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IT slowdown didn’t stop start-ups, according to StatsCan

A new study from Statistics Canada found new companies flocked to the tech sector despite shortfallsrn

Firms in Canada’s information and communications technology (ICT) sector continue to see new market opportunities despite significant losses in output and employment since 2000, according to Statistics Canada.

In its study released this month on the sector from 1997 to 2003, StatsCan looked

at rates of entry of new business establishments built by new and incumbent ICT firms, in addition to more traditional benchmarks like economic growth and employment rates.

“”We’re trying to characterize the bust looking beyond simply levels of employment or output as measured by GDP,”” said Mark Brown, senior research economist at StatsCan. “”We were simply asking, ‘Were we continuing to see large numbers of new entrants entering into the sector during the so-called bad years?'””

Between 1998 and 2000 entry rates, or the proportion of employment in establishments that were new from the year before in the ICT sector, were between 25 and 44 per cent higher margin than the rest of the business sector. Despite weak gross domestic product (GDP) growth, entry rates in 2001 were 16 points above the rest of the business sector and 14 points higher in 2002.

These numbers came as a bit of a surprise to Brown who co-authored the report, titled “”An Anatomy of Growth and Decline: High-tech Industries through the Boom and Bust Years, 1997 to 2003.””

“”With the decline in employment in the ICT sector after 2000 I wasn’t expecting entry rates to be higher than the rest of the business sector,”” said Brown. “”It was something of a surprise to see there are lots of new entries emerging even during a period when the sector was retrenching.””

To track entry rates, StatsCan obtained data from its Business Register (BR), a list of all firms with employees in Canada. While most of the units are updated on a monthly basis from administrative sources, larger and more complex businesses are updated less frequently. To ensure an accurate measurement of employment in the ICT sector, StatsCan also uses payroll deduction records that the federal government receives.

Industry experts, however, agree with the study’s results but say they are nothing new.

Canadian Advanced Technology Alliance (CATA) vice-president Barry Gander said he’s not surprised that the number of new companies would continue to rise with the ongoing increase of new ideas for new productivity tools.

“”Certainly there has been a slowdown in the development of productivity tools,”” said Gander. “”In today’s world that investment curve has started to climb up again. The people who are fueling the inventiveness growth have been counting on that pickup all along. That pickup is now occurring.””

Driving this investment in new establishments is the fact that many firms continue to see opportunities to develop new types of products in ICT, said Brown.

“”From a theoretical perspective what people argue is that products go through several different phases like product cycle,”” said Brown. “”The high tech sector during the 1990s was comprised of a lot of businesses with a lot of products in the initial stages.

ITAC’s view

Lynda Leonard, Information Technology Association of Canada (ITAC) vice-president of communications and research, said ITAC is seeing “”tapering growth.””

“”This is the Internet cycle of the growth of our industry. That’s fully consistent with what many of us have experienced two or three times before.””

Like Gander, Leonard also said the sector, like any other industrial market, is subject to boom and bust cycles.

“”It’s basically what we’ve been saying all along which is the sky is not falling,”” said Leonard. “”It’s nice to have this corroboration but those of us in the industry have been saying this is a business cycle.””

Denis Vance, group vice-president and chief research officer at IDC Canada, agreed the ICT sector from 1997 to 2003, excluding 2001, saw lots of start-ups.

“”That is the history of the ICT business,”” said Vance. “”It attracts innovative people, it attracts entrepreneurial people, it attracts capital and that’s why it has become such a growth engine.””