Meeting Our Waterloo

In his Chamber of Commerce Mayor’s Luncheon Address, the Mayor made reference to the City of Waterloo and Research in Motion – makers of the Blackberry as an example of what can be done in a small town that can create a world-class business.

The Globe and Mail recently ran a series of articles about Waterloo that I thought you might find of interest. I'll run one today and another next week. In passing, just note that their jobless rate is 5.2% while ours is about double that.

Compare our relationship with the University and Community College with that of Waterloo and tell me that you really believe that we can achieve what they did. If co-operation is the key to success, we are in big trouble here. Sad isn't it

Blueprint for Canada's economic survival
GREG KEENAN and GORDON PITTS AND HEATHER SCOFFIELD


Waterloo, Ont. — Shoemaker Street traverses an industrial park in Kitchener, where there's no one left making shoes. The once-vital textile industry is a shadow of its former self. The last tire making factory in the onetime rubber capital of Canada will soon shut its doors.

Welcome to Waterloo Region, smack in the eye of the Category 5 hurricane battering the country's manufacturing sector.

The soaring dollar, surging commodity prices, globalization and crises at the two largest U.S. auto makers have exterminated more than 117,000 manufacturing jobs in Canada in just 12 months. Eight plants have shut or are doomed in Kitchener-Waterloo-Cambridge. Massive layoffs have walloped other large industrial employers. About 3,400 jobs have evaporated in furniture making, textiles and auto parts — industries whose high-paying jobs created a solid, middle-class existence for generations.

This kick in the stomach would have staggered other, less resilient communities.

Kitchener-Waterloo, however, bounds ahead, leading the country in economic activity and demonstrating the get-on-with-it fortitude displayed by legions of entrepreneurs going back more than a century. The jobless rate actually fell last month to 5.2 per cent, among the lowest rates in the country.

Call it the Waterloo Way. It's a cultural and economic model that provides a beacon as Canada enters a new age of embattled manufacturing accompanied by massive investments in energy. It's the blueprint for how other communities can become economic warriors in the global battle for jobs and growth. It holds the key for Canada's economic survival and perhaps dominance.

"What happens in Kitchener-Waterloo in knowledge creation and dissemination and creation of high-value innovation is a metaphor for the 21st-century Canadian economy," says David Johnston, president of the University of Waterloo, an institution that is a fairly recent, but critical contributor to the region's success.

It's vital that other parts of the country pay attention to the successes in this community of about half a million people, adds Tom Jenkins, chairman and chief strategy officer of Open Text Corp., one of the leading high-tech companies in the region.

"If you're a community in Canada, the reason you're interested in this is the same reason you're interested in your children's education — it's because this is the future," Mr. Jenkins says.

One essential ingredient lies beneath Waterloo Region's historic ability to shrug off economic shocks and advance to new and leading-edge activities: Culture. The building blocks were laid by hard-working Mennonites who flooded into this part of Southwestern Ontario in the 1800s and were followed by successive waves of immigrants from Germany and elsewhere who embraced change.

Generations of entrepreneurs have adopted an attitude of: "If something new comes along, why aren't we involved in it?" notes Larry Smith, an adjunct associate professor at the University of Waterloo who is an expert on the subject.

The area has been at various times the furniture capital of Canada, the button capital, the shoe making capital and the rubber capital. It's an automotive capital with the expanding presence of Toyota Motor Manufacturing Canada Inc. on the northern edge of Cambridge. Food processing has been a mainstay for more than 100 years. There's diversification beyond manufacturing with a large financial services component through Manulife Financial Corp. and other insurance companies.

Luck helps, too. It's just an hour from Toronto and the key financial backers of new ventures. The U.S. border and the big market for products that have been made here for more than 150 years is not much farther.

The industrial history of the area — and central Canada — is written in yellow brick on a drive up King Street. The Bauer mattress factory is being demolished and the old Kaufman shoe plant is being transformed into the Kaufman lofts. Krug Furniture, Rumpel Felt and Huck Glove — stalwarts of the community for a century or more — still survive.

While they march on as foot soldiers of the old economy, Waterloo's remarkable ability to thrive during seismic economic change is being tested as never before.

It's passing the test, leaving behind shirts, boots and steel-belted radials and rolling into the new economy — world-leading BlackBerry wireless communications devices at Research In Motion Ltd., solar panels at ATS Automation Tooling Systems Inc., digital imaging systems at DALSA Corp.

In the northern part of Waterloo, within the shadow of the University of Waterloo, sits one of the keys to that transition. There, a 15-minute drive from where descendants of Mennonite settlers still cruise the countryside in horse and buggy, Open Text, RIM and others in the burgeoning high-tech sector form the base that is turning the area into the knowledge capital of Canada.

For the moment, RIM, ATS and DALSA are also manufacturing in Waterloo Region, adjusting to the soaring Canadian dollar and resisting the siren call of China, where hourly wages are measured in pennies, and India, where engineers are a dime a dozen.

