Canada's wood firms cluster for survival - and growth

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Three hours northwest of Toronto, a group of Ontario manufacturers is throwing the traditional rules of business out the window.

Business owners visit each other's factories. They share secrets. They plan long-term hiring strategies, collaborate on research and development, and ponder productivity enhancements. They help solve each other's problems on a shared website.

In years past – tumultuous years, given the surge of competition from China and the soaring Canadian currency – these small and medium-sized makers of furniture, flooring, doors and cabinets viewed each other as direct competitors. Now, 30 business owners gather every few months in small boardrooms to share ideas.

The companies formed a cluster, a concept first coined by Harvard University's Michael Porter two decades ago that has since been adopted in countries from Germany to China. While some clusters have emerged in Canada – tech in Waterloo, aerospace in Montreal – manufacturing clusters remain relatively rare in this country.

"We think the recession may have woken people up to realizing that the real competition isn't the person down the street ... it's the one across the ocean," says Adam Hofmann, a founder of the Bluewater Wood Alliance and owner of Bogdon & Gross Furniture Co. Ltd. "By working together, we're all going to benefit."

The cluster is only a year old, but the initiative has already borne fruit. The group can now buy materials, like nails, in bulk, reducing both transport and input costs. Some have been able to buy new machinery after learning of the availability of government grants.

Several have boosted output and sped up their manufacturing processes. Others' operations have become more green by reducing waste. And they are now jointly exploring the feasibility of exporting to new markets, such as Turkey and the United Arab Emirates.

Spurred by the cluster approach, the Bluewater alliance expects escalating growth in the years ahead, while winning back market share lost to competitors abroad.

At Vokes Furniture in Owen Sound, sales have already jumped more than 20 per cent since the cluster got started. "We all have questions and we'd had no one else to ask," says Michael Vokes, who runs the company with his father. In one cost-saving initiative, Vokes Furniture teamed up with Bogdon & Gross to buy truckloads of lumber from the same mill in Quebec, giving both companies a better price and higher-grade material.

The Bluewater alliance is a bright light in what has been a tough climate. Sales in Canada's wood manufacturing industry have dwindled from their peak in 2004, hammered by a flood of cheaper made-in-China imports and by a currency parked at parity, compared with 62 cents to the U.S. dollar a decade ago. Employment in the wood and furniture sectors has fallen by almost 100,000 since the peak in 2003-04.

Some companies quietly closed shop during the recession, particularly those with a heavy reliance on the U.S. housing market. The sturdier ones survived, but business conditions remain challenging.

It all began last January, when Mr. Hofmann and a small group of peers attended a one-week training session in Linz, Austria – dubbed Clusterland, a region that's benefited so immensely from various clusters that it's now teaching people in other countries how to do it.

On their return, seven founding members including Mr. Hofmann started the Bluewater Wood Alliance, based in southwestern Ontario – within a two- or three-hour driving radius of Walkerton, a distance where people can easily visit each other in a day. The group has grown from its seven founding members to 30. It aims to have 100 members in its cluster in the next few years, an optimal size for a well-functioning cluster.

"I have been shocked and surprised how we have broken down barriers to secrecy," Mr. Hofmann says.

A focus on expansion

It is a dark, rainy Thursday morning in March. The alliance's board members are gathered around a small table, running through a list of shared concerns – partnerships with local colleges to help train skilled workers and attract co-op students, and how best to deal with fluctuating energy costs.

The group has asked Wilfrid Laurier University to examine viable global consumer markets outside North America, such as Europe and South America. Many of the alliance's producers supply the domestic market, but they want to go global.

After the meeting finishes, Dennis McGlynn, who runs South Bruce Flooring, walks through his sawmill and flooring plant, the air scented with freshly-cut wood. He's garnered new ideas on how to reduce waste – his operation now recycles 100 per cent of its wood waste. His company has now added a finishing line that produces more value-added products, such as trim and finished baseboards.

