on utilizing agricultural biomass and the vast resources of the North Atlantic; these subsectors represent the area of greatest common interest among the four Atlantic Provinces; Marine Biotech was deemed to offer the best potential of the two and is discussed below Marine Biotechnology Marine biotechnology is an emerging field, with growing markets in the medical, pharmaceutical, aquaculture, nutraceutical and industrial sectors. It focuses on the research and development of technological applications of living marine organisms or their components. Products derived from these processes are applied in areas such as environmental remediation, food, industrial processes, marine transportation, cosmetics, pharmaceuticals and others. A recent study by Global Industry Analysts Inc. (GIA) reported that the worldwide market for Marine Biotechnology is forecast to reach US$4.1 billion by the year 201566. The industry is in a nascent stage and is still a small part of the overall biotech market. The Marine Biotechnology subsector is widely considered to represent the greatest opportunity for the region. It is now a strategic priority for each of the Atlantic provinces, and a number of world-class marine biotechnology research assets are established here. Several regional firms have already achieved notable commercial success in business endeavors grounded in marine biotechnology, while others are developing significant 66

http://convention.biomarine.org/index.php/component/content/article/3-news-flash/74-global-marinebiotechnology-market-to-reach-us41-billion-by-2015

MRA Research Group

99

new opportunities. As well, there has already been a substantial amount of interprovincial collaboration in the sector to date through various mechanisms. However, the most compelling reason for optimism is the available, abundant and unique biodiversity the four Atlantic Provinces share in North Atlantic marine ecosystem surrounding the region, especially given the new products and applications which can now be derived from it through biotechnology. It is noted that Agricultural Biotechnology is also a highly promising subsector, fundamentally offering many of the same opportunities as Marine Biotechnology. Dependent on the supply of agricultural and forestry biomass, it is now most significant to New Brunswick, Prince Edward Island and rural Nova Scotia, but is not a factor in Newfoundland and Labrador. GIA has forecast the global Agricultural Biotechnology market to reach $12 billion by 201567. Target Markets The Life Sciences sector is characterized by companies that export a very high proportion of their products. Again however, the selection of specific target markets that show potential opportunities for the region is made difficult by the significant diversity of businesses in the sector. Markets can sometimes be narrowly defined depending on the subsector, but usually only relate to a small industry subset of participating firms. For example, fish health is a focus in Chile, Norway and southeast Asia, but only a handful of regional firms is engaged in this segment. The relative importance of target markets can also be identified through export statistics. For example, principal export destinations for Pharma and Medical products, and Medical Equipment and Supplies are illustrated in the charts below:

Pharma & Medical Markets 2010 Japan 1% China 1% France 2% UK 38%

Medical Equip. & Supplies Markets 2010 France 1% Netherlands 10%

China 1% UK 48%

US 58%

US 40%

Source: Statistics Canada NAICS 32541, NAICS 33911

For the most part, Life Sciences is a sector that differs fundamentally from other goods producing sectors: there are typically not a large number of potential buyers or partners

67

http://www.seedtoday.com/articles/GIA_Report__Global_Ag_Biotech_Market_to_Reach__12_Billion_By_20 15-100090.html

MRA Research Group

100

in any single geographic location, many products carry high values and markets are often said to be “worldwide” with non-standard distribution channels. Nevertheless, the United States has traditionally represented the principal market destination for the products of many Atlantic region Life Sciences business by virtue of its size and proximity, and it continues to remain so in spite of recent economic developments. At the same time, respondents advised that there is increasing interest in Europe as a diversification alternative. China, Brazil and India continue to expand rapidly, but respondents suggest that these are now active markets for relatively few Atlantic region businesses. In its 2010 report, Ernst & Young68 offered the following essential advice to companies moving into China – a systematic approach that is likely beyond the capacity of most Atlantic firms at present, but which may possibly suggest the underpinnings of a future support initiative: 1. really do your homework and understand the local market 2. tailor your business model to your specific needs and the nature of the local market 3. partner with local entities — companies, governments, and academic and medical institutions — to navigate the market. Target market priorities are best identified by individual exporters. As discussed below, the Life Sciences sector in Atlantic Canada is small enough to potentially permit individual contact with every company in the region; such a survey could provide a comprehensive, first-hand identification of target markets, and a factual basis for future mission and event recruiting. Partnerships The Life Sciences sector thrives on partnerships. The regional Life Sciences industry associations advised that partnerships “happen all the time”, and take various forms. Some examples are: ● A cosmetics manufacturer partnering with a local bioscience firm to supply bioactives from marine organisms ● A university signing a licensing agreement with a bioscience company to use university-developed technology ● A pharma company teaming with a local honey producer to add specific bioactives to lozenge products ● Companies working with NRC, universities or other facilities providing access to high tech equipment not otherwise available to them Two general forms of partnering arrangements are common: one providing access to markets, another to invest in co-development. TechAgreement.com is an instructive source of information on the variety of partnership agreement agreements that are possible, with numerous examples.69 The Bio-Partnering projects were universally and enthusiastically endorsed as an effective means of promoting partnerships. When asked to offer recommendations for 68 Page 28: http://www.ey.com/Publication/vwLUAssets/Beyond_borders_2010/$FILE/Beyond_borders_2010.pdf 69 http://www.techagreements.com/Collaboration-Agreements.aspx

MRA Research Group

101

improvement, representatives of regional industry support organizations essentially suggested that major modifications were not necessary, and that changes might be counter-productive. Other related thoughts included: ● The Bio-Partnering format, allowing provinces to tailor the event to meet individual needs, is its greatest asset ● One difficulty involves challenges with geographic coverage in some provinces; this might possibly be addressed through the creative application of technology ● While it is essential to maintain a level of confidentiality as to “who-is-meetingwith- whom”, the concept of inviting a journalist to boost the profile of the event may be worth pursuing ● If anything, benefits could be multiplied with the active participation of more local companies ● The event could possibly include a broader community of participants, such as universities and research organizations; focus would nonetheless have to be maintained on promoting B2B interactions, versus B2R or R2R. ● The overall networking potential of the event could possibly be better exploited Linkages with Academia An enormous amount of exceptional research is being carried out within Atlantic Canada’s universities, much with significant potential for commercialization by regional Life Sciences companies. Effective linkages between universities and businesses can greatly facilitate this outcome, to the point that university innovation can drive economic development. However, this is not always an easy process, and respondents were asked for their views as to the present situation in Atlantic Canada. Some key comments were: •

Professors have a research load, a teaching load, must secure funding and deal with science-based approval boards; it is difficult for them to add commercialization to the mix

•

Certain universities and certain faculties within universities do a good job of working with industry; this is very university-specific, and faculty-specific

•

Our institutions are old, with a venerable legacy, but the situation in Atlantic Canada is certainly no worse than in central Canada

•

Universities generally have not had a lot of experience in this, with the exception of Dalhousie, UNB and possibly Memorial; it’s really new territory for the others

•

A cultural shift is required; facilitation can help and all parties must see the value of the relationship, such as: increased research budgets or increased access to resources

•

The AIF has been immensely useful in changing this culture

•

Universities are key components in cluster model, and must be aware of their roles

•

We are seeing a change, a real willingness in universities and hospitals, and now seeing industry partnerships that are real

MRA Research Group

102

•

Springboard is good example of what is needed to promote and accelerate the commercialization of technologies by Atlantic Canadian companies, but could perhaps put more emphasis on the private sector side of its activities

IMPLICATIONS FOR TRADE DEVELOPMENT SUPPORT Key informants offered a considerable number of suggestions during the interview process with respect to needs which the IBDA or other program delivery mechanisms could potentially meet. These are summarized here by principal topic along with supplemental findings and concepts for other forms of support derived from the secondary research. Financing ● The need for venture capital was raised in virtually every interaction with industry stakeholders; it was recognized that such support was not possible under the IBDA, but the Agreement was seen as a mechanism for delivering programs that educated and facilitated the identification of financing sources ● A helpful IBDA-sponsored Venture Capital training session organized about five years ago should be repeated, both for information purposes and also to help manage expectations that VC is not a panacea ● BIOTECanada has formally proposed an expansion of the applicability of the federal government’s flow-through shares program to Canada’s biotechnology sector to stimulate new private investment; it is not clear what potential this may have for inclusion in a future federal budget Expertise ● The need for mentors came up almost as frequently as did the need for venture capital financing; an Atlantic Life Sciences mentor “network” was deemed worthy of consideration, perhaps beginning with a determination of potential format and management options, cost and other specifics ● Mentors working with entrepreneurs in a one-on-one format was vastly preferred for several reasons, confidentiality concerns in particular; otherwise, a maximum of two or three companies at a time was seen as far superior to group training sessions ● A team with diverse and complementary expertise could be assembled and made available Atlantic-wide, loosely modeled on ACOA’s Export Mentoring program but specifically targeting the Life Sciences sector and its specific needs ● Information sessions for scientists considering business could be staged in each major university; the importance of involving mentors and enabling access to various experts when starting a business was emphasized ● Networking is essential but there tend to be few vehicles; informal, quarterly gettogethers to exchange ideas would not be difficult or expensive to organize ● More extensive networking events bringing together business, education, government, industry experts and service providers could help local businesses MRA Research Group

103

expand their circle of contacts and identify individuals who may be able to help address immediate questions, or who would be available to call on over the long term ● A potential IBDA role in supporting local or provincial events could be to assist in securing prominent speakers or panel members from outside the region ● Life Sciences entrepreneurs were identified as a group with particularly limited business skills; a need for “Business 101” training was identified, including: business registration, banking, tax, accounting, legal, human resources, day-today operations and the like; however it was also noted that some respondents questioned the appropriateness of the IBDA’s role in helping prospective entrepreneurs prepare to enter business ● Beyond the basics, scientists were also seen as needing guidance in understanding and evaluating strategic business decisions: whether to research, manufacture, license, sell; and also help with partnering alternatives, business strategy and understanding clearly what business are they in ● Intellectual property education and support were deemed important; generic information sessions were useful, but the most effective support is delivered oneon-one to entrepreneurs by experts with appropriate knowledge and experience in the sector ● Management skills were seen as a considerable weakness; one proposed approach was the development of a user-friendly mechanism to recruit ex-pat CEO’s and CFO’s who may be interested in returning home to Atlantic Canada, then linking them with companies and assisting them in re-establishing within the region ● Linkages between business schools and intellectual scientific talent should be promoted; a combined MSc-MBA program would be an ideal combination of skills70 ● Scientific internships in businesses outside of Canada for high school and university students could pay long-term dividends ● There is a need to educate people that Life Sciences is a major industry with great jobs and a bright future; the IBDA could help communicate this along with other benefits and the extent of the available support network Marketing ● Informants suggested Life Sciences companies were most in need of assistance for specific marketing activities including: o Product and market development o Formulating a go-to-market strategy o Market intelligence o Tapping appropriate vertical markets o Looking to new markets beyond the United States o Facilitating the transfer of IP from universities 70

http://careers.stateuniversity.com/pages/100000821/Education-Path-Biotech-Career-GraduateDegrees.html

