Challenges of Transformation: Innovation, Re-bundling and Traditional Manufacturing in Canada's...

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Challenges of Transformation: Innovation, Re-bundling and Traditional Manufacturing in Canada'sTechnology TriangleHarald Bathelt a , Andrew K. Munro b & Ben Spigel ca Department of Political Science and Department of Geography & Program in Planning,Sidney Smith Hall , University of Toronto , 100 St. George Street, Toronto , ON , M5S3G3 , Canadab Institute for the History and Philosophy of Science and Technology, Victoria College ,University of Toronto , 91 Charles Street West, Toronto , ON , M5S 1K7 , Canada E-mail:c Department of Geography & Program in Planning, Sidney Smith Hall , University ofToronto , 100 St. George Street, Toronto , ON , M5S 3G3 , Canada E-mail:Published online: 04 Oct 2011.

To cite this article: Harald Bathelt , Andrew K. Munro & Ben Spigel (2013) Challenges of Transformation: Innovation,Re-bundling and Traditional Manufacturing in Canada's Technology Triangle, Regional Studies, 47:7, 1111-1130, DOI:10.1080/00343404.2011.602058

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Challenges of Transformation: Innovation,Re-bundling and Traditional Manufacturing

in Canada’s Technology Triangle

HARALD BATHELT*, ANDREW K. MUNRO† and BEN SPIGEL‡*Department of Political Science and Department of Geography & Program in Planning, Sidney Smith Hall, University of Toronto,

100 St. George Street, Toronto ON M5S 3G3, Canada. Email: [email protected]†Institute for the History and Philosophy of Science and Technology, Victoria College, University of Toronto, 91 Charles Street

West, Toronto ON M5S 1K7, Canada. Email: [email protected]‡Department of Geography & Program in Planning, Sidney Smith Hall, University of Toronto, 100 St. George Street, Toronto

ON M5S 3G3, Canada. Email: [email protected]

(Received August 2010: in revised form June 2011)

BATHELT H., MUNRO A. K. and SPIGEL B. Challenges of transformation: innovation, re-bundling and traditional manufacturingin Canada’s Technology Triangle, Regional Studies. This paper develops a perspective of regional re-bundling in overcoming econ-omic crises. It does this by focusing on the effects of the recent global financial crisis on traditional manufacturing. It analyses thestructure of innovation processes and their development over time in Canada’s Technology Triangle – a region known for uni-versity-related spin-off processes and successful modernization. What is less well known is that this region has been strongly influ-enced by traditional manufacturing industries. It is shown that these industries have been well prepared to deal with the effects ofthe crisis due to ongoing innovation and diversification stimulated by prior economic crises.

Canada’s Technology Triangle Manufacturing sector Global financial crisis Re-bundling Innovation practices/strategies

BATHELT H., MUNRO A. K. and SPIGEL B. 转型的挑战：创新、再绑定以及加拿大技术三角中的传统制造业，区域研究。本文提出了区域绑

定视角来应对经济危机。文章通过集中于目前传统制造业全球金融危机效应，对此问题进行了考察。文章分析了创新过程的结构以及加拿大技术三

角的发展。人们普遍认为加拿大技术三角的成功源自与大学相关的脱离过程以及现代化。但是对于该区域受传统制造业影响较大这一点较少研究关

注。文章认为，这些产业足以应对由于持续的创新及前经济危机导致的多样化所引发的危机。

加拿大的技术三角制造业全球金融危机再绑定创新实践/策略

BATHELT H., MUNRO A. K. et SPIGEL B. Le défi de la transformation: l’innovation, le refusionnement et l’industrie manufactur-ière traditionnelle dans le triangle canadien de la technologie, Regional Studies. Cet article cherche à développer une idée du rôle durefusionnement quant à la résolution des crises économiques. On met l’accent sur les retombées de la dernière crise financière mon-diale sur l’industrie manufacturière traditionnelle. On analyse la structure des processus en matière d’innovation et leur développe-ment au fil du temps dans le triangle canadien de la technologie – une région bien connue pour les retombées universitaires et lamodernisaion réussie. Ce qui est moins bien connu c’est la forte influence sur cette région des industries manufacturières tradition-nelles. On démontre que ces industries ont été bien équipées pour faire face aux retombées de la crise en vertu de l’innovation encours et de la diversification stimulée par les crises antérieures.

