UNLEASHING CANADA'S TECHNOLOGICAL TIGER
OR

CONVINCING THE HORSE TO DRINK

 

Thomas E. Clarke, M.Sc., M.B.A.

Stargate Consultants Limited, Nanaimo, B.C.

February 1992

 

Introduction

As  the  saying goes, "You can lead a horse to water, but you can't  make it drink". In many  ways Canadians are that horse, and the water is the many studies that have been conducted and reported over the past fifteen years that have attempted to raise the alarm that Canadians' standard of living was in jeopardy unless significant changes were made to the economy and our educational system. For the most part Canadians have been ignoring or discounting the message  contained  in  these reports  to increase  our investment in science  and technology, technological innovation and  entrepreneurship; they have not been drinking it in.

The recent report on Canada's ability to compete in a rapidly changing global  economy by Michael  Porter  of  Harvard University (Porter, 1991) is simply  the  most  recent  in  a string  of reports by individuals and organizations such as the Science Council  of Canada, the Economic Council of Canada, the National Advisory Board on Science and Technology,  and  the Corporate Higher Education Forum warning that Canada  must make some fundamental changes in the structure of our economy or risk losing the many qualities  of Canadian life, such as our medicare system, that we all enjoy and take for granted. These reports have all indicated that Canada must increase its investment not only in science and technology,  but  also  in  all the elements that would increase and improve  our  ability  to develop  and  employ new technologies and create new industries in  many  sectors  of the Canadian economy.

To  make  these  fundamental  changes in a timely  manner, certain underlying issues must  be addressed, certain  barriers to making these vital changes must be overcome, otherwise all our efforts to increase productivity in existing industries, to develop the new industries capable of competing in the 21st century and to develop the specialized work force  required to sustain a modern industrial economy will continue to be frustrated, and future prosperity for Canada will forever be beyond our grasp.

This  paper will not address all of the issues that the many studies have identified  in order to focus on those few that will more directly impact on the utilization of science  and technological innovation in producing a vibrant, productive economy in the 21st century.

Among the issues or barriers that this paper outlines are the under-investment of Canadian private industry in research and development and technological innovation; the inadequate quality of management of technological innovation and technical entrepreneurship; the decline in interest of our young people in careers in science, engineering and technology; our low level of investment by venture capital firms in fledgling  high-medium technology companies; the low level of adoption of new technologies by Canadian manufacturing firms; the inefficient linkages between government and university R&D activities and the new process or product development efforts of Canadian industry; and the lack of confidence displayed by Canadians when faced with the option of buying Canadian  developed technology.

There is, however, one issue that stands above all others. It is the one that has defeated all previous attempts to improve Canada's science and technological innovation capability in  the past. It is the issue that reinforces and condones the issues and barriers mentioned above. It is the one the allows the federal government to eliminate the Science Council of Canada  without fear of a public outcry. Canadian's do not  believe that our ability to develop and utilize science and technology has any bearing on their pocketbooks.

ISSUE #1

INCREASING CANADIAN'S UNDERSTANDING OF THE ROLE OF SCIENCE AND TECHNOLOGY IN FUELING A MODERN ECONOMY

This  single  issue underlies most of the problems that Canada has in moving  toward  a more productive and wealth producing future.

Individual Canadians, are for the most part, ignorant of the role that science and technology plays in supporting a modern economy. They are unaware that  our competitors  are  not going to beat us with cheap labour, but with more effective use and application of science, engineering and technology.

In  the  executive  summary version of his report, Michael Porter in explaining why he thinks Canada has not made much headway in moving towards becoming a more effective global competitor states, "Perhaps the most important factor in Canada's ability to move forward  is the attitudes and the mindset of individual Canadians" (Porter, 1991, p. 99).  In subsequent television interviews, Porter said that he thought that that was 50% of Canada's problem. HE IS WRONG. It is 80-90% of the problem.

