executive summary | regional economic benefits study

Regional Economic Benefits Study

PricewaterhouseCoopers LLP

Executive Summary / September 2001

1.1 Highlights

PricewaterhouseCoopers LLP (PwC) was retained the summer of 2000 by the University of Waterloo, (UW) to document and quantify the economic impact of the University, together with its federated university, St. Jerome's, and affiliated colleges, Renison, St. Paul's United and Conrad Grebel, on Waterloo Region's economy, including:

University spending on capital projects, operations, maintenance and research;
Spin-off business spending on operations and capital projects; and
Student and visitor off campus spending.

It should be noted that the process of estimating the economic impact associated with knowledge and innovation emerging from universities (e.g., spin-off companies) is one of the most difficult aspects of trying to capture the real return on investing in higher education. The results of the work on behalf of the University suggest that further research into the linkages with the business community, such as technology receptors, would effectively establish the full nature and magnitude of the economic benefits attributable to UW regionally and nationally.

Since conventional methodologies would fail to capture the spectrum of knowledge transferred from the University to private enterprise, we also conducted a survey of "spin-off" companies to assess the broader impact of the University. The following summarizes some of our key findings as it relates to this study:

As the region's economy evolves from one based on traditional manufacturing to one focused on information/ communication technologies and advanced manufacturing, UW plays an increasingly important role. Business people and economic development representatives commonly credit UW as being the impetus for the development and growth of the region's technology cluster.
UW's impact extends well beyond that of Waterloo Region to other areas of Ontario (including Toronto and Ottawa), Canada (including Montreal and Vancouver), North America (including Silicon Valley) and world-wide.
In 1999, the University accounted for more than $1.1 billion of economic activity in the region, and $1.6 billion province-wide. As well, UW directly and indirectly was responsible for sustaining more than 23,000 full-time jobs.
An analysis of the 1999 operating and capital expenditures of 30 UW spin-off companies suggests that more than $910 million in economic activity was generated in the Province including more than $660 million for Waterloo Region.
There is a strong indication that UW's successful generation of spin-offs is attributable to UW's intellectual property ownership policy, which gives the researcher/ creator ownership of innovations or intellectual property thus stimulating commercialization opportunities.
Extrapolation of these results to PwC's broader database of spin-off companies, using an estimated impact per employee multiplier, suggests that provincial impacts could increase by as much as $630 million while regional impacts could increase by a further $460 million.
UW has forged significant linkages with industry and other constituencies in the region. These relationships have facilitated a number of partnerships, spin-off companies, technology transfers and co-op student and graduate placements that result in a substantial transfer of technological and intellectual resources and resulting economic benefit.
Based on the transfer of technological resources, over 100 spin-off companies, employing more than 2,100 people, were attributed to the University in 1994. By broadening the definition to include the transfer of intellectual resources, PricewaterhouseCoopers LLP has identified over 250 spin-off companies with some level of attribution to the University.
A 1999 Statistics Canada report on Intellectual Property Commercialization identified 454 spin-offs from 84 universities (292 from the 12 largest). With over 100 spin-offs, UW is the leader in Canada outperforming other universities by generating over 22% of all technology transfer based spin-offs.
Intellectual capital produced at UW has had a profound impact on development of the region's technology cluster and as such is an invaluable asset to Waterloo Region and a crucial component of Waterloo Region's continued prosperity.
Significant knowledge generation is occurring at UW through basic interdisciplinary research, technology transfers, spin-off company generation, conventional research funding, and partnership-funded research. UW research funds from grants, public and private contracts totaled over $75.9 million in 1999-2000.
A broader, more profound social impact attributed to this intellectual capital is also in evidence. For example, Waterloo Region has recently benefited from an unparalleled donation of $120 million from three executives from the UW spin-off Research in Motion (RIM) to establish the Perimeter Institute of Theoretical Physics in Waterloo.
UW's commitment to co-operative education has resulted in a widely renowned program that has a 2000 enrolment of nearly 10,000 students across all faculties, the largest of any university in the world.
Province-wide economic activity stimulated by UW operating expenditures generated a total of $188 million of Federal tax revenue, $108 million for the Province and $26 million for governments in Waterloo Region.
Expenditures by students from outside Waterloo Region results in an economic impact of nearly $89 million on the local economy. Province-wide value added economic impacts totaled almost $43 million.
For the academic year 1999/2000, the estimated total number of UW-related visitors from outside the region was approximately 358,681 persons. The economic impacts resulting from various events and visits to students, faculty and staff contribute over $35 million to the provincial economy including $21 million accruing to the regional economy.