Triangle canadien de la technologie Secteur manufacturier Crise financière mondiale Refusionnement Pratiques etStratégies en matière d’innovation

BATHELT H., MUNRO A. K. und SPIGEL B. Herausforderungen der Transformation: Innovation, Neubündelung und traditio-nelle Industrien in Canada’s Technology Triangle, Regional Studies. Der Beitrag entwickelt eine Perspektive regionaler Neubün-delungs (Re-bundling-) Prozesse zur Überwindung ökonomischer Krisen. Der Fokus der Studie liegt bei den Auswirkungen derglobalen Finanzkrise Ende der 2000er Jahre auf traditionelle Industrien. Untersucht werden die Struktur von Innovationsprozes-sen und ihr Wandel am Beispiel von Canada’s Technology Triangle – einer Region, die durch universitätsbezogene Spin-offsund ökonomische Modernisierungsprozesse bekannt geworden ist. Weniger bekannt ist dagegen, dass die Region ebensodurch traditionelle Industriesektoren geprägt ist. Die Ergebnisse der durchgeführten Unternehmensbefragungen zeigen, dassdie betreffenden Industrien überraschend gut auf die Wirtschaftskrise vorbereitet waren und darauf reagieren konnten. Dies

Regional Studies, 2013

Vol. 47, No. 7, 1111–1130, http://dx.doi.org/10.1080/00343404.2011.602058

© 2013 Regional Studies Associationhttp://www.regionalstudies.org

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hing mit andauernden Innovationsprozessen und Diversifizierungsbemühungen zusammen, die durch vorhergehende Krisen aus-gelöst wurden.

Canada’s Technology Triangle Traditionelle Industrien Globale Finanzkrise Neubündelung (Re-bundling) Innova-tionspraktiken/-strategien

BATHELT H., MUNRO A. K. y SPIGEL B. Retos de transformación: procesos de innovación, recombinación y manufactura tra-dicional en el Triángulo Tecnológico canadiense,Regional Studies. En este artículo desarrollamos una perspectiva de recombinaciónregional en la superación de las crisis económicas. Para ello nos centramos en los efectos de la reciente crisis financiera mundial en lamanufactura tradicional. Analizamos la estructura de los procesos de innovación y su desarrollo con el paso del tiempo en el Tri-ángulo Tecnológico canadiense, una región conocida por los procesos spin-off universitarios y sus avances en modernización. Loque es menos conocido es que esta región ha estado muy influenciada por las industrias manufactureras tradicionales. Demostramosque estas industrias han estado bien preparadas para tratar los efectos de la crisis debido a la continua innovación y diversificaciónestimuladas por las crisis económicas anteriores.

Triángulo Tecnológico canadiense Sector manufacturero Crisis financiera mundial Reconstrucción Prácticas/estrate-gias de innovación

JEL classifications: L16, L62, O31, R11

INTRODUCTION

To date, limited information is available about the con-sequences of the recent global financial crisis on tra-ditional manufacturing industries, even though theseindustries, especially the automobile-related branches,were hit hardest. This study investigates the effects ofthis crisis on regional innovation practices and structuresin a case study of ‘Canada’s Technology Triangle’(CTT) – a region about 100 km west of Toronto,Ontario – which consists of the Kitchener and Guelphmetropolitan areas.1 This region is regarded as one ofCanada’s ‘model economies’, a claim based primarilyon the region’s success in the transformation from a tra-ditional manufacturing economy to one that increas-ingly includes new information technologies.

Between 2001 and 2006, the Kitchener census metro-politan area (CMA) and theGuelph census agglomeration(CA) experienced an increase in population and jobs sig-nificantly higher than the national and provincial growthrates and similar to those in the Toronto CMA (BATHELT

et al., 2010). The unemployment rates were among thelowest in any Canadian metropolitan area. In 2006, theunemployment rates in the Kitchener CMA and theGuelph CAwere 5.6% and 5.1%, respectively, comparedwith 6.4% in Toronto and 6.1% in Canada (STATISTICS

CANADA, 2006). This supports the view that this regionbenefited from university spin-offs and related transform-ationprocesses.Numerous information technologyfirms,such as Open Text and Research in Motion – the makerof the now famous BlackBerry device – have beensuccessfully spun-off by researchers and students at theUniversity of Waterloo, establishing a growing high-technology sector in the region (BATHELT and HECHT,1990; BRAMWELL and WOLFE, 2008), with supposedlyhigh growth potential in ‘creative economy’ sectors(BMO CAPITAL MARKETS, 2008; FLORIDA andMARTIN, 2009).

