Canada’s wood firms cluster for survival – and growth – by Tavia Grant (Globe and Mail – March 31, 2012)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

WALKERTON, ONT.—  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.

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