MRA Research Group

104

● A proposed approach, aimed at developing relationships with Big Pharma and potentially leveraging the growth of outsourcing, involved developing a program to systematically identify, recruit and support incoming visits by representatives of Big Pharma; these individuals could visit Atlantic Canada to tour facilities and evaluate research and business activities that may best fit their interests ● Life Sciences is not a sector that works especially well with sales-focused trade missions; initiatives that depart from a traditional matchmaker format should be considered, such as exploratory missions, educational missions or missions to tour facilities of major businesses or prominent Life Sciences regions, possibly with return visits to the Atlantic region ● Trade shows in the sector have sometimes presented a recruiting problem; an overall trade show strategy for the sector could be considered, including subsector-specific conferences and exhibitions ● Partnering is vitally important in the Life Sciences sector; more marketing support initiatives should be directed at developing these relationships ● Supporting highly-targeted market visits or event participation for small numbers of company participants is a realistic approach in this sector Research / Strategy / Regional Focus ● Each of the Atlantic Provinces has designated the Life Sciences sector as one of its strategic priorities and is independently pursuing unique approaches to its development; while appropriate to the needs, goals and resources of the individual provinces, these disparate paths can limit the pace and potential of overall regional development of the industry ● Although each Atlantic Province describes its Life Sciences sector in terms of a “cluster”, these are not truly within the same realm as the major global clusters71; it is unlikely that a bona fide regional Life Sciences cluster can be achieved without unanimous agreement on a common focus and commitment to an effective coordinating mechanism ● There presently appear to be minimal alignment, and few clearly-identified Life Sciences strategies at the federal, provincial and municipal levels ● A vision and cohesive approach to determining where Atlantic Canada should best participate in the sector are not presently apparent; obvious needs exist to find a regional niche and set regional goals; these might best be initiated by highlevel intergovernmental discussions. Agreement to take first steps in developing a regional Life Sciences strategy would be a highly desirable outcome ● Marine Biotechnology, an important and widely-shared interest among the four provinces, is the proposed focus for Life Sciences development Atlantic region

71

One such list is found in: http://www.mva.org/content/us/the_region/life_science_clusters_worldwide

MRA Research Group

105

● The most recent significant study of the sector that could be identified was a 1997 report, “Biotechnology in Atlantic Canada” 72; such an analysis may be worthy of updating ● Assembling a regional bio-economy strategy along the lines of that advanced nationally by BIOTECanada73 – “Beyond Moose and Mountains” – may also be a useful collaborative initiative; it could potentially serve to promote the Atlantic Canada bio-economy, develop an inventory of what is happening regionally, and determine what can best be done to support its growth ● A further illustration is the Life Sciences Industry Sector Profile of British Columbia74, written ostensibly from the perspective of what the sector and its companies are capable of offering ● The work of the provincial Life Sciences Industry Associations and the Atlantic Canada Bio-Industries Alliance (ACBA) working group is laudable; there is open collaboration, open communication and a solid track record of implementing successful IBDA projects ● ACBA has also demonstrated an ability to accept tradeoffs, such as prioritizing certain events or activities that are more important to some partners than others; however, individual provincial goals and agendas must necessarily drive its activities ● In its present form, ACBA is not an optimal mechanism to develop and deliver a Life Sciences regional strategy; a revised structure and mandate for ACBA could potentially be considered ● A complementary approach may be to solicit interest among the four Provinces and ACOA in establishing an inter-provincial collaboration team with the mandate to develop a regional Life Sciences sector strategy or undertake other appropriate initiatives ● The regional Life Sciences sector is small enough to feasibly accommodate a telephone survey targeting all Atlantic Life Sciences companies. With thoughtful development, such an initiative could be structured to directly determine individual company needs, identify specific target markets, gather corporate activity, success stories or information for a regional strategy, test program concepts, uncover potential linkages, and so on; the ready availability of lists, including CEO-level contact information, for every business in the sector is a significant asset to such a project ● Developing a better understanding of the regional networks of industry participants might also be a worthwhile initiative; for example, determining the available resources for bio-processing, contract manufacturing or bio-refining: this would allow sector participants to be more aware of sources and capabilities respecting various technology platforms ● The IBDA should be aware that administrative burden is a significant perceived issue to the ACBA partners when delivering IBDA programs, and may possibly be 72

Bicon Consulting Associates, “Opportunities for Biotechnology-Based Business in Atlantic Canada”, January 1997 73 http://www.biotech.ca/en/policy-matters/overview.aspx 74 http://www.tted.gov.bc.ca\MIT\SBIIO\Documents\SectorProfile_LifeSciences.pdf

MRA Research Group

106

inhibiting the extent and effectiveness of projects; this may simply be resolved by open discussion with the group ● The focus of the IBDA in assisting established exporters is recognized; however, with so few companies in this sector and its very strong export orientation, a strategic discussion on the merits of supporting earlier stage activities or encouraging entrepreneurship may be warranted ● It is essential that an effective forum to continue the Pan-Atlantic dialogue be maintained over the long term

MRA Research Group

107

7.0 AGRICULTURE AND AGRI-FOOD INTRODUCTION Agriculture has been a pillar of Atlantic Canada’s economy since colonial times. It is one of the region’s most important traditional exports, built on the efforts of farmers and supported by a well-established international reputation for safe, high-quality products. Countless jobs have been linked to the region’s agriculture sector over the decades as it effectively drove the evolution of today’s diversified economy. At the same time, agriculture has always been at the heart of rural growth and development, and an essential element in the social fabric of Atlantic Canada. However, times are changing. Farming is no longer the small, subsistence activity it once was. Steady improvements in equipment, management practices, feed, fertilizer, plant and animal breeding are contributing to dramatic production increases. As shown in the Chart, farms are dwindling in number and becoming much larger as pressures mount to abandon productive farmland and dispose of family farms. The average age of farmers is also increasing and the number of farmers is declining overall with fewer new entrants to the sector.

Evolution of Primary Agriculture Farms in Canada Farm Size 800

800

600

600

400

400

200

200

0

0 1956 1966 1976 1986 1996 2006 Number of Farms (000s) Average Farm Size (Acres)

Source: Statistics Canada

Changing consumer and societal influences are dramatically re-shaping the agriculture and agri-food system. Demands for greater convenience and variety are transforming the sector such that the economic impact of value-added processing now greatly overshadows the importance of farm commodity production. Needs for assurances of quality and safety, and for healthier, environmentally-friendly food choices continue to grow. In response, an increasing number of farms are diversifying, transitioning to organic production, adopting new methods and approaches, and pursuing value-added opportunities. Innovation is becoming even more vital to the sector. Perhaps most significant is the application of biotechnology and the related emergence of bio-products. This is leading a further transformation in the application of agricultural processes to the production of a broad range food and non-food products – encompassing petroleum substitutes, functional foods, natural health products, textiles, pharmaceuticals, construction materials and many others. Significant attention is similarly being directed to biomass (found mostly in rural areas) and the potential applications of this renewable resource.

MRA Research Group

108

SECTOR DEFINITION The Agriculture and Agri-food sector includes the following principal segments75: Producers: Animal Production including livestock, meat, poultry, egg and dairy products Crop Production including fruits, vegetables, honey, maple, greenhouse, ornamentals, pulses, special crops, grains and oilseeds commodities Organic Production including organic fruits, vegetables, livestock, grains, ingredients and consumer-ready products

Agri-Industries: Processed Food including animal food, milled products, sugar and confectionery products, manufactured and preserved fruits and vegetables, dairy products, meat products, seafood products, bakery products and other (including snacks, coffee tea , flavourings, seasonings, dressings etc) Beverages including soft drinks and bottled water manufacturing, wineries, breweries and distilleries Functional Foods and Nutraceuticals76: Functional Foods refers to conventional foods consumed as part of a usual diet, which have been demonstrated to have physiological benefits and/or reduce the risk of chronic disease beyond basic nutritional functions because they contain bio-active compounds; they are not subject to regulation Nutraceuticals include products isolated or purified from foods, but generally sold in medicinal forms not usually associated with foods; these are demonstrated to have a physiological benefit or provide protection against chronic disease.

GLOBAL PERSPECTIVE The agriculture and agri-food sector continues to gradually expand worldwide and will likely continue to do so – driven by technology, an increasing world population and a growing number of consumers who can afford to purchase protein. It is a sector that has historically been among those least affected by world economic instability. The capacity to produce food is not an issue for the world at this time. However, over the very long term, it is not clear that sufficient food supplies to meet the growing global market demand can be fully sustained. As well, because the greatest cost of getting food 75 76

Adapted from http://www4.agr.gc.ca/AAFC-AAC/display-afficher.do?id=1165871799386&lang=eng Also widely considered as part of the Life Sciences sector

MRA Research Group

109

to plate is energy-related, changes in the oil economy will have important impacts on future global trade in food and food products. On the supply side, certain regions in the world have a natural competitive advantage because of high quality land, a temperate climate or abundant water resources; many believe the latter to be the great new emerging issue worldwide. Indeed, the incremental G-20 nations are now superseding the G-8 in producing food, because of their lower production costs. Markets are also evolving dramatically; particularly in China, India and other large world populations where demand is increasing just as preferences are shifting to more grains and meats. Rising oil prices also increase fertilizer and harvesting costs. Other factors cited as leading to higher food prices include extremes of weather (e.g., droughts in Russia and China, floods in Australia and Brazil), the falling $US and bee colony collapse. As commodities are traded internationally, many food prices are apt to remain the same everywhere, but take a much larger proportion of family budgets in poorer countries. A very significant trend toward food protectionism is leading to a rapid increase in regulatory barriers. Socially-conscious consumers are also exerting more market influence by driving shifts related to certifications, food production practices, food sources, organics, fair trade, animal welfare issues, child labour and similar factors. The most successful globally-oriented agri-food companies have the ability to quickly adapt to these changes and the agility to move from one market to another to meet consumer needs. They are also able to efficiently adopt new technologies to increase productivity and find less expensive ways to get products to market.

CANADIAN PERSPECTIVE Canada has a highly diverse primary agriculture sector, and is one of the world's largest suppliers of agricultural products, particularly wheat and other grains. Although commodity production now accounts for just over two percent of the country’s GDP77, it is at the heart of a large agri-food system, with over 40 percent of agricultural production used as raw material inputs by the processing industry. Food and beverage-processing represents Canada’s second-largest manufacturing industry, accounting for approximately 14 percent of total manufacturing shipments78.

Canadian Food Exports ($Cdn Mil) 30,000 25,000 20,000 15,000 10,000 5,000 0 2001

2003

2005

2007

Canada continues to be one of the largest exporters of agriculture and agri-food products in the world, while facing a growing set of challenges in increasing trade liberalization, global economic conditions and changing consumer needs. The trend in Canada’s food exports is presented in the Chart above. The agriculture and agri-food sector across Canada is also facing consolidation and transformation. Some experts indeed suggest that it is undergoing change at a faster 77 78

http://publications.gc.ca/site/eng/372381/publication.html http://investincanada.gc.ca/eng/publications/grain.aspx

MRA Research Group

110

2009

pace and to a greater extent than that now occurring within the country’s new technology sectors.

ATLANTIC PERSPECTIVE Sector Characteristics Atlantic Canada has 3 percent of the country’s farms, about 1 percent of its area under crops and generates about 1 percent of Canada’s agricultural output. The average acreage of the region’s farms is lower than in the country as a whole. There is also a limited regional market due to its low population density. However, Atlantic Canada boasts a number of high-yield areas which produce a considerable variety of quality crops, many with well-established national and international brands. The diversity of farm production activities is a key attribute of the Atlantic region, and this range is continuing to expand through growth in organic products, functional foods and many specialty niche products. Overall, the trend in the region’s farm cash receipts has been positive, as depicted in the Chart on top. Crops grown across Atlantic Canada include: wheat, oats, barley, hay, soybeans, corn, canola, nursery stock; vegetables such as carrots, onions and broccoli; fruits including apples, pears, plums and grapes, and many varieties of berries. Livestock production includes beef, pork, poultry, lamb and sheep; more recently mink, llamas and alpaca and other non-traditional animals have joined the mix. Collectively, the Atlantic region is a leader in Canada’s potato, wild blueberry, apple, carrot and Christmas tree production.