In the media hype around CTT’s supposedly ‘post-industrial’ future (PERRY, 2009), it is often forgottenthat the region has a strong manufacturing tradition(ENGLISH and MCLAUGHLIN, 1983; VINODRAI, 2011)that remains important for the region today (HOLMES

et al., 2005; RUTHERFORD and HOLMES, 2008). Bothacademic and policy research on innovation tends tofocus on its ‘elite’ forms in high-technology industriesand ignores the often informal innovation activitiesthat happen in traditional industries (RUTHERFORD

and HOLMES, 2007). In 2008, approximately 44100of 76900 manufacturing employees (57%) and 1048 of2163 establishments (48%) in the region fell withintraditional manufacturing segments in the metal-fabricating/processing, machinery, plastics and rubber,electrical equipment, and automobile supplier industries(Table 1). In the Kitchener CMA, the manufacturingsector had a share of 20.3% of the total labour force in2007, nearly twice the Canadian average (Fig. 1). Assuch, this sector’s contribution, despite a precipitousdecline in the past decade, cannot be neglected in theregional success story.

The onset of the global financial crisis of 2008–2009 was unique in both its speed and severity,making it reasonable to expect that it would have asignificant impact on the region’s economy givenits dependence on traditional manufacturing. Whatstarted as a crisis and collapse in the United Stateshousing market quickly spread globally throughcomplex webs of financial derivatives, causing panicin international credit markets (ENGELEN and FAUL-

CONBRIDGE, 2009). The automotive sector – alreadyreeling from lower sales due to high gas prices atthat time – experienced a dramatic decline in sales asconsumer credit was all but cut-off. Like other econ-omic downturns, this led to a crisis of demand asdownstream firms cut down on their manufacturing

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inputs, leading to a ripple effect through the globalproduction system.

The Kitchener and Guelph metropolitan areas werestrongly hit by the crisis as indicated by shifts in unem-ployment figures. In March 2009, the unemploymentrate in the Kitchener CMA increased to 9.6%, exceed-ing the respective figures of the Toronto CMA (8.8%)and Canada (7.6%). Compared with a year earlier,unemployment had nearly doubled. The region lostover 10000 manufacturing jobs since early 2007, repre-senting more than a 17% loss in this sector (STATISTICS

CANADA, 2009). The Chief Executive Officer (CEO)of Guelph-based Linamar, Linda Hasenfratz, warnedat the annual Canadian Manufacturing Technology

Show in Toronto: ‘There is a worry that we’re goingto see another wave of bankruptcies’ (VAN ALPHEN,2009). This, however, is not what happened as theautomobile supplier sector began to recover and newmanufacturing jobs were created pushing the unem-ployment rate down (VAN ALPHEN, 2010; STATISTICS

CANADA, 2010b, 2010c).This study was designed as one of the first empirical

studies in economic geography that systematically ana-lyses the relationship between regional innovation prac-tices and the global financial crisis. Accordingly, thecurrent study has three goals. First, it aims to investigatethe innovation practices and strategies employed by tra-ditional manufacturing firms during the crisis. Second, it

Table 1. Number and location quotients (LQs) of firms and employees in Canada’s Technology Triangle (CTT) by industrialsector, 2008

Industrial sectors by NAICS code

Kitchener census metropolitan area (CMA) Guelph census agglomeration (CA)

FirmLQ

Numberof firms

EmployeeLQ

Number ofemployees

FirmLQ

Numberof firms

EmployeeLQ

Number ofemployees

311 – Food Manufacturing 1.02 96 2.34 7392 1.16 32 1.60 1308312 – Beverage and Tobacco

Product Manufacturing0.95 13 0.43 131 1.49 6 5.23 408

313 – Textile Mills 1.42 17 1.00 278 0.29 1 0.04 3314 – Textile Product Mills 1.53 31 2.89 1004 0.51 3 0.24 21315 – Clothing Manufacturing 0.60 34 0.80 668 0.48 8 1.74 376316 – Leather and Allied


321 – Wood ProductManufacturing

1.33 79 0.73 1158 1.09 19 0.47 191

322 – Paper Manufacturing 0.91 13 1.28 1221 3.10 13 3.22 795323 – Printing and Related

Support Activities0.98 104 0.69 1069 0.96 30 0.67 267

324 – Petroleum and Coal Pro-duct Manufacturing

1.23 7 0.78 171 1.20 2 0.04 3

325 – Chemical Manufacturing 1.24 53 1.09 1482 1.91 24 2.08 731326 – Plastics and Rubber

Products Manufacturing2.09 93 2.55 5347 1.84 24 1.31 709

327 – Non-Metallic MineralProduct Manufacturing

1.25 49 2.14 2091 0.96 11 2.22 560

331 – Primary MetalManufacturing

1.71 23 1.51 1111 0.76 3 0.36 69

332 – Fabricated Metal ProductManufacturing

2.05 329 2.35 8654 2.04 96 3.16 3004

333 – Machinery Manufacturing 2.49 272 2.83 7671 1.62 52 4.13 2882334 – Computer and Electronic