1.2 Background

PricewaterhouseCoopers' assessment of the economic and social contribution to Waterloo Region of the University of Waterloo, with its federated university St. Jerome's and three affiliated colleges--Conrad Grebel, Renison and St. Paul's--was completed in two phases. Phase I involved a preliminary assessment of the University's strengths and weaknesses and interviews with local economic development staff. Phase II, the results of which are the focus of this report, represent a more fulsome evaluation of the benefits attributed to university linkages with the business community, and a detailed analysis of the economic impact on Waterloo Region.

1.2.1 The University as an Operating Organization

A comprehensive profile of UW's operations including functions such as finance, purchasing, human resources, operation and teaching was developed using Council of Ontario Universities' financial reports as the basis for calculating economic impacts from operating expenditures. Expenditures, including spending under General Funds, Restricted Funds and Capital categories, totaled over $314 million for the 1998-1999 fiscal year. Total direct spending by, or on behalf of, the university would of course be still larger in a year when major construction projects were taking place on the campus, as they are in 2001-02.

1.2.2 The University as a Knowledge Generator

Evidence of UW transferring knowledge beyond the borders of its campus has also been incorporated. For discussion and analysis, these 'transfers' have been categorized as:

1. Technology Transfer Based Spin-offs --

These include knowledge transfers documented through intellectual property protection processes and contractual transfers of rights. UW has a legacy of spin-off companies that dates from the early 1980s to present day. These include Waterloo Maple, Open Text Corp. and Dalsa Inc. to name a few.

2. Partnerships and Funded Research --

These knowledge transfers occur through a range of contractual to less formal partnerships and research programs.

It is widely recognized that 'basic' as opposed to 'applied' research is the wellspring for innovation. Many recent advancements in information and biological technologies can be attributed to research conducted at universities.

Funding for research at UW originates from a number of private, philanthropic and public organizations. Spin-offs attributed to this form of relationship include Virtek Vision and Certicom Corp. The extent and attribution of benefits from these relationships is difficult to track due to the "collective attainment of knowledge" nature of interactions.

3. Knowledge Generation Through People --

In their most familiar role universities educate students who graduate and enter the work force with a range of skills. Companies that hire graduates, students or co-op students are recipients of knowledge conveyed to the students while at the university. While the least tangible of these three methods of knowledge transfer, the value of this form of knowledge generation is reflected in a salary premium that is, on average, enjoyed by university graduates in all fields. As well, recent research indicates that UW co-op alumni achieve an additional salary premium averaging an annual $6,022 two years after graduation.

Based on information collected and published by the Provincial Ministry of Training, Colleges and Universities, UW consistently outperforms the rest of the Ontario university system across a variety of performance measures including placement at graduation, number of graduates and OSAP (student loan) default rates. The unique nature of the university with its large co-operative education program and use of technology in all areas produces graduates able to make immediate contributions at higher salary levels.

It is also worth noting that a significant number of technology companies recruit more heavily from UW than any other institution. Some of the largest local employers with ties to UW's cooperative education program include Research in Motion (RIM), Sybase, Conestoga-Rovers & Associates and Open Text Corporation. Overall, intellectual capital produced at UW is an invaluable asset to Waterloo Region and the Ontario economy.

Survey of Spin-off Companies

Knowledge "spun off" from UW is multi-faceted and far-reaching. To quantify these benefits, we administered a questionnaire to a number of key local firms selected from an integrated database of 294 UW "spin-off" companies, 252 of which had some level of attribution to the University (See Appendix D).