Farm Cash Reciepts ($Cdn 000) 600,000 500,000 NFLD

400,000

PEI

300,000

NS

200,000

NB

100,000 0 2000

2002

2004

2006

2008

Atlantic Canada Food Exports ($Cdn) 600,000,000 500,000,000 400,000,000 Potatoes

300,000,000

Other Foods

200,000,000 100,000,000 0 2001

2003

2005

2007

2009

Notwithstanding the extent of diversification in the region, the potato industry makes an overwhelming singular contribution to the output of the sector, consistently representing twice the export volumes of all other foods from the Atlantic region, as shown in Chart on bottom. Its vital economic importance cannot be understated. The agriculture and agri-food sector is increasingly focused on value-added opportunities. More than 500 firms across Atlantic Canada are now part of a diversified food processing and manufacturing industry, with much of its overall output destined for export markets. These include producers of dairy products, bakery goods, beverages, confectionery products, food-based specialties, snacks, frozen foods, as well as industrial products to serve as inputs in other sectors. Producers range from traditional

MRA Research Group

111

labour-intensive, family-owned businesses to large highly-capitalized, vertically and horizontally integrated enterprises. The regional agri-food industry is well-supported by research and development carried out in experimental farms and research stations situated in all four Atlantic provinces. Research facilities within Atlantic Canada’s universities provide a further array of development assistance for agriculture and agri-food production and many of the larger private sector interests operate their own in-house R & D facilities. Of late, a stronger Canadian dollar and rising business costs have constrained growth in the sector, while a shortage of qualified workers and sluggish business investment have also been tied to faltering productivity gains. Again, one of the most significant, long-term changes within the Agriculture and Agrifood sector has been the decline in the overall number of farms in Atlantic Canada and their corresponding increase in size, as set out in the table below. Number and Size of Farms in Atlantic Canada 1956-2006 Item

NB 1956

# Farms Area (‘000 hectares)

NL 2006

1956

22,116 2,776 2,387 1,207

395

29

NS

2006

1956

PEI 2006

1956

2006

558 21,075 3,795 9,432 1,700 36

1,284

403

431

251

Source: Statistics Canada

Another noteworthy development has been the precipitous decline in beef, pork and poultry production over the past decade, a result of economic conditions and highlycompetitive market pressures. It should also be noted that a significant inherent constraint to the expansion of primary agriculture in Atlantic Canada is rooted in the fact that much of the region’s industry is supply-managed, essentially leaving no room to grow for many agricultural products. The net outcome, reflected in Chart on bottom, shows flat agricultural exports from Atlantic Canada over the decade, and an overall decline in 2009 to a level below that of 2005. The global economic slowdown no doubt contributed to recent export performance; however, this trend may also be traced to many of the foregoing changes and challenges now being faced by the sector.

MRA Research Group

Atlantic Canada Agriculture Exports ($Cdn 000,000) 700 600 NL PE

500 400

NS NB

300 200 100 0 2001

2003

2005

2007

2009

112

Atlantic Agri-Businesses There are two macro-level systems in the agri-food sector: one to feed global populations and another to feed local populations. Each is clearly evident in Atlantic Canada as several diversified worldwide exporters such as McCain, Cavendish and Oxford Frozen Foods operate alongside a large number of smaller companies that are principally focused on local markets. The large producers have capitalized on, and understand the importance of: • Developing international contacts • Meeting customers’ needs; marketing; value chain management • Centralized distribution • Traceability • Food safety • Packaging • Product development to meet emerging needs • Coordination among suppliers • Managing production costs; paying attention to the bottom line • Vision and understanding of the global marketplace • HR leadership, particularly in retaining and motivating staff In contrast, smaller companies tend to struggle with many of these key growth requirements, and also lack the necessary financing to scale to larger production levels, work comfortably with the centralized distribution systems of the big retailers and aggressively develop international markets. Thus, a strategy of identifying and capitalizing on niche markets may be the most realistic approach for many SME’s, of which there are countless examples of innovative success stories in Atlantic Canada’s agri-food sector. Certainly, many well-established, medium-sized producers and agri-food exporters also operate successfully in the region. However, a bifurcation comprised of a high-volume / low-margin segment and low-volume / high-margin segment is distinctly evident in the sector. Moreover, most business have adopted the latter of these paths due to limited resources, an unacceptable level perceived risk or difficulties in embracing the foregoing growth requirements. While they may nevertheless export in relatively small volumes and operate profitably, many SME’s appear to be primarily focused on nearby markets and perhaps most appropriately termed “cottage industries”.

Recent Sector Performance The agri-food industry unquestionably occupies a vital position in the economy of the Atlantic Provinces. Annually, about $1.3 billion in overall farm cash receipts is generated, somewhat equally, by the three Maritime provinces, with approximately $100,000 in farm gate sales originating from Newfoundland and Labrador. In addition, the food processing industry records annual sales approaching $3 billion (including seafood products) in Atlantic Canada. Key industry statistics are presented in the table below79

79 2005 Data from http://www.acoaapeca.gc.ca/English/publications/ResearchStudies/Pages/AgricultureandAgrifoodProductioninAtlanticCanada.aspx

MRA Research Group

113

Table

Atlantic Canada Agri-food Industry Key Indicators (2009 – except where indicated) Farm Cash Receipts Total Crop Farm Cash Receipts Total Livestock Farm Cash Receipts Total Agriculture Employment (2005)

$ 1,470 million $ 645 million $ 742 million 18,000 people

(excluding aquaculture)

Total Agri-food Industry Employment (2005)

15,300 people

(excluding seafood) Statistics Canada

Supporting Growth Infrastructure Universities and Institutions University of New Brunswick, Fredericton, NB University of Moncton, Moncton, NB Memorial University, St. John’s, NL Dalhousie University, Halifax, NS Mount Saint Vincent University, Halifax, NS Saint Mary's University, Halifax, NS University of King's College, Halifax, NS NS Agricultural College, Truro, NS University of PEI, Charlottetown, PEI The Atlantic Culinary Institute, Charlottetown, PEI Principal Research Centres and Support Facilities Food Research Centre, Moncton, NB Potato Research Centre, Fredericton, NB Atlantic Food & Horticulture Research Centre, Kentville, NS Atlantic Cool Climate Research Centre, St. John’s, NL Crops and Livestock Research Centre, Charlottetown , PEI Food Technology Centre, Charlottetown, PEI NRC Institute for Nutrisciences and Health, Charlottetown, PEI AgriTECH Park, Truro, NS

SWOT ANALYSIS (Industry View) Strengths • Very successful potato industry (PEI and NB) • Positive brand image; clean, fresh high-quality products produced next to the ocean • Not dependent on a single commodity; significant diversity in crop and livestock production • More farmers seeking value-added opportunities • Favourable micro-climates for certain products (such as grapes) • Extended growing season in some areas

MRA Research Group

114

• • • • • • •

•

Arable private and crown land potentially available in some areas at attractive prices Good research and development support for producers Proximity to the US – the largest, most lucrative market on the continent Established value-added processing capacity Doubling of exports to China in 2009; now the #2 market destination for the region Success in organic production; growing demand from export markets Development of world-class organic and other botanical products, innovative product development, state of the art manufacturing, and a dynamic team of natural health product professionals (e.g., PEI Food Technology Centre, NRC, Agriculture Canada, Atlantic BioVenture Centre, NSAC, Naturally Nova Scotia) Good economic spinoffs; benefits to other sectors of the economy

Weaknesses • Labour shortages due to an ageing domestic workforce, low wages, EI disincentives, and difficulties in securing additional immigrant labour • High labour costs • Limited development of export markets outside the United States • Barriers to supply chain access; domestic control based in central Canada • Relatively small regional population • Lack of critical mass • Limited production capacities of many producers • Large multinationals (such as WalMart) driving regulations for processed foods; a rapidly changing certification landscape; companies becoming mired in compliance challenges • Limited farm-level processing, refrigeration and storage infrastructure • Absence of an overall food strategy • Regulations restricting the inter-provincial sale and transportation of some products • Supply-managed system inherently restricts growth in many commodities • Recent business failures in non-supply managed products • Distance to market affects margins; high less-than-truckload costs • Many SME’s capable of exporting, but not always willing/able • Difficulties working within the centralized distribution mechanisms of major retailers • Competition among producers • US exchange rate • Many businesses are slow to embrace technological innovations; not achieving potential cost reductions or full extent of new product development Opportunities • Growing market demand for non-commodity, high-end, value-added products • Regional branding of quality, cottage-level production • New, growing markets in Europe and Asia; some expanding in double-digits • Sales to less-traditional US markets in Chicago and the mid-west • Provision of specialized services supporting larger farms

MRA Research Group

115

• • • • • • • •

Growing opportunities in healthy food products, organics and private label short runs for large companies with special needs; trend to health-conscious eating habits Processing segment, especially ready-to heat, ready-to eat products Export markets sometimes easier to access than markets elsewhere in Canada Unanticipated demand arising from weather-related disasters elsewhere in the world Participation in regional value chains Import replacement in many food categories Innovative niches such as functional foods and nutraceuticals; may be the most profitable and fastest-growing industry segments Agri-tourism, culinary tourism

Threats • Rising costs; further squeeze on margins • Currency fluctuations / further strengthening of the Canadian dollar • Big commodity producers driving down prices • Additional certification or food safety compliance hurdles; increased certificationrelated costs • Competition from more productive, technology-oriented enterprises • Incidents or factors which damage the reputation of the Atlantic agri-food sector • Reduced access to credit or support programs • Persistent labour shortages; inability to get crops out of the ground • Rising fuel costs impacting transport costs and ability to sell in distant markets • Succession planning challenges • Escalating energy, feed and fertilizer prices • Extreme local weather conditions / climatic changes / disease • Shortage of expertise to support high tech components of industry • Increased volatility in commodity markets • Inability of small suppliers to comply with more stringent certification requirements

SECTOR ASSESSMENT KEY SECTOR ATTRIBUTES AGRICULTURE AND AGRI-FOODS KEY ATTRIBUTE Strength and Sustainability of Future Market Demand Potential Economic Impact: revenue generation, innovation, job creation, trade expansion Cluster Potential

MRA Research Group

ASSESSMENT Very Good Moderate

Some

COMMENTS Although highly dependent on energy costs Supply-managed commodities restrict potential; other niche opportunities are less significant R & D Centres Wine Apples Potatoes

116

Berries Large retail supply chain access very difficult Small-scale production limits scale of opportunities Very significant potential for linkages with biotechnology applications Traditional tools work well Well-established sector and program support

Magnitude of business challenges facing SME’s

Mixed

Existence of cross applications Compatibility with IBDA (and Other) Support Mechanisms and Resources

Rapidly Emerging

Immediacy of Results

Good

Extent of Pan-Atlantic Participation

Moderate

Number of Potentially Supportable Atlantic SMEs

Moderate-High

Est. >1000 producers and agri-industries in region

Potential for New Target Markets

Good

Constrained by logistics and costs; opportunities in less-traditional US markets, specifically US mid-west; potential in Western Europe, India, China and other Pacific Rim nations

Very Good

Significant potential for direct sales from trade initiatives Longer growth curve for new products and supply chain entry Primarily NS, NB and PEI

SECTOR SUMMARY The Agriculture and Agri-food industry in Atlantic Canada is at a crossroads. On one hand is its long history as a foundation of the region’s domestic and export economies; on the other is the worldwide transformation that is taking place within the systems underlying the global food supply. Primary agriculture and food processing in Atlantic Canada is dominated by the continued success of the potato industry which has evolved to a scale dwarfing that of all other individual crops, animal production and (non-fish) processed foods The ongoing success of the potato industry is clearly the most fundamental requirement to maintaining the overall economic benefits delivered by the sector in Atlantic Canada. A handful of other medium-to-large producers are also capitalizing on their economies of scale and dynamic business strategies to succeed in a sector driven ruthlessly by cost pressures. No substantive role is apparent for the IBDA in supporting these large producers and processors. The fact that potato production is concentrated in two provinces is also an inherent restriction. However, a significant number of producers in the region are utilizing primary resource inputs to develop new opportunities, or have determined that this is the direction they must now pursue.

