Sunday, January 24, 2016

Did the government let COM DEV go because they have bigger fish to fry?

The Canadian government is being criticized for not reviewing the sale of COM DEV International, one of Canada’s biggest space companies, to American giant Honeywell International.

A blog post at Canadian Space, Trudeau government fails first big space test, says the government failed taxpayers who have invested tax dollars in COM DEV, and workers in the aerospace industry who might lose jobs.

A Toronto Star article, The troubling shrinking of Canada’s space industry, says the sale could affect the economy, as well as being a national security issue.

Although the sale didn’t trigger an automatic review under the Investment Canada Act because it fell below the $600-million cutoff point, the government could have launched a review within a 45-day period, but didn’t.

You’ll hear plenty of theories about why the feds did nothing. Here’s one more: the government is fine with the COM DEV sale because the company isn’t critical to Canada’s long-term economic development.

COM DEV generates significant money and jobs in Canada. But they’re a first generation space company.

First-gen companies make hardware. COM DEV is a leader in making hardware for satellites. It’s a good market and will continue to be so. The 2015 state of the satellite industry report, a 32-page PDF document produced by the Satellite Industry Association (SIA), showed 4% revenue growth for the satellite business between 2013-2014. The report also notes that the satellite services category—TV, broadband, mobile, Earth-observation—is growing faster than satellite manufacturing.

On top of that, satellite services has a wild card: the Internet of Things. As noted in the Commercial Space Blog post, exactEarth’s big bet on the Internet of Things,

...by 2020 approximately 250,000 vehicles will be on our roads and also connected to the internet; by 2020 the food and beverage industry could annually save up to 15% of their current costs through the adaption of IoT methodologies and the IoT will add between $15 - 20 trillion USD's to global GDP over the next twenty years.

If the predictions come true, the need for satellite data and connectivity will be huge. It’s the second generation space companies like exactEarth and UrtheCast that will benefit the most from that demand.

The government’s economic strategy has been clear from the start. Navdeep Bains, Minister of Innovation, Science and Economic Development (ISED), outlined that strategy in a Globe and Mail article, Trudeau cabinet’s voice of business aims to bridge needs of old and new economies.

Minister Bains said that as part of his “Innovation Agenda,” his goals included encouraging research and development, and helping businesses scale up and go global. He stressed that manufacturing was still important, but innovation was key even to old-economy industries.

Innovation is front and centre globally. The theme of the 2016 World Economic Forum (WEF), which ran from January 20-23 in Davos, Switzerland, is the Fourth Industrial Revolution. As a WEF blog post, The Fourth Industrial Revolution: what it means, how to respond, explains,

The First Industrial Revolution used water and steam power to mechanize production. The Second used electric power to create mass production. The Third used electronics and information technology to automate production. Now a Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.

Canadian futurist Don Tapscott, a WEF attendee, drove home this outlook in an article at the Toronto Star, Canada must focus on innovation economy to thrive in digital age. Tapscott was at a lunch for about 60 people in Davos discussing Canada’s future. The talk among business and government leaders was all about innovation, stimulating entrepreneurship, research and development, and job creation in the digital age.

The government’s economic plans will be driven by emerging technologies powering companies that are built for the digital revolution.

COM DEV isn’t one of those new economy companies. UrtheCast and exactEarth are.

The question remains, how much might the COM DEV sale hurt Canada’s economy?

Michael Pley, CEO of COM DEV, said in an article at TheRecord.com, Com Dev shareholders approve sale to Honeywell, that Honeywell will invest in its space business in Canada. Time will tell if they do.

Maybe, just maybe, the government is fine with letting go of COM DEV because their interest has gone from nuts and bolts space companies to those dealing with big data—the new big fish to fry.