Sunstrum Hanel & Associates

1 November, 2004
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19 October, 2004
"Ottawa tech firms manufacture some of the best products in the world" by Keith Woolhouse ... Ottawa Citizen
It is the irony of high technology's fall from grace that had it not happened, Ottawa's emergence as an innovative manufacturing town might never have got off the ground. At the height of the boom, when JDS Uniphase, Newbridge and Nortel Networks ruled the roost, it was not enough to have a great idea. A great idea with a team of angel investors, now that was something else.

The problem was that in those years although good ideas were two a penny, it still required a couple of million bucks to transform them into viable products. It was like throwing darts blindfolded. Most of them missed the mark. At least those companies had their 15 minutes of fame, and that's more than can be said for the small fry who worked in isolation.

The big boys' stranglehold on critical manufacturing capabilities meant there were few places for the underdogs to turn. The choice was either to leave town or invest millions. The options were neither practical nor possible.

"That's just the way it was about six years ago," says business consultant Roy Sunstrum of Sunstrum Hanel & Associates, who sits on the advisory board of the Ottawa Manufacturers' Network. "The finest manufacturing capabilities were housed inside the bigger companies and accessible only to them. Nortel of the early '90s, for example, had manufacturing facilities all over the place. It was a vertically integrated company that did everything itself, from product design to the chips, circuit boards, manufacturing, packaging and delivery. The small companies didn't get a look in."

That's not how it was outside of Ottawa, in places where small companies were jumping on outsourcing and proving unstoppable. It wasn't that outsourcing was a dirty word in Silicon Valley North, it's just that there was so little of it. The wind of change took time to blow through the Valley, but when it did, what a gust of fresh air it brought.

It's not possible to determine exactly when high tech's house of cards collapsed. But it's no coincidence that when Bruce Rodgers persuaded Terry Matthews in 2001 to launch BreconRidge Manufacturing Solutions, which has since become the most universal outsourcing company in the region, the high-tech industry was staggering under body blows from which it has still not recovered.

Mr. Rodgers had a vision. What he didn't know was whether it would work. He wanted to take BreconRidge beyond the boundaries of being just an outsourcing company to becoming a complete operations partner with its clients. If the plan succeeded it would be a whole new ballgame in which everybody could play.

And playing they are. BreconRidge today has 86 companies that it represents and for whom it works. "We're not just a manufacturing partner," says Mr. Rodgers. "We want to be involved in helping a company design its product. We want to be involved in the design process to make sure the product can be manufactured, and that it covers compliance issues and meets regulatory approvals. We not only build the product, we test it, we launch it, distribute it, ship it, provide a warranty tracking system and have a call centre to supervise it. We are a total operation."

BreconRidge isn't alone. California rivals Sanmina Corp. of San Jose, a dominant force in electronics manufacturing services, and Solectron Corp. of Milpitas, a leading provider of electronics manufacturing and integrated supply chain services, both wield international clout and have established an Ottawa presence.

The reason is obvious. "The costs for a small company to set up its own manufacturing plant are just too prohibitive," Mr. Sunstrum says. "Vertically integrated companies in the older style that did everything from end to end hardly exist anymore. That's changed worldwide. The positive spin is that technology entrepreneurs can now build companies to compete on the world stage without having to go outside of Ottawa for the skills and the resources they need to do it; be it in manufacturing, for testing hardware or for designing software design."

There's no question that BreconRidge, Sanmina and Solectron are in town with the hope of finding the next big thing, Mr. Sunstrum says. "It hasn't happened yet, so they're all looking after lots of little things. But they are here and they're all making money."

Even circuit board assembly has become a thing of the past. HI-QA Inc. and DICA Electronics Ltd., are traditional board-stuffing plants that compete on opposite sides of the street in Carleton Place.

The two companies manufacture emulator or demonstration boards, even in the smallest quantity for customers who want to show clients how they function.

In Cornwall, United Tri-Tech Corp. and SigmaPoint Technologies Inc. offer similar services.

"Five or six years ago, the best manufacturing capabilities in Ottawa were all vertically integrated within JDS Uniphase, Digital Equipment, Mitel and Newbridge," Mr. Sunstrum says. "Five years ago the best semiconductor failure analysis was in Nortel, now it's in MuAnalysis on St. Laurent. It's a lot of the same people but now it's available to everyone. You can be an early-stage company bringing a chip or an electronic product to market and you can get at the BreconRidges, you can get at the MuAnalyses, and you can get at their sophisticated resources."

