Business

High times for high tech

Tax incentives help make Montreal a multimedia mecca

Brenda Branswell July 19 1999
Business

High times for high tech

Tax incentives help make Montreal a multimedia mecca

Brenda Branswell July 19 1999

High times for high tech

Business

Tax incentives help make Montreal a multimedia mecca

Brenda Branswell

The banners hanging from lampposts in a long-neglected section of Old Montreal look premature. Amid construction rubble and old factory buildings, the banners herald Cité du Multimédia, a new industrial park that spans several blocks and is designed to make Montreal a multimedia mecca. Most tenants are expected to move in by 2001. For now, this is fertile ground for good-news announcements by Quebec Finance Minister Bernard Landry. Over the past year, he has hailed the creation of 5,100 jobs for the Cité—more than half the governments forecast last year of 10,000 jobs in 10 years.

Dozens of companies—most recendy Motorola Canada Ltd.—have announced set-up plans in the area. Motorola intends to employ up to 500 people at the site within a decade. Landry told Macleans he foresees not just the creation of jobs, but also a “critical mass, one of the most important in the

world in terms of concentration of multimedia workers.” Amidst Montreal’s sometimes-troubled economy, the hightech sector is a bright spot. Montreal’s high-tech industry is led by powerhouses such as Bombardier Inc., which employs 11,000 people locally in its bustling aerospace division. There are telecommunications and information technology giants, such as BCE Inc. and Teleglobe Inc., as well as an estimated 40 per cent of Canada’s pharmaceutical industry and more than half the country’s total of slightly more than 200 biotechnology companies. In all, 320,000 people work in Montreal’s so-called knowledge-based industries, which provide 21 per cent of the city’s jobs.

What makes Montreal a favourite for multinational companies establishing research facilities? Charles Bourgeois, a senior official with MontrealTechnoVision Inc., a group that promotes the high-tech industry, says, “manpower and tax credits,” then adds with a laugh, “or tax credits and manpower.” At Cité du Multimédia, tax incentives are gener-

ous—and contentious. Qualifying companies receive a five-year holiday from provincial income, capital and payroll taxes. For new jobs, the government provides up to $ 15,000 in tax credits for each employee’s annual salary until 2010. Those subsidies persuaded Illinois-based Motorola to locate a new software centre in Montreal. The city also bested sites in foreign cities, as well as in Toronto and Vancouver. “Cost was the major issue,” says Micheline Bouchard, chief executive officer of Motorola Canada. Quebec will contribute up to $56 million over 12 years: the company will invest up to $300 million. Bouchard says the job incentives are the best Motorola was offered in Canada.

Landry defends the government’s largesse, saying costs of the Cité program

—$360 million over the next 10 years— will be recovered in tax revenue and other benefits. But critics argue the government is buying jobs and causing higher taxes for others. “Governments don’t have the specialized knowledge to know what is a profitable investment,” says Filip Palda, an economist at the Université du Québec à Montréal’s public administration school. “A lot of provinces feel the tug,” he adds. “There’s something romantic about high-tech—you know, ‘we want the biggest particle accelerator.’ ”

Quebec’s research and development tax incentives are clearly enticing. The refundable tax credit on eligible R and D labour costs ranges from up to 40 per cent for small and medium-sized companies to

20 per cent for companies with assets over $25 million. Among the big spenders is CAE Electronics Inc, the world's largest manufacturer of flight simulators. Last year, CAE poured $ 118 million into R and D, mosdy at its suburban Montreal plant, which employs 4,100 people. “There’s no question,” says Robert Waite, vice-president of corporate relations and marketing, “that Canada in general and Quebec in particular is a very attractive environment for companies engaged in R and D.” Tax credits convinced Montreal scientist John Hooper and his partners to open their contract research company here. When Hooper, chief executive officer of Phoenix International Life Sciences Inc., prepared a business plan a decade ago, the idea was to set up shop in New Jersey, where the company’s pharmaceutical and biotechnology clients were located. But “it became a no-brainer to stay here,” says Hooper. The company has grown from 20 employees to 2,400 and operates in 16 countries. “We would not have been so successful in any other environment,” Hooper says.

But there are other obstacles to hightech growth, including a limited pool of skilled workers. Lome Trottier knows the problem. In 1976, the soft-spoken engineer co-founded Matrox, a private company known for its circuit boards used by computers to display graphics. Aside from competition, says Trottier, the manpower shortage has probably been “our biggest problem.” As a result, Matrox opened Rand D facilities in Toronto and Boca Raton, Fla., in the past five years, despite higher operating costs. Rapid growth in the market required a sharp increase in R and D, and “we weren’t able to hire enough people locally,” says Trottier.

The promotion of Montreal as a technology hub was the reason for the creation of Montreal TechnoVision Inc. The group’s Bourgeois says the local industry is thriving. But far from sounding boastful, he talks about hurdles facing the sector, and acknowledges the competition for high-tech investment “is fierce right across North America.” No metropolis, even one that offers appealing tax incentives, a bustling environment and a fledgling multimedia park, can be complacent. CU