Thirty companies were chosen for interviews, based on the perceived strength of indicated linkages to UW, the hypothesis being that companies with more linkages would more likely attribute their existence to UW.

Survey Results

Given the timing associated with the completion of the study, we succeeded in obtaining complete data from 18 of 30 selected companies. While efforts were made to identify companies that represented a broad range of disciplines, respondent companies were concentrated in three business classifications: electronics (8 firms), software (7 firms) and business services (3 firms). Overall, respondent companies accounted for over 2,800 local employees with 39% being UW faculty, alumni or students.

In financial terms (1999 $), these companies accounted for over $500 million in revenue, paid over $2.4 million in municipal taxes and invested over $54.4 million in buildings, machinery, equipment and software in their local operations. The survey concluded with a question that explicitly asked to what degree "the university influenced the start-up and/or continued operations of the subject company." Ten of the respondents (56%) indicated, "This company would not exist but-for the University of Waterloo" attributing 80-100% of the company's existence to UW. Results are summarized in the following table:

UW Attribution	# of Respondents
a) "But-for"	10 (56%)
b) "Primarily"	0 (0%)
c) "Relied"	2 (11%)
d) "At least in part"	6 (33%)

To accurately reflect UW's contribution to the local economy while maintaining conservative estimates, we based all econometric analysis of UW spin-off companies on the results from the 18 completed surveys extrapolated to the selected sample of 30. Since the sample was selected rather than random, we have not extrapolated these results to the estimated population of UW spin-off or linked companies. In response to qualitative questions, all respondents indicated UW's importance in the establishment or continued existence and future prosperity of their business and Waterloo Region's economy.

1.2.3 The University as a Visitor Attraction

Beyond the operational aspects of the university and the familiar role of knowledge generator, a university attracts visitors to a community, stimulating economic impacts in the process. Visitors include elementary/secondary school students and parents, business visitors, event goers and facility users, alumni and casual visitors. In the 1999-2000 academic year, we estimated there were approximately 358,681 UW-related visitors from outside Waterloo Region. Estimated off-campus expenditure of visitors from this group is over $32 million.

Students attending UW originate from a number of geographies. Information from the Ministry of Training, Colleges and Universities indicates that about 20% of the student body originates in Waterloo Region. For the purpose of our analysis, "visitors" to Waterloo Region include the 53% of students who originate from the rest of Ontario and 27% who are from outside Ontario (including the rest of Canada and international students). Estimated off-campus expenditure of students from the rest of Ontario is almost $67 million and by students who originate from outside of Ontario almost $34 million.

1.2.4 The University as a Public Institution

Quantification of all beneficial impacts generated by a university is not possible. Certain aspects of the university have qualitative benefits not easily assigned a precise monetary value but represent an extraordinary contribution to the overall quality of living in a community. They attract residents to the community, contribute to employee satisfaction and retention in workplaces throughout the Region, and raise the quality of local schools, cultural institutions and public health. These benefits include:

Economic Stimulus of Higher Education --

University training and education is widely regarded as being beneficial to the economy. We have quantified a portion of this benefit in Section 4.0 The University as a Knowledge Generator. Other research indicates that university-educated students raise their lifetime productivity and have a higher probability of finding and retaining employment. Other researchers have noted that the accreditation role of the university potentially has the greatest impact.

A further consideration however, is the extra value attributed to having a UW co-op education. In 1999, UW collected wage data on 1,306 co-op students who graduated in 1997 from 10 different UW co-op programs. The extra income earned by UW co-op graduates when compared to all-Ontario average wages for graduates was estimated at $7.865 million, an average of $6,022 per graduate. While this information must be viewed as a 'snapshot' in time it does suggest the added value and additional economic benefit that could accrue to a community as a result of the UW program.

