From fledgling startup to foreign-owned subsidiary, Robert Tong has spent 30 years navigating the waters of Waterloo Region’s tech sector.
Starting with Cambridge-based satellite company COM DEV in 1981, Tong joined Dspfactory, a spinoff of hearing-aid leader Unitron in Kitchener, in 1999. He grew the company from $250,000 to $15 million in annual sales by 2004, when it was acquired by U.S.-based AMI Semiconductor. AMI was then purchased by ON Semiconductor, a multinational based in Phoenix, in 2008.
As vice-president of ON’s medical division, with operations employing about 50 in Waterloo and 140 in Burlington, Tong has come to know the unique aspects of heading up Canadian operations for a parent company based abroad.
On the upside, he can tap into international talent and capital pools within ON, an American-based company with worldwide operations. On the downside, there can be a sense of disconnect from other Waterloo Region companies, who assume they have nothing to gain from a relationship with a foreign-owned local outpost.
In a recent chat with Communitech, Tong shared his insights and expressed a desire to bridge the gulf that sometimes opens between Canadian and foreign-owned businesses.
Q – You’ve worked with a number of companies of different sizes and ownership structures. What’s the biggest revelation you can share from those 30 years?
A – One of the things I would say is most important for us is, in Canada, we win because we are innovative with our products and our technical ideas.
Canada does not win on manufacturing prowess or low cost or efficiency; we’re not as hard-working as our U.S. counterparts; we don’t put in as many hours and we are a little bit more laid back. But we really win on innovation.
A big part of why I believe we win on innovation is, Canada is much more diverse and there’s a high degree of acceptance of different types of people, whereas the U.S. and some of the European countries tend to be more homogeneous.
Having that open attitude of accepting many people from different cultures and backgrounds allows us to be more innovative than otherwise.
Q – You acknowledged what many thought leaders have been talking about recently, which is a productivity lag in Canada. Is this an urgent issue that Canada needs to address?
A – I think so. I think productivity is something that’s always going to be important.
I don’t think our people here are necessarily less capable of producing more. We tend to be a little bit more laid back than some of our competitors, like in Korea. You go see Korea and you really see how competitive these people are, or China or even the U.S.
Five years ago, the Canadian dollar exchange rate more than offset whatever productivity gap there was.
A friend of mine who was a VP of a semiconductor company in the U.S. often said Canada and the U.S. are at par in productivity when you take the exchange rate into consideration. If you eliminate the exchange rate, then we will be behind the U.S., and he’s right. We are struggling.
And I see that. Before, when I was Dspfactory only, it wasn’t easy for us to hire talent from outside of our own country, because you don’t have the legal entity and the infrastructure in place. So, inevitably, we’re stuck just hiring from within. But ever since we’ve become AMI and ON Semiconductor, hiring talent anywhere in the world becomes easy.
I can hire in Korea, in Taiwan, in China, in the U.S., in Europe, wherever I want, and under that scenario, obviously I’m always looking at where is the best place to put my R and D dollars. I have to say it’s a really hard choice to try and hire in Canada; to justify why I want to be in Canada as opposed to the rest of the world.
Q – So how do you do that? How do you maintain relevancy in Canada as part of this large multinational?
A – Well, we’re still relying on innovation. The sole justification for our existence here in Canada today is because we believe we out-innovate our counterparts in the U.S. or wherever.
If it wasn’t for that, there would be no reason for us to exist in Canada. I have no customers in Canada; I have no sales in Canada. If the productivity’s not better, why would I be in Canada?
So, we’re still really banking on the innovation piece, but I would like to be able to say there’s more than just innovation.
Cost of living is another problem for us. We could never attract people from the U.S. to come and work here because the cost of living here is significantly higher.
I didn’t believe that; I actually even argued with our corporate HR people who manage expats and the cost-of-living adjustment, and they’d always come back with this basket of goods that says we are 15 to 20 per cent higher in cost of living compared to the U.S., and I’d say “No, no, no, no.”
Then I started spending more time in Phoenix and said ‘Oh my God, everything here is cheaper, significantly cheaper.’ And I am now convinced that the U.S. has a significantly lower cost of living, taxes aside. Once you throw in the tax equation, it makes it impossible to attract people from the U.S. to come and work in Canada.
Q – So in your view, what can Canada and Waterloo Region do to make life easier for you; to make things better for you in running this operation?