"It's opened doors for us," Mr. McGlynn says. "We want to get more into customization."

Ten minutes north, in a beautiful, airy building, Mr. Hofmann's plant is churning out high-end, semi-customized furniture.

The 85-year-old business had already been shifting toward higher-income consumers. Joining the alliance has given it ideas on how to reduce costs (for example, by cleaning goggles rather than replacing them each time) and speed up production.

Further north, in Owen Sound, Vokes Furniture has seen perhaps the most dramatic changes of all. Last spring, Michael Vokes travelled to the famous machinery show in Hannover, Germany, as part of the alliance, where he learned of new high-tech equipment that would be suitable for his plant.

The gang rip saw he bought after his trip has sped up production by 20 per cent. It has reduced waste and boosted lumber yield. In typical cases, machinery investments could lead to a drop in employment. But for Vokes, increased capacity has meant new hires – to 20 people from 15 last year, and more to come this year.

"We can't beat China on price. But we can get it there quicker, and with better quality," he says. "Technology is the future for us. We may be behind Europe, but with this alliance, we can catch up."

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KEY INDUSTRY CLUSTERS

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ST. JOHN'S

Sector: Marine technologies

The Newfoundland capital has become a centre for businesses in the ocean technology sector, with several dozen firms building devices for clients in energy, fishing and transportation. The group includes companies like Rutter Inc., which makes radar and navigation systems, and Lotek Wireless Inc., a firm that builds high-tech wildlife monitoring systems.

WATERLOO, ONT.

Sector: Computer technology

Technology companies began to flourish in the region in the 1970s, partly due to the brainpower at the University of Waterloo, which encouraged academics to commercialize their expertise. The growth of Research In Motion into a massive, worldwide success didn't hurt either. Now, the cluster is formalized through Communitech, a non-profit that promotes the region as a technology hub.

TORONTO

Sector: Food processing

While better known for its concentration of financial services, legal and manufacturing organizations, Toronto's food and beverage cluster is crucial to its economy. A recent Toronto Board of Trade report notes that the food industry is one of the city's biggest employers, is almost recession proof, and has great export potential into the huge markets in the U.S. Northeast.

MONTREAL

Sector: Aerospace

Montreal is home to several global aerospace agencies, including the International Air Transport Association, along with dozens of companies that build aircraft, simulators, parts and components. Big players include Bombardier, CAE and Pratt &Whitney Canada. Several research centres are also based there, including the Canadian Space Agency.

WINNIPEG

Sector: Health Sciences

There are as many as 100 companies in the Winnipeg region that are focused on health-related technologies, fed by research from local universities. Big companies like Valeant Pharmaceuticals International, Apotex and Cangene have manufacturing operations in southern Manitoba, and the International Centre for Infectious Diseases is based in Winnipeg.

SASKATOON

Sector: Plant biotechnology

Saskatoon is home to key institutions in the agricultural biotech sector, including the National Research Council's Plant Biotechnology Institute, the University of Saskatchewan, the Innovation Place research park adjacent to the U of Sask. campus, and POS Bio-Sciences, a not-for-profit R&D facility. Dozens of companies in the region work in agricultural science, health and pharmaceuticals.

CALGARY

Sector: Energy

It's no surprise that Calgary is the centre of the universe when it comes to Canada's energy sector, with a larger proportion of its economy directly or indirectly related to oil and gas extraction. But it has also become home to a vast range of expertise in the financial sector, and is even expanding into energy-related fields such as environmental technology and renewables.

VANCOUVER

Sectors: Transportation, fuel cells

A strategic location helps Vancouver maintain its key role as a transport hub between North America and the Pacific Rim. That makes it a centre for companies in the trucking, shipping and rail sectors. But it has also carved out a niche on the leading edge of fuel cell and hydrogen technologies, which offer much promise but have yet to find a mainstream role in transport.

Richard Blackwell