Strong Dollar; Weak Tech Sector?
With the Canadian dollar climbing to even strength with the greenback for the first time in 30 years, Canadians are celebrating like we’ve won something, and rediscovering cross-border shopping.
But before anyone gets too carried away, the strong Canadian dollar is probably going to spell trouble with a capital “T” for the country’s high-tech sector and the New Economy that we’ve been so keen about. For years, the low dollar has made Canada a cheap place to carry out R&D when combined with highly-educated engineers and programmers.
In the process, Canada has become a Wal-Mart-like R&D satellite for U.S. companies such as SAP, Microsoft and Google looking for low-cost places to operate. Some of these R&D facilities have been jump-started by acquisitions given the cheap Canadian dollar has made Canadian high-tech companies bargains - particularly when the dollar was at a 40% discount to the U.S. dollar.
With the Canadian dollar at par with the U.S. dollar, Canada’s biggest competitive edge has now disappeared. Canadian R&D operations are no longer inexpensive, which will cause U.S. companies to think twice about whether it makes sense to do R&D north of the border.
Sure, we have really smart people and a federal government happy to give a 20% tax credit on all R&D costs but a robust Canadian dollar make these pluses less relevant. Without the low dollar as a sales and marketing tool, places such as India, Ireland, China and the U.S. will star to look more appealing.
So how does Canada’s high-tech sector deal with the Canadian dollar?
Well, it would help if companies, entrepreneurs and investors were more aggressive and increased their appetite for risk. We’ve got to get better, smarter and faster to compete. We need to combine great ideas and smart people with the right amount of financial support. The different levels of Governments need to do more than offer tax credits and the occasional Team Canada trip to a distant land. As a competitive tool, the low dollar is dead. It’s time to embrace the new economic reality.
October 2nd, 2007 at 9:11 am
Of course, salaries in Canada are much lower than those in the US by about 25%, with much higher taxes. However, when you add in PST/GST of 14% the cost of doing business here is much higher.