Business

Brighter days in Montreal?

Despite the city's problems, some firms are hiring and expanding

BRENDA BRANSWELL June 9 1997
Business

Brighter days in Montreal?

Despite the city's problems, some firms are hiring and expanding

BRENDA BRANSWELL June 9 1997

Brighter days in Montreal?

Despite the city's problems, some firms are hiring and expanding

BRENDA BRANSWELL

It is not the sort of enterprise that normally attracts much publicity. A privately held high-technology firm, ASEC Systems Inc. is less than four years old, with only 32 employees and a modest $1 million in annual sales. Since last summer, however, company president Gary Stroud has made four television appearances in the Montreal area and been quoted at least hah a dozen times in local newspaper reports. As much as he welcomes the attention, Stroud acknowledges that the media blitz has nothing to do with ASEC’s main product— software that helps people do business over the Internet. Instead, the coverage resulted from the company’s decision to close its Brampton, Ont., head office last year and consolidate operations in Montreal. In media parlance, it was a “manbites-dog story,” noteworthy only because such events seem to happen so infrequently. As Stroud puts it: “People told me I was crazy.”

It certainly is a measure of Montreal’s troubled times that investment decisions, large or small, seem to draw widespread attention. In February, the city’s business and political leaders cheered when Canada’s newest forest-products giant— Abitibi-Consolidated Inc., the result of a merger between Abitibi-Price Inc. and Stone-Consolidated Corp.—chose Montreal over Toronto as its new headquarters. More often than not, however, the moving vans—and the jobs—are headed in the opposite direction. The Royal Bank announced in March that it plans to move its 123-employee finance department to Toronto from the bank’s nominal head office in Montreal. And 17 months ago, Canadian Pacific Ltd. announced that it was moving its railway headquarters from Montreal to Calgary. Since 1977, according to a Dun & Bradstreet study last year, Montreal has lost 506 head offices to Toronto, while only 122 companies relocated from Toronto to Montreal.

But amid the litany of grim news about Montreal’s economy, some industries are hiring and expanding. Since 1986, in the biotechnology sector alone, more than 50 firms have sprung up in the city. For high-technology firms in particular, the choice of Montreal is influenced by its ample supply of well-educated workers, available at salaries 10 per cent to 30 per cent lower than in Toronto. Stroud, for example, says he decided to consolidate ASEC’s operations in Ville St. Laurent, a northwest suburb of Montreal, in part because it was easier to recruit employees. The supply of software workers in Toronto, by contrast, “seemed to be tapped out.”

Montreal-based Ericsson Research Canada, which recently landed a $100-million contract from its Swedish parent to develop software for cellular networks, came to a similar conclusion. “In our Toronto operation, we have more difficulty hiring technically qualified people than we do in Montreal,” says Lionel Hurtubise, chairman of Ericsson Communications Inc., the research division’s parent company. With close to 900 employees—

whose average age is 28—Ericsson’s Montreal operation is now one of the four largest R and D centres in Quebec. It has grown dramatically since its establishment in 1985—winning out over Ottawa and Toronto, Hurtubise says, in part because of the availability of highly qualified workers. “More important, and it’s a bit of a surprise to all of us, the turnover rate is extremely low,” Hurtubise says. ‘We’re not losing anybody.” Another aspect of Montreal’s appeal to Ericsson is financial. In its case, that took the form of a “minor” $l-million loan package put together by the federal and provincial governments. The Quebec government boasts that the province’s R and D tax incentives are among the most generous in the industrialized world. Hurtubise estimates that it costs Ericsson about 10 per cent to 15 per cent less to operate in Quebec than it would in Ontario. “The fiscal environment is excellent for an R and D organization in Quebec,” he says. “We’re the second-or lowest-cost R and D facility in the world for Ericsson.” Ten kilometres from ASEC’s freshly painted offices in Ville St. Laurent, 80 employees of Astra Research Cen-

tre Montreal, a division of Swedish-based Astra AB, recently moved into a brand-new $25-million office building. Astra’s decision to build its own facility at a time when the city’s commercial vacancy rate is 16.1 per cent raised some eyebrows, concedes executive vice-president Per From. But Astra—owned, like Ericsson, by Sweden’s Wallenberg family—plans to spend $300 million over the next seven years to research drugs for treating chronic pain, and it wanted to make sure it had room for future expansion. “If we are successful, we can expand to 600 people,” says From.

Tax incentives and an available stable of clinical researchers also convinced U.S. pharmaceutical giant Merck Frosst to spend $90 million to modernize and expand its manufacturing and research facilities on Montreal’s West Island. The Montreal area, in fact, is home to an estimated 40 per cent of Canada’s pharmaceutical companies. André Marcheterre, the president of Merck Frosst Canada, says the presence of a large number of pharmaceutical companies has nurtured a strong research community at local universities and hospitals. “There are very good and talented researchers,” he says. And Marcheterre praises past and present Quebec governments for targeting the pharmaceutical industry as part of the province’s industrial policy.

Company executives also cite Montreal’s quality of life as a factor behind their decision to locate in the city. “Montreal is an ideal place to live,” says Stroud, 50, a Toronto native who previously lived in Montreal from 1967 to 1979. He says he prefers the city’s more European and multicultural flavor, relatively inexpensive housing and, compared with Toronto, reduced traffic congestion. Adds Hurtubise: “If you don’t read all the negative press and politics, the quality of life in Montreal is excellent.”

That said, the city’s charms are often not enough to lure prospective employees to the city. A report prepared last fall for the Quebec government noted that local corporate headhunters often run into “profound resistance” trying to recruit people from other provinces. Only two of Stroud’s 12 Brampton employees, for example, moved to Montreal, which Stroud chalks up partly to unease about the province’s political climate. In Ericsson’s case, most of its employees are native Montrealers, so recruiting from outside the province is rarely an issue. “However,” says Hurtubise, “if we had to rely on attracting people from Ontario or Western Canada, we’d be in real trouble.”

With another referendum looming—the provincial government has pledged to hold one before the year 2000—the prospect of separation is always a consideration. But Stroud says uncertainty is relative. He has worked in both the Middle East and Africa, two troubled regions in which business generally carries on in spite of political turmoil. “I’m a firm believer that intelligence will prevail and it’s not going to happen,” Stroud says.

For Hurtubise, “the bottom line is that as long as we can profitably run our business here in Quebec, that’s not an issue.” Still, he concedes that if the current political climate had prevailed 11 years ago when Ericsson first decided to locate its R and D unit in Montreal, “we probably would have gone elsewhere.” For now, at least, Ericsson’s growth has vindicated its choice. Says Hurtubise, referring to the city’s economic prospects: “We really need to hear good news, and there aren’t that many good news stories.” On both those points, he will get no argument from most Montrealers. □