MRA Research Group

117

Therefore, the greatest promise for the vast majority of Atlantic Canada’s agriculture and agri-food producers is expected to be the delivery of differentiated, premium products which meet the growing, specialized needs of today’s consumers. And, in the longer term, exploiting the potential of bioscience-based value chains for high value functional foods and nutraceuticals produced from indigenous bioresources. Enterprises such as these are logically a primary target for IBDA program support, particularly in helping them to meet the needs and challenges of transition. (For example, Atlantic Canada has taken a lead in world class organic supplement production, a niche that might be marked for further expansion.)

IMPLICATIONS FOR TRADE DEVELOPMENT SUPPORT Key informants raised the following points during the interview process, many relating to needs which the IBDA or other program delivery mechanisms could potentially meet: •

Atlantic producers could benefit from “transition assistance” to begin producing the new kinds of products that consumers are demanding; this is essential to help them get over the extended period, full of risk and expense, required to make any major organizational change (for example, it can take 4-5 years to convert to organics.)

•

Companies are often unaware of how business is done in foreign markets; they don’t have the skills or staff to carry out market investigations, or an understanding of what they need to do to get into foreign markets

•

Some entrepreneurs need more specialized training on the labour/production side (how to plant and how to harvest most productively) and, especially, on the application of technology in their operations

•

Another appropriate role for government may be to help industry address its human resources issue – retaining and training skilled labour, as well as individuals knowledgeable in advanced fields (horticultural production, for example)

•

Producers come to government with a whole, broad range of issues; thought might be given to staging a forum, summit or other means by which producers, retailers, the transportation industry, governments and other stakeholders can jointly discuss issues and attempt to come to grips with them

•

Getting a product into a major retail chain can be a stepping stone to exporting; however, there can be a lack of commitment on the part of local suppliers to get local producers into their supply chains. A means of encouraging this could be considered

•

More education is important to help prepare exporters for the market, especially how to adapt their products to better fit emerging needs; innovation must be encouraged; however, companies must take market development one step at a time, learning to walk before they run

•

There is a significant need for new blood in the sector. This will require a multifaceted approach that targets immigration, assists in business transition to children and attracts new producers to the industry

MRA Research Group

118

•

There may be potential in assembling an Atlantic “basket” of high-end items where producers – and provinces – collaborate on assembling al that is necessary to help it come together: market research, packaging, marketing, logistics etc.

•

There is clearly a need to encourage market diversification away from the United States; prime candidates appear to be emerging opportunities in Europe, India and China

•

It may be worthwhile to promote a generic program, of a lesser scale than BDP or Export Mentoring, which could supply specialist expertise to companies in the region, offering telephone advice or brief, one-on-one consultations depending on exporters’ needs; for example: experts in regulations, certification, labeling, logistics – and preferably individuals who understand the environment in Atlantic Canada

•

Canada is frequently an appropriate and essential “stepping-stone” market for potential exporters; a long-term IBDA program supporting a two-step approach in which domestic market entry was followed by international market entry may possibly be a means of generating successful new exporters in this (or other) sectors

MRA Research Group

119

8.0 FISHERIES AND AQUACULTURE INTRODUCTION In 2007, there were approximately 10,500 fulltime fishermen in the Atlantic Provinces and another 19,500 part time fishermen, crewing approximately 17,500 vessels. More than 7,000 of these vessels were larger than 35 feet in length (DFO). In addition, there are approximately 440 processing companies and at least 361 seafood exporting operations with the following approximate distribution by Province; NS (50%), NL (25%), NB (15%) and PEI (10%).80

SECTOR IDENTIFICATION In the context of this study, Fisheries includes Fish Aquaculture, sometimes considered a farming function. Used in the strictest sense, “aquaculture” refers only to freshwater cultivation, while “mariculture” refers to marine (i.e., saltwater) or brackish water (i.e., water of low salinity) growing. “Fish farming” is a synonym for both aquaculture and mariculture. Much of the fish farming in Atlantic Canada is therefore mariculture (e.g., Atlantic salmon). Fisheries are usually divided into sea fisheries and freshwater fisheries. Sea fisheries include pelagic fishes (ocean fishes that range throughout the water column) and groundfishes (normally found at the bottom of the ocean). Sea fisheries also include shellfishes, a generic term for crustaceans (e.g., lobster, crab and shrimp) and molluscs (e.g., clams, mussels, scallops, oysters). Echinodermata (e.g., sea urchins and sea cucumber) represent another fisheries branch as do marine plants (e.g., seaweeds). Freshwater fisheries are minor in Atlantic Canada, comprised mostly of alewife and eel.

GLOBAL PERSPECTIVE

80

•

The global wild resource stock is relatively static with harvests in the range of 90 million tonnes in 2008 (63% of total production).

•

World aquaculture production is growing at about 6% per year and totaled 53 million tonnes in 2008 (37% of total world production), up from 32 million tonnes in 2000.

•

Global export trade in all fish/shellfish products was $US 102 billion (55 million tonnes) in 2008, growing at about 8% per year by value (1.5% by volume).

•

The global industry continues to consolidate into larger entities throughout the value-chain – small companies dropping out.

•

3rd party quality certifications for importers and eco-labeling requirements for consumers.

•

Increased market demand for fresh fish (esp. Asia) hurts value-added sector.

Canadian Seafood Processing and Sourcing Guide (2010) Contact Canada Publ.., BC

MRA Research Group

120

ATLANTIC PERSPECTIVE •

Increasing value of the Canadian dollar has hurt exports, along with increased worldwide competitive supply, especially in white fishes (e.g., Alaska pollock and farmed fish such as tilapia).

•

US market demand decreasing due to diminishing value of $US and global competition from low cost producers.

•

Wild resource stocks presently healthy, especially shellfish.

•

Codfish stocks increasing; threaten existing shellfish stocks (especially shrimp). Very hard to bring cod fishery back as there is a lack of experienced fishermen (a lost generation) and strong markets.

•

Many companies are too small to conduct export market research and market and product development.

•

New aquaculture is moving to Newfoundland and Nova Scotia.

Sector value heavily dependent on shellfish landings Major Species in Atlantic Fisheries (Resource Annual Landings $Cdn 000) 2000000

Shellfish

1500000

Lobster

1000000

Snow Crab Finfish

500000

Shrimp

0 2000

2002

2004

2006

2008

Scallop

Source: DFO

•

Total landed value of all Atlantic fish and shellfish in 2009 was ~$1.25 billion.

•

Total landed value decreased 25% between 2003 and 2009 (current dollars).

•

Shellfish averaged 84% of all landed value over the last decade (in comparison shellfish accounted for about 50% of landed value in 1990 – not shown in chart).

•

Lobster averaged 37% of all landed value over the decade.

•

Shrimp and snow crab accounted for 37% (15% and 22%, respectively).

MRA Research Group

121

•

Finfish, scallop and other shellfish accounted for 16%, 7% and 3%, respectively.

•

In 2009, Nova Scotia accounted for approximately 60% of all groundfish landings and 40% of all pelagic and shellfish landings by value in Atlantic Canada.

•

Total landed quantity (not shown in chart) remained about the same for crab and shrimp over the decade, but increased about 25% for lobster and decreased about 25% for scallop and about 15% for finfishes. This suggests that lower market prices, and not lack of supply, was the greater influence on total landed value by the end of the decade. This was certainly true for lobster, the single most high value species.

•

Note: the above landings do not include Atlantic aquaculture production of approximately $350 million in 2009 (see below).

Aquaculture is a growth sector Atlantic Aquaculture 2009 ($Cdn 000)

Salmon Trout

200000

Steelhead

150000

Clams

100000

Oysters Mussels

50000

Scallops

0 Nfld

PEI

NS

NB

Other Total

Source: DFO

•

Atlantic aquaculture production of approximately $350 million in 2009.

•

Aquaculture was 22% of all landed and farmed value in 2009.

•

Primary species are salmon/trout, mussels and oysters.

•

Majority of production is salmon (estimated at 85%) followed by mussels (7%).

•

NB accounts for about half of all production (mostly salmon).

•

PEI accounts for almost 90% of mussel production.

•

Salmon production is growing rapidly in NL and somewhat in NS.

•

Oysters are a growth species in eastern NB, PEI and western NL.

MRA Research Group

122

Seafood exports (includes aquaculture and value-added segments) down by 25% over the decade Atlantic Canada Seafood Exports ($Cdn 000,000) 1,400 1,200 1,000

NL

800

PE

600

NS

400

NB

200 0 2001

2003

2005

2007

2009

Source: DFO

•

Atlantic exports (NAICS) of $2.4 billion in 2010, down from $3.2 billion in 2002.

•

NS, NL, NB and PEI accounted for 33%, 32%, 28% and 7% respectively in 2010.

•

Lobster (35%) and crab (18%) were more than 50% of all exports in 2010.

•

Shrimp accounted for about 13% of exports and scallops about 4% in 2010.

Value-added segment exports also decreasing

Value-Added Seafood Exports ($Cdn 000) 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0

Total Prep. Shellfish Prep. Fish

2001

2003

2005

2007

2009

Source: DFO

MRA Research Group

123

Note: Value-added exports (HS-1604/1605) refers to prepared and preserved seafoods, exclusive of processed whole/pieces that are shipped from many fish plants. •

Value-added exports to about 40 countries in 2010.

•

Exports of $275 million in 2010, down from $435 million at mid-decade.

•

US market accounts for 77% of demand, but down about 40% over decade.

•

UK is the next largest market (9%).

•

NB accounts for more than 50% of all value-added exports.

ISSUES AND CHALLENGES Problems that affect productivity in the sector include decreased harvests (especially finfish), competition from low-cost global producers, unfavorable exchange rates, loss of traditional markets, consolidation of buying power in major markets, labour shortages and lack of investment in new equipment. To maximize prices to harvesters, the inshore fishery is not permitted to vertically integrate harvesting, production and marketing. This framework can facilitate unsustainable resource pricing in the processing sector that often competes for scarce resources by paying high prices for raw materials, but then must sell finished products at low prices in global markets. Lack of investment in new equipment is driven by uncertainty of supply and prices, intermittent work, high ROI risks and subsequent poor access to capital. Decreased supply, global competition and increasing market preference for live and fresh product also decreases plant work; adding to overhead costs when plants are idle. Labour shortages (in harvesting and processing) are due to an aging workforce, partime/seasonal work, poor working conditions, out-migration and low wages. Generally risky financial performance limits access to capital from traditional lenders and ACOA (policy). Many processors need to modernize to improve productivity and/or cope with labour shortages, but such modernization could increase already excess capacity and may impact other plants and provinces (e.g., lobster/ crab processors in NB rely on NS, NL). The sector hasn’t qualified for ACOA funding since the early 1990s. While some of the larger companies with offshore fleets and/or other sources of supply can side-step many of the above problems, smaller companies generally lack the resources for innovative product and market development. Loss of traditional markets, (especially in the US and Japan) has created more proactive marketing by smaller producers in new markets in an attempt to diversify market risks (e.g., Europe and Asia). Larger exporters are complaining about price-cutting by some new entrants that undermines their market development costs in these markets.

