[Innovation Cluster Theory] Saguenay: Next-Gen Aluminium – by Brian Banks (National Post/December 1, 2009)

The National Post is Canada’s second largest national paper. This column was originally published in the Financial Post Magazine on December 1, 2009.

No. Of Companies: 70, R&D Jobs: 350, Production Jobs: 7,000

The Aluminium industry cluster in the Saguenay-Lac St. Jean region of Quebec, about 200 kilometres northeast of Quebec City, is a success story born of adversity. The first seeds were sown at a 1984 provincial economic summit when Alcan (now Rio Tinto Alcan, or RTA), a key employer and the region’s primary aluminium producer, announced plans for job cuts. New technology and the need to reduce costs left it no choice.

Rather than surrender, local entrepreneurs, civic leaders and Alcan itself hit upon a critical job-creation strategy — build upon Alcan’s massive presence and technical expertise by establishing companies to pursue value-added secondary and tertiary aluminium-related opportunities. Within two years, a $10-million venture capital fund had been established — with $5 million coming directly from Alcan — and the diversification had begun. Twenty-five years and several waves of private-sector, university and government-backed incentives and investments later, more than 70 spin-off companies, employing more than 7,000 workers — making everything from specialized heavy equipment to tubing and other fabricated products to world-class casting technologies for domestic and international markets — call the “Aluminium Valley” home.

While every firm is unique, the story of Mecfor Inc., based in Chicoutimi, is representative of the region’s evolution and the ways in which the cluster concept can foster success. Founded as a small forestry services firm in 1987 and later absorbed as an operating unit within a larger, local engineering and consulting firm, Mecfor took aim at the aluminium business in the late 1990s.

It was another pivotal time for the region, as local businesses, along with the University of Quebec at Chicoutimi, RTA, the National Research Council and the provincial government were formulating plans for new research facilities and a technology park, along with the creation of tax breaks and programs to further boost the then-burgeoning aluminium cluster. “That’s when we decided to concentrate our efforts on aluminium,” says Eloise Harvey, Mecfor’s vice-president of corporate development.

In 1999, Mecfor had three employees and about $250,000 in revenue. At the end of last year, as a niche player that makes specialized mobile equipment for large aluminium smelting and casting plants, it had 85 employees and $18 million in revenue.

A key part of the initial transformation for Mecfor and other firms, Harvey recalls, was to start looking at neighbouring local businesses more as partners than competitors. Over the region as a whole, it’s today easy to envision a dense web of partnerships and support networks. Multi-million-dollar research labs funded by NRC and RTA are available for the use of small local firms. Many of the region’s smaller firms also receive sales and marketing support. Meanwhile, provincial tax credits of up to 35% on wages and overall expenses related to R&D also play a big role in the growth of firms in the cluster. “We’ve reinvested that money year after year,” Harvey says.

Having now spent 10 years in this environment, Harvey says one of the most rewarding aspects is to see several generations of companies taking shape.

In the same vein, Harvey notes that Mecfor and two other companies recently returned from a sales trip to Australia where, for the first time, they footed the entire bill themselves and did not travel under the “Aluminum Valley” banner. It underscores how after years of nurturing, they have reached a point where they depend less on the structures around them — one of the best indicators of the cluster concept’s success.

“We are now more autonomous,” she says. “The wheels are turning.”