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The Innovative Power of Foreign Direct Investment

Foreign Direct Investment (FDI) has been a pivotal element in boosting the Canadian innovative economy over the past year. From the COVID-19 pandemic, to drastic shifts in international job and talent markets, FDI can turn the tide of domestic and global economies. The economic value of FDI lies in the number of new jobs generated, either directly or indirectly, by a foreign corporation when they decide to expand to a new market. Although this is a primary benefit of FDI, the acquisition of foreign multinational enterprises (MNEs) also plays a significant role in strengthening a market’s ability to innovate. Foreign MNEs are a key component of regional innovation ecosystems, bringing knowledge, expertise, and technologies unfamiliar to domestic corporations.

The current state of Canada’s innovation economy

Innovation, put simply, is about making things better in ways that benefit everyone (Source). How do we extract economic value from knowledge? Or leverage the ingenuity and ideas of a multitude of actors, to develop new products, services, and processes? How do we make sure this will benefit everyone? Effectively, innovation creates new markets, increases productivity in existing industries, and employment opportunities through spin-off corporations – all of which positively contribute to economic well-being and growth.

Earlier this year, the Conference Board of Canada released a report on Canada’s innovation performance. The report concluded that Canada performs satisfactorily in innovation aptitude based on key indicators such as public R&D, business R&D, venture capital, patents, and more. However, Canada’s consistent underperformance is a result of “Canadian businesses historically having little competition and benefiting from high resource prices and generally good trade with the United States” (Source). This means that we’ve failed to aggressively invest in innovation. Echoing this sentiment, the latest Bloomberg Innovation Index in February 2021 ranked Canada’s innovation economy at #21, behind nations like the United States, China, and the United Kingdom (Source).

How FDI contributes to innovation

There is much debate on how best to enhance Canada’s innovative performance and develop a sustainable innovation economy, particularly at the regional level. In 2017, the federal government introduced its Innovation Superclusters Initiative, which aims to support ecosystems in five particular industries, as well as Innovative Solutions Canada (Source). While both initiatives are promising, a key piece missing from the puzzle is how FDI impacts and contributes to innovation.

In 2019, foreign MNEs represented 1 per cent of the total number of companies in Canada, but accounted for 41 per cent of intramural R&D expenditures, employed over one-third of R&D personnel, and were responsible for the majority of exports and imports of technological services in Canada’s corporate sector (Source). Although these companies take up a smaller share of our country’s economic structure, they represent significant players in innovation. Foreign MNEs have a multinational network that enables them to shift their R&D and innovation activities based on changing demand and cost conditions (Source).

Furthermore, these companies provide jobs for the demographic of young grads and experienced workers that have been severely impacted by this pandemic. In turn, the rise in employment provides critical tax revenues for our cities and municipalities, while generating significant spin-off opportunities for our small businesses and local communities.

Considerations to stimulate innovation

The pursuit of innovating is a complex process in a dynamic, multifaceted ecosystem, requiring access to information and technologies, adequate funding, supportive policies, and more. The big question remains: how do we stimulate innovation in Canada? The conversation needs to include the support of FDI and business R&D, as foreign MNEs have historically and consistently shown their dedicated interest in innovation.

International investment is a significant component of Canada’s economic growth that creates higher-paying jobs, expands trade, boosts productivity, provides access to new technologies, encourages innovation, and links Canadian firms to global supply chains. The Investment Attraction team at Toronto Global works with an expansive network with reach across all tiers of government entities, various business sectors, postsecondary institutions, industry associations, and partner organizations from around the world. Backed by the governments of Ontario and Canada and our municipal partners, Toronto Global has helped key companies enter the Toronto Regional market, including Twitter, Reddit, Netflix, DoorDash, Pinterest, Stripe, Infosys, HCL, and Wayfair.

A recent report by Youthful Cities and RBC ranked Toronto the number one spot for young people to live and work. The Urban Work Index looks at a number of characteristics from 30 Canadian cities, including affordability, education and training, good youth jobs, entrepreneurial spirit, economy, equity and diversity, health, transportation and digital access.