335 – Electrical Equipment,Appliance and ComponentManufacturing

2.13 56 2.82 2255 1.43 11 4.69 967

336 – Transportation EquipmentManufacturing

1.65 75 3.66 7446 2.99 40 9.89 5199

337 – Furniture and Related Pro-duct Manufacturing

1.30 114 1.80 2836 0.82 21 0.34 136

339 – MiscellaneousManufacturing

1.17 165 1.40 1929 0.77 32 0.46 163

Total – 1721 – 58815 – 442 – 18105Selected industry total – 825 – 31373 – 223 – 12761

Notes: Reference values for the computation of LQs were the respective Canadian totals. Selected traditional manufacturing sectors are shown initalics.

NAICS, North American Industry Classification System.Source: STATISTICS CANADA (2008).

Innovation, Re-bundling and Traditional Manufacturing in Canada’s Technology Triangle 1113

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aims to explore in which way firms in these industrieshave been affected by the recent crisis. Third, it investi-gates which responses and strategies firms have devel-oped to cope with the crisis effects. These aspects areanalysed in the context of a conception of regional rup-tures and re-bundling.

Based on these goals, the paper is structured asfollows: the next section discusses the conception ofregional ruptures and re-bundling, which allows aninvestigation to be made on the effects of economiccrises on regional development trajectories. The thirdsection discusses the methodology used and the empiri-cal data analysed. The fourth section identifies andcharacterizes the current structure of innovation lin-kages and types of innovation practices observed inthe traditional manufacturing sector of CTT. The fifthsection investigates the effects of and responses to theglobal financial crisis emphasizing the role of ongoinginnovation and adjustments. Finally, the sixth sectiondraws conclusions.

CONCEPTUAL BACKGROUND:RE-BUNDLING OF KNOWLEDGE AND

OTHER RESOURCES

This section develops a conceptualization of regionaleconomic development paths that led the analysis ofthe innovation practices and dynamics of CTT’straditional manufacturing economy. This frameworkis of particular interest as it addresses the role ofmajor economic crises and their impacts on regionaldevelopment. Much of the literature in economicgeography on related issues (for example, RIGBY and

ESSLETZBICHLER, 1997; BOSCHMA and LAMBOOY,1999; GRABHER, 1993; HASSINK, 2005; MARTIN andSUNLEY, 2006) employs an explicitly evolutionary con-ception of the economy (NELSON and WINTER, 1982;DOSI, 1988).

While acknowledging discontinuous technologicalchange, these studies often focus on technological con-tinuity and lock-in. Although such a focus helps one tounderstand how development trajectories are formed, itis less helpful in periods of crisis characterized by unex-pected ruptures and discontinuities. A lock-in perspec-tive (MARTIN, 2010) also appears to emphasize paststructures rather than looking forward on processes ofrestructuring or re-bundling. Similarly, perspectivesthat emphasize equilibrium tendencies, such as someof the resilience approaches (CHRISTOPHERSON et al.,2010), seem ill-equipped to deal with periods of funda-mental ruptures. The present paper assumes, instead,that economies are in a state of constant change andongoing power struggles that might lead to temporaryfixes, but not to a static equilibrium (TAYLOR, 2000;CHAPMAN et al., 2004; BATHELT, 2009). Overall, evol-utionary accounts tend to over-emphasize continuousadaptation while neglecting political economy contextsand ruptures (also MACKINNON et al., 2009).

While recent work combining evolutionary econ-omic geography and resiliency has explicitly addressedthe role of economic and technological discontinuitiesin regional economic development (SIMMIE andMARTIN, 2010), the literature as a whole is stillfocused on the gradual evolution of regional economieswith little discussion about how regions adapt to suddencrises. Regional diversification in this approach fre-quently occurs through a branching process, wherebynew products and services are based on existing compe-tencies and skills (NEFFKE et al., 2011). When firmsdiversify their product lines, their new endeavoursemerge from previous experience and competencies,and from locally available knowledge and resources(BOSCHMA and FRENKEN, 2011). While this processallows firms to move up a supply chain and improvetheir profitability, it also makes them vulnerable tosudden declines in demand. Regions with a diverse setof industries and exports, however, may enable localfirms to diversify the markets and industries they serveby tapping into the varied set of local resources andcompetencies (FRENKEN et al., 2007).