A – That’s a tough one. I don’t want to try and convince the government to change the tax laws, because that’s not going to happen. With the standard of living, that’s not going to happen.
But I think there are a lot of things that appeal to us who live in Canada. I think the quality of life is different. We do have a better quality of life here.
The fact that we’re a little bit more laid back means that the competition is not as intense, the personal competition, so again, that adds to the better quality of life.
We have a bit more of a social conscience in Canada than our counterparts in the U.S., and I think that appeals to a certain type of people.
So, in some way, I think it’s important for us to be able to accentuate our strengths and our attractiveness for being in Canada.
Q – So the trick is not to try to be more like the Americans, but to capitalize on the strengths that we have, and the upside of these things that others may view as a downside?
A – Yes.
You know, we do have a first-class health care system, despite how we complain about it ourselves, which the U.S. doesn’t have.
So I think there will be people who will be attracted to these things who would be willing to come, but if we always focus on the fact that we have a higher cost of living and more taxes and all that, then people will say, why do I want to come?
Q – So do you think we could be doing a better job of marketing Canada based on quality of life?
A – Not just quality of life, but a whole bunch of things; you know, our whole philosophy to life, our social view of the world.
Q – We often hear that tech workers will leave Canada for Silicon Valley, where the weather is great but the cost of living is high, but then return to raise their families due to that quality-of-life advantage. Has that been your experience?
A – I think younger people will always be more adventurous to go and try things, but we have a team in Santa Clara, Calif. and you try to get those guys to move up here? No chance. It doesn’t matter what you tell them about the disadvantages of being in California.
They do have a culture there that attracts people who like to work hard, play hard and really embrace the entrepreneurial culture there. One advantage is that if you don’t like one company, 15 minutes away you’ve got another one. Here, often you have to relocate, so it’s tough to try and attract people from California.
And they also all feel that if they work hard, they will get somewhere, and I think they have a stronger feeling of that, whereas people here either don’t care as much about that, or they don’t feel that that possibility is as abundant for them.
Q – We hear that in Canada there’s a fair bit of money to help start a company, but not much follow-up investment to help that company grow into a medium-sized or large company. That’s not an issue for your company as a multinational, perhaps, but do you see other companies of your size struggling with this?
A – I think part of the reason is because, really, for any company in Canada to grow to any significant size, you have to do most of your business outside of the country. And the companies that succeed, like RIM etc., eventually become a headquarters here and have other operations outside of Canada, or they become a subsidiary of a multinational, like we became, because the Canadian market is so small.
Now, I have no sales in Canada, virtually zero.
Q – Is there a sense of isolation that comes with an operation like yours?
A – Definitely. We were just talking about that this morning. When we were Dspfactory, we were much more plugged in, and much more welcome as part of the community.
It seems that as soon as we were sold to AMI, that changed. We were no longer in the community, almost.
Q – Was it other people who changed their perspective of you, feeling you were now just a branch plant of no value to them?
A – I think it’s both. I would say that partly because of ourselves, we have kind of consciously faded into the background, focusing more on building our business, our relationship with our parent company, etc. So we haven’t spent as much time outside.
And of course, because we no longer need outside funding, we don’t do much of the publicity work that we used to do.
So part of it is us, and the other part is that the community lost interest in us, because they don’t see us as people who would now require their services, like the lawyers and the banks.
The banks don’t care about us anymore because they know our headquarters wouldn’t want us to choose a bank here. Our headquarters picks our own lawyers, so the law firms don’t talk to us anymore, because they know we cannot be a client. The accounting firms know we don’t need audits anymore, so they don’t talk to us. We’re not going to go public in the stock market, so why would newspapers follow us?
So, effectively, the interest in us dries up, because they don’t see us fitting into their business scheme anymore.
Q – Would you like to change that? Would you like to be more of a place that other tech companies in this community would reach out to you for whatever reason, even just a peer-to-peer discussion?
A – Yes, I would think so.
There are foreign subsidiaries that have done a better job of that, and I would attribute it mostly to the leaders of those other organizations, like Unitron. A lot of people wouldn’t even think of it as a foreign subsidiary, and yet it is every bit as much of a foreign subsidiary as we are.
Christie Digital, same thing.
