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Trump’s Huawei threat a risk to Canadian and global tech in 2019: Don Pittis

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Reports that U.S. President Donald Trump is threatening to up the stakes in his battle with Chinese tech giant Huawei in 2019 seem at first glance the kind of Trumpian sniping the world has grown to expect.

But if it is true, as Reuters reported this past week, that Trump may sign an executive order prohibiting U.S. firms from buying Huawei technology, the issue goes far beyond Huawei and 5G wireless networks to one that could transform the global tech industry. And not for the better.

The reason is that Huawei — and Chinese chip maker ZTE, which the U.S. president also threatened to ban — are not unique. Instead, they are merely a couple of examples of Chinese technology that is not just catching up to the best in the world, but beginning to exceed it.

China, tech superstar

For Canadian technology businesses trying to see their way forward, facing a global tech leader that is in conflict with the U.S. is an unfamiliar experience.

Despite the Soviet Union’s space race victory with its 1957 launch of Sputnik 1, humanity’s first artificial satellite, the collapse of the Soviet communist empire nearly 30 years ago revealed a creaking technological relic.

Canadian technology experts say China is something entirely different and people who try to make the comparison with Eastern Europe, where the Trabant was the communist answer to the BMW, have it all wrong.

Some analysts say the poor quality of the Trabant and the time it took to order one were significant factors in the collapse of communism in Eastern Europe. But China’s rise as a tech industry powerhouse is a different story. (Arnd Wiegmann/Reuters)

Pretty well everyone now knows that China is a developing technological competitor. But there are growing indications that, barring some political or economic cataclysm in China, or a sudden technological golden age here in North America, China is on its way to becoming not just a technological powerhouse, but the technological powerhouse. It is becoming the global tech superstar.

And at some point Canada is going to have to make some crucial decisions on how it will cope with that change. And it may find its interests do not coincide with those of the United States.

“On Chinese technological prowess, they are now graduating twice as many graduates as the United States from university, but they’re graduating five times as many STEM graduates,” says Gordon Houlden, director of the University of Alberta’s China Institute. STEM stands for science, technology, engineering and math, the kind of graduates who make a real difference in the race for world-beating know-how.

Leapfrogging the world

In many ways, the explosive developments in Chinese science and technology have no equivalent since pre-war Germany leapfrogged the world in many areas of science and industrial production.

Over the past month, the arrest in Canada of Huawei executive Meng Wanzhou, at the request of U.S. prosecutors, has helped focus attention on that company.

An exhibition marking the 40th anniversary of China’s reform and opening up at the National Museum of China in Beijing shows off the country’s space technology. (Thomas Peter/Reuters)

While the charges against Meng have nothing to do with 5G — she’s accused of misleading financial institutions about her, and Huawei’s, relationship with a company that did business with Iran — the case has spotlighted Huawei’s state-of-the-art contributions to communications technology.

There has been much debate over whether Huawei’s involvement in 5G, or even the sale of its phones in the world market, represent a Trojan horse for the Chinese government, giving the country’s security forces backdoor access to our deepest secrets.

Not just telecom 

But that focus on 5G may be misleading. For one thing, 5G is not a single gizmo. It is more accurately a kind of marketing title for the fifth generation of mobile phone technology. As such, it represents a host of technological subsets, mostly software, some of which are being developed in Canada, says R&D specialist Rick Clayton, a partner with the Ottawa-based consultancy Doyletech.

Clayton says Huawei is just one company operating in an industrial cluster in the Ottawa suburb of Kanata North, where Canadian engineers, some of whom used to be at Nortel Networks before its collapse, work on new software components.

“There’s a fair bit of implicit and explicit sharing between the companies,” he says, which is part of what makes an industrial cluster strong.

And this by no means applies just to the smartphone sector.

One way of sharing is to license intellectual property that someone else has already invented, says Mark Henderson, former owner and editor of the specialist newsletter Research Money.

“They can get it immediately as opposed to working it out of their lab over a period of months or years,” he says.

That international sharing of technology between companies saves money and speeds up progress. The financial damage of cutting off access to intellectual property invented in China, especially as its technology pulls ahead, is hard to calculate.

Chinese open source

Another common way of sharing is called open source software, something that’s been around for years and famously includes the operating system Linux, where employees from many different companies work to build and improve chunks of programming components that are widely used in the systems of those and other companies.