Simply  put, most Canadians, be they credit managers, factory workers,  university professors, school teachers, lawyers, janitors, bankers, college instructors, bureaucrats, company presidents  or politicians do not really believe that science  and  technology can have  a  major impact on Canada's economic well-being. They consider that science and technology is something other countries conduct; they consider that science and technology plays only a marginal role in determining their quality of life. As a result, we under-invest  in research and development, we make little attempt to learn how to manage technological innovation or technical entrepreneurship properly, we do not hold our scientists, engineers  and technologists in high regard, we do not reward or recognize their  contribution to Canadian society with the result that fewer students view a technical career favourably,  we do not  recognize that investment in new  high-medium technology  firms  is  an investment in future wealth creation, we believe that adoption of new  technology to increase our productivity or development of new products or processes is not necessary,  and we  do not make sufficient effort to link the direction and R&D output of our  government and university laboratories with the technological needs of the private sector.

As  noted by others, each of these problems or failures reinforce each other. A  lack of initiative by  industry to develop new products/processes reduces the need for:  links with other laboratories;  for investment in R&D, marketing, manufacturing -  elements important  to  the technological innovation process; for technical  graduates  from colleges  and universities, for supporting services from other technology-based firms or organizations, or for timely adoption of new technologies.

Unless  individual Canadians understand that their prosperity will depend for  the  most part  on the intelligent utilization and development of science and technology  in Canada, they will restrict the potential solutions to improving our competitiveness to easily accomplished, financially impoverished,  band-aids. If a person thinks they have just a minor ailment,  they will ignore it or make only superficial efforts to cure  it;  if,  however, they think it is life-threatening, they will take all measures necessary to increase the probability of a cure. Right now our lack of investment in science and technology is looked upon as  a minor ailment; this must change for our economic survival.

The issue facing Canada must be to determine what actions must be taken to inform and convince all Canadians of the vital  role  that  Canada's  science  and technological innovation infrastructure plays in determining Canada's ability to compete in international markets,  and in maintaining and improving the standard of living that Canadians demand for themselves and their children.

ISSUE #2

INCREASING INVESTMENT BY THE PRIVATE SECTOR IN RESEARCH AND DEVELOPMENT

By  almost any measure, Canadian firms do not invest in research and development to the same  level  as  their competitors in other countries. Even  when  officials  from other countries comment  on how our under-investment in R&D will hurt us, our  company officials  don't  believe it.  In a speech to the annual convention  of  the  Canadian  Pulp and Paper Association, Olle Alsholm, President of the Swedish Pulp and Paper Research Institute, said that the Canadian pulp and paper industry has neglected research and development  by  investing  only 0.3 to 0.4% of sales in research  and development while Swedish firms  invest  double that amount. A Canadian official defended  the  Canadian industry's record  saying  it was "not out of line with other countries". (The  Ottawa Citizen,  January 31, 1992, p. C7).

Some Canadian organizations do recognize that our ability to compete in  international markets is deteriorating. The Canadian Manufacturers Association in their report on how to keep Canada competitive points out that, "the lack of commitment to industrial R&D by Canadian industry  is a clear indication that CEOs in many Canadian  companies are not measuring up to what is required in today's competitive environment" (CMA, 1987).

Without a change in strategy by Canadian firms, the prediction of the World  Economic Forum 1990  that  Canada  will  rank 19th out  of 23  industrialized  nations  in projected growth in R&D expenditures over the next five years, will come true.

Canadian  managers must realize that even in times of economic downturn,  investment in R&D and the development of new products or processes must be maintained, and even increased. Our competitors are not slowing down. Japanese firms, for example, believe in maintaining  R&D expenditures during times of economic pressure. One Japanese R&D executive stated that he was criticized by his superiors when he proposed cutting his  R&D expenditures  during a downturn. He was told that, "research is the doctor who must  cure the patient" (Research-Technology Management, January-February, 1992, p.3).

Canadian managers,  of firms of all sizes, must realize that the utilization,  adoption  or creation of  technology  must  be an integral part of their business strategy  if  they  are to improve productivity, successfully compete and survive.

The  issue  for  Canada  is to arrive at some consensus  as  to  how  Canadian corporate managers  can  be  convinced  of  the need to increase  their  commitment  to  science and technology, and technological innovation within their firms.

ISSUE #3

IMPROVING THE QUALITY OF MANAGEMENT OF THE TECHNOLOGICAL INNOVATION PROCESS IN CANADA

A  hospital  would  be  horrified if a person presented  themselves  as  a  brain  surgeon, without any  medical training whatsoever, but organizations appear to take it  for granted that  anyone, without management training, can manage one of the most complex areas of human  endeavour, the development of an idea into an new product or process,  that finds success in the marketplace.

