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Ottawa becomes an incubator for a new kind of manufacturing

To understand Canada's new place in the manufacturing world, consider Ottawa - that sleepy government town that burst on to the international technology scene in the 1990s.

"Silicon Valley North" was the domain of goliaths such as Nortel Networks Corp. and JDS Uniphase Corp., which employed a combined 24,000 people in Ottawa in 2001.

Most know how that fairy tale ended. The tech bubble burst and Nortel, JDS and others crashed.

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JDS's payroll crumbled to 2,500 in 2002 from 10,000 in 2001, according to survey data compiled by the Ottawa Centre for Research and Innovation. Nortel employed 17,000 people in 2000, more than the next nine biggest technology employers in Ottawa combined. When the company collapsed and was sold off in chunks in 2009, Nortel's payroll stood at 3,000.

The tech crash ushered in a period of volatility in the Ottawa economy. Overall employment in the technology industry plunged to 63,700 in 2003 from 79,000 in 2000, but then climbed to 82,000 in 2007. The global recession dealt another massive blow, slashing tech payrolls to 74,600 at the end of 2010, the lowest level since 2004.

Yet an interesting thing happened throughout this period: the number of new companies kept growing. There were 1,944 technology companies in Ottawa at the end of 2010, almost double the number a decade earlier. The growth illustrates a trend toward the formation of smaller, more entrepreneurial companies that have a highly skilled work force, but might not own their own factories. Instead, they will own the idea, the prototypes and control the sales force, while farming out everything else. Successful companies could choose to "manufacture" everything from software programs to logistics strategies and ship these "goods" all over the world.

"The word 'manufacturing' now means different things," says Tony Bailetti, a professor at the Sprott School of Business at Carleton University in Ottawa and a former engineer at Bell-Northern Research, which was absorbed by Nortel.

"It is no different from moving from the agricultural era to the industrial era. We are now moving to a different era."

These startups resemble eSight Corp., a maker of electronic glasses that are about to change the lives of people who suffer from weak vision.

The company was founded in 2006 by Conrad Lewis, a former senior executive at Newbridge and Mitel Corp. who currently runs Eagle One Ventures, a $250-million (U.S.) venture capital firm.

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Few rode the technology wave better than Mr. Lewis. Mitel and Newbridge were two of the brightest stars in the Ottawa technology universe, both achieving multibillion-dollar valuations.

But as eSight's chief executive officer Kevin Rankin tells it, Mr. Lewis's primary motivation wasn't financial success. Mr. Lewis has two sisters who were legally blind by the time they were 30, and his wife also suffers from poor sight. For 25 years, Mr. Lewis used his background in electrical engineering and his money to develop technology that would enable people with weak vision to see better. Later this year, eSight will begin selling glasses equipped with prescription lenses and advanced electronic optics that will allow users to zoom in and out, adjust the brightness and contrast of what they are looking at, and store images for later.

And this breakthrough product will be made in Ontario - but not by eSight.

Mr. Rankin is teaming up with an Ottawa-based factory with expertise in assembling high-end electronics products. That company will make eSight's glasses for the North American market. Mr. Rankin's wants to be able to supply customers with new glasses within a few days of a fitting, so he wants production facilities that are close to his buyers and that's why he is seeking factories in Europe for eSight's debut across the Atlantic. "Let the manufacturing experts do the manufacturing. It's a major investment to buy all that equipment."

North American and European manufacturers are facing increasing competition from China and other Asian countries. But China has not yet reached the tipping point where it shifts into innovation from lower-end assembly. Canada graduates more engineers per capita, and there are questions about the quality of the engineers that are coming out of Chinese schools. And unlike Ireland, the Chinese diaspora isn't rushing home, despite the economic boom.

Mr. Rankin says there are only a handful of places where eSight could prosper. The company benefits from a close relationship with the Ottawa Hospital eye institute, Queen's University in Kingston, Ont., and the University of Waterloo. Ottawa is full of engineering talent, and the city sits fairly close to the U.S. border. "There are a handful of cities where you could do this," Mr. Rankin says. "I don't think you'd list 20. Ottawa is a great city and a great gateway to the U.S."

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But one thing Ottawa is lacking is a deep pool of entrepreneurs, the result of becoming overreliant on a small group of big companies.

Prof. Bailetti is trying to change this. In 2009, he started a program called Lead to Win, which teaches former Nortel employees how to establish and run their own companies. Lead to Win is no weekend seminar. Prof. Bailetti initially accepted about 250 applicants. To stay in the program, participants have to show they are on track to create companies that will employ at least six people. In the second year, he cut the group down to 110. Now in the third year, Prof. Bailetti is left with 76 companies. He doesn't consider the shrinking number a sign of failure. Even if the final number drops to 50, the municipal government, which backed the program, is going to get a considerable return on its investment. Just do the math: at least 300 people paying taxes on salaries that Prof. Bailetti reckons will average about $80,000 a year.

"It's a new way of thinking about wealth creation," he says. "I would rather have 100 companies with 10 employees each than one company with the equivalent number of employees. That company only has one boss. So all my eggs are riding on that one person. I'd rather rely on a lot of brains. The system is more stable."

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