An increasing number of those open source projects are being invented and co-ordinated by Chinese software developers, and that trend is only likely to grow as China increases its number of STEM graduates.

Another potential mistake compounded by the focus on Huawei is thinking that China’s growing technological skills are isolated in just a few areas, such as telecom.

While the experts interviewed for this piece say the U.S. still has an overall technological lead in many sectors, China is not just catching up, it is pulling ahead.

According to the MIT Technology Review, China has become the one to beat in space technology, while its southern city of Shenzhen is racing to outdo California’s Silicon Valley as “a global hub of innovation, entrepreneurship and manufacturing.”

Currently, most global products include the best innovations from around the world. U.S. firms use Chinese-invented technology and vice versa. 

A Huawei executive has said the company will do absolutely anything, including opening its code to detailed inspection, to prove that it is not a threat. Whether a ban is worthwhile can only be determined by the best and most independent security experts. And banning Huawei to eliminate a purported backdoor does not guarantee U.S. systems will be secure from international hackers who have used other methods of entry.

If instead the security concerns are actually part of a political attempt by Trump to weaken China’s technological advantages, the world may be on the verge of a watershed that could hurt everyone. The risk is there could be a new technological cold war that divides the world, forcing countries to choose between two increasingly incompatible technical — and political — systems.

As Gordon ​Houlden of the China Institute says, besides the business cost and difficulty of untangling two sets of competing technology, economic interdependence helps prevent wars. He says as an outward-looking trading nation, Canada should do everything it can to try to prevent such a technological fissure and the resulting political divide that will inevitably hurt both the U.S. and China.

Ultimately, says Houlden, if push comes to shove, Canada must stand shoulder to shoulder with the U.S., its longtime ally and security guarantor. 

But avoiding a technological split into “we” and “they” is not just in the interests of Canada, but those of the global technology industry both inside and outside the American sphere. 

And if that doesn’t matter to you, consider this. If we gang up with the U.S. against China’s increasingly sophisticated knowledge industry, maybe sometime soon we will no longer be able to get our hands on the coolest tech.

Follow Don on Twitter @don_pittis

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A big test of reusable packaging for groceries comes to Canada

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An online store has launched in Ontario selling groceries and household items from Loblaws in containers it will take back and refill — a test of whether Canadian consumers are ready to change their habits. Industry-watchers say it is breaking ground for reusable packaging.

The store, called Loop, launched in Canada on Feb. 1, in partnership with supermarket giant Loblaws, and offers items like milk, oats, ice cream and toothpaste for delivery in most of Ontario. Loop is already operating in the continental U.S., the U.K and France. 

Included so far are some products from well-known brands such as PC sauces and oils, Häagen-Dazs ice cream, Heinz ketchup, Chipits chocolate chips and Ocean Spray cranberries. 

“The goal is really validating that this is something the Canadian public is interested in,” said Tom Szaky, founder and CEO of Loop and its parent company TerraCycle.

Unlike existing small no-waste retailers, they want to offer “your favourite product at your favourite retailer in a reusable and convenient manner.”

The involvement of a huge retailer makes the launch notable in terms of scale and who it will reach, said Tima Bansal, Canada Research Chair in business sustainability at Western University in London, Ont. 

“I think it’s at the scale that’s needed to create the change in the community in Canada more generally,” she said.

How it works for customers

Szaky likens Loop to the reusable bottle system for beer in Canada “but expanding it to any product that wants to play in the [North American] ecosystem.”

The ultimate goal, he said, is to give people a greener way to consume that limits the amount of mining and farming needed to produce packaging.

“This allows us to greatly reduce the need to extract new materials, which is the biggest drain on our environment.

Loopstore.ca currently lists just 98 products, although many are sold out or “coming soon.” 

As with other online grocery stores, customers fill their virtual shopping cart, but in addition to the cost of the item itself, they pay a deposit for its container. That can range from 50 cents for glass President’s Choice salsa jars like the ones that are normally at the supermarket to $5 for a stainless steel Häagen-Dazs ice cream tub. 

The items are delivered to a customer’s home by courier FedEx for a $25 fee, although the fee is waived for orders over $50.

Once you’ve spooned out all the salsa or ice cream or squeezed out all the toothpaste, the container doesn’t go in the recycling bin. Instead, you toss them into the tote bag they came in — even if they’re dented or damaged — and they get picked up.