The report outlines why Toronto is so attractive to young people to move to, but questions why they choose to stay. Well, we have the answers. Here are five reasons why young people flock to the Toronto Region for good.

Education

There is no shortage of top-notch education in a wide variety of fields with 18 colleges and universities in and around the Toronto Region. Whether it’s a Bachelor of Commerce at University of Toronto’s renowned Rotman School of Management or a Bachelor of Animation at Sheridan College – also known as the “Harvard of Animation” – there is something for everyone at postsecondary institutions in our region.

More than 370,000 international students choose to learn their desired skill in the Toronto Region, and Canada’s favourable student immigration policies make it easy to stay. In 2022, over 46,000 international students in the Toronto Region held a Post-Graduate Work Permit, allowing them to work in Canada for any employer for up to three years. After the three years is up, many choose to apply for permanent residency to continue their career that was built here.

Diversity

The Urban Work Index marks that diversity is the fourth most important trait that young people value in their place of residence, even more than education. If young people are looking for diversity, there is nowhere in the world more diverse than the Toronto Region. The cities of Brampton, Mississauga and Toronto all ranked in the top three spots for equity diversity and inclusion.

Roughly half of the Toronto Region is foreign born, with over 250 ethnicities and 190 languages represented. Residents of the Toronto Region feel at home here because they can find a small piece of their home wherever they go.

Mississauga has the largest number of Japanese companies in Canada, Brampton’s population is 38 percent of South-Asian descent, the most common language in Markham is Cantonese. All these communities are the reason why young people from all over the world feel comfortable staying in the Toronto Region.

Transportation

The formerly stated cities and more make up the Toronto Region, which means that they are all accessible by GO Transit, our regional transit system comprised of over 1,200 kilometres of transit routes and over 6,000 services per week. GO trains and buses allow young people to live anywhere in the Toronto Region while working elsewhere with ease, as GO trains travel beyond the region into the cities of Hamilton and Waterloo.

Climate action was noted as an important factor for young people, which goes hand in hand with public transportation. GO Transit’s operator, Metrolinx, announced in 2017 a target of having electric trains running every 15 minutes in both directions within the most heavily travelled sections of the GO train network.

With GO Transit across the region and TTC in Toronto, young people may never have to drive again – and if they do, they will be living in the region that produced Canada’s first zero-emission vehicle. It’s safe to say the options are endless when it comes to transportation in the Toronto Region.

Economy

The Toronto Region is the second-largest financial centre in North America, and the largest in Canada. As Canada’s financial centre, the Toronto Region’s diverse industrial make-up contributes about 20 percent to the country’s total GDP.

In an age of economic uncertainty for young people, the Toronto Region’s economy is resilient. We surpassed pre-pandemic levels of employment by the end of 2021 and our job numbers continue to grow steadily.

With 38 percent of Canada’s multinational headquarters and nearly half of Fortune 500 companies located in the Toronto Region, there is ample opportunity for young people to enter the workforce and join an economy they can count on.

Entrepreneurial Spirit Young Innovative People

Young people want to be in the room where it happens, and at the risk of boasting, that room is most often in the Toronto Region.

For example, Sheridan Animation grad, Domee Shi, became the first woman to solely direct a Pixar film and went on to win an Academy Award for her 2018 short film Bao. Shi is just one of countless students from the Toronto Region who use their experience here to innovate, inspire and do something that has never been done before.

In the Toronto Region, we believe that quality of life plays a role in innovation and entrepreneurship. Home to five major professional sports teams, countless theatres and event venues – including the oldest operating theatre in North America, the Royal Alexandra Theatre – young people in the Toronto Region can enjoy their five to nine after their nine to five.

Learn more

It is no question as to why young people want to stay in the Toronto Region with its cities dominating the leader boards of the Urban Work Index. Want to learn more about quality of life across the Toronto Region? Click here.

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