To explain why those companies grew up there and why they're thriving, Mr. Jenkins points to "the alchemy" of Waterloo, a co-operation between business, governments and educational institutions. "There is an environment here where if you're an entrepreneur in this town, you're treated with great respect, and I mean from everybody," he says.

That's a lesson learned hard and painfully in other Canadian cities, where economic development has often been stymied by cultural, social or political divisions. Kitchener-Waterloo operates on a consensus that growth need not run roughshod over environmental or community goals and that successful business people are not pariahs, but can be heroes. The community is also action-oriented — it actually does things, rather than engage in endless debates about change.

The roots of Open Text and its growth to a $414-million (U.S.)-a-year company exemplify the tripartite co-operation between entrepreneurs, government and the University of Waterloo that serves as a model for other Canadian cities.

The software developer grew out of a 1984 contract professors Frank Tompa and Gaston Gonnet won to help Oxford University develop search engines and software to put the Oxford English Dictionary on-line. Ottawa chipped in with a $1.7-million (Canadian) grant, the university provided the equivalent of another $1-million or so and the first two employees were co-op students.

That's another area where Waterloo led the country — pioneering the co-op program where students spend four-month terms working at companies.

The university was founded by entrepreneurs who feared a looming shortage of technical graduates.

They created an institution that reflected a pragmatic and unique structure. While other centres of higher learning developed around arts programs, the University of Waterloo was born with an engineering, computer science and mathematics focus, and the co-op program, which has generated practical experience and jobs for thousands of graduates.

The co-op program is world renowned. Just ask Komex H20 Science Inc., an environmental firm in Los Angeles that hires University of Waterloo students for work terms. The company has purchased a condo to house the students and provides them with two essentials for beachside Southern California living — a bicycle and a surfboard.

Another crucial decision by the university founders helped incubate hundreds of spin-off companies — allowing researchers to retain the intellectual property rights for anything they developed.

"The key is to give people incentives to think about what might be put to use," says Doug Wright, the first dean of the engineering school and later president of the university in the late 1980s and early 1990s.

The relatively small size of the region also means business leaders are constantly rubbing shoulders so they can toss around ideas and learn from their peers.

"If you happen to be in an industry that's more challenged, then it's a way of really getting access to ideas that you may not otherwise have ..... whether it's on the tobogganing hill or whether it's the mayor's art night," says Jan Chaplin, president of Cambridge-based Canadian General-Tower Ltd., a member of the fifth generation of the Chaplin family to run the company, which began life in the 1860s as a wagon wheel maker. Today, it's a leading producer of swimming pool liners, a major Canadian-based presence in plastic auto parts and a testament to the agility of manufacturers in Kitchener-Waterloo-Cambridge.

Such transitions have not been seamless, but they occur because the community accepts that this is the way of business. People just get on with it, Mr. Wright says. In Waterloo Region, wagon wheel makers morph into auto parts producers, shoe makers become telecom operators and television manufacturers invest in digital projection systems for the 21st century. A wireless e-mail pioneer explores the frontiers of science itself.

Until now, the process of change and adaptation has been pushed along by the casual sharing and incubation of ideas and best practices. But that is about to become more formal with the opening of the Accelerator Centre, a stone's throw from Open Text in the University of Waterloo Research + Technology Park.

It's another example of the three-way co-operation. The federal and Ontario governments donated $13.4-million each to the research park, while Waterloo Region and the City of Waterloo each kicked in $6.7-million. The university supplied 400 acres of land.

The $4-million Accelerator Centre will be an incubator for high-tech startups from the university or even private research labs to help them make the jump to commercial success. It offers startups help to obtain financing, suites in the building and mentoring through a council of entrepreneurs that includes RIM founder Mike Lazaridis, who studied at the University of Waterloo.

The support from government goes well beyond money, Mr. Jenkins points out. "I have situations where I have 20 people who want to move to the city and the mayor has come and given them a talk about Waterloo. He's driven to Toronto to do that."

There are many threats to Waterloo maintaining its skill at riding the waves of economic change —complacency, failure by governments to maintain the infrastructure and the tendency of companies that flourish in Canada's small economy to get swallowed up by global players.

The end of Dofasco Inc., Ballard Power Systems Inc. and wine maker Vincor International Inc. as Canadian companies points to one issue for policy makers trying to determine where the economy is headed.

But focusing on making sure thriving companies stay in Waterloo or even remain Canadian is the wrong argument, in the eyes of Mr. Jenkins.

"What we need to do is not get focused on keeping that steel mill, or keeping that RIM, or keeping that Open Text, but creating the environment from which more will spawn," he says.

"The single best way to keep a RIM in Canada is to educate and reward and encourage Canadian-born entrepreneurs or immigrants that have chosen Canada as their home."