The branching-out approach has much in commonwith the re-bundling perspective developed in thispaper, though work on branching-out primarilyfocuses on ex-post analyses of regional developmentsbased on large data sets. It also prioritizes a view ofregional continuity along bundles of related activitiesand competencies and, as such, may sometimes over-look largely unconnected developments after crisis situ-ations.2 In contrast, of interest here is the developmentof a conceptualization that includes both related andunrelated developments and allows one to study

Fig. 1. Percentage of the Canadian and Kitchener censusmetropolitan area (CMA) labour force in manufacturing sectors,

1987–2007Source: STATISTICS CANADA (2010a)


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regional development during crisis periods using a quali-tative method of enquiry to explore the nature of andrationales behind economic decision-making. Theauthors are particularly interested in investigating howsuch processes at the firm level translate into regionaltrends and developments in aggregate form.

STORPER and WALKER’s (1989) model of regionalindustrial development makes an important step inaddressing technological discontinuities by suggestingthat regional development is characterized by periodsof relatively drastic change and periods of more incre-mental, successive changes in the spatial organizationof industries. In this model, newly developing industrieschallenge existing spatial industry patterns and insti-tutional settings, causing what STORPER and WALKER

(1989) referred to as ‘shifting centers’ (SCOTT, 1988).This model and PENROSE’s (1959) analysis of the

growth of the firm are used as a starting point for theconceptualization. Penrose’s work – which providesan important basis for the resource-based view of thefirm (WERNERFELT, 1984) – sees firms as bundles ofresources and resources as bundles of possible services.This suggests that it is not possible to differentiatebetween resources and their respective services,because resources can serve a variety of purposes,depending on the context in which they are employed.According to PENROSE (1997, p. 31), ‘Strictly speaking,it is never resources themselves that are “inputs” in theproduction process, but only the services that theresources can render.’ This provides the basis for a rela-tional understanding of resources or, in a broader sense,capital. In this way, regional ruptures or crises providethe basis for de-contextualizing and subsequently re-contextualizing different forms of capital and theirspecific uses. Re-bundling can be understood as botha process through which new resources are integratedinto the regional production process and how existingresources, such as knowledge, are used in differentways to serve a different purpose (BATHELT andBOGGS, 2003; BATHELT, 2009). In other words, re-bundling is a process that readjusts existing and new,internal and external resources to the needs of newsocio-political and economic settings. The term is usedhere with respect to regional contexts of crisis andrestructuring that start at the firm level and build up inaggregate and collective ways to the regional level.

Political and economic crises strain a regional econo-my’s social cohesion. They disrupt existing transactionalnetworks, releasing resources for alternative uses. Sup-pliers and service firms, previously focusing on theneeds of the dominant sector, are now open to newventures and technologies developed in other sectorsand/or other regions. Crises lead to two kinds of adjust-ments or shifts: geographical shifts, as assets leave theregion; and sectoral/technological shifts, as assets areredeployed to the region’s other sectors and technol-ogies. Both forms clearly impact the nature of regionalinnovation. While geographical shifts may lead to

cumulative shrinking processes (MYRDAL, 1957), sec-toral/technological shifts may cause innovations andcapabilities developed in one sector to filter intoanother. Drawing on North American experiences,FELDMAN and FRANCIS (2006) argued that in periodsof crisis and discontinuity, entrepreneurial potentialcan be mobilized, resulting in the establishment ofnew firms that may drive regional development later on.

Regions begin to recover from a crisis when agentsre-bundle the resources at hand (that is, financial, phys-ical, human and social capital) for a new round ofaccumulation. Interactive learning and innovation pro-cesses may enable the region’s actors to re-bundle tech-nological trajectories if they can mobilize or redirectresources and agents towards collective action(BATHELT and BOGGS, 2003). Not every new bundleof technologies and related economic activities necess-arily has a significant positive impact on a region’s devel-opment. In order to shape the development path andhelp overcome the regional crisis, a new ensemble ofspecialized resources and competencies must develop.This new bundle must be anchored to the localeconomy by non-ubiquitous resources found within aspecialized social division of labour. It also must have acertain minimum size and must develop institutions toreproduce itself – to be able to achieve broader adapta-bility in the sense of GRABHER and STARK (1997).From a regional perspective, this suggests that eventhough actions in response to a crisis are largely carriedout by firms based on their own unique situation, theseactions (such as laying off employees, exiting marketsor innovating) contribute to the larger regional pool ofresources which all firms might draw upon throughsocial and spatial divisions of labour within and acrossvalue chains.