A major barrier to Canadian firms increasing their commitment to science and technological innovation is the fact that most of the boards of directors, chief executive officers or even  middle or low level managers have had little or no training or education in  what  is, and  how to management the technological innovation process (Science Council,  October, 1988).  This lack of knowledge can also be found in senior bureaucrats in both federal  and provincial government departments  and agencies. This lack of understanding  of  how  to manage  the technological innovation process can start with the promotion of  scientists  or engineers  into  the  first  level of management in  their organization's  R&D  laboratory without  "one  minutes"  training  in  R&D management. The  inability  to  appreciate  the strategic  role that science and technology plays in a company's ability to  achieve  business objectives can also occur when a person who has come up through accounting or finance is promoted  to the position of Chief Executive Officer of the firm, and believes that  success comes only through cost cutting and being more efficient in what you do. Efficiency is  not enough when  the  customers are crying out for new products or processes  to  solve  their problems.

With  scientists and engineers, the problem starts in our universities and  colleges  when they fail to educate their students on the importance of managing scientists, engineers and technicians in  the most effective way. To make matters worse, our  present educational system  encourages and reinforces a certain arrogant attitude among scientists  and  engineers that there is nothing to learn about managing technical personnel or the  technological  innovation  process.  This attitude leads to the reaction of  a  senior  R&D  manager when advised that he was to go on R&D management training, "Management training, why do I need management training, I have a Ph.D. in Physics".

It  is of little consolation that this lack of preparedness for managing science  and technology  is not  confined  to  Canada. In a recent review of  management  in  the U.S., the American National  Research  Council  noted that in 1989, only  $1  million was spent  in providing management training to people who manage $67 billion of R&D.

For  Canada,  the  issue is two-fold: to determine how  to  convince  our  post-secondary educational  institutions to increase their efforts to equip scientists,  engineers, technicians and business  graduates  with  the knowledge needed  to  effectively manage science  and technology, and to convince existing managers in both government and industry, that  their ability to contribute to Canada's competitiveness will be determined by their knowledge of how to manage the technological innovation process and the people who make it happen.

ISSUE #4

INCREASING THE NUMBER OF SCIENTISTS, ENGINEERS AND TECHNICIANS/TECHNOLOGISTS AVAILABLE TO CANADIAN EMPLOYERS

Concern  is  growing  that Canada will have a considerable shortfall  in  the  number  of scientists,  engineers and technicians/technologists in the very near future.  The Canadian Engineering  Resources Board, for example, estimates that Canada will have a shortfall  of approximately  10,000  engineers by the end of this decade. This situation is not  unique  to Canada, but is being experienced in the U.S., Japan, Sweden and U.K. as well.

This  problem  has  two dimensions: fewer students are enrolling  in  science  and  math courses in high school, and subsequently in technical programs in colleges and universities; and  the performance  of the students who do take the math and  science courses  in  high school  is  not matching up to that of the students in competitor countries. Data  from  the Second International Mathematics and Science Studies, for example, showed that Canadian students finished near the bottom of test scores.

Several studies have suggested that both the quality of the teachers and the early  years' curriculum  in  the  school system contributes to the reduction in  the  number  of students both qualified and interested in going on into post-secondary studies in science and technology. Studies  by the Science Council of Canada show that "more than half of  all early-years teachers, and  more  than  a third of  all  middle-years  teachers,  have never taken mathematics  or science  at  the university level (Science  Council,  April  1984). A more recent  review  of why students were not enrolling in the technology  programs  of Ontario community colleges suggested that one of the reasons why students, especially males,  were turning off science after Grade 8 was the emphasis in the primary grades on botany/biology.  To the students, more science meant more plants. This focus on botany/biology  did not  encourage students whose interests were more in the areas of engineering,  technology and the physical sciences (Clarke and Reavley, 1990).

Despite  attempts to encourage girls to stay in math and science courses, they  drop  out at  a much  higher  rate  than boys. Robert A.  Ferchat,  President  of  Northern  Telecom Canada Limited  noted that, "In Toronto, by Grade 13, two-thirds of  the  female students have dropped maths and sciences", which excludes them from at least 82 careers for which mathematics is a prerequisite (Ferchat, 1988). A contributing factor to this drop-out is the neanderthal  attitude  of many school guidance counselors who advise girls  to drop  math and science since, in their opinion, girls do not need to have it to be successful.

