Human Capital: The most important gap to bridge for tech

What are the strengths and weaknesses of Quebec’s digital economy?

Quebec’s tech sector is booming with several champions like CGI, Coveo, Hopper, Lightspeed, Element AI and Stradigi AI, to name only a few. Over the last 10 years, our tech sector showed an average annual growth twice as fast as the pace of our economy as a whole. The sector is comprised of approximately 8,000 companies and has about 210,000 IT professionals. Interestingly, half of them are actually working for non-IT companies like food distributors, manufacturers and financial services. This shows that nearly all sectors of the economy have embraced technology. So, tech is not only important as a single industry, but also as a tool to be leveraged by all industries to become more efficient. In this sense, all businesses are tech businesses. Technology, alongside demographics and climate change, is one of the three megatrends that will impact not only how businesses are functioning but also the way our economy is evolving.

“Over the last 10 years, our tech sector showed an average annual growth that is twice as fast as the pace of our economy as a whole.”

The strength of our tech industry, first and foremost, is our dynamic focus on investment. Investment in research and development (R&D) has risen by about 30%, which is crucial for companies that want to continue to be relevant in their industry. Secondly, the tech sector is the primary beneficiary of venture capital in Quebec. Quebec accounted for about 32% of Canadian venture capital investment in IT, despite representing roughly 20% of Canada’s GDP. Thirdly, the level of confidence shown by Quebec’s entrepreneurs and investors is no doubt encouraged by the scale of public investment in IT. The Quebec government has rolled out generous incentives affecting nearly every operational aspect at every step of the corporate life circle. This includes support for entrepreneurship, start-ups, participation in venture capital funds as well as tax credits for recruitment, training and investment in university research.

In terms of challenges, Quebec’s tech sector is facing strategic and structural challenges, which can be classified into four categories.

The first is the issue of scaling up; most of our IT companies are small and medium sized enterprises (SME). Our SMEs tend to be a discount market for foreign buyers, so we must help them scale up so that they can make acquisitions, invest in aggressive development and make an impact on the world stage. This industry is filled with star players but now, we need more consolidators.

The second challenge is in recruitment and talent management. In the face of the labour shortages the industry is experiencing, tech companies first need to recruit workers and then they must invest in retraining them due to rapidly changing technology.

“Technology, alongside demographics and climate change, is one of the three megatrends that will impact not only how businesses are functioning but also the way our economy is evolving.”

The third challenge is around pacing, which involves keeping up with change, being agile and adopting new technologies early on. Today, 65% of tech companies are saying that their number one concern is the pace of technological change. We are entering a very intensive phase of change; in the next 5 or 10 years, disruptive technology will become crucial for companies.

Finally, we need to develop our export markets. The US is, and will remain, our biggest trading partner. It is the largest economy in the world and it is right on our doorstep. However, with 70% of our total exports, including IT, going to the US, it is crucial to diversify our markets. We should work faster to develop markets with which we have trade agreements like Europe. We have to take advantage of the Pacific Alliance and focus on high growth markets like China, India, and Southeast Asia. In the medium-term, Africa would be a major vector of growth as well.

What role should the government be playing in accelerating the development of Quebec’s digital economy?

The government already has a strong presence in industry and will most likely continue in the future. Premier François Legault has reiterated several times a firm belief in the importance of the state’s role in economic development. The government certainly has a role to play in maintaining the competitive environment for the tech industry through a variety of measures. It generally promotes an increase in the number of companies and helps them grow and tackle international markets.

The government also has a vital role to play in relation to the availability and competencies of the workforce. Human capital is probably the most important asset for the tech industry. The government and the education system need to do more to develop training programs that the industry needs and ensure the training is provided all across the province. Jobs in high demand – like engineers, analysts, programmers, technicians, and others – need qualified candidates. We also have to attract more women to the sector, who make up only 20% of the tech workforce today. Moreover, the government must also facilitate the readiness of our industry to meet future needs. For example, cloud computing, artificial intelligence, social media, mobility, e-commerce and cybersecurity are all growing industry segments where the government needs to play a role.

“We must help [our SMEs] scale up so that they can make acquisitions, invest in aggressive development and make an impact on the world stage.”

