COVER

LEADING THE WAY IN EXPORTS

HIGH-TECH TAKES ON THE WORLD

BARBARA WICKENS December 14 1992
COVER

LEADING THE WAY IN EXPORTS

HIGH-TECH TAKES ON THE WORLD

BARBARA WICKENS December 14 1992

LEADING THE WAY IN EXPORTS

COVER

HIGH-TECH TAKES ON THE WORLD

BARBARA WICKENS

The old and new share a comfortable coexistence at MKS Inc., a software company with headquarters in a three-storey, redbrick building on the main street of Waterloo, in southwestern Ontario. The stately structure appears to have changed little since it was built in 1912 as the region’s first customs house and post office. But on the roof, an infrared laser system exchanges data at the rate of one million characters a second with a similarly equipped office three blocks away, into which the rapidly growing company expanded last spring. The system allows MKS’s 80 employees to develop, manufacture and market the latest in computer software technology as though they were all in the same building. Major computer companies from Germany to Japan snap up MKS’s products—so-called software tools used to write computer programs. Ruth Songhurst vice-president of sales and marketing, says that exports accounted for 97 per cent of annual sales of $7 million in fiscal 1992. “We have the best of all worlds,” she added. “Our employees can enjoy a relaxed quality of living—they can bicycle to work or be out in the countryside in 10 minutes. Yet we know we are the best in the world because we are competing against the best in the world.” And many executives and entrepreneurs from various businesses in the region clearly share Songhurst’s self-assurance.

Five years ago, business and civic officials from the twin cities of Waterloo and Kitchener, Guelph to the east and Cambridge to the south, with a total population of 450,000, banded together to promote themselves as Canada’s Technology Triangle. Spurred by research and development at three local universities, which also provide a skilled and educated workforce,

the triangle has one of the largest concentrations of high-technology companies in North America. Most of them export well over 80 per cent of their annual production. But the same area is also home to some of the oldest manufacturing industries in Ontario. And many have found it difficult to adapt to the economic

shakeout caused by lower tariff barriers under the Canada-U.S. Free Trade Agreement (FTA). Already reeling, they were unable to withstand the ravages of the recession and closed their doors. But still others in traditional industries have survived by embracing trade and MKSstyle technology to update management and manufacturing methods.

As a result of those efforts, the region’s

unemployment rate of 7.5 per cent is well below the national average of 11.8 per cent. But it has not entirely escaped the recession’s effects: in the past two years, nearly 75 companies in the triangle have folded or consolidated operations, resulting in the loss of more than 5,000 jobs. The list of closures includes some of the best-known corporations in Canada. Uniroyal Goodrich Canada Inc., for one, will close one of its two tire plants in Kitchener later this month, throwing 750 workers out of work. Earlier this year, the Joseph E. Seagram & Sons Ltd. distillery, once the biggest industry in Waterloo, closed, eliminating 300 jobs. A similar number lost their jobs last spring when WCI Canada Inc., which makes brand-name appliances, closed its plant in Guelph.

The mounting toll has had a ripple effect. Douglas McKenzie, director of economic activities for Waterloo and a spokesman for the area, said that his job has changed from trying to lure new industry there to “trying to keep the industries that are here to stay here and to invest here.” Even that is proving difficult. This year, he said, the city granted permits to develop only one new acre of industrial property, down from an average of 43 acres a year from 1984 to 1989. McKenzie added that 1.5 million square feet of industrial space is vacant. Still, he said that there is also good news for the region, although on a less dramatic scale. “The high-tech companies are in a hiring mode,” McKenzie said. “You hear when 200 are laid off, but you don’t hear when two or 10 are hired.”

Growth: Waterloo Maple Software is typical of many of the high-tech companies that are hiring new employees. Since it spun off from the University of Waterloo four years ago to develop and distribute mathematics computer programs, Maple’s staff has grown to 32 from five. Chief executive officer Roni aid Neumann, a Waterloo " graduate in systems design engineering, said that he has S four openings for skilled com! puter programmers but that ~ he has been unable to find the right people. “Naturally, I am concerned about the layoffs in the community,” Neumann said. “But most of those people do not have the skills we need. Even with retraining, you can only do so much.” Added McKenzie: “How do you retrain people to work in the new economy? That is not just a problem for us. It is a Canadian problem, it is a global problem.”

