Three Ontario cities found different paths to be able to compete in high-tech markets: University of Toronto study

Three Ontario cities employed different strategies to use civic capital to leverage new, technological windows of opportunity and compete in high-tech markets, according to a study by University of Toronto researchers.

The study, Super Connectors, Specialists and Scrappers: How cities use civic capital to compete in high-technology markets, looked at the approaches used by Toronto, Ottawa and Waterloo.

Study authors are Tijs Creutzberg (photo at right), senior associate in the Innovation Policy Lab at the Munk School of Global Affairs & Public Policy, (appointed in July as president and CEO of the Council of Canadian Academies), Darius Ornston (photo at left), professor in the Munk School, and David Wolfe (second photo at right) professor emeritus of political science and co-director of the Innovation Policy Lab.

Civic capital is comprised of formal or informal networks between individuals and associations, grounded in a specific region or locality that sustains a common vision for the community.

Civic capital is generated through a range of organizations, whose members collaborate to develop new relationships and establish common goals for the economic development of the urban region.

For their study, the U of T researchers drew on 211 semi-structured interviews, conducted from 2016 to 2022 with policymakers, industry observers and industry representatives in Toronto, Ottawa and Waterloo.

Based upon the researchers’ analysis of these interviews, their study found that Toronto evolved from a marketing hub for foreign multinationals into a centre for entrepreneurship.

Research shows Toronto’s status as a global hub for high-technology entrepreneurship is predicated on a dense pool of talented and highly skilled labor, including the city’s status as a magnet for inward migration.

Civic capital and cross-sectoral “buzz” connected high-technology entrepreneurs to a variety of deep, globally competitive sectors – particularly financial services – creating a “sector super-connector” with a diverse and growing community of successful startups and scale-ups, according to the study.

“TechToronto is distinctive in its ability to link technology firms to complementary services, most notably investment, as well as local, advanced demand through the development of industry-specific meetings corresponding to existing local verticals such as FinTechTO, HealthTechTO, and SalesTO.”

In comparison, Ottawa and Waterloo, without the advantages of a global city like Toronto, followed a niche-based path, but did so in very different ways.
Ottawa relied on task-specific cooperation in R&D, education and construction of specialized infrastructure (such as a focused ion beam facility), and by tapping collective institutions and programs to support its position as a “specialist” city in high tech, according to the study.

Ottawa then upgraded its position in a capitalist-intensive niche – telecommunications equipment – and moved into adjacent software-related fields.

For example, competing multinational enterprises – Cisco, Juniper Networks, and Nokia – have collaborated on the Centre of Excellence for Next Generation Networks, while ENCQOR, a 5G wireless testbed anchored by CGI, Ciena, Ericsson, IBM, and Thales, followed shortly thereafter.

In addition to tethering foreign firms in Ottawa, these projects created openings for smaller Canadian-owned firms to enter the telecommunications equipment value chain by contributing to software-defined networks or layering new applications on top of them.

 In Waterloo, entrepreneurs eschewed task-specific cooperation for peer-to-peer mentoring of SMEs across a wide variety of industrial sectors, the U of T researchers found.

By diffusing generic knowledge about how to circumvent the liabilities of smallness, mentoring networks in Waterloo enabled this “scrapper” city to support smaller startups in a broad range of niches spanning from hardware and medical technology as well as industry-specific software applications.

Industry representatives consistently pointed to mentoring networks as a regional asset and one of Waterloo innovation hub Communitech’s key strengths.

Mentoring can be found in other regions, most notably through individual entrepreneurs-in-residence, the study noted.

 “Their individual, often sector-delimited experience, however, does not approximate the decentralized body of knowledge embodied in the dense, decentralized peer-to-peer relationships which underpin Communitech and the Waterloo community more generally.”

Mentoring networks taught Waterloo founders how to deviate from the big city, Silicon Valley-style playbook. Such networks connected protégés to international service providers, and instructed them on how to secure risk capital from Toronto and other cities, import human capital from outside the city, co-locate closer to international customers, construct dual office structures, and manage remote workers.

Leveraging civic capital in different ways to support high-tech entrepreneurship

The study’s researchers argue that civic capital can support high-technology entrepreneurship in three different ways:

• facilitating cross-sectoral cooperation.
• constructing specialized, strategic goods.
• diffusing general knowledge within decentralized mentoring networks.

The diversity of large urban regions can lead to fragmentation, as evidenced by the disappointing performance of cities with low levels of civic capital such as Los Angeles, according to their study.

Cities with certain kinds of networks may fail to generate the requisite levels of civic capital to support economic adjustment to external shocks.

By contrast, high levels of civic capital enable certain big cities to exploit sectoral diversity. For example, civic capital enabled entrepreneurs in Silicon Valley to combine engineering, the arts, biology and finance in ways that their counterparts in Los Angeles could not.

Several smaller cities, without the advantages of large urban centres, have nonetheless entered cutting-edge high-tech markets, including Aalborg, Denmark and Salo, Finland, the study’s researchers pointed out.

“We argue that they have done so by using civic capital in a different way, relying on task-specific, inter-firm cooperation to develop and diffuse deep knowledge within regional supply chains and collaborate in the construction of specialized public goods, including R&D consortia, training programs, technological standards and other infrastructure.”

More commonly associated with mature industrial cities and regions, this “organizationally thick and specialized” model can also facilitate entry into high-technology markets, the authors said.

Other smaller cities, including Waterloo in Ontario and Cambridge in the U.K., carved out competitive positions in high-tech markets by the diffusion of generic knowledge within mentoring networks.

Such networks alerted entrepreneurs to unexpected opportunities in high-tech markets and helped them navigate the unique challenges associated with capital scarcity, thin labour markets and the relative dearth of complementary industries.

The sheer volume of independent niches, connected only by mentoring networks, can render “scrapper” cities highly resilient, the U of T researchers said.

However, in contrast to larger “sector connectors” and technology “specialists," this diversified approach makes it harder to scale specific industries and firms, they noted.

“Collectively, the analysis suggests that smaller urban regions can enter high-technology markets in different ways, each with distinct trade-offs,” they concluded.

R$