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Why Cisco is betting big on Ontario R&D

Cisco Systems a réduit jeudi son objectif de croissance du chiffre d'affaires à long terme, le ramenant de 5%-7% à 3%-6% sur une période de trois à cinq ans. /Photo prise le 14 novembre 2013/REUTERS/Kim Kyung-Hoon

Today's announcement of a major tech investment by Cisco and the Province of Ontario is a signal that after a year of challenging headlines, Canada's tech space isn't packing up its tents and going home.

Cisco has signed a 10-year agreement with the Province of Ontario that, among other things, promises to create up to 1,700 high-tech jobs - focused on research and development - within six years. By 2014, Cisco could spend upwards of C$4 billion, including $2.2 billion in salaries, in bringing its Ontario staffing complement up to 5,000. The provincial government will kick in $220 million over the life of the deal.

Talent is the goal

The payoff for the global networking technology company extends beyond dollars. In a statement, Cisco says the agreement will enable it "to harness Ontario’s skilled workforce, renowned educational institutions and competitive business climate."


As global conglomerates like Caterpillar, Heinz and Kellogg's continue to shutter factories in Ontario's struggling manufacturing sector, today's announcement gives the provincial government a needed bit of positive news. Premier Kathleen Wynne calls it one of the largest job-creation initiatives in the high-tech sector, and says long-term vision is key to the Ontario economy's next chapter.

“The province gets a willing partner in helping it generate momentum in an increasingly technology-driven global economy,” she said. “Our plan to create jobs and grow the economy is focused on smart, forward-looking investments that build on Ontario’s strengths. Today’s announcement is about supporting our talented technology workers. Together, we’re going to show the world what Ontario can do.”

Calling the agreement a “significant milestone,” Cisco Canada President Nitin Kawale, said the deal builds on an existing partnership that includes investments in university chairs, an upcoming new and expanded Toronto headquarters, participation in the technology infrastructure partnership for the 2015 Pan Am Games, and Smart + Connected™ community initiatives.

“Together with the Province we will create, high value jobs that will stimulate the economy,” Kawale said. “This initiative will also ensure that Ontario continues to be a leader in the information and communications technology industry, with a vast talent pool representing the country’s next generation of innovation.”

Ontario’s Minister of Economic Development, Trade and Employment, Dr. Eric Hoskins, said the announcement may be Ontario-centric, but it ultimately positions Ontario as a global tech industry leader.

“We’re sending a message to the world that Ontario is the best place anywhere for business to innovate, grow and create jobs,” he said. “Today’s investment and the jobs it will create are part of our plan to create opportunity today and for the long-term.”

The tax credit solution

Last month, Ontario Finance Minister Charles Sousa confirmed the provincial government was thinking of encouraging industry to boost R&D spending through the use of tax credits.

Calling it a “play or pay” type of incentive, Sousa said the rule change would encourage companies to use their cash reserves - which many have been holding close to the vest amid the still-slow economic recovery.

“If those companies don't initiate those investments, don't provide for those supports, then they pay what they're paying now,” he said. “If they do other things, if they play, they get a better rate.”

Sousa said Ontario’s R&D spending, as a percentage of GDP, lags the U.S., and the gap might worsen if American states continue to aggressively push R&D tax credits to attract investment. It’s a race Ontario can’t afford to lose.

“We recognize that we have to continue finding those stimulus initiatives for those businesses to invest in those particular areas,” he said. “Other parts of the world are using incremental tax credits in a better form than Ontario has been doing.”

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own.