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This wearable device beeps when workers get too close to each other

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It’s a device that emits a high-pitched beep, buzzes and lights up if your coworker steps too close.

While some introverts would have bought this device before the pandemic to stave off chatty colleagues near the coffee machine, ZeroKey designed the product with a more important purpose — helping employees physically distance to reduce the risk of spreading coronavirus. 

The Calgary tech company’s “Safe Space” device looks like a small plastic badge that can be worn on a wrist or clipped to a shirt pocket or belt. 

“Our products, in a nutshell, localize or figure out where things are in 3D space and our big claim to fame is we do it very precisely, more precisely than anyone else in the world,” said Matt Lowe, co-founder and CEO of ZeroKey.

The company says its location-tracking technology passively monitors the distance between each device and is accurate down to 1.5 millimetres. The distance on devices can be set — so if, say, science determines three metres apart is actually safer that two, that can be tweaked. 

Lowe says the company came from humble beginnings — he and a co-founder, working out of a room in his house. The company has grown from two to 30 employees and has more openings it’s looking to fill.

Inspired by sci-fi

Their inspiration comes, as so many technological innovations have, from sci-fi. 

Lowe recalls watching Minority Report, and being transfixed with the gesture-based user interface Tom Cruise’s character operates. 

“Wouldn’t it be awesome if we had an interface that was more in tune with how humans operate naturally with their hands. So if you could just walk up to a new piece of technology … and just immediately be proficient,” he said. 

But applying that tech to the COVID-19 era wasn’t something the company had anticipated.

Lowe said some of the company’s clients in the manufacturing industry approached ZeroKey with a request.

“They came to us and said, ‘hey … we have the data where people are, can you build some sort of system so that we can do contact tracing and we can let people know if they’re closer than two metres?’ And we said, ‘absolutely … that’s easier than what we normally do,'” he said.

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Blistering rallies spur Canadian tech world to repeat equity sales

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Canadian technology companies have been making multiple trips to the equity market over the past year, capitalizing on a rally in tech shares that’s helping them raise cash at ever higher valuations.

Dye & Durham Ltd., which makes software used by law firms, took advantage of a more than sixfold rally in its shares since its July IPO to raise $500 million (US$394 million) in a bought deal of stock and convertible debentures, the company said Tuesday. Dye & Durham, which went public at $7.50 a share, received $50.50 per share in the private placement. Peers including Lightspeed POS Inc. and Docebo Inc. have made similar moves.

Shares of technology companies have gained since the onset of the pandemic as their corporate customers increasingly turned to cloud-based applications to support their remote workforces, said Anurag Rana, an analyst at Bloomberg Intelligence. The technology sector was one of the few places investors could look for growth during the crisis, with huge swaths of the economy including retailers, restaurants, airlines, hotels and casinos hammered by lockdowns, he said.

“Issuers and private-equity investors are not stupid, and they know somewhere down the road that valuations may come back,” Rana said. “So this is the time when they sell.”

Canada’s S&P/TSX Information Technology Index has risen 82 per cent in the past year, fuelled by rallies in Lightspeed and Shopify Inc. That compares with a 36 per cent advance for the U.S. S&P 500 Information Technology Index.

Those gains are giving early investors in tech companies an opportunity to take some profits. In conjunction with Dye & Durham’s private deal announced Tuesday, some investors agreed with the underwriters to sell 1.98 million shares at the $50.50 price as well.

Lightspeed, which provides cloud-based point-of-sale systems for retailers and restaurants, has also seized the moment. The company went public in Canada in February 2019 and last year followed that up with a U.S. IPO, selling shares for US$30.50 apiece. The deal raised US$332.3 million for the company and US$65.4 million for some shareholders.

After Lightspeed’s share price more than doubled, it went back to the market again last week with a public offering of shares for US$70 each, raising US$620.2 million for the company and US$56 million for other shareholders.

Docebo, which sells cloud-based learning software, has tapped the market multiple times over the past year. The firm, which went public in Canada in October 2019, completed a bought deal of shares atC$50 apiece in August. The move raised $25 million for the company and $50 million for investors including founder and Chief Executive Officer Claudio Erba, Chief Revenue Officer Alessio Artuffo and top outside investor Intercap Equity Inc.

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