The  educational system can not create an interest by students in science and technology;  the system can only reinforce an already existing interest that begins to form before  a child  enters the school. This will not occur if the attitude displayed by one head of a  high school science department is typical. He told his students that it was not his responsibility to  encourage or interest them in a career in science. Some companies have  made  efforts in building bridges to local schools to encourage students to retain their interest in a  technical  career  through providing  guest speakers, having  tours  of their  facilities,  offering summer jobs or providing recognition for student achievements.

In  general, Canadian society, and many employers have not taken much interest in  the achievements of science students while in school. For example, very few technology-based companies take part in the sponsorship of local, regional or the Canada-wide science  fairs that take  place  every year. Little recognition by the news media is  given to  entrants  or winners thus reinforcing the feeling that science is not important to Canada.

The  demand  by employers for graduates of science, engineering  and  technology programs will  also influence the enrollment rate. If a person sees a career in these fields as both interesting and financially rewarding, they will be more inclined to take on the hard work necessary  to complete the programs. However, if the rewards for the hard work  in college  or university are not adequate compared to other occupations, then  the comment by  one school student is logical: "Why be a scientist when I can be his boss". Janet  Halliwell, [former and last] Chairman  of the Science Council, notes that existing data on demand  suggests  that Canada's demand for highly qualified personnel is more like that of a  "semi-industrialized nation"  (Halliwell, 1991). If this is true, then fewer students will be attracted to  a  science or technology career, unless they view such a career as a ticket to enter more dynamic  and supportive foreign countries such as the U.S.

Canadian  companies  are  notorious  for underinvesting in  training  for  their  workers. Studies show that Canadian private industry spends 0.3% of our gross domestic product on training compared  to  twice that for the Americans, three times for  the  Australians, five times for the Japanese and eight times that for the Germans (Learning Well... Living Well, 1991,  p.6). This problem is against the background of our school system graduating  students who are functionally illiterate. It is estimated that 30% of Canadians are  functionally illiterate and have poor numeracy skills.

Canada cannot become more productive or innovative without a highly skilled and  well educated  workforce. Immigration is no longer a source of these workers as their originating countries  are  also dedicated to improving their  economic  performance through  the exploitation  of  science and technology. If anything, Canada's  highly qualified  personnel will  be subject to raids by foreign organizations looking to overcome their  country's  personnel shortfall. We see it already with American hospitals putting on employment exhibitions in Canadian cities to attract nurses.

This  issue  is  multi-layered:  what actions can be taken in  the  primary  and  secondary schools to improve the quality of math and science education and maintain the interest of students  in a science and technology career; what actions can be taken by the educational system  and employers to reinforce both male and female student's interest in science  and technology,  and what actions can be taken to encourage employers to increase  their  level of investment in their workers.

ISSUE # 5

INCREASING THE LEVEL OF INVESTMENT BY VENTURE CAPITALIST IN NEWLY ESTABLISHED TECHNOLOGY-BASED FIRMS

Studies  by  the  Science  Council of Canada and others  reveal  that  while  the  venture capital community  is quite strong, with about 75 venture groups managing $3.3  billion in funds,  there are no strong links between the venture capital  community  and technology-based companies in Canada (Macdonald, 1991).

In order for Canada to compete in the 21st century we must nurture and encourage  the establishment and growth of technology-based firms. Most young high-growth, technology-based firms require access to sources of outside capital if they are to succeed  in penetrating and capturing Canadian and foreign markets.

Unfortunately,  the  financial support received by Canadian entrepreneurs  is  less  than that received  by their foreign competitors. The average venture financing of  a Canadian technology company  in  1989,  for  example, was $657 thousand,  which  was 65%  of  the average  for French-based firms, 52% of the average of U.K. -based firms, and 30% of  the average  for U.S. - based firms (Macdonald, 1991, p. 16). Part of the reason for  the  lower support  is the poorer track record of Canadian high technology firms. It is suggested  that their  poorer  performance is  due, in part, to underfunding when  they  were  established. Thus,  Canadian  firms  face a Catch-22: they are denied adequate funding  until  they  can prove they are a success, and they can't succeed without adequate funding.