MRA Research Group

124

In general, the local wild resource supply is static or decreasing and not likely to grow much. Codfish/groundfish may be an exception to resource growth, but brings new problems - may threaten supply of shellfishes (esp., shrimp). The industry is ill-prepared to both harvest and market codfish – lacks experienced fishers, harvesting and processing equipment and there is a surplus of low cost whitefish in global markets. Food quality, safety and traceability certifications are becoming more stringent export markets, as are 3rd party certifications for wild resource sustainability. National Fisheries Institute, in association with GS1 (Global Standards), has released a traceability guide.81 The Atlantic region fisheries sector has favourably in meeting these new requirements.

in many The US recently reacted

DFAIT studies also indicate that some traditional Canadian seafood markets may be shifting to more convenience in seafoods, or substituting other foods. For example, many older Japanese consumers are acting to avoid the cleaning and cooking requirements associated with seafood, while the younger generation is turning away from seafood and towards North American-style fast foods.

SUPPORTING GROWTH INFRASTRUCTURE Fisheries Research Centres: • Bio Atlantech • Research Productivity Council • Coastal Zone Research Institute • The Huntsman Marine Science Centre • Atlantic Veterinary College Lobster Science Centre •

Fisheries-Related Associations and Organizations: • Aquaculture Association of Nova Scotia • Mussel Industry Council • Newfoundland Aquaculture Industry Association • Nova Scotia Fish Packers Association • Seafood Producers Association • Maritime Fishermen’s Union • National Seafood Sector Council • Atlantic Food and Beverage Processors Association • Grand Manan Fishermen's Association • Fisheries Council of Canada • Canadian Council of Professional Fish Harvesters • Canadian Aquaculture Industry Alliance •

• •

Fishermen, Food and Allied Workers Groundfish Enterprise Allocation Council Fisheries Resource Centre

81

http://www.aboutseafood.com/sites/all/files/FINAL%20Seafood%20Trace%20Guide%203.15.2011%20v2.pd f

MRA Research Group

125

Government Agencies and Departments Atlantic Canada Opportunities Agency Fish and Seafood Canada Canadian Food Inspection Agency Department of Fisheries and Oceans Fisheries Resource Conservation Council National Research Council Newfoundland and Labrador Department of Fisheries and Aquaculture Nova Scotia Department of Fisheries and Aquaculture New Brunswick Department of Agriculture, Aquaculture and Fisheries PEI Department of Fisheries, Aquaculture and Rural Development Universities and Institutes Dalhousie University Marine Institute and CCFI Memorial University University College of Cape Breton University of Moncton University of New Brunswick University of Prince Edward Island Leading Companies Barry’s Seafoods Connors Brothers Clearwater Ocean Choice International Highliner Seafoods Some Rising Stars Ice Water Fisheries Quinlans Fisheries Allens Fisheries Sturgeon and Caviar (New Brunswick) Maison Beausoleil Village Bay Seaproducts Louisbourg Fisheries Canadian Gold Seafood

RESEARCH AND TRAINING OVERVIEW • • • • •

Processor training tends to be basic (breading, smoking). Main training needs to focus on lean manufacturing and improving quality audits (ACOA funding would help). Not much of a labour pool left to train. Marine Institute and Centre for Fisheries Innovation are excellent. Canadian Centre for Fisheries Innovation (CCFI) is tackling major fisheries research projects (funded by and open to all 4-Atlantic provinces).

MRA Research Group

126

• •

NRC is also supportive of research efforts connected with ocean technologies. Bioscience in all 4 provinces also supportive of some research.

SWOT ANALYSIS (Industry View) STRENGTHS • • • • • • • •

Global markets are expected to grow, especially in Asia Atlantic shellfish sector is global star Large, virtually integrated companies with certainty of supply exhibit most rational harvesting and production models Aquaculture is also growing and provides certainty of supply Canada has a good reputation for quality and safety Fish, including shellfish, are perceived as health food Relatively healthy and diversified resource base Technology in NL is good, but marketing is lacking

WEAKNESSES • • • • • • • • • • • • • • • • • •

In general, local wild resource supply is static or decreasing- not likely to grow much (codfish may be an exception) Industry structure is inefficient re: productivity and global competitiveness Industry limited by public policy, economies of scale, diversity and supply Industry presently ill-prepared to both harvest and market codfish New technology requires investment, but industry is not profitable enough – calls for Public Policy reform; use Norway and Iceland as model Weakness in traditional markets (US, Europe, Japan) – need to diversify Harvesting and processing (especially) labour shortages New markets in Asia, but distant and costly to service New markets in Asia, but favour live/fresh products (little value-added) Small processors do not have deep pockets for market/product development Exporters need assistance (especially “1 on 1 selling”), but are not available because they lack funding or time (“too many hats”) Products often lack export retail presence – sold as commodity to wholesalers Sector is not cooperative/collaborative across sub-sectors and Provinces Sector needs more export market and buyer knowledge to advance new products (e.g., Hispanic influence in US) Buyers need to go to Asian trade shows and bring buyers here Difficulties in shipping fresh products from NL (flight consolidation) Possible loss of some lobster processing to Maine (new law). Difficult to rationalize fisheries policies without (good paying) substitute jobs available, industry may be getting there (e.g., NL)

MRA Research Group

127

OPPORTUNITIES • • • • • • • • • • • • • • • • • •

Fuller utilization of “fringe” products (e.g., fish waste, lobster/shrimp shells) More product diversification (e.g., salmon skin leather, value-added mussels) Use of high pressure water to produce high quality fresh and frozen raw lobster – kills bacteria, increases through-put time, quality and yields Use of water jets – increases through-put time, quality and yields New transport containers for live shellfish (e.g., Aqualife/Maersk and BioNovations) lowers shipping risk and improves quality and yields New super-chilling technologies to extend shelf life and quality New processing (e.g., skimming machines) and packaging (e.g., modified atmosphere, except US) technologies to improve productivity Aquaculture opportunities (mostly salmon at present, but also sturgeon/cavier, and various molluscs) Lobster quotas cuts in Australia may open new markets in China Consider moving away from frozen seafoods as these are generally the lowest value products; e.g., consider exporting shrimp in brine (holds well and top dollar) Lean management and manufacturing technologies Adoption and adaption of Norwegian and Icelandic high productivity systems and technologies (some require systematic and regulatory rationalization) Proposed EU-Canada (CETA) trade agreement would lower tariffs Green Tech (e.g., re-use of waste water) More technology to automate meat extraction; e.g., most crab value-added presently sent to China for manual processing. Investigate markets for live snow crab and appetizers (e.g., mussel products) Lengthen operating season or substitute multi-purpose plants Make better use of Canada branding

THREATS • • • • • • • •

Proposed EU-Canada (CETA) trade agreement threatens closure of the seal hunt, which would increase threat to Atlantic Canada fish stocks Returning codfish stocks are both a blessing in themselves and a threat to newly established/enhanced shellfish stocks; particularly off NL Increasing high-value of $Canadian Tariffs, especially in Asia and Europe are often ~20% or more Trade Missions extremely important, BUT have to be carefully planned to avoid competing companies cutting each other’s throats Demographics and preferences in traditional markets are changing Increased demand for live/fresh threatens onshore processing sector Experimental lobster farming (Australia, Norway, Brunei) could eventually become commercialized; (potential) threat to Canada’s traditional industry.

MRA Research Group

128

SECTOR ASSESSMENT KEY SECTOR ATTRIBUTES Fisheries and Aquaculture - Fish and Shellfish KEY ATTRIBUTE ASSESSMENT COMMENTS Although highly dependent on energy Strength and Sustainability of Very Good costs Future Market Demand Moderate Supply-managed commodities restrict Potential Economic Impact: potential; other niche opportunities are revenue generation, less significant innovation, job creation, trade expansion Moderate The sector does demonstrate some Cluster Potential cluster potential (esp. shellfish species), but needs to be more profitable before this is actualized Mixed Small-scale processing limits scale of Magnitude of business opportunities; some movement away challenges facing SME’s from value-added production by market Minor Harvesters have potential for linkages Existence of cross with OT suppliers; processors and applications farming operations with bioscience Very Good Sector needs more marketing presence Compatibility with IBDA (and and interaction with buyers as well as Other) Support Mechanisms general export assistance, especially and Resources smaller companies Good Significant potential for direct sales, JV Immediacy of Results and FDI from trade initiatives. High All provinces have a stake, most Extent of Pan-Atlantic noticeably in shellfish and aquaculture Participation Moderate 300 - 400 Number of Potentially Supportable Atlantic SMEs

SECTOR SUMMARY The Atlantic seafood sector has not fared well over the last decade, with a drop of about 25% in export value. To a large extent, this reflects the impact of the rising value of the Canadian dollar in the US market, which is down more than 15% share of market (in absolute value terms) over 8 years ago. Canada’s largest export species, American lobster, also suffered a decline of prices, partially due to very large landings in both Canada and the US. The global economic meltdown in 2008 just added another dimension to these existing problems; particularly for high-priced shellfish species. Prices for shrimp and crab firmed up somewhat in 2010, but the continuing surplus of lobster kept prices low – and for the first time in recent memory – both NB and NL showed (slightly) higher seafood export values in 2010 than Nova Scotia under the Harmonized System Classification (although not under NAICS, where NS was still slightly ahead).

MRA Research Group

129

In light of the above, and to its credit, the sector has been doing some “soul-searching” and has come up with some creative new products and marketing thrusts – something not always easy in a very regulated environment. These include new appetizer products, new uses for waste products, improved processing techniques, new fresh fish marketing concepts and active searches for new geographic markets. Although the sector is down today, with the growing global demand for seafoods, it is likely to rebound strongly in the longer term. In the meantime, SMEs particularly, are seeking significant marketing assistance to crack new markets, some in very different cultures (e.g., Asia) than they are familiar with.

IMPLICATIONS FOR TRADE DEVELOPMENT SUPPORT •

Wild, live/fresh, convenient, healthy and shellfish are significant factors in export growth facilitation.

•

Focus on shellfish and aquaculture as major growth areas.

•

Focus on value-added, particularly shellfish (often greatest value is live, fresh or marinated in brine).

•

Focus on fuller utilization of fringe and waste products.

• •

Focus on live transport systems for shellfish (and perhaps fish too). Exporters need more contact with buyers.

•

Exporters need to focus more on retail markets (versus wholesale) and consumer market intelligence to proactively develop new products.

•

Exporters need more product forms and market presence (especially Asia).

•

Possibly look to replace extraction and processing operations sent to China with Atlantic-based automation.

•

Automation should not be used to increase overall capacity; it should require transparency with mutual consent of all involved Provinces through a management committee.