Community and Cultural Contribution --

Facilities and activities at the university serve to broaden the cultural base of the community. As well, UW and its colleges provide valuable research in cultural and social fields as well as in science, and offer a number of venues for public events including concerts, meetings, sports events and many summer day camps. For example, the annual East Asian Festival at Renison College celebrates Canadian and East Asian connections in culture, education, trade and technology.

Enhanced Reputation --

Through participation in a wide range of scholarly activities UW has heightened the international profile of Waterloo Region. UW is a perennial leader in international competitions of the most demanding kind. Two events where Waterloo has had tremendous success are the William Lowell Putnam Mathematical Competition and the Association for Computing Machinery (ACM) international programming contest.

Open Space --

UW has hundreds of acres of accessible open space that is often used by members of the community. These include the park-like main campus, the North Campus trails and an environmental reserve.

Charitable Contributions --

Students, staff and faculty are all active in a range of charitable activities, which account for over $250,000 in donations to community causes. Research indicates increases in volunteering and charitable donations from university graduates.

1.3 Summary of Economic Impacts

The University of Waterloo contributes to the provincial and regional economies through a number of roles including as an operating organization, as a knowledge (spin-off) generator, as a visitor attraction and as a public institution. PricewaterhouseCoopers and Econometric Research Limited estimate the Value Added economic benefit to Waterloo Region in 1999 at approximately $1.1 billion.

Table 1-1: UW's Waterloo Region Impacts

Value Added Impacts (1999 $000)	Total	Multipliers
Operating Organization	$265,159 	0.84
Knowledge Generation:	
Alumni	$58,577 	0.8
Spin-offs Operating Expenditures	$618,412 	1.02
Spin-offs Capital Expenditures	$48,209 	0.53
Attracting Students:		
From Rest of Ontario	$58,895 	0.89
From Outside Ontario	$30,004 	0.89
Attracting Visitors	$21,316 	0.66
Public Institution	Not quantified
Total Value Added	$1,100,572 	0.96

Source: Econometric Research Limited and PricewaterhouseCoopers LLP

Province-wide Value Added economic impacts grow to over $1.5 billion. Provincial impacts are greater than regional impacts because of economic activity, such as purchases of goods and services, occurring outside Waterloo Region.

Value Added is a measure of net output including only final goods to avoid double counting of products sold during an accounting period. See Appendix A: Glossary for details regarding this measure.

Table 1-2 Annual Province-wide Value Added Economic Impacts

Value Added Impacts (1999 $000)	Total	Multipliers
Operating Organization	$458,823 	1.46
Knowledge Generation:	
Alumni	$101,361 	1.46
Spin-offs Operating Expenditures	$820,009 	1.35
Spin-offs Capital Expenditures	$96,665 	1.07
Attracting Students:		
From Rest of Ontario	$0 	0.00
From Outside Ontario	$42,833 	1.26
Attracting Visitors	$35,491 	1.10
Public Institution	Not quantified	
Total Value Added	$1,555,182 	1.35

Source: Econometric Research Limited and PricewaterhouseCoopers LLP

It is important to note that this total is an underestimate of economic benefits. We have excluded certain impacts in this study, which include many spin-off companies not selected for interviews, spin-off companies operating outside Waterloo Region, technology receptor companies and social impacts. If included the impact would be much greater.

Although it is difficult to accurately estimate these additional benefits, we believe them to be very significant. It would be worthwhile for UW to fully explore these additional impacts through additional phases of research including:

Analysis of local spin-off companies with fewer identifiable linkages to UW--for example, those who employ alumni without participating in research at UW or the co-op program.
Analysis of how the university's innovations and research results find their way into many companies that act as technology receptors.
Quantification and analysis of social impacts including involvement in local organizations by people associated with the University, and direct use of University expertise for community benefit (such as faculty members' service to local government in their fields of expertise, free lectures to local community groups and acting as experts for media in areas of public interest).
Analysis of spin-off companies outside Waterloo Region including Ontario, other provinces and internationally.

Contact:

Martin Van Nierop
Director, Information & Public Affairs
University of Waterloo
519-888-4881
vanierop@uwaterloo.ca