But however painful certain points in its transition may be, the region and its inhabit-

ants have historically proven to be adaptable. As well, two key developments from the 1950s are still helping the area to thrive: the construction of Highway 401 and new universities. Now, the multi-lane highway stretches from Windsor to Quebec City, putting 120 million North American consumers within one day’s drive to the triangle. In 1957, the University of Waterloo opened, featuring an engineering school, the world’s first separate mathematics faculty and one of the first computerscience programs. For its part, the nearby Wilfrid Laurier University specializes in business and economics.

And the University of Guelph has gained an international reputation for its agriculture and veterinary medicine programs. Combined, the three schools have profoundly affected employment in the area. A study by a local business association, the Computer Technology Network, showed that the information-technology sector in the region employed more than 4,000 people and generated more than $400 million in revenues in 1991.

Although free trade has crippled some of the familiar industrial landmarks and has helped some tariff-free technology companies in only a limited way, for others it has clearly been a boon. On Nov. 20, James Postl, president of Mississauga, Ont.-based Hostess Frito-Lay Co., announced that the snack-food maker would invest $12 million in its Cambridge plant. The

investment, which will create about 60 new jobs, will enable the plant to make a new brand of multigrain snack called SunChips. Valhalla, N.Y.-based Pepsico Inc., which bought Hostess Frito-Lay in June, began looking for an additional facility to make SunChips after the successful product launch earlier this year in both Canada and the United States. Douglas McLaughlin, director of operations at the Cambridge plant, said that Pepsico executives selected the Cam-

bridge facility both because of its proximity to the northeastern United States, where half of its production will go by 1994, and the quality of the products that the Cambridge workforce of 500 can produce. But, Postl added, neither of those advantages would have mattered if tariffs between the two countries were still high. Said Postl: “Without free trade, this would not have happened.” Indifferent: Some members of the higher-technology sector, however, remain indifferent to the FTA and the North American Free Trade Agreement (NAFTA). “Free trade is irrelevant,” said Valentine O’Donovan, chairman of Com Dev Ltd., a Cambridge company that develops and manufactures hardware and software for satellites. He explained that the sector was never subject to duties and tariffs, and had to develop without protective barriers. As a result, Com Dev has prospered in its efforts to take on the world. In 1974, Com Dev set up shop in Montreal with five employees and $250,000 in sales. Now, it has more than 550 employees, including 500 in Cambridge and the rest at subsidiaries in New Brunswick and England.

As well, the company is starting to diversify to ensure its success into the next century. In one such project, Com Dev is one of seven multinational corporations that form Orion Network Systems Inc. Orion is developing a private international satellite system that will provide voice, data and video services for transatlantic and regional business-communications networks in Europe and North America. Said O’Donovan: “This business encourages longterm thinking.”

Indeed, even as it emerges, the high-technology sector carries a clear message for other Canadian industries: global competition will actually benefit them. Said MKS’s Songhurst: “Because the Canadian informationtechnology sector was export-oriented from the beginning, we brushed up against the best in the world. We have seen what it takes to cook creativity.” The original occupants of MKS’s redbrick building would no doubt be mystified by the goings-on there in 1992. But they would certainly approve of the striving for excellence and the entrepreneurial zeal that drive the software company—and dozens like it in the Technology Triangle.

BARBARA WICKENS in Waterloo

Canada

U.S. Mexico

Gross domestic product (in billions, 1991)

$502 I $6,694 ; $334

Population (in millions, 1991)

253

Percentage of government spending on:

Education 12 14 7

Health ; 13 12 1

Defence 4 17 I 1

Annual Energy consumption

per head (coal equivalent in tons)

Number of banks in top 1,000 : 8

205