Among  the  major barriers impeding the creation and growth of high  technology  firms are:

The  problems facing Canada that result from this issue are the following: what  actions can  be taken to increase the number of managerial competent technical  entrepreneurs in Canada; what can be done to educate and or train financial managers so that they are in  a better position to assess the actual technical and business risk of a  new technology-based venture; what actions can be taken to encourage the formation of more technology oriented  venture capital  funds;  and what steps can be taken  to encourage more  strategic  alliances  between small  technology-based Canadian companies  and more  knowledgeable corporate partners.

ISSUE # 6

INCREASING THE LEVEL AND SPEED OF ADOPTION OF NEW TECHNOLOGIES BY CANADIAN COMPANIES

Numerous  studies have shown that Canadian companies are reluctant relative  to  their competitors  to  invest in new technology to enhance their productivity. Part of  the problem  has been  that many firms saw their market as being just in Canada,  and because  of prior  tariff protection have not seen the necessity to become more competitive.  A  1989 Statistics Canada Survey found that fewer than half of the manufacturing firms  responding to  their  survey had implemented one or more of 22 leading  manufacturing  technologies (Prosperity Through Competitiveness, 1991, p. 16). It was also noted that these companies lagged behind their counterparts in the U.S.A.

With  the  advent of the Canada-U.S. Free Trade Agreement, the  market  has  changed and Canadian  firms  are  now under greater pressure from  U.S.  competitors  to become more productive and competitive.

It  has  been  suggested  that a contributing factor to the low level  of  adoption  of  new technologies has been the lack of knowledge by Canadian managers in what constitutes, on a global  basis,  best-practice technology. Another contributing factor is  the  high cost  of capital which makes managers reluctant to purchase new technology when existing  technology still works, albeit not to best-practice standards.

Canadians  must address these questions: how can Canadian managers be convinced of the need to actively seek out and adopt new technologies; and what can be done to provide Canadian   managers  with  timely  information  of  best-practice  technologies available anywhere in the world.

ISSUE # 7

IMPROVING THE LINKAGE BETWEEN GOVERNMENT AND UNIVERSITY R&D LABORATORIES AND THE PRIVATE SECTOR

Canada  has  only so many human and financial resources that it can  spend  on  science and technology, and the technological innovation process. By working together, the three sectors of the economy can increase the payoff of their investment in science and technology, and increase Canada's productivity and competitiveness in global markets.

Many  federal  government  departments  such as Energy,  Mines  and  Resources  have established  industrial  advisory  committees  to  provide  guidance  to  their  senior R&D managers in the selection of R&D projects conducted within their laboratories.

With  technology  rapidly  evolving, the linking of industrial  laboratories  to  sources  of strategic basic research has taken on greater importance. In a study conducted in Ontario in  1987,  61% of  the companies surveyed considered that basic  research  had been  very important  to the R&D activities of their firms (Clarke, Reavley and Orpwood, 1987).  As universities  are the major players in conducting basic research, it is vital that many  of  the areas  of research being investigated are of prospective value to industry. The  creation  of the  Ontario  and Federal "Centres of Excellence" is an example of an important  initiative in building links between universities and industry. Government laboratories also conduct strategic  basic  research  of value to industry and many have set  up  offices  of  technology transfer to move their findings into the private sector.

Despite  these efforts, many companies are still in the dark about much of the  research going on,  even  in their local universities. Past suggestions to establish a computer data base directory describing the research being conducted at Canadian universities  have not been acted upon.

On  the  industry  side, there must be a recognition of the value  of  the  research  being conducted  in both government and university laboratories, and an ability to  access, adopt and utilize the research results. Numerous anecdotes exist about government researchers or university professors becoming frustrated in their efforts to transfer profitable  research results to Canadian  companies  only to be rebuffed, and the results being  taken  up  and exploited by foreign companies.

Canadians  must arrive at some consensus on what actions can be taken to improve  the communication  and technology transfer links between government and  university laboratories, and their counterparts in Canadian industry.

ISSUE # 8

INCREASING THE CONFIDENCE OF INDUSTRIAL AND GOVERNMENT PURCHASERS IN CANADIAN DEVELOPED TECHNOLOGY

Many studies have pointed out the reluctance of Canadian managers to buy  technology from small, relatively new Canadian firms. It is almost as if they believe that if it is Canadian, it is second rate and the company will not survive long. Many small, new established Canadian  high technology  companies report that their first major sales were to  U.S.  or foreign  buyers.  Based on their foreign sales, they were then able to convince  Canadians to  buy their product. Federal government procurement of early products and services  has also been an important factor in the success of many small high technology firms.

