This is the third post in a series of three looking at what it might take to put Vancouver in the same echelon as the top software and technology centres on the planet. Regions like greater Boston, San Francisco and Silicon Valley, Tel Aviv, Austin, the powerful clusters and mega-regions of Asia. Is it possible for Vancouver to be mentioned in this class? The first two posts looked at potential reasons why it might not be possible, or at least why it isn’t today. Today’s post questions exactly what it is that Vancouver could be best suited for. What could we likely be the global leader in, if anything?

All roads lead to Rome, goes the old adage. At the height of the Roman Empire the major trading networks, supported by superior Roman road building, bridge and aqueduct construction meant that it was the place to be if you wanted to reach an affluent market. Wealth poured in from the vast outskirts of the empire and fueled the urban economy. Like a pressure cooker, Rome condensed this wealth scoured from millions of square km of European, African and Middle Eastern regions and made one of the mightiest cities to ever exist. It was the centre of the universe, when the universe had a centre.

That’s just the problem though, here today gone tomorrow is the loose capital in a globalized marketplace.  Though this is pretty much an economic truism I’ll still use a recent example of the fleeting nature of regional importance to illustrate why in my opinion geography is both  one of Vancouver’s most valuable assets and at the same time completely irrelevant to its potential as a hi-tech leader. It’s all about the product, or the service.

It was recently announced that the Chief Technologist of, Applied Materials, one of Silicon Valley’s most prominent firms, would be relocating to Beijing where the company’s newest and largest facilities were recently built. China has been booming for several years, developing new automobiles, computers, and gadgets for an increasingly affluent population. Applied Materials, along with many other makers of technology products, rely on proximity to markets, they’re one of the premier producers of components for semiconductors, solar panels and flat-panel displays. Two things that are likely going to be in increasing demand in China are energy, and entertainment. Therefore, putting facilities right in the heart of the market makes sense. Applied Materials are like the merchant who follows the road to Rome in this instance.

In my previous post, Jonathan Kassian, Manager of Research & Communications at the Vancouver Economic Development Commission, helped me cover some of the nuances of Vancouver’s economic competitiveness and challenges in regards to other Cities, regarded as high-tech and software leaders. Airline restrictions, proximity to markets, incentives, cost of living, and other details were picked apart a little just to give an idea as to how complex and subtle the issues and challenges in Vancouver could be.  So if it’s that complicated, what is the path of least resistance if Vancouver is to become a global powerhouse in something?

If we’re too far removed from markets, not connected enough globally, and too expensive to locate manufacturing in, then technology components, boxes of software or hardware, and other physical products involving global transportation are largely out of the question. And so because of this other types of industries that overcome or avoid these obstacles will flourish, and are flourishing here.  In my estimation, the most innovative and successful companies in Vancouver are increasingly internet based, offering SaaS (Software as a Service) or a product/service that uses instant electronic transportation. By transcending the challenges of geography the internet offers a forum for Vancouver companies to reach the global market without worrying about airline routes, proximity to markets, the costs of office or manufacturing space, and traditional “all roads lead to Rome” barriers. While some technologies and some components are made here, the major players in our high-tech industries (which I use as an umbrella term for ICT, high-tech, digital arts, eCommerce and other internet software developers) produce “light” goods. And by light I mean, they’re light to transport and can be downloaded almost as fast as the speed of light. These include entertainment, digital animation, eCommerce, apps development, games, software etc.  If our greatest challenges lay in economic geography (cost of living, cost of office space, scarcity of office space, geographic isolation and so on) then companies that offer online solutions or products and services that transcend the challenges of space and cost will likely continue be the most successful here by and large, the other pillar of this theory rests on Vancouver being a highly creative city that nurtures innovation and art; particularly in the digital medium(s).

A creative population makes for creative companies with creative business models and business cultures. Companies are increasingly adopting flex hours, mobile or remote working- because let’s face it, when the sun is shining in Vancouver we make the most of it. We network and collaborate where a lack of large management structures leaves a career path vacuum. We need to run lean businesses, that can adapt quickly and produce products involving minimum storage, shipping, or even packaging. Yes Vancouver is expensive, no one argues that, but that forces the companies here to be even smarter and more innovative.  We might not be Hollywood, but our digital effects and animation studios are consistently creating internationally renowned and award winning products. The talent and resources in the city have drawn the interest of Pixar, who announced they will be opening a 20,000sq foot studio in downtown Vancouver, because who wouldn’t want to locate their business here if they could?

