New research indicates Ontario's ability to develop high-growth, intangible-powered enterprises into global rivals is inadequate
In today's digital economy, intangible assets are the primary source of productivity and growth. Businesses that invest in intangibles have been shown to grow more and faster than those that do not. Ontario's ability to develop high-growth, intangible-powered enterprises into global rivals is inadequate, according to new research released today.
The Scale and Potential of Ontario's Intangible Economy, commissioned by CPA Ontario and published by Economist Impact, shows that there is capital and infrastructure, a pipeline of trained individuals, and plenty of intangible assets being developed. When it comes to finding expansion finance and entrepreneurs with experience managing exponential development, however, start-ups are frequently left hanging.
Foreign purchasers acquire Ontario's prospective unicorns and its scalable intangible assets because they lack the ability to manage and support their own growth.
Carol Wilding, FCPA, FCA, President and CEO of CPA Ontario, said, "We need to up our game and better coordinate public and private efforts to support the scaling of intangible businesses and retain ownership or the province risks becoming little more than an incubator for economies with a better approach. Losing ownership of our intangible assets isn't good for the province, the country or our long-term economic potential."
The OECD projects that during the next decade, the Canadian economy would develop at the slowest rate among advanced nations, with an average annual real growth rate of 0.7%. Ontario is still lagging behind other sophisticated nations in leveraging power despite its digital sector growing at a 6% annual rate from 2014 to 2019.
Intangible assets accounted for 53% of total market value in Canadian corporations in 2021, compared to 76% in the United States.
To avoid the OECD's forecasted sluggish growth, Ontario and Canada must exploit the growth potential of intangible assets. Within Canada, Ontario is middling at developing high-growth enterprises, while Canada trails far behind the United States and China.
In addition, the province struggles to convert intangible investments into tangible assets, generating only 4.6 new patents per C$100 million invested in R&D, ranking sixth in Canada and far behind California's 19.7 patents generated for an equivalent investment, even when differences in patent regimes are taken into account.
It will be vital to convert investment into revenue-generating assets—via patents, trade secrets, or intellectual property—and then to keep ownership in Ontario.
To nurture Ontario's intangible economy, CPA Ontario asserts that business leaders, governments, and educational institutions should pursue a four-pronged strategy that includes converting intangible investment into productive assets, scaling up intangible commercialization, adapting to new digital realities in the wake of COVID-19, and increasing intangible economy-specific education and skills training.
CPA Ontario thinks that the accounting profession and CPAs can play a crucial role in unlocking this potential by assisting in the unlocking of capital, talent, and innovation required to create future industries.