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While the automotive industry has been in decline for some cities, Toronto ranks at the top of the list. The city placed fifth in finance, just behind Calgary. (Tim Fraser/The Globe and Mail/Tim Fraser/The Globe and Mail)
While the automotive industry has been in decline for some cities, Toronto ranks at the top of the list. The city placed fifth in finance, just behind Calgary. (Tim Fraser/The Globe and Mail/Tim Fraser/The Globe and Mail)

Cities and Industry

Prosperity scorecard measures how cities foster business hubs Add to ...

Mike Tims is clearly in the sweet spot. The company he chairs, Peters and Co., is an investment bank that operates at the intersection of two of the most vibrant sectors of the Calgary economy – resource extraction and financial services.

Those two industry “clusters” are crucial to Calgary’s success, as they bring together a complex group of players whose interaction, competition and collaboration accelerate productivity and innovation.

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Canadian cities are increasingly recognizing the need to nurture and refine these business hubs, getting leaders, educational institutions, and government agencies together to spur them along as they compete for economic activity with other municipalities in North America and around the world.

While the oil and gas cluster has been building in Calgary for decades, financial services is a more recent concentration – as businesses that explore, extract and transport energy resources look for help in financing their operations and taking their companies public.

“It was really kind of natural that a cluster of financial-related businesses would gather in the same location,” Mr. Tims said.

A report released Monday by the Toronto Board of Trade (TBOT) details how five Canadian cities stack up against seven major U.S. cities in 10 key industry clusters.

Some of the results are no surprise. Calgary, for example, ranks first in the energy cluster, thanks to its role as home to most Canadian companies that are active in oil and gas production and energy-related engineering and construction. Vancouver comes out on top among the dozen North American firms in transportation and logistics, mainly because of its position as a hub for Asia-Pacific trade. Los Angeles is at the head of entertainment, while Seattle wins out for aerospace.

Toronto gets good grades on a number of fronts, but it is ranked No. 1 only in the autos and parts group. (Detroit was not included in the TBOT study.)

Unfortunately, the report notes, the automotive industry has been in decline, so being ahead of the pack in this measure isn’t as good as leading the way in booming sectors such as information technology.

Toronto, however, is also a strong performer in finance, transportation, food and beverage manufacturing, and bio-pharma.

That diversity is a great strength for the city and region, said TBOT president Carol Wilding, but it also underlines that Toronto does not have a disciplined cluster strategy. This contrasts with cities such as Boston, she said, which has focused support on its bio-medical hubs. Toronto’s business leaders need to take action, with support from government, she said, to formulate a cluster strategy.

So why is it important to have strong clusters in a region’s or a municipality’s economy?

For one thing, it means there is a wide pool of specialized talent, along with a community of suppliers and financiers with complementary skills – all necessary factors to improve productivity.

In addition, said California-based economic development consultant Ted Lyman, a strong industry cluster provides every company in the group with “more antenna for picking up market signals.” They will be better attuned to figuring out where opportunities lie, and where innovations are being generated, he added. And that can significantly boost a region’s overall productivity.

That has clearly been demonstrated in places such as California’s Silicon Valley, where thousands of high-tech companies thrive cheek-by-jowl, or in Hollywood, where entertainment-related businesses flourish.

But is it possible to force-feed clusters, or to shift a city’s existing cluster mix?

James Milway, executive director of the Martin Prosperity Institute at the University of Toronto’s Rotman School of Business, said the most effective move is “to take what you’ve got and make the best of it.”

Local educational institutions need to turn out skilled graduates that the existing clusters need, he said, and “if the government can prod that along, that’s great.” Solid infrastructure and a stimulating living environment can also help lure skilled workers.

But it is tough for governments to create clusters out of whole cloth, Mr. Milway said, although there have been attempts to do so. Ontario is trying to create a province-wide cluster of renewable technology firms through the local-content requirements in its Green Energy Act – although Mr. Milway is not convinced that will be effective over the long run.

Brock Dickinson, a Hamilton, Ont.-based economic development consultant, said his advice to communities looking to beef up their existing clusters is to understand where key industries overlap, and to concentrate on those areas. In Toronto, that might mean helping to foster manufacturing technology used in the food processing sector, two areas where the city has particular strength.

Those overlaps can make a community unique, and give it a competitive advantage, Mr. Dickinson said.

In Calgary, the convergence of the energy and financial services clusters demonstrates how well this can work.

At one time, politicians in the province were obsessed with diversifying away from energy, said Bruce Graham, president of Calgary Economic Development. Now they recognize that the city needs to use energy as a base, and expand expertise in financial services, green technology or other fields “within and adjacent” to energy.

“Energy is our lead horse,” Mr. Graham said. “That’s something we want to build on.”

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