In both cases, you know, Cameron Hay, who was the president of Unitron, and Gerry Remers today at Christie Digital, very much run their business as if it was the only company in Canada. So I think that definitely contributed to their success in being that way.
And yeah, I think I am motivated to give that a try.
Q – What do you make here?
A – They are basically just microchips that go into medical devices, and in some cases, consumer devices like laptops and cellphones.
We have a design team in Switzerland, a design team in Santa Clara, a design team in Burlington and a design team here in Waterloo. The Waterloo and Burlington design team is really just one team in different locations.
Q – What do you think is the biggest misconception about foreign subsidiaries? Do people assume things about your operations that are not true, or are misguided?
A – I do know that as soon as you become a foreign subsidiary you have employees who don’t want to work for you anymore, and will quit on that basis.
But I would say I’ve heard enough negative comments about wanting to work for a foreign owned subsidiary. A lot of it has to do with lack of autonomy, being able to do things you want to do, and having a culture imposed on you etc.
Q – What are some of the benefits of being a foreign-owned subsidiary?
A – One good thing is access to capital; we don’t have to worry about going to VCs and banks who typically won’t lend you anything.
This year we invested $8 million in capacity expansion at our Burlington site, we brought in $22 million to buy Sound Design (in Burlington) last year. To try and have that kind of access to capital is a huge challenge if you are a Canadian company; I would say it’s virtually impossible to do.
And the fact that we are a global company with offices everywhere, now I can tap into any market and hire talent in any location I choose that makes sense to me. If I need to some sales people on the ground or application engineers in China, no problem, whereas to try and do it as a Canadian company, the obstacles are pretty large.
It definitely makes doing business a lot easier, which means that we are more able to grow our business quicker than if we were on our own as a Canadian company.
Q – Do you think the broader tech ecosystem in Waterloo Region benefits from having foreign subsidiaries here?
A – Absolutely. First of all, we’re able to bring talent, people we would otherwise not be able to hire. One of our senior directors here was from Belgium; people like him wouldn’t come here if we weren’t part of a global organization.
We’re able to bring in capital. I’m sure you know about the YMCA that just got built on Fischer-Hallman; the Stork family (which spun off Dspfactory from Unitron) donated $3 million to that, and I’d like to think Dspfactory had something to do with it.
We contribute in ways that may not be obvious, but I think the fact that we brought in so much direct foreign capital from the time Dspfactory was sold until now, we’re probably at $80 million US in Canada in direct investment.
And that money flowed into companies that Mike Stork invested in, startups and others.
I think the governments also ignore us, too. There are very little programs made available for foreign-owned subsidiaries; we can’t get much as much SR&ED; we can’t benefit from it as much; we don’t have the same access to most of the funding programs.
What they fail to recognize is that we probably are more capable of generating growth and investment into Canada than a startup by themselves in Canada.
Q – Anything else you’d like to say?
A – I think, actually, people have a perception that being a foreign-owned subsidiary, we don’t have a lot of autonomy, and that’s probably not a very accurate observation.
Obviously there are things we have to do to be consistent with the corporate culture and to be fair so that we don’t get treated differently than other subsidiaries. But, we have quite a fair degree of autonomy in the operation of our business.
We basically establish a business model with our corporate headquarters about what we can do, and beyond that, how we pursue products and market, we’ve got a pretty free hand and a fair degree of autonomy.
We have the benefit of the funding and resources of a large corporation, but we still have the atmosphere and climate of a small company here, so personally I think it’s not a bad place to work, if people can see through the surface.
I think we can be of benefit to the startup companies here, too, the pure Canadian companies, because we’re global and we have access to a lot of resources they might not have.
So, by tying us in with the other companies here, hopefully we can give back some of what we know, if people are interested in tapping into it.
I’ve made offers to a number of local tech companies here, saying if they’re buying semiconductor components, there’s a good chance they buy from ON Semiconductor.
In fact, Christie Digital’s buyer met with one of our guys and said “Yeah, we buy from you guys; maybe not directly, but we use ON Semiconductor components.”
Another local tech company here, during the 2009 supply crunch, found that they were going without parts. The CEO knew they were buying from ON, so he gave me a call and we were able to help expedite some products to him.
So in reality, we are doing business indirectly with quite a lot of the companies here. They buy very little from us, which usually means that it’s under the radar, but if there were a better relationship, if they were ever in a crunch, we could be of help.