So, how are these new kids on the block faring? The answer is amazingly well. What is quite startling is the brilliance of their products and the successes being achieved, not just in Ottawa, but worldwide.

That applies to i-STAT Canada Ltd., whose product so impressed U.S. pharmaceutical giant Abbott Laboratories that it bought the company. i-STAT manufactures a hand-held analyser and cartridge that analyses blood and delivers within minutes a reading on a variety of conditions. It's a world-beater.

There's SkyWave Mobile Communications Inc., whose locator terminals are monitoring trucks in the Amazon, ships on the high seas, drinking water pipes in Britain and oil and gas pipelines in Canada's Far North.

There's Smart Technologies' interactive whiteboard that redefines the expression, seeing is believing. Television companies around the world employ Smart's whiteboard -- you've probably seen one being used and not known it -- and several are in the situation room at the White House. International acclaim doesn't get much better than that!

Would any of these Ottawa companies, and many others like them, have enjoyed their success had the high-tech industry not experienced its downturn? Highly unlikely, says Damian Hanel, a partner at Sunstrum Hanel.

"The availability of outsourcing in the Ottawa region has enabled really innovative entrepreneurs to come forward and start their own businesses. They could not have done their own-end-to-end manufacturing. The real story is that the manufacturing capabilities in the region, all the support services, allow companies to start up faster and with less money and deliver quality products.

"And there's a bonus there: the end clients of the high-tech companies see them in a far better light when they know that they have a relationship with a credible contract manufacturer, because they know that all the variance issues are being taken care of, and they've got good quality systems in place.

"They know that they have their head around the delivery system, whereas typical technology companies have their head only around the transfer function and pay short shrift to the delivery system.

"Now you can get a world-class delivery system just by walking down Legget Drive."

Mr. Hanel is at odds with those who rarely give Ottawa manufacturers the credit he feels they're due. "I think part of that attitude is the belief that manufacturing is an easy art. The real challenge in delivering physical products is replication, making sure that every product comes out the way it was intended to come out. That's the challenge. Anybody can make one thing work. It's making 10,000 things work. We have a low appreciation of the nuances of manufacturing."

There was soul-searching and hand wringing in September when Nortel Networks put its huge Corkstown optical components manufacturing complex up for sale. The concern was that the sale would reflect poorly on the region's high-tech image. The truth is that the chip and optical plant is superfluous to existing needs, certainly Nortel's, which has also gone to the outsourcing route.

Others wonder if the outsourcing trend will tempt companies to export their needs overseas. Mr. Sunstrum thinks not. "Many local outsourcing companies, BreconRidge, for example, have relationships with manufacturers overseas. It will be to a local company's advantage to stay with BreconRidge and let them handle the time-zone problems. A company will be able go into overseas production without ever having to leave Ottawa. There's a point where offshore may make some sense, but the volumes will dictate that, and it's not something that a startup has to be concerned about. And even if that happens, other startups will be moving in to take their place.

"In the early days, regardless of product, when there are a lot of design changes and interaction between engineering and manufacturing, proximity is king."

There are 600 companies engaged in active manufacturing in the Ottawa region. While the numbers have hardly changed over the past few years, the number of employees in the sector has declined dramatically. The departure of JDS Uniphase, which at its peak employed approximately 10,000, and the loss of jobs at Nortel Networks, are to blame for that.

But that should not cast a pall of gloom over the region's manufacturing base, which is flourishing as never before. It simply shows that statistics can mislead.

"Manufacturing is alive and well in Ottawa," said Mr. Sunstrum. "No, there aren't a huge number of companies doing all their own manufacturing in-house. It doesn't pay them and that's not an Ottawa thing, it's a global thing. Outsourcing is a given."

Ottawa's computer and electronic products sector dominates the overall manufacturing sector with 47 per cent of employment.

"I don't think Ottawa is ever going to be a city with huge manufacturing plants that resemble the automotive industry's," says Mr. Sunstrum. "It's not that kind of city. Manufacturing in Ottawa is about supporting the early stage and the ramp-up part and the high-churn part of product life. It's about providing some specialized capabilities. When you look at some of the things that MDS Nordion does with radioactive isotopes, it may not fit into the high-tech definition that we're talking about today, but those are really hard to duplicate skills...

"The positive aspect of having this manufacturing capability in the city is that it allows companies with minimal investment to get their product out. The fact that these companies exist in Ottawa is a testimony to the belief that they've invested in Ottawa. It's a testimony to the healthy technology market in the city -- it's a vote of confidence."