•

No support for troubled plants; industry needs to become profitable and the best way is to support successful plants that invest wisely for sustainable future profitability.

•

Support CCFI fisheries research.

•

Support merited for a single industry-wide association to help resolve many policy issues and encourage new marketing initiatives and quality/traceability standards.

MRA Research Group

130

MARKET OPPORTUNITIES ANALYSIS •

There is clearly a need to diversify away from the US market; some exporters are attempting to spread risk through equal sales to the US, Europe and Asia.

•

Marketing challenges differ between large companies (that are usually proactive) and small companies (that are often reactive) and in the marketing of different species and product forms  one size (or market/marketing strategy) won’t fit all.

•

SMEs need the most help; as with agriculture a “stepping stone” approach may be warranted; a long-term IBDA program supporting a two-step approach in which domestic market entry was followed by international market entry may possibly be a means of generating successful new exporters in this (or other) sectors.

•

All segments of the sector need help, or could use support, with increased market intelligence (e.g., understanding consumers and retail markets), increased market presence, branding and training in one-on-one sales to buyers.

•

Trade missions and incoming buyer missions to Asia and BRIC countries as warranted.

•

China is clearly on the radar for lobster exporters and Asia, in general, is the biggest opportunity for Atlantic shellfish exporters (shellfish presently account for 75% of seafood exports).

•

Korea has recently been picking up the slack in declining Japanese exports and should be an important market to consider for all shellfish. Other Asian countries to consider would be Indonesia, Iran, Thailand, Vietnam, Pakistan, Bangladesh, the Philippines and Russia (CW shrimp consumption picking up, but lobster imports are still almost unknown). Other countries would be Turkey (large tourist population) and Egypt. Clawed lobster is known in all Mediterranean coastal countries, but Arab countries generally have been difficult to market to – this may be changing. Brazil, the Caribbean and South Africa already export lobster and some shrimp.

•

Snow crab – strongest markets are still US and Japan (China, including reprocessing), but has Korean and other Asian growth potential.

•

Need to support live/fresh sales to Asia, but also Europe, US and other countries for greatest value. This strategy needs to involve OT manufacturers (live shipping containers), shipping companies (sea/land/air) and all seafood types - live lobster, crab, shrimp, mollusks and fishes.

•

Fish and shellfish appetizers and some smoked products have a worldwide market.

•

CETA agreement could open Europe to more Canadian fish products, such as Atlantic salmon – already selling well in St. Pierre and Miquelon.

MRA Research Group

131

Appendices Appendix 1 – Interview Guide .................................................................................................. 133 Appendix 2 – Individuals Interviewed ..................................................................................... 134 Appendix 3 – ICT Subsector Case Studies ............................................................................ 135

MRA Research Group

132

Appendix 1 Interview Guide

MRA Research Group

133

INTERVIEW GUIDE QUESTIONS    PREAMBLE  “This project is being carried out for ACOA Moncton with the goal of providing the Management  Committee of the Canada‐Atlantic Provinces International Business Development Agreement  (IBDA) with a concise overview of the opportunities and challenges for Atlantic Canadian firms in  new and developing sectors. It will also help the Agency and its partners to develop an Atlantic  Canadian trade strategy.    The principal product of the work will be a report highlighting the promising sectors for growth  in international business development – with a focus on their potential for innovation, job  creation and trade expansion.”    SECTOR DEFINITION  “The (Specify) Sector has been defined as: (from RPP section 4.0)”    GLOBAL   • Worldwide, over the next five years, do you see the overall sector contracting or  expanding? (in terms of global revenues)  • By how much?  • How quickly?  • What will drive this?  • How dependent is the sector’s growth on external factors, such as relative stability  among the world’s economies?  • Anything else that might threaten the sector’s growth?   • Do there tend to be clusters of businesses in certain locations in the sector?  • How important are they?   • In which geographic markets do you foresee the greatest growth in demand over the  net five years?  • In which subsectors or niche markets do you foresee the greatest growth occurring over  the next five years?    • What about the relative growth of products versus services within the sector?  • How much does the sector use technologies which may have dual or multiple  applications? (for example: military and consumer)  • In the next five years, do you foresee important changes or developments resulting  from:  o Technological advancements?  (specify)  o New distribution channels or global value chains? (specify)  o A shift in principal markets? (specify)  o Changes in regulatory environments? (specify)  o Competition? (specify)  o Anything else?  • How do you think the (name of) sector will fare worldwide over the next five years  compared with other industry sectors?   

 

1

REGIONAL / COMPANY   Now, thinking only of the (Specify) Sector in the Atlantic region…  • Do you foresee growth within the sector here keeping pace with worldwide growth over  the next five years?  • Why? / Why not?  • What are some of the most important assets, capabilities or strengths of the sector in  the Atlantic Region?  • What kind of assistance is needed to help the sector reach it potential?  • Would you say that capabilities within the sector are generally distributed among the  four provinces rather than concentrated in one location?  • What companies are the leaders here?   • What do they do well?  • Do you see some new rising stars developing?  • Is there potential for more?  • How could they be encouraged?  • Five years from now, do you expect to see more or less employment in the sector  overall in Atlantic Canada? By roughly what percentage?    • Will these employees be more, or less productive? (Can you explain?)  • How strong is the capacity for diversification, product or market development among  existing Atlantic businesses to take advantage of emerging sector opportunities?  • How strong is the sector’s supporting infrastructure in Atlantic Canada? (such as research  capacity, labour force, training facilities, government support, etc.)  • Is there a need for more training for businesses to help expand within the region, as well  as in international markets?   • What types of training are most needed?  • What are the greatest barriers or challenges which exporters in the sector here face?   (such as cost competitiveness, access to financing, corruption in foreign markets, transportation, labour  skills, business skills, marketing, regulations, market access, etc.)  

  SUBSECTORS  For each industry subsector /niche market (from RFP Definitions):  • What are the greatest growth opportunities?   • Where are the most important markets?  • What are the most important technological developments on the horizon?  • Can existing Atlantic region businesses capitalize on these?  • Why? / Why not?   • How much potential for successful new companies to become established here?  • What are the greatest risks to companies doing business in the subsector?    CLASSIFICATION  • Your principal business location in Atlantic Canada?   New Brunswick   Newfoundland  & Labrador   Nova Scotia   PEI   • How many years has your business been in operation here?     Less than 1 year    1 to  5 years   5‐20 years   20‐50 years   Over 50 years  • Does your business primarily sell products or services?   Products   Services   Both   • Within the past year, has your business sold any goods and services outside of Canada?   Approximately what percentage of sales would that represent? 

 

2

  • •

 No      Yes    ________ %   Where is your principal export market?    US   Europe   Caribbean   Pacific Rim    Other  Approximately how many full‐time and part time employees do you now have in  Atlantic Canada?  FT ______       PT _______ 

  CLOSE  Thanks very much for your help. Hope you don’t mind if I get back to you if necessary as we go  along.  Is there anyone else you’d recommend we speak with?   

 

3

Appendix 2 Individuals Interviewed

MRA Research Group

134

INTERVIEWS  

  Newfoundland and Labrador     Ron Taylor, Executive Director, Newfoundland and Labrador Association of Technology  Industries     Walter Parsons, Senior Business Development Engineer, Nalcor Energy     Linda Bartlett, Executive Director, Newfoundland Environmental Industries Association (NEIA)    Brian Terry, Technology Commercialization Officer, Physical Sciences & Engineering, Genesis  Group     Sara Dow, Manager, Evaluation and Policy, Research and Development Corporation    Maurice Tuff, President, Blueline Innovations    Brian Goldsworthy, Deputy Director, Newfoundland & Labrador Sub‐Office, Agriculture and Agri‐ Food Canada    Brian Hurley Director, Gardiner Centre, Memorial University of Newfoundland     John Harris, Client Manager, IBM, Past President, Newfoundland and Labrador Association of  Technology Industries     Sharon Beatty, Executive Director, Aerospace and Defense Association of Newfoundland and  Labrador (ADIANL)    Steve Taylor, President, IDBlue    Howard Nash, President Northstar Technologies    Jim Hall, Managing Director, E‐Sonar    Dwight House, Head, Memorial University, School of Ocean Technology    Russell Pelley, President and Steve Dood, VP of Business Development, GRI Simulations    Gerard Duggan, Vice President, zedIT Solutions    Cathy Hogan, Business Manager, Oceans Advance     Sharon Tiller, Director, Innovation, Research and Technology, (along with Brian Wade, Manager  and Darrell O’Neill, Senior Technical Officer) and  including a brief meeting with Linda Spurrell,  Director, Trade and Export Development, (Department of Innovation, Trade and Rural  Development, Government of Newfoundland and Labrador) 

 

i

  Eugene Trickett, Senior Technical Officer, Department of Innovation, Trade and Rural  Development, Government of Newfoundland and Labrador Development    Darrell O’Neill, Senior Technical Officer, Department of Innovation, Trade and Rural  Development,   Government of Newfoundland and Labrador      Brian Wade, Manager, Innovation, Research and Technology, Department of Innovation, Trade  and Rural Development, Government of Newfoundland and Labrador       Paul Mahar, ACOA, and Chairman of the IBDA Ocean Technology Committee     David King, President and CEO, Genesis Group, Memorial University of Newfoundland,     Paul Rose, Agriculture and Agri‐food Canada, NL    Ron Newhook (Director), Gerald Anderson (Manager, Marketing/Bus. Development) Marine  Institute     Robert Cadigan, President & CEO, Newfoundland and Labrador Oil & Gas Industries Association    Tom Dooley, Director, Sustainable Fisheries, Mark Rumboldt, Director, Innovation and  Development and Patrick McDonald, Director, Seafood Marketing – Department of Fisheries and  Aquaculture    Kirk Youden, Life Sciences Industry Development Officer, NL Innovation, Trade and Rural  Development    Robert Verge, Director, Centre for Canadian Fisheries Innovation        New Brunswick     Douglas Robertson, President and CEO, Tech South East, New Brunswick     Jeff Roach (Former CEO) propel ICT Saint John, New Brunswick    John Herron, President Atlantica Centre for Energy, Saint John New Brunswick     David Kirkpatrick, Information Technology, Business New Brunswick    Richard Jones, President and CEO, Shift Energy Inc.     Lindsay Gee, General Manager, IVS 3D    Edward Kinley, Senior Trade Executive, Export Development, Business New Brunswick,  

 

ii

  Stephen Kelly, Project Executive, Innovation, Business New Brunswick    Suzanne Turmel, Manager, Export Development, Business New Brunswick     David Baxter, VP Innovation, T4G Limited    Michael J. Cybulski, Business Development Manager, Apex Industries Inc.    Eddie Rutanga, Program Coordinator, Trade and Investment, ACOA Moncton    Richard Isnor, Manager, Atlantic Regional Office, Natural Sciences and Engineering Research  Council of Canada    Larry Sampson, Executive Director, New Brunswick Information Technology Council    Camille Malenfant, Project Executive, Knowledge Industries and Innovation, Business NB    Pierre Rioux, Senior Innovation and Bio‐Economy Advisor, NB Department of Fisheries     John Argall, Executive Director, BioAtlantech    Irenia Roussel, Project Executive, Export Development, Business New Brunswick    Louise Melanson, Project Executive, Export Development, Business New Brunswick    Louis Arsenault, Director, Agriculture, Aquaculture and Fisheries       Prince Edward Island     Mike Proud, Manager, Office of Energy Efficiency, PEI Environment, Energy and Forestry    Peter Lawlor, President DeltaWare Systems, President, Innovation and Technology Association  of PEI     Matthew McCarville Energy Policy Coordinator (Former), ECO‐PEI Energy Project     John Eden, Senior Investment Officer, IT and Gaming, Innovation PEI    Andrew Hall, Co‐chair, Atlantic Alliance of Aerospace and Defense Associations (AAADA)    Mike Gillis, Executive Director, Innovation and Technology Sector Council of PEI (ITSC)     Jason Cleaversmith, Senior Investment Officer, Bioscience Innovation PEI     Rory Francis, Executive Director, PEI BioAlliance 

