Waterloo region defies odds with growth of high-tech sector, focus on digital media

Focus on Waterloo, Part I

"The patient is healthy." That's the consensus of Iain Klugman, president of Communitech, the unapologetic booster of all things high tech in the Waterloo region. With a handful of large, homegrown tech companies, the presence of several multinationals and a growing cadre of smaller firms, Waterloo's tech sector is on a steep growth curve, with an accent on digital media and benefitting from a remarkable collaboration between key players.

Waterloo's most famous tech firm is Research in Motion Ltd (RIM), but several other major players call the region home including Open Text Corp, Dalsa Corp, Christie Digital, Sandvine Corp and COMDEV International Ltd, located in nearby Cambridge.

Add to that the Univ of Waterloo's unique characteristics of inventor-owned intellectual property, prodigious engineering output and a long tradition of co-op placement, key applied and fundamental research institutes and a potent critical mass of angel investors, and the ingredients for achieving tech success are available in abundance.

But what appears to hold all the elements together in a unified whole is the coherence of the various players in the innovation system. Unlike other Canadian high-tech hubs, Kitchener-Waterloo possesses a spirit of community that allows synergy to flourish.

"What's important about this region is attitude from a research and commercialization perspective," says Tom Jenkins, Open Text's executive chairman and chief strategy officer. "People have a tremendous appreciation of how hard it is to be an entrepreneur and that is why this town has so many serial entrepreneurs. It's attitude. I can't say it any other way."

Klugman says Communitech's focus on the entrepreneur is a direct reflection of a community spirit that stretches back to the days of its Mennonite founders through to the Pollock family (founders of the Electrohome manufacturing dynasty) and more recent company founders such Research In Motion Ltd's Mike Lazaridis and Jim Balsillie and Open Text's Jenkins.

"It's all about the entrepreneur. I seriously believe that if it weren't for Tom Jenkins, Open Text would still be a company with $300,000 in revenue. It's the jockey not the horse," says Klugman. "The biggest resource we have in this country is people who know how to make money, who know how to build businesses."

Even the economic crisis and subsequent recession have done little to dampen the rapid growth of Waterloo's top firms. Fortune Magazine named RIM as the fastest growing company in the world in 2009 with Open Text ranked at #15.

"Here's a country with 2.5% of world GDP and we had two companies rank in the top 20 in the world in probably one of the toughest years ever," says Jenkins. "It's not just that they're from Canada, they're from Waterloo … There are many regions in Canada similar to this and they all have universities. But Waterloo has a university that has a singular technical focus and two interesting and enlightened policies — co-op and the IP regime."

The Univ of Waterloo is in many ways the research and engineering talent anchor for the region with policies that encourage budding entrepreneurs, and a magnet to companies seeking specialized skills and community leadership. With the largest engineering and mathematics and computer science faculty in the country, it provides a potent underpinning of new technologies and skills that the growing tech sector requires.

"There are two distinctive things about this place. One, we believe that theory and practice go hand in hand. Second, there's a passion to apply knowledge including fundamental knowledge, to try and tease out of those secrets on the universe those devices that improve the human condition," says UW president Dr David Johnston. "(Ontario premier Dalton) McGuinty told me that when he looks at Waterloo, he sees the Perimeter Institute which is theory, the Institute for Quantum Computing which is experimentation and Research in Motion, DALSA and Christie which is the application … It's that chain but it's not one-way traffic. It's back and forth along that spectrum from theory to experiment to application."

With 550 companies earning approximately $16 billion in annual revenues and a high-tech workforce of about 30,000, Waterloo's tech sector is not nearly as large as others in Canada or equivalent US cities such as Austin TX. But Klugman notes that the momentum is clearly with the region as it experiences strong deal flow, a steady influx of foreign direct investment and homegrown companies that are expanding rapidly. But the limiting factor continues to be an adequate supply of skilled personnel to satisfy company growth and Waterloo faces a larger hurdle in this area than others. For example, Open Text is currently faced with 800 unfilled positions while RIM is seeking approximately 500.

"The only limits we have at this point in time are talent. If we were a bigger centre we wouldn't have this issue," says Klugman. "The pie just isn't big enough. We're doing initiatives across Canada and the US to try and recruit people to the area but some of the talent doesn't seem to exist at all."

Not all of Waterloo's successful tech companies are homegrown. Firms like Agfa and Raytheon have long been part of the business community while in recent years, major firms such as Google and Sybase have made key acquisitions. In 2000, Cicso purchased a promising start-up called PixStream and promptly shut it down. PixStream employees quickly turned around and formed several other companies including Sandvine Inc which has built itself up to become a powerhouse in network management equipment.

"It's always about the entrepreneur. We have deal flow that people have never seen before in this community," says Klugman.

Another company which is foreign owned but has deep roots in the region is Christie, a global leader in visual technologies including digital projection systems.

A wholly owned subsidiary of Ushio Inc of Japan, Christie stems from a 1999 acquisition of Electrohome Projection Systems by Christie Electric Corp, which was in turn acquired by Ushio.

In the past 10 years, Christie has grown its revenue from $100 million to $500 million and sits on the cusp of another explosion in sales as one of its key markets (cinema projection systems) accelerates the global conversion from film to digital.

Located in Kitchener, Christie conducts about $30 million in R&D annually and does the vast majority of its manufacturing locally (a trait it shares with RIM). Christie president and CEO Gerry Remers says his company's location has allowed it to thrive.

"It's an ideal location for us to try and build a business. It's worked out very well for us," says Remers. "We have a sizeable focus on innovation and investment here because we are able to to access engineers not only here in waterloo but also skilled technicians from Conestoga College and other skill sets from southern Ontario ... It's really important to keep some manufacturing co-located with R&D ... We moved up from 150 units a month in January of last year to 450 a month this summer, to give you an idea of scaling up on the floor"

Next Issue: Waterloo to anchor emerging national digital media network.

R$