Ontario 2007: Going Global
Ontario is leveraging its global strengths to form ties with international markets as it competes for auto manufacturing supremacy, world-renowned scientists, and biotech breakthroughs.
Jennifer LeClaire  (Jun/Jul 07)
Ontario is a global city - and it's taking a global approach to economic development.

The Canadian province made major headlines last year with the announcement of a new state-of-the-art $1.2 billion Toyota assembly facility in Woodstock and the subsequent spinoff supplier investments. (All dollar figures are in Canadian dollars unless otherwise indicated.) Now, the government is looking to strengthen its automotive cluster, as well as other key sectors, with an aggressive international outreach strategy designed to build stronger trade and investment ties in global markets.

Indeed, Ontario is already a major international trading economy. The province exports more per capital than Canada and the other G8 countries. In 2005, total Ontario international exports totaled $201.2 billion. That's close to half of all Canadian exports. Although exports to the United States represent 88.9 percent of that figure, Ontario has developed significant trading relationships with the likes of the United Kingdom, China, Norway, Mexico, Japan, Germany, and France. The province plans to add to that list in 2007.

"The manufacturing world is global in nature and reaching out to global markets to build relationships is the right approach," says Sandra Pupatello, Ontario's Minister of Economic Development and Trade. "The future is in making connections on the ground in countries like Tokyo, Shanghai, New Delhi, and other emerging markets. We already have staff in those countries and we are strengthening our ties."

Taking a World View
Ontario sees the world as its economic development oyster and is establishing international market centers around the world to prove it. Ontario Premier and Minister of Research and Innovation Dalton McGuinty officially opened Ontario's International Marketing Center in Tokyo last summer. It's one of seven centers Ontario currently operates in global markets, with three more set to open later this year. These efforts have helped the province attract significant new investment, particularly in the automotive industry.

In fact, Ontario's global automotive investment strategies have helped anchor 7,000 jobs and attract $7 billion in new automotive investments. Beyond the Toyota announcement, Ontario has wooed Hino Motors, Toyotetsu, Toyota Boshoku, Hayashi Canada, and Aisin. Honda Canada is also expanding its Ontario operations, adding a new engine facility at its Alliston site. It comes as no surprise, then, that Ontario's top-five international exports include motor vehicles, parts, and accessories, which make up 40 percent of the total, according to the Ministry of Finance.

Most Ontario-made vehicles and parts are exported to the United States, as are many other products - one reason the province opened its new Los Angeles International Marketing Center this past March. The Los Angeles office hopes to connect Ontarians to business opportunities in the Western United States. "The U.S. is our largest trading partner," says Pupatello. "By establishing a permanent presence for Ontario serving California, the U.S. Southwest, and Hawaii, we're sending a very positive message to investors and strengthening our relationship with these key markets."

In January of this year, McGuinty led a business mission of 100 Ontario delegates to India. His message: Ontario has what India needs to sustain its rapid economic growth and move its society forward. Ontarians and their Indian counterparts have signed dozens of cooperation agreements, including several reached by universities, colleges, and research organizations.

The Knowledge-Based Shift
The global marketing strategy is bearing fruit in a shifting economy. Research agreements are seen as key to that shift. Like many other regions of North America, Ontario reports a trend toward higher value-added sectors and knowledge-based employment. That trend is aligned with two key goals for the province: building its information and communications technology (ICT) and life sciences sectors, according to John Langley, director of the investment branch at the Ontario Ministry of Economic Development and Trade.

Over the past five years, Ontario's capital expenditure in knowledge-based services has seen a 7 percent boost as the economy migrates from manufacturing to service industries. "The demand for research and innovation is having positive impacts, and our ICT and life sciences sectors are growing," says Langley, noting that aerospace, pharmaceuticals, biotech, fuel cells, and environmental technology are hot investment areas in Ontario.

The sectors are growing, in part, because Ontario offers one of the most favorable research and development tax environments in the world. Only the Netherlands has lower costs, according to a KPMG international survey. Specifically, Canada's R&D cost advantage is 10.9 percent over the United States - and most Canadian industrial R&D is performed in Ontario. About half of Canada's top 100 corporate R&D spending comes from this province. As far as an available labor pool, Ontario's 20 universities and 24 colleges of applied arts and technology generate a steady supply of new graduates.

In a move to develop Ontario into an innovation hub, the McGuinty government is investing $3 million to establish the University of Toronto's first Premier's Research Chair. The chair creates solutions for business achievements that aim to spur the province's future prosperity. Through the Ministry of Research and Innovation, the government is investing nearly $1.7 billion through 2010 through research, commercialization, and outreach programs. "Our government is committed to research and innovation so that everyone in Ontario has a fair shot at success and more opportunities to build a better life for themselves and their families," says McGuinty, promising that Ontario's collective devotion to research and innovation will lead to exciting new products and services.

Commercialization at MaRS
The MaRS Discovery District - MaRS is short for "medical and related sciences" - is not new. But the not-for-profit corporation, founded by leaders from the business and public sectors to foster commercialization of Canada's science and technology innovations, is making major strides toward its goals. "We are looking to expand the MaRS site in downtown Toronto," says Pupatello. "There is real synergy here. If you go down the elevator, you are going to run into scientists, researchers, venture capitalists, and others who have the same goal: to commercialize research."