The concept of re-bundling does not imply thatregional crises are overcome through regional assetsalone. In fact, re-bundling processes are often initiatedor supported by external agents and capital, whichmay be more or less related to prior developments.For instance, integration into global production net-works and the resulting access to outside resources andmarkets are often essential to regional competitiveness(SCOTT, 1998; AMIN, 2004; OWEN-SMITH andPOWELL, 2004). In order to anchor these initiativeswithin a region and trigger regional development,local actors, of course, must also be mobilized – aprocess that is easier to achieve if taking place inrelated sectors (BOSCHMA and FRENKEN, 2011).Therefore, the re-bundling perspective focuses onthose agents and assets which can be mobilized toanchor a particular technological trajectory within aregion.

Fig. 2 clarifies the relationship between regionaleconomic structure, crisis and the re-bundling ofresources in the context of regional developmentpaths. The sequence shown begins at time t, when theregional development path is shaped by an industry


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structure that evolved in the past characterized by a tra-ditional mixture of intra-regional and extra-regionalinnovation linkages. In the next stage, time t+ 1, a pol-itical, economic or technological crisis has shattered theregional industry structure. Whether this rupture leadsto a deeper long-term crisis in period t+ 2 (Cases Aand B), or triggers re-bundling processes that reviveexisting and develop new structures (Cases C and D),depends on the nature of re-bundling and restructuringprocesses that take place at the firm level and the avail-ability and mobilization of additional resources. The fol-lowing brief discussion of re-bundling processes focuseson four ideal-type scenarios at period t+ 2. Particularly,focus is placed on different recombinations of resourcesand the role of innovation in structuring re-bundling(CHAPMAN et al., 2004; MARTIN, 2010):

. Case A: No re-bundling. This case is characterized bymassive plant closures and lay-offs leading to long-term decline. Resources remain unused as the unem-ployment rates sharply increase and industrial spacesare left empty. Active re-bundling strategies are notapplied and, consequently, new economic linkagesin production and innovation are not formed,leading to ‘regional paralysis’.

. Case B: Un-bundling. This scenario leads to a reloca-tion of firms to other regions and nations, with con-sequences similar to Case A. In aggregate form,persistent regional decline may result, while theregional resource base shrinks and mobile labourleaves the region to find new employment opportu-nities. Existing innovative linkages are minimizedand new linkages pass over the region, leaving anisolated regional economy with little innovation.

. Case C: Ongoing re-bundling. The next scenariodescribes a situation where agents are not unpreparedfor crisis situations, as they engage in continuousinnovation and adaptations of existing structures and

linkages. The crisis still affects the regional resourcebase, but firms are able to build on prior innovationto minimize regional effects. The likely trajectory isbased on cumulative development patterns and leadsto a slow but steady recovery. This developmentrelies on the initiatives of regional agents.

. Case D: Radical re-bundling. The last scenario is themost optimistic in terms of the mobilization of newexternal resources and the engagement of newagents from other regions and countries in the restruc-turing process. This can lead to a more fundamental,discontinuous shift in the regional industry base andinnovation structure, especially in relation to cross-regional and international value chains.

While CHAPMAN et al. (2004) focused on two dis-tinct paths of re-orientation (that is, renewal and adjust-ment), the above stylized re-bundling scenarios draw amore diverse action-space and extend this classificationby explicitly distinguishing between internal and exter-nal resources. Similar to CHAPMAN et al. (2004), thepresent authors view diversification as an importantstrategy in overcoming crises. In the context of inno-vation, practices may be incremental or more radicalin nature. In the end, aggregate and collective re-bund-ling activities – the act of readjusting longstanding pat-terns of capital investment, accumulation and labourrelations – help make regional economies more ‘resili-ent’ to large-scale economic change.3 Resilient regionaleconomies, especially Cases C and D, may still experi-ence decline and reinvestment in times of crisis, butretain the internal capacity to change their industrialstructure to take advantage of new markets and indus-tries. While entrepreneurship is a critical factor in devel-oping resilient regional economies (MALECKI, 2009),attention ought to be paid to the ability of existingfirms to re-bundle existing resources and competenciesduring times of economic upheaval.

Fig. 2. Regional development trajectories at the crossroads: ruptures and re-bundling


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Based on this conceptualization, the next section dis-cusses the methodology applied and the empirical studyconducted.

METHODOLOGY AND DATA BASIS

While this study originally intended to investigate theinnovation practices in CTT’s traditional manufacturingsector and local and non-local innovation linkages withsuppliers, customers and other partners, the goal shiftedwith the global financial crisis. It was decided to use aqualitative framework to explore the nature anddynamics of innovative practices chosen in response tothe crisis, and to understand the strategies behindfirms’ actions and decisions (EISENHARDT, 1989).Despite this explorative focus, the survey was initiallyorganized as a larger random sample. Through this,the intention was to represent a substantial part ofthe region’s traditional manufacturing sector and tomake more general claims about some of the region’sdominant innovation practices and responses to thecrisis.