 

iii

 

  Greg Donald, General Manager, PEI Potato Board     Kent Thompson, Product Development Officer, PEI Dept of Agriculture    Diane Farquharson, Agriculture and Agri‐Food Canada, PEI (fisheries)    Nova Scotia     Mike Rothenburg, Development Officer, Policy Advocacy and Coordination, ACOA    Adam Cooney, Executive Director, Environmental Services Association NS    Peter Halpin, Executive Director, Association of Atlantic Universities          Ken MacRae, Executive Director, Atlantic Provinces Community College Consortium     Sandra Canning, Senior Market and Trade Officer, Nova Scotia Sub‐Office, Agriculture and Agri‐ Food Canada    Scott Hosking, Director of Marketing, Nova Scotia Aquaculture, Fisheries and Agriculture    Estelle Bryant, Planning and Development Officer, and Geordie MacLachlan, Technologist, Nova  Scotia Aquaculture, Fisheries and Agriculture    Catherine MacDonald, Managing Director, Aerospace and Defense Industry Association of Nova  Scotia    Steve Elder, Director of Nova Scotia Operations, L‐3 Communications    Marli MacNeil, Chief Executive Officer, BioNova    Gordon Gale, Trade Commissioner, DFAIT Halifax     David McNamara, Vice President, Incubation, InnovaCorp    Paul Hill, General Sales Manager, JouBeh Technologies    Emily Daniel, Sales Manager, Metocean Data Systems    Robert Orr, Chairman, Ocean Nutrition    Darrin Verge, president, Romor Atlantic    Geoff Lebans, Director of Programs, Rolls‐Royce Naval Undersea Systems    John Woods, VP ‐ Energy Development, Minas Basin Pulp and Power (also FORCE Board Chair) 

 

iv

 

  Andre Parsons, ACOA Atlantic Canada Energy Office      Kevin Dunn, Acting Executive Director, Dalhousie University Industry Liaison Office    Don Newman, Executive Director, Atlantic Food and Beverage Processors Association     Richard Ablett, Atlantic BioVenture Centre, NSAC    Joe Fitzharris, Chair, OTANS; GM Marener Industries    Barbara Pike, Executive Director, OTANS    Marshall Giles, Nova Scotia Dept. of Economic and Rural Development      OTHER      Tab A Borden, Consul & Trade Commissioner, Consulate General of Canada, Palo Alto, CA      David Williams, SeaD Seafood Development Consultants, Spring, TX    Madonna Kent, Acting Director General, ACOA, Ottawa (Aerospace and Defence)

 

v

Appendix 3 ICT Subsector Case Studies

MRA Research Group

135

ICT SUBSECTOR CASE STUDIES 1) Geomatics Subsector Highlights • Geomatics is one of only a few sectors that continued to grow during the global recession, on average about 10% per year. • Continued growth is expected as long as there is: climate change, health issues, l and associated social and environmental impacts. • Rising sea levels, impacts of natural erosion of coastlines, impacts of new technology - such as solar – and demographics are all drivers. • While growth is dependent on various factors, the sector does well even in times of crisis; sometimes more so. • Australia and New Zealand have positioned themselves well as geomatics clusters and have indicated they want to be world leaders in this field, but there are many smaller specialized clusters there and globally. • In terms of geographic markets with greatest growth in next 5 years, it is basically any region that has coastlines, “coastal markets”, energy, health care issues – Africa, Southeast Asia, Argentina, Brazil, China, Japan, and Caribbean; including many IFI contracts, such as World Bank; contracts for capacity building projects. • The industry is dominated more by software than products, but is product driven; an example is the huge explosion in GPS systems from stand alone products to smart phone. The industry is well recognized for multi-purposing – adapting all the time, on the basis that if it exists it can be re-purposed. Ubiquitous computing, global high speed broadband and satellite have a major impact on the developing world, especially when integrated with existing technology such as iPAD and other affordable personal devices. Augmented reality, virtual technology, simulation, mobile technologies are all emerging opportunities and moving in the direction of a borderless world. •

There is already a cluster within each of the provinces and the region as a whole but it is unorganized and under-supported; no strategy and no vision for sector development in the region as a whole

•

Studies have been done on opportunity and potential, but lack follow-up actions and funding support to move forward: o Amherst is a centre for applied geomatics research o PEI has expertise in agriculture o NB has expertise in land management, forestry and agriculture o NL has expertise in remote sensing, oceanographic, etc. o NS has expertise in fisheries, coastal, mineral, forestry, transportation and planning

•

Dalhousie is active in Vietnam, Mexico, and the Arctic; among others.

i

Strengths • Together there is huge sector expertise and already a cluster—but fragmented • The people resources and the skills are world class, but not always used to benefit the region: ƒ ESRI is a US-based world leader in geomatics that comes to COGS in NS every year and hires the top 10 or so students, then re-locates them to the US. ƒ These are government subsidized, trained resources that in themselves become the exports and then no longer available to further sector development. ƒ NS is exporting its talent, not its products/services. • Nova Scotia Geomatics Centre is responsible for the production, maintenance & quality control of Corporate Geographic Databases and other mapping initiatives for the Province – within Service Nova Scotia – and is a Centre of Excellence • Dalhousie GIS Centre & Map Collection Killam Library • • •

• • •

Strong individual, personal relationships The Atlantic region is a microcosm of geographic diversity, making it an ideal location for pilots on any number of scientific research projects, from natural resources to health research College of Geographic Sciences (COGS) is a recognized global centre of excellence one of the largest technical trainers of students in the geomatics field in Canada. Specialisations include marine geomatics, remote sensing, and business geographics, applied Geomatics Research and Geomatics Programming, specific technologies from GPS data collection and processing to soft-copy photogrammetry and LIDAR data processing o Ingenuity is a targeted small business incubation and mentoring facility at the NSCC- Annapolis Valley Campus in Middleton region has world class capability and reputation – not harnessed holistically Solid companies in niche markets Atlantic leaders: o Largest companies are ESRI and Caris, (NS/NB) and DM Solutions in NL o ESRI and Caris use to be direct competitors, but ESRI now dominates the market and Caris has carved out niche in the marine geosciences o On a smaller scale, are a number of local companies; e.g. Membertou Geomatics Consultants AG Research, IR Consulting; Gaiamatics Solutions, in addition to the Engineering firms that have this capability, Terrain Group, ADI, Gateway Geomatics, LGS Inc. , Sierra Systems, and many smaller 1-2 person firms. o New rising stars and hot new technology - one example is LIDAR - Light Detection and Ranging – Remote sensing technology, with huge export potential.

Weaknesses • Lack of leadership, political short-sightness, lack of focus and innovation • The sector is fragmented; not organized or represented consistently across the region • Entities in the past that have played a leadership role, such as Champlain Institute, LRIS, MRMS no longer effectively addressing this sector leadership and collaborative role

ii

• • • • • •

Also within each of the provinces, geomatics capabilities and expertise are widely dispersed across various departments, not centralized, with no single point of contact. The geomatics specialty companies for the most part are small, apart from a couple, and not in a position to provide many financial, supportive or other resources to sector development. Companies in the region are networking to a limited extent, but not necessarily partnering to mutual advantage Culture is not innovative Not good at being international business leaders Federal government is not coming to the table in terms of support, but the core is having a strong local market, for example, to support emerging energy opportunities.

Opportunities Markets  Previous research has identified US markets for geomatics to include the US Air Force - the largest user of IT in the world - NASA, and the US Navy as prime and subcontractors that have expressed interest in partnering with Canadian companies. The State of Mississippi is home to the Naval Meteorological and Oceanographic Command, and the NASA office of Applied Research and Technology, making the state one of the largest centers in the world for geomatics activity. In addition, the US west coast is an increasing market opportunity area for geomatics products and services in response to demand from environmental technology, utilities and insurance companies needing accurate and sophisticated geospatial information.

Threats • To develop the sector – greatest need is for secure, sustained funding to support the long term development of the sector, promote sharing of expertise, strategy and vision o A good model for strategic sector development is Australia • In terms of ability to take advantage of new markets – the companies are not well positioned; do not know how to put the opportunities together; no one to work the proposals; too small and preoccupied with the local work o Even for government subsidized trade shows, do not have the funding to cover the travel expense for the appropriate technical expertise to attend – cannot afford to participate • In terms of training and expertise there is an need to bring in expertise from places like Australia, (more sector focused; not just a one-off situation, sponsored by one organization from time to time, but rather needs to be organized as a professional development forum or event with a sector focus). o Companies cannot afford on their own to send people – lost staff time; cost of program and opportunity costs of having to substitute other people o Funding for International GISP – Professional certifications http://www.gisci.org o Professional development needs to be funded, promoted, and supported ƒ Pre-grad training is excellent ƒ Post-grad is almost nonexistent, apart from ERSI user groups etc., o Need to engage the big companies more in supporting the industry from a professional development and sector development perspective: if they are

iii

located here and receive large public sector contacts, they should contribute more developmental support Associations • The national organization is Canadian Institute for Geometrics CIG – with provincial chapters in NS, NB,NL • Geomatics Industry Association of Canada (GIAC) - www.giac.ca • Other Associations are NATI GANS • Digital Earth is where our people need to be in order to Win! http://www.digitalearth.com/ • See TSUKBA incubation model – co-location http://www.tsukuba.ac.jp/english/index.html

2) The eHealth Sector Strengths • Atlantic Canada has companies in all size categories of technology that specialize in meeting the needs of the health sector; typically grouped as 1) larger firms selling to the health sector plus other verticals; 2) eHealth specialised companies and 3) multiapplication companies focused on specific product/service markets or geographies. • Examples of each of these in Atlantic Canada include CGI, Sierra Systems, Deltaware, Zed, DDx and Enable Healthcare. • Atlantic companies include specialised providers of electronic health records and practice management systems, web-based billing and claims systems, interactive clinical scheduling, insurance verification and wireless monitoring technology for remote medical and data collection for the North American marketplace. • Although still in its early stages, the industry is growing substantially and has significant potential because of the size of the market and developing cluster. • Provincial governments are a contributor to this sector growth, with numerous ongoing eHealth initiatives. • Atlantic Canada is poised to be the first location in Canada to have a fully integrated electronic health record system that can serve as a model for other justifications. • Universities, for example Dalhousie, StFX and Memorial, are engaged in research and development that have considerable commercial potential, such as Population Therapeutics Research Group (PTRG), Newfoundland Genealogy Database; Provincial Medical Genetics Program, Centre for Health Information. • There is considerable information management expertise within the public sector that could also be leveraged.

Weaknesses • Many Canadian solutions are not well known in domestic and foreign markets, although some firms are opening US sales offices and making acquisitions to develop US markets. • A considerable amount of IP, and other expertise, is within the universities and the public sector (versus private). • It is not clear how the private sector and taxpayers can benefit from the knowledge, expertise and assets. More collaboration is needed between the pubic and private sector to realise these benefits

iv

•

Universities often overestimate their ability to commercialize and may lose competitive advantage.