MaRS inked a deal last October with Biolink Canada-Ireland - a new Enterprise Ireland network initiative linking scientists, industry, academia, and government agencies from the Irish and Canadian life sciences sectors - to share knowledge that could lead to commercialization. And last November, MaRS joined forces with the Stockholm Science City, an initiative that teams Europe's research universities with the City of Stockholm and its surrounding county to share best practices and commercialization knowledge.

The MaRS Discovery District made national headlines in April when it announced a partnership with the Canadian Stem-Cell Network (SCN) to find financing for translational development activities that Aggregate Therapeutics is undertaking in the realm of regenerative medicine. The partnership will also build within MaRS the commercialization capacity in the field, and broker private financing for spinoff companies from Aggregate and SCN member institutions.

This partnership could be paramount, with the U.S. Department of Health and Human Services estimating the worldwide regenerative medicine market will reach US$100 billion by 2010. Regenerative medicine promises to cure previously untreatable chronic diseases and conditions including Alzheimer's, Parkinson's, diabetes, heart disease, renal failure, osteoporosis, and spinal cord injuries. "The creation of Aggregate Therapeutics is a major success story for Canada," says Frank Gleeson, chair of the SCN Board. "The new partnership with MaRS is a further sign of the inclusiveness that characterizes Canada's unique, collaborative approach to commercializing basic science to produce better medicine."

Diversity Wins the Race
Although Ontario has made a name for itself in automobile manufacturing and is moving full steam ahead with its life science initiatives, the McGuinty government is still making strategic investments in Ontario's advanced manufacturing sector, which employs about 1 million people and accounts for 16 percent of Ontario's total employment. To that end, the province also boasts an advanced manufacturing investment strategy, or AMIS. Ontario launched AMIS in 2005 to encourage companies to invest in leading technologies and processes that will boost productivity and competitiveness.

The $500 million strategy provides repayable loans, interest free for up to five years, to support investments in technology and innovation. The strategy is working. To date, Ontario has announced six AMIS projects that will generate $245 million in new investments. "We're working very aggressively to generate more `made-in-Ontario' companies that stay here, create jobs here, and compete in the international marketplace," says Pupatello. "And we've established a clear presence for Ontario in key global markets that are important to our exporters."

Of course, Ontario industry is not limited to manufacturing, ICT, and life sciences. The province boasts a diverse industrial base that also includes call centers, alternative energies, plastics, food products, aerospace companies, and forestry.

Canada has the fifth-largest aerospace industry in the world, and Ontario is one of its powerhouses, with more than 350 Ontario aerospace firms that produce aircraft such as the Airbus A380, Boeing 787 Dreamliner, and U.S.-led Joint Strike Fighter. And in 2005, Canada's plastics cluster shipped more than US$43 billion in goods ranging from processors, resins, machinery, and tool die and mold. About 65 percent of the shipments originated in Ontario.

On the food processing front, Ontario produces more than 200 agricultural commodities, a diversity unmatched in most parts of the world. The province is a world leader in food technology R&D, and the agri-food sector has a proven track record in successful export marketing with exports worth $8.5 billion annually, and accounts for 28 percent of Canada's total annual agri-food exports. The value of food shipments for 2005 was $32.5 billion.

Call centers is an area in which Ontario shines, thanks to its multiculturalism. According to the 2006 KPMG Competitive Alternatives study, Canada is second only to Singapore in terms of annual call-center costs, and Ontario's language and cultural diversity pays off for companies that set up shop there. Twenty percent of Ontario's work force speaks at least one language besides English, including Chinese, French, German, Greek, Italian, Japanese, Portuguese, and Spanish. "There are about 100 different languages spoken in the greater Toronto area," says Langley. "That's a tremendous advantage with globalization."

Competing on Price
Ontario's global, educated work force is also a cost-effective one. In fact, the KPMG study found that Canada's business costs are the lowest of the G8 countries - on average, 5.5 percent lower than the United States. For software development, contact centers, and back-office operations, costs in Ontario are 5 percent to 20 percent lower than the U.S. average. Lower wage rates, including employer healthcare costs, are a key contributor to this advantage. And Ontario's tax rates are also highly competitive. The province's corporate tax rate is 4 percent lower than the U.S. average.

"The advantage seen for many of the Canadian cities relative to the U.S. is generally the result of combination of lower labor costs - including lower employer costs for private medical coverage - lower real estate costs, and lower electricity costs in Canada than in the United States, where deregulation has seen electric costs soar in many regions," says KPMG's Mark MacDonald. Various federal and provincial tax cuts over the last decade, he says, have also made Canada's tax system more competitive with the United States, and have contributed to the positive position of the Canadian cities.

Pupatello is optimistic about the future as the government continues to reach out to international markets in an increasingly knowledge-based economy. The focus now is on attracting new research developments and commercializing discoveries to boost the manufacturing sector in life sciences and biomaterials. That, she says, is the world's future, and Ontario plans to be smack-dab in the center of that future with world-renowned research institutions. To be sure, the short- and long-term prospects of investing in Ontario look bright.

"Economists continue to predict good economic growth in Ontario this year and even stronger growth in 2008," says Pupatello. "Since we took office in October 2003, Ontario has gained 327,000 jobs with more than 70 percent of those full-time, high-value positions. We are making the right strategic investments that strengthen our position and generate more wealth and prosperity for the people of Ontario."