Between November 2008 and May 2009, forty in-depth, semi-structured interviews were conductedwith the owners or managers of industrial firms. Theseinterviews, which lasted from thirty minutes to overone-and-a-half hours, aimed at investigating what roleinnovation and research and development (R&D)played in the creation and maintenance of competitiveadvantage. First, questions were raised regarding thestart-up processes, location decisions and the region’scharacteristics. Second, particular attention was paid tothe innovative linkages firms had with local and non-local customers, suppliers and competitors. Othertopics touched on the firms’ affiliations with industryand trade groups, their attendance at trade fairs, theuse of Internet forums to generate innovative ideas, aswell as their links to universities or other research lab-oratories. Third, questions were asked to enquireabout the nature and effect of the global financial crisison firm performance and innovation.

Although the study region is primarily known for itshigh-technology start-up culture and university spin-offs, it is also a major centre of manufacturing industriesin Canada (Fig. 1). Its proximity to Toronto, the steelmills of Hamilton, the automobile industry in SouthernOntario, as well as major US markets contributes to itsmanufacturing strength. The region and its immediatesurroundings feature two major automobile plants(Toyota and Honda) and several major auto-parts man-ufacturers along with other major industrial firms. Theseare both locally owned as well as subsidiaries of globalcorporations.

To select a study population, the industrial makeupof the Cambridge–Guelph–Kitchener–Waterlooregion was first examined. The focus was on sectorswith higher-than-normal concentrations in the region,

compared with the Canadian average. Table 1 showsthe location quotients (LQs) related to the number offirms and employees in all twenty-one manufacturingsectors of the North American Industry ClassificationSystem (NAICS) for 2008. From this, five traditionalmanufacturing sectors with above-average concen-trations of firms and employees were selected. Thesesectors were plastics and rubber manufacturing(NAICS code 326), fabricated metal products manufac-turing (332), machinery manufacturing (333), electricalequipment manufacturing (335), and transportationequipment manufacturing (336). As shown in Table 1,these traditional industries are quite important in theregion, with about 44100 employees and 1050 firms(STATISTICS CANADA, 2008). These sectors are notnormally considered to be particularly innovative. Infact, a lack of R&D and innovation has been blamedfor the gradual decline in the region’s traditional manu-facturing sectors (BAGCHI-SEN, 2001).

The study population was created based on a businessdirectory provided by CTT Incorporated, the localeconomic development agency. Within the studyregion, this database listed 642 firms in the five sectorsselected. From this list, a stratified random sample (witha small number of preselected key firms) was taken, and310 firms were approached. After several rounds of con-tacts, forty firms were successfully interviewed, produ-cing a response rate of 12.9%. While this seems low,this was to be expected because the fieldwork was con-ducted during the globalfinancial crisis in 2008 and 2009.

The authors began contacting and interviewing firmsfor this study in November 2008. This was within daysof the major automobile manufacturers announcing thattheir last-month sales had declined by 25–40% from theprevious year (BUNKLEY, 2008, p. 100), and less thantwo months after the collapse of Lehman Brothers.This was clearly reflected in the reactions experienced.One interview, for instance, booked with a small partsmanufacturer which produced parts for GeneralMotors, was cancelled by the owner a day after initialplans for an auto bailout were derailed by the US Treas-ury, saying that he was ‘struggling to survive’.4

As SCHOENBERGER (1991) noted, interviews withexecutives and managers are laden with complexpower dynamics. Even in the best of times, it can be dif-ficult for academics to persuade executives to spend anhour or more on an interview. This is doubly trueduring times of crisis. Executives of firms that weredoing better in the crisis likely had more time – andwere more willing – to talk than those in firms strug-gling to remain solvent (WELCH et al., 2002). In themidst of the largest economic crisis in the post-SecondWorld War era, managers at firms often felt they hadnothing to contribute to a study on innovation andwould decline to be interviewed. Other potential inter-viewees were not reached because their firms’ oper-ations had been terminated or were in the process ofbeing downsized or shut down.5


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While these are experiences that are shared withmany large-n surveys, the authors still believe that thisstudy provides substantial insight into innovationdynamics and re-bundling processes in a period ofcrisis. This is because some interviews were done atthe onset of the crisis, but others took place when thecrisis was well on the way or winding down. Firmswere also asked to relate their practices and reactionsto those of others and thus wider insights into regionaldynamics were gained. For the same reason, furtherexplorative interviews with economic developmentofficers and industry representatives helped to triangu-late the firm information.