The success of recent post production studios, digital effects companies, animation studios, and Pixar opening shop here combined with the recent creation of Great Northern Way Campus signals to me that digital entertainment, a massive and growing industry, is going to continue to be one of Metro Vancouver’s most prominent sectors for a while to come. This makes perfect sense, we’re a creative population, not a manufacturing population. And as was pointed out in the two previous posts Vancouver’s business culture plays a powerful role in the kinds of companies that locate here and begin here. We might not have MIT, but our universities and other post secondary institutions are world class, and GNWC is the culmination of those institutions in an innovative and collaborative environment. The Provincial Government has also recognized the importance of the digital entertainment industry and has created incentives to aid in its growth. What’s particularly interesting to me is how as time goes by, the video game, software developers and film industries are beginning to coalesce, and nowhere does it seem to be happening more seamlessly than in Vancouver. Will we see a new mega-sector evolve from this? (or simply re-categorize our economic sectors?)  If we do, that might make Vancouver a globally recognized cluster for whatever this sector becomes, or is named. A combination of digital entertainment, eCommerce, social media, software development and some things we haven’t even seen yet. It’s an exciting possibility.

I believe that our rising stock as a global leader in digital entertainment, online content, software as a service and other light products looks pretty good.  While we’re in no way limited to just these light products, they represent to me the best chance of Vancouver being  recognized as a global leader in the information age. Digital animation, software language and other skills can be taught, creativity itself is something that can’t be. It’s this intangible and prized trait that Vancouver as a city nourishes, welcomes and inspires. This combined with the economic and geographic nuances of firm location creates an environment where the creative sector finds ways to create light products with major value and impact. Does this put us in the same category as San Jose, Boston, and the rest? Will all roads lead to Vancouver? Maybe, but the combination of strong and longstanding clusters with major management structures, the presence of some of the most highly praised universities and technical schools on the planet and proximity to larger markets will likely make those places dominant for a while to come, but Vancouver is definitely mounting a charge. We just need to realize what we’re good at, and become the best at it.

I think we’re on our way to doing that.

This is the 2^nd post in a series of 3 that look at Vancouver’s position relative to other major centres of innovation and development. In it I draw from the perspectives of experts at Vancouver’s economic think tank the VEDC (Vancouver Economic Development Commission) and from a growing software development and internet marketing firm based in Yaletown, Thirdi. The first installment looked at availability of office space and inter-city economic competition as factors in firm location. Today we look at the broader implications of our business climate as it relates to our overall geography.

Vancouver is an entrepreneurial hotbed. We have one of the strongest and diverse entrepreneurial sectors of any city in North America, but there’s a dark side to this statistic. We have little in the way of large management structures, the kind that major companies and government offices offer. This means that graduates from SFU, UBC, BCIT and other schools often  have no clear-cut career path and difficulty even finding entry level positions. In a city like New York or Chicago the abundance of large employers means more opportunities for graduates right out of the gate. A few years with these companies and the large scale projects they tackle, means skill sets can be developed that enable workers to either advance within the large management structure or build upon their accomplishments by starting their own thing. A city like Washington DC, with a massive administrative pool of government offices also offers similar opportunities for career growth and lifelong learning. Vancouver however, has comparatively far less in the way of large management structures from the private or government sectors found in these kinds of cities. To make up for this, in typical west coast fashion, we do our own thing.  And our business culture has a big impact on what kind of companies begin here and stay here. It’s one of the key reasons for our strong entrepreneurial sector and for our position in relation to other major centres. As Matt Friesen, founder of Thirdi puts it:

“Business in Vancouver is shaped by the West Coast lifestyle. No other city in North America puts as much emphasis on live/work balance as Vancouver does. That is great for small businesses like Thirdi, where our culture can accommodate unconventional hours and telecommuting employees. Many large corporations, however, don’t have the flexibility to work like this and fail to attract the best talent because of it.”

Vancouver, she's a beauty. Photo from National Geographic.

It’s hard to argue the fact that Vancouver is indeed perhaps the awesomest place on the planet but our location also has distinct challenges that shape the business climate. Because Vancouver is so stunningly beautiful (with amazing restaurants and lifestyle options) the cost of living for both individuals and companies is extremely high. High rents, severely unaffordable housing prices, and the fact that an average glass of wine in an average restaurant can go for $11 all add up. Cost of living is a major factor to a company deciding where to put itself or a company trying to grow, the costs of doing business is another. Once again Vancouver’s geography is both a blessing and a challenge here too. Nick Molnar, Thirdi’s Web Strategist and resident economist, emphasizes the challenge of cost. “Vancouver’s high cost of living can be a killer for small companies. New businesses grow at an intermittent pace, and sometimes the difference between survival and death during the lean periods is literally a few hundred dollars a month in rent or a few thousand dollars in taxes. Subsidies, grants, and incentives do not solve this problem; in fact, they make it worse through their corresponding tax burden. A lean startup is a healthy startup, and it is incredibly difficult to run a lean startup in this city.”