In terms of investment, Investissement Québec obviously has a role to play, not just in tech but also in other areas of the economy. For example, we launched the Investissement Québec Manufacturing Initiative with several partners to encourage manufacturers to embrace Industry 4.0 and to incorporate tools like automation, 3D printing, digital applications and artificial intelligence. When we launched the program, only 20% of the manufacturing companies in Quebec had automated at least half of their operations, in comparison to the US’ 55% and Germany’s 75%.

We developed a solution-oriented program with workshops and demonstrations, and we took to the road. We set out to meet with entrepreneurs. In two years, we took part in financing close to 700 innovative projects and we invested more than $1 billion in projects with a combined value of $6 billion. The initiative’s success exceeded all our objectives. It was one of the most successful mobilization, economic education and strategic support projects in Investissement Québec’s history.

How do you see Quebec’s tech industry and its financial services sector intersecting in the future?

Finance and technology interact in two major ways: fintech and technology investment.  Fintech is creating a revolution in banking and investment management. As a result, the investment community itself has become the epicenter of information technology. The advent of AI will lead to major efficiency gains in operations and reporting. AI will drastically reduce execution time and leave more time for personal interactions with clients. While tech will disrupt our financial sector, Canada and Quebec, are mature and open to that change because they understand the value of the potential gains.

“The government and the education system need to do more to develop training programs that the industry needs and ensure the training is provided all across the province.”

Secondly, the Quebec investment community’s ability to invest in IT is challenged most by the rapidly changing technological environment. IT entrepreneurs identify a difficulty in keeping up with the pace of technological change, which is the main challenge to their growth. Similarly, financial institutions struggle to constantly upgrade their skills and recruit the best talent to understand new technology. As investors, we have to be able to assess the risk and potential of a business project that involves technology that did not exist just a few months ago. Having said that, I believe that a good financial institution should be able to simplify complex and sophisticated ideas and promote them.

How do you see Investissement Quebec’s position in enabling the tech sector’s growth?

Our mission is to de-risk a project or transaction. In the past few months, Investissement Québec has studied the financial ecosystem to identify and define the underserved needs of our companies, which will help us redefine out market positioning. Investissement Québec assumes the role of a complimentary investor to the private sector by co-investing with it and reducing capital market deficiencies. We have access to a full range of financing and investment options and can find the optimal solution to make a company’s plan a reality. As a patient investor, Investissement Québec is in a class of its own. Our ability to invest in the medium and long-term make our organization a major supplier of funds both in early stage capital as well as growth capital.

Which segments of the Quebec IT industry do you see the most potential within?

All of our IT segments are positioned for strong growth potential. However, there are two forces that cut across them and will have an impact on all industry segments. The first one is the arrival of 5G connectivity in Canada in 2019 and 2020. That means that Internet connection speeds will be about 200 times faster than today’s best 4G LTE connection. These increased speeds will provide boosts for mobile technology and will enable, for example, the connection of thousands of autonomous vehicles and millions of devices.

The faster connection speed will trigger the AI revolution, which is the other force cutting across all segments. AI applications receive input from real-time data streams, and 5G connectivity was one of the things missing for a true wave of AI applications to be unleashed in every segment of our economy. Quebec’s leadership in AI is recognized worldwide, but the competition is fierce; we need to stay vigilant to avoid losing momentum. Our strength in AI stems from multiple aspects. These include; 11,000 university students enrolled in AI-related programs, more than a billion dollars in investments been announced since 2016, Montreal being chosen by the federal government as the head office of SCALE.AI, which will be Canada’s AI supercluster. So, there is a strong AI buzz in the province, mainly in Montreal, which will contribute to the growth of every other IT segment in the city and province. We need to keep the buzz alive and we must keep striving to make the important advancements we have made in fundamental research increasingly available of to all industries.

“We must keep striving to make the important advancements we have made in fundamental research increasingly available of to all industries.”

To really capitalize on all this, I would first urge Quebec’s youth to recognize that they have an opportunity to pull off what could be one of the biggest economic successes in Quebec’s history. For one of the first times in its history, Quebec is a world leader at a time when transformative technological revolution is taking shape. Quebec’s position in AI, for example, creates a precedent, and it is up to our young people to act on it. Next, I would pitch to the political, education and business leaders that we need to develop the best training programs in the world to bridge the human capital gap in tech.