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There's a question nagging Xerox Corp. chief technology officer Sophie Vandebroek – or more specifically, a question mark.

The company's research complex in Mississauga, Ont. – home of Canada's leading materials science lab – was designed in the shape of a giant question mark. Yet 35 years after its doors opened, the upper arch of the campus remains a patch of grass where more lab space was envisioned.

The expansion that never happened is a powerful reminder of lost opportunity for Canada in a vital area of innovation.

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Over the years, Xerox's R&D centre has churned out more than 1,500 U.S. patents and 1,000 pieces of published research, and trained a generation of chemists and engineers. The lab has developed inks, toners, photo receptors and other materials for products sold worldwide.

But Dr. Vandebroek, a Belgian-born scientist who runs the company's global network of research labs, readily admits Xerox's expertise is an underused asset. Xerox is spending roughly the same as it did a decade ago on R&D in Canada, where it has 120 researchers.

"We need to get some good collaboration with the government and get some small and medium-sized businesses in here to get it finished," she explained.

Canada is missing out on a vast area of basic research that is thriving in the United States and Europe, according to Dr. Vandebroek. In those countries, labs such as this one are often tapped to do government-financed research, as well as by universities and tech startups, spawning thriving R&D ecosystems.

"The U.S. and Europe do it well," she said in an interview. "We can apply and compete for government-funded research in various fundamental areas [in those countries]"

Those governments define what they want, such as research into "green" technology, and then invite universities and private labs to bid on the work.

The money comes from government, which has the option to keep the intellectual property and set the terms for commercializing it, she said. The government also gets access to Xerox's cutting-edge labs and researchers.

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"Canada does not do any of that. Zero for industry. None for multinationals," Dr. Vandebroek said.

Beyond the National Research Council's Industrial Research Assistance Program, or IRAP, which is targeted at small and medium-sized Canadian companies, there's almost no money available for private-sector research, and none for large, multinationals, she pointed out.

Canada's main innovation incentive is tax credits through the Scientific Research and Experimental Development (SR&ED) program, through which Ottawa and the provinces disperse roughly $5-billion a year to tens of thousands of companies.

But Dr. Vandebroek said R&D tax credits are almost ubiquitous in developed countries. "There is a credit for R&D in Canada, but that's basically everywhere."

And there you have it: The chief technology officer of one of the largest companies in the world considers Canada's signature R&D incentive essentially a non-issue. It isn't the key factor that determines where Xerox allocates the $1.5-billion (U.S.) a year its spends globally on R&D.

Canada's tax breaks are among the most generous in the world. But numerous studies have shown that in spite of the rich tax breaks, business spending on R&D is stagnant and Canada is falling behind rival countries.

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A recent federal task force, headed by Open Text Corp. chairman Tom Jenkins, concluded that Ottawa is spending too much of its limited resources on tax credits and not enough on direct grants. The panel's report urged Ottawa to curtail the SR&ED program and pump the savings into other programs, including direct grants to businesses and "late-stage" venture capital funding. The report also urged Ottawa to make much better use of government purchases to spur innovation in Canada – a model widely used by other countries.

More important than tax credits to Xerox is the labour pool. Paul Smith, a Xerox vice-president who runs the company's Canadian research centre, said Canada has depth of talent in materials sciences, including chemical engineers.

"Canada is strong in materials generally," Mr. Smith said. "It's almost a perfect place for a research centre focused in that."

What's missing is the thriving ecosystem that would tap Xerox's strengths for the benefit of the broader Canadian economy. And that requires strategic direction on R&D from government.

That doesn't mean picking corporate winners and losers. It does mean identifying sectors where Canada has natural advantages, and then steering more resources that way.

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More

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