Though a corresponding tax burden is often a reality of subsidization, BC has one of the most competitive taxation structures of any province-despite recent outrage over the new HST. Our general corporate income tax rate has been reduced from 16.5 % in 2000 to 10% in 2011. Our combined federal and provincial tax rate will be at 25% by 2012, well below the average US rate of 35% and further reductions in small business taxes will bring them down from 3.5% to 2.5% (VEDC). We should be swimming in large corporate offices if we just took into account those numbers, but we’re not. Clearly we’re beautiful and fun to be around, our taxes are competitive and welcoming to businesses. So why aren’t large corporations flocking to us with their thousands of cubicles, pods and boardrooms? They can afford an $11 glass of wine after all.

Our location clearly impacts not only the business culture of the city but the cost of operations. And it’s not just for small companies trying to run a lean startup as Nick points out. Vancouver is also a relatively isolated city, in some ways splendidly so, and while many innovative and young companies might value that it can be an issue for large companies in particular. As I spoke with Jonathan Kassian, Manager of Research & Communications at the Vancouver Economic Development Commission, earlier this week he used an example from close to home, Boeing’s decision to relocate to Chicago from Seattle.

For nearly 90 years Boeing had been a major employer and technological innovator in Seattle, a driver and supporter of the aviation and high-tech industries in the region. But in 2001 the company moved their offices to Chicago, while some manufacturing and design facilities remained behind. Access to both government and markets were the main factors. Chicago’s O’Hare airport was the busiest on the planet at the time and a two hour flight from Washington and New York. So no matter how small we’re told the global village is getting, geography is still a major factor, and that wasn’t all. The State of Illinois offered nearly $50 million in incentives while the City of Chicago also put in about $20 million. It was impossible for Boeing to say no basically. The lifestyle and beauty of the pacific NW lost out in the end to the better integrated and positioned Chicago (and Scrooge McDuck bags full of money).

Chicago enjoys closer proximity to domestic and international markets with some of the busiest transportation hubs on the planet. But guess where I'd rather be spending my winters?

To begin with, Vancouver has even fewer large corporate offices than Seattle and is comparatively restricted to the American market by our international border. Restricted is perhaps a harsh word, but despite the barriers that have been broken down over the past 20 years international borders still mean transaction costs, politics and paperwork. So if Seattle can be hustled by Chicago then Vancouver can too (or by Toronto or Montreal).  In Keeping with the aviation theme, Vancouver’s connection to international destinations i.e. markets and centres of production, is also affected by our protective airline regulations that favor our own domestic carriers. High-tech goods are most often shipped by air rather than ocean liners and if YVR is less integrated with certain important locations (Taipei,The Benelux, Tel Aviv, Mumbai, Singapore) then the costs of transporting goods both internally within a company structure or externally to markets, of which once again Vancouver is geographically removed from, means increased time and increased costs; neither of which make a company more competitive. So when thinking about why we have fewer large offices and management structures in comparison even to our pacific NW neighbours just down the road, the answer is clearly more nuanced than one might first think.

So what’s Vancouver to do? What’s BC to do? And what have we been doing? Aside from being beautiful…

Well a lot actually. The City of Vancouver has been focusing on increasing density and allowing more housing to come on the market (STIR, Laneway Housing and other initiatives) and hopefully this will help to bring down home prices and the cost of living. Taxation policies have been increasingly favorable to businesses and incentives have been introduced. Just last week the BC government announced a package of industry incentives supporting video game, film and television production. According to Phil Heard, CEO of VEDC “The Province’s move is well-timed, and helps make BC and Vancouver one of the most competitive jurisdictions for digital entertainment, one of the cornerstones of our growing knowledge economy.”

That growing knowledge economy that Herd acknowledges, and that Mayor Gregor Robertson recently recognized at the opening of W2 Culture and Media House, is comprised of thousands of startups, innovative entrepreneurs and even a few big fish that know the value of lifestyle as a “Second Paycheque”. Vancouver will likely never be like New York, Chicago, or Toronto. But that’s precisely what so many people out here like about it.  We’re fresh, we’re young, we do our own thing, we innovate, we cluster and network, and frankly we like it. But can we, with our high-tech, biotech, greentech and software industries, get to the top echelon of globally competitive cities on fresh thinking, good looks, networking and innovation alone? Will not having the large management structures that government and corporate offices create hold us back?

Though we’ve looked at some of the factors influencing why our business climate is the way it is, and why when it comes to major technology and software production we’re positioned this way, we still haven’t found the answer we’ve been searching for. What will it take to put us at the top? We’ve addressed a few of the reasons why we’re not quite there yet perhaps, but many more still remain. Taking into account what we’ve looked at in the past two articles, my third installment will go out on a limb and attempt to answer how we might just get there.

Wes Regan is an industry trends blogger with Thirdi and the Communications Liaison at Building Opportunities with Business, a community economic development non-profit in Vancouver.