Opportunities • eHealth is poised for widespread and rapid growth in both the Canadian domestic and international markets. • Market is described as a vertical high growth potential that utilizes a wide range of ICT technologies and services1. • Products in demand include applications - primarily clinical systems, financial and administrative systems and services/systems integration/consulting; infrastructure; clinic management (e.g. doctor’s offices), home care, long term care applications, dentistry and optometry, pharmacies, emergency preparedness, and corporate health plans and insurance. • Direct selling opportunities exist in university medical facilities, clinics and research centres; approximately 50% of institutions are looking to outsource some functions. • eHealth is the impetus for re-engineering health care systems, an enabler of health system improvements and cost control. • There is a high demand for solutions as many countries are investing in eHealth, including Europe and the US. • The US stimulus package has about $30 B in health IT stimulus over 10 years. • Spending in eHealth was estimated at $4.8B for Canada in 2008, with an estimated growth rate of 15% for the next 5 years for hardware, software and services. • The US eHealth market estimated at $16.4 B in 2008 and growing at 13.4%/ year. • European e-Health spending was estimated at $5.0 B and growing at 10% per year; with worldwide spending estimated at $53.2 B. Threats • Canadian technology is considered good, but US is reportedly perceived as more comprehensive and sophisticated. • It is a very competitive market - mergers and acquisitions are common to acquire skills, revenue streams, market entry, and market share. • The range of ICT products and services in the eHealth marketplace is expanding, as one development makes others possible. In July 2008, the National Research Council Canada Institute for Information Technology (NRC-IIT) and the Province of New Brunswick retained the Global Advantage Consulting Group to map and evaluate the assets related to health and life science information technology in New Brunswick2. The study reviewed 1) R&D 2) Human Capital, 3) Financial Capital, 4) Industrial Base, 5) Infrastructure. Key Weakness: Per capita spending on health R&D was lower than any other province in the country; lack of traditional health R&D infrastructure, difficulties in accessing funding from national programs and very low levels of private investment in R&D. A key constraint in expanding R&D is the difficulty in attracting and retaining talent.

1

e-Health Market Environment for Canadian Firms. John Chesley, Chairman e-Health Watching Brief Team 10 Feb 2009 2 http://www.nrc-cnrc.gc.ca/obj/iit-iti/doc/H-LS_Asset_Map_e.pdf

v

Key Strengths: NB has a number of strong educational institutions and a very talented scientific and engineering community; strengths include health ICT, nursing, population health, biomedical engineering and cancer genetics/genomics. Key opportunities: Included the creation of new medical schools and organizations such as the NB Health Research Council to provide R&D funding and support for commercialization.

ICT/health services sub-sector (NB Example) All but a handful of health/life sciences companies in New Brunswick are active in this sub-sector and it is the largest economic driver in the sector. Perceptions of the sector are surprisingly poor within NB and externally, given its overall success and strength. •

•

•

•

Key strength is the ability of companies to attract early stage investment, but offset by the inability to attract investment in ~$250k to $5M range and to attract venture capital. (A number of outstanding organizations are working to address this issue including the NB Securities Commission and the NB Innovation Foundation.) Key challenges faced by the sector include significant HR constraints and the difficulty in financing companies beyond the start-up stage. Another key weakness identified by firms is the disconnect between local health ICT companies and the government of NB’s procurement processes. Key opportunities include the potential to build on the success of local companies in the health ICT subsector and the fact that companies in these sectors are already export oriented, with customers in some of the largest markets in the world. Another key opportunity is the potential range of solutions being developed by the NBSC, including the creation of a “Fund of Funds” to support mid-tier investments in NB companies. Key threat is the growing global competition in the health services and health ICT sub-sectors, including the support these competitors receive from their various national and regional governments.

Health/LS subsector (NB Example) Infrastructure New Brunswick has significant physical assets, including 21 hospitals. However, these assets are not well connected to the innovative component of the sector. •

Strengths include a number of eHealth initiatives and an emerging genetics/genomics cancer group based around the Atlantic Cancer Research Institute, U de M, and the NRC-IIT.

•

Key weaknesses include a comparative lack of traditional medical research equipment such as found in a larger teaching hospital and the lack of networks/ connections bringing together research capacity with health sector HQP and infrastructure.

•

Key opportunities is to focus funding and attention on the two emerging research sectors (health ICT/health services and cancer research) to help them to grow to

vi

•

the point where they can compete successfully in national funding competitions, thereby creating a beneficial circle of increased federal funding. Threat is that fractured and unfocused funding will not enable leading laboratories to reach the critical mass to enable success at the national and international level.

3) E-Learning (NB Example) E-learning is now the delivery method of choice for many corporations, permeating sectors from aerospace and defence, homeland security, financial services to healthcare among others, as well as private and public post secondary adult education institutions. The US has been a market destination for Atlantic Companies in this sector, either directly or as subcontractors. While there are a number of well established companies in the region with a successful track record exporting into these markets, the pace of growth seems to be slowing. With the advancement of technology, proliferation of companies, tools, techniques and delivery models, Atlantic Region companies are increasingly challenged to keep up with developments and maintain a leading edge. In September 2008, NRC-IIT contracted Innovatia (in conjunction with LearnSphere) to deliver the Advanced Learning Technologies Asset Map project. The purpose of this project was to provide information about the strengths, resources, and opportunities that exist within the Advanced Learning Technologies (ALT) sector in New Brunswick.3 Industrial Base  New Brunswick has a good foundational base of ALT organizations with up to 15 years of direct experience. While the NB industry was significantly impacted by the technology sector decline, NB fared about the same as other jurisdictions after the decline. The sector may not be as vibrant today, but what remains is good and provides the fundamentals to invest in the future. While there are many forward-thinking organizations and individuals in the sector, no one person is recognized as the leader/champion. The ALT sector lacks a comprehensive marketing and branding strategy. The lack of a strategic plan was overwhelmingly reported as a key missing component to the sector’s success. Forty-six percent of the training consumed in N.B. is sourced from outside the province. Physical Infrastructure  New Brunswick has a good quantity and variety of physical infrastructure to support the ALT sector. The province has better than average broadband penetration to support online solutions. Currently, the province does not have a common facility to share tools and technologies. Human Capital  There is an out-migration of resources both at the experienced professional level and at the new graduate level. At the experienced professional level, the often-cited reason is salary. At the new graduate level, there is reluctance on the part of organizations to hire and NB’s new graduates are going elsewhere. Organizations are reluctant to hire new graduates and invest in training and mentoring because historically they have been leaving before the investment is returned to the organization. The past volatility of the e-Learning industry has forced professionals to move out of the sector into more stable employment opportunities.

3

http://www.nrc-cnrc.gc.ca/obj/iit-iti/doc/ALT_Asset_Map_e.pdf

vii

Research and Development  The level of R&D investment in NB is approximately half of what one would expect based on the province’s GDP contribution (less than 1% versus 1.8%). There are challenges in getting research to the commercialization stage. Financial Capital  There are strong R&D investment programs available; e.g., ACOA – AIF, NBIF and NRC. Funding programs for marketing and sales are not available, apart from some funding for participating in trade missions. The industry reports there are barriers to engaging in the funding application process for both business and research programs, including qualification criterion (e.g., capital investment that is prohibitive to many small and medium-sized businesses). Enabling Support  While there is significant and sufficient breadth of enabling services available, very few enabling organizations in the legal, financial, marketing, and human resources fields are specifically experienced in ALT. There is an existing industry association LearnNB, focused on learning in NB. The reported feedback on the value of LearnNB was mixed, with some respondents not seeing it as an appreciable asset. Defining the role of LearnNB, and what the industry requires of it, will be key to the success of LearnNB and the ALT sector.

4) Digital Media Subsector In May 2010 the Government of Canada launched an online public consultation aimed at creating a digital economy strategy for Canada4 A number of key themes emerged around the need to increase High Performance Computing (HPC) or Supercomputing for productivity, innovation and research and for building and sustaining a digital economy. Supporting themes include the need for more trained professionals, more academicprivate sector research partnerships, and more encouragement for small and medium sized enterprises to adopt and adapt supercomputing for competitive advantage and sustainability, as well as improved access to publically funded data. Atlantic Canada has a strong foundation in Digital Media within the Advanced Technology eLearning, gaming, social media and geomatics sectors.

Gaming Strengths and Opportunities • There is a small gaming cluster already in all four provinces (NB is largest) • There are about 6-8 companies in PEI employing approximately 200 people • GamePlan (http://www.gameplan.ca/ ) is a targeted strategy to foster development of the video game sector in PEI • Since 2005, the PEI video game sector has been growing in size and prominence. • PEI is now home to 6 game studios that are producing and testing games for the iPhone, traditional mobile phones, DS, DSi, Wii, XBLA, PC and other platforms. Games produced by innovative Prince Edward Island companies include: Super Monkey Ball, Puzzlings, Puffins: Island Adventure, Legends of Wrestlemania, Diner Dash, Kill All Bugs, and CSI: Deadly Intent – The Hidden Cases.

4

http://de-en.gc.ca/home/

viii

•

•

• • •

PEI has GameForce, offering basic 2D game design courses at junior high schools and basic 3D at senior high schools. IMpact Expo (Interactive Media – Play Achieve Create Think) gives high school students enrolled in art and/or computer courses the opportunity to spend a day with representatives from local video game companies, learning about career paths, the development cycle, and local and global industry trends and issues. GameGarage brings recent graduates to PEI to work in a studio and create a game of their own design, with experienced mentors to provide support along the way. Interactive Media Alliance (http://www.imapei.com/) not-for-profit industry alliance committed to the growth of the PEI interactive digital media sector. The IMA membership is comprised of Prince Edward Island-based interactive digital media product and service companies within sub-sectors that comprise the interactive digital media sector within the province. Newfoundland has a couple of companies in the very early stages. New Brunswick has a small cluster of gaming companies, mostly in Moncton area The Miramichi campus is collaborating with HB studio, Nova Scotia’s largest gaming company, with two locations in the province.

Weaknesses and Threats • The Gaming industry is very capital intensive in that it requires a lot of capital to start and to attract and retain talent. • It is difficult to remain competitive, and highly dependent on access to world class creative talent. • Competition for talent is fierce – the sector is prone to talent raids by other more attractive, better paid positions. • New York, Hunt Valley/Baldimore, Washington State, Los Angles and Silicone Valley are all major gaming hubs, as well as for digital media, social media and animation all potential threats, as well as market opportunity sources. • The world leaders are so far ahead, it is difficult to catch up and keep up. • The return on investment is risky. • Globally, the gaming industry is highly subsidized - very difficult to compete • NB is a world leader in Social Media Analytics; at least 20 companies are involved in some aspect of social media in NB. 5) Other Advanced Technology Opportunities •

• • •

Electronic Data Centres – costs of running large data centres are increasing California, the largest concentration, no longer has the strategic advantages because of energy costs; this is an advantage for our region and also strategic in term of security considerations; Near shore outsourcing – Centres of Excellence - in specialized application development where the region has clusters of expertise such as medical diagnostics, records management. Cloud computing – managing the cloud is complex and Atlantic Canada has the expertise that can be leveraged; mobile applications Internet Protocol TV - IPTV – is a system for delivering television programming via a broadband connection. Global potential for downstream applications as North American programming moves worldwide.

ix