Michael  Porter in his recent study also commented on this risk averseness of  Canadian companies  to  buy  Canadian technology. He notes that this has contributed  to  the weak infrastructure for supporting world class technology based firms.

It  has been suggested that one of the main reasons for the reluctance to purchase  from Canadian suppliers is the lack of technological sophistication to accurately assess the risks and benefits  of  buying from the Canadian manufacturer. Because they  are  not able  to assess  the technical risk of the product, the risk is an unknown, and therefore avoided  by refusal to purchase.

The  question  for Canada is how can the risk averseness of  Canadian  technology purchasers be overcome, especially in the case of new Canadian technology-based firms.

Conclusion

In  a 1991 study of indicators of national competitiveness in high technology  industries, Alan Porter and J. David Roessner report that Canada ranked 24th out of 29 countries in their measure  of "National Orientation" which they defined as, "evidence that a nation is taking directed  action  to achieve technological competitiveness"  (Porter  and Roessner, 1991). This is a failing mark on anyone's economic report card.

Canadians  must  drink the "water of understanding" represented by the  many  warning studies, and  realize that we must, as a nation, take the rapidly approaching  last  off-ramp leading  to improved competitiveness and prosperity. To continue straight ahead leads  to slow economic strangulation and eventually the inability to make economic course  corrections due to lack of human and financial resources.

If  our  academic,  business, and government leaders fail to convince  Canadians  of  the necessity  to  change economic directions quickly, then one father's advice to  his  two very intelligent  children  who are presently enrolled in science, and engineering programs  will be voiced  by other parents, "I am happy that you have decided on careers in  science  and engineering, but remember, you have no future in Canada".

REFERENCES

CMA,   "Keeping  Canada  Competitive:  A  Strategy  Paper  on  Industrial  Research and Development, Canadian Manufacturers' Association, Toronto, Ontario, 1987, p. 8

Clarke, Thomas E. and Reavley, Jean, "Reasons for and the Impact of the Recent Decline in Enrolment in the Technology Programs of the Colleges of Applied Arts and Technology in Ontario", Stargate Consultants Limited, Ottawa, Ontario, May, 1990

Clarke,  Thomas E., Reavley, Jean and Orpwood, Graham, "Testing the Foundations: The State and  Organization  of  Basic Research  in  Ontario",  Orpwood  Associates, Toronto, Ontario and Stargate Consultants Limited, Ottawa, Ontario, December, 1987

Ferchat,  Robert  A, "Creating a Science and Technology Culture in  Canada",  Address to the 2nd Annual Meeting of the Northern Telecom National Institute, University of Montreal, August 21, 1988

Halliwell,  Janet, "Problem of Paradox? Resources for R&D", Address to a meeting of the Canadian Research Management Association, Ottawa, September 23, 1991

MacDonald,  Mary, "Creating Threshold Technology Companies in Canada: The Role for Venture Capital", Discussion Paper, Science Council of Canada, Ottawa, Ontario, 1991

Porter,  Alan  L. and Roessner, J. David, "Indicators of National Competitiveness  in High Technology  Industries",  Final Report to the Science Indicators  Studies  Group, National Science Foundation, Washington, D.C. May, 1991

Porter,  Michael, "Canada at the Crossroads: The Reality of a New Competitive Environment", Business Council on National Issues and the Government of Canada, October, 1991

Prosperity   Secretariat,   "Prosperity  Through  Competitiveness",   Prosperity Secretariat, Ottawa, Ontario, 1991

Prosperity  Secretariat,  "Learning  Well...  Living  Well",  Prosperity  Secretariat, Ottawa, Ontario, 1991

SCC,  "Gearing  Up  for Global Markets: From Industry Challenge  to  Industry Commitment", Science Council of Canada, Ottawa, Ontario, October, 1988

SCC,  "Science Education in Canadian Schools, Vol. II - Statistical Database for Canadian Science  Education", Graham W.F. Orpwood and Isme Alam, Science Council of  Canada, Background Study # 52, Ottawa, Ontario, April, 1984


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