Tables 2–4 break down the interviewed firms bylocation, industry and employment. While there wasa slight over-sampling of firms from Guelph and anunder-sampling of firms from Cambridge, this did notrepresent a systematic bias to the sample (Table 2). Interms of sectoral composition, no significant differencebetween the overall firm population and the samplewas found (Table 3). Lastly, because of the interest ininterviewing larger firms, there is a moderate but insig-nificant bias towards larger firms (Table 4). Overall,structural data and the results of triangulation do notsuggest that there is a notable bias in the sample offirms that could lead to problematic results. Given allthe uncertainties of conducting empirical researchduring periods of crisis, the authors feel confident thatthe data represent some of the key trends and character-istics in the study region.

As far as one can tell at this point there are many signsthat the region has overcome the worst stage of thefinancial crisis and that ongoing innovation processes,as discussed below, have contributed to regional reinvi-goration. Between August 2009 and August 2010, forinstance, about 8500 new manufacturing jobs werecreated in the Kitchener CMA (STATISTICS CANADA,2010b), and the unemployment rate, which had sur-passed the national average, decreased from 9.9% to7.0% (STATISTICS CANADA, 2010c). In August 2010,the unemployment rate was below that of theToronto CMA (9.1%) and for Canada overall (8.0%).A study conducted by the ONTARIO MANUFACTUR-

ING COUNCIL (2010, p. 1) concluded that ‘economic

conditions in Ontario’s manufacturing sector havestabilized, and have now begun to recover,’ particularlyrelated to new technologies and innovation in tra-ditional manufacturing sectors.

STRUCTURE OF INNOVATION LINKAGESIN THE KITCHENER AND GUELPH

METROPOLITAN REGIONS

Structure of sample firms

The firms interviewed ranged in size from two-personmachine shops to fully integrated factories of multina-tional firms. The firms were divided into four cat-egories based on their position in the industry’s valuechain (Table 5). The fabrication firms (twenty-oneout of forty in the sample) were primarily machineshops that did contract work of short-to-mediumruns of products using computer numerical control

Table 3. Number and share of interviews in Canada’sTechnology Triangle (CTT) by industrial sector, 2008–2009

Industrial sectors by NAICS codeFirm

population

Numberof firms

interviewed

326 – Plastics and Rubber ProductsManufacturing

19 (3%) 1 (2%)

332 – Fabricated Metal ProductManufacturing

369 (60%) 26 (65%)

333 – Machinery Manufacturing 139 (23%) 7 (17%)335 – Electrical Equipment, Appliance

and Component Manufacturing48 (8%) 2 (5%)

336 – Transportation EquipmentManufacturing

36 (6%) 4 (10%)

Total 611 (100%) 40 (99%)

Note: Not all firms in the database have North American IndustryClassification System (NAICS) codes assigned to them; therefore,the total number of firms is lower than that shown in Table 1.Some categories are re-coded for statistical analysis: χ2 = 1.51 (d.f.= 3) is insignificant at α = 0.05.Source: Survey results.

Table 2. Number and share of interviews in Canada’sTechnology Triangle (CTT) by the location of firms, 2008–

2009

Cities Firm population Number of firms interviewed

Cambridge 271 (42%) 11 (28%)Guelph 138 (21%) 15 (37%)Kitchener 130 (20%) 7 (18%)Waterloo 103 (16%) 7 (18%)

Total 642 (99%) 40 (101%)

Note: χ2 = 7.51 (d.f. = 3) is insignificant at α = 0.05.Source: Survey results.

Table 4. Number and share of interviews in Canada’sTechnology Triangle (CTT) by firm size, 2008–2009

Number ofemployees

Firmpopulation

Number of firmsinterviewed

1–10 244 (40%) 9 (23%)11–25 128 (20%) 8 (20%)26–50 84 (14%) 6 (15%)51–75 36 (6%) 6 (15%)76–100 25 (4%) 3 (8%)101 + 99 (16%) 8 (20%)

Total 616 (100%) 40 (101%)

Note: Not all firms in the database have employee numbers assignedto them; therefore, the total number of firms is lower than that shownin Table 1. χ2 = 4.49 (d.f. = 4) is insignificant at α= 0.05.Source: Survey results.


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(CNC) machine tool systems. They tended to servicefirms beyond just the CTT region, with a customerbase located throughout Southern Ontario. A secondgroup of firms (five out of forty) provided some formof product preparation service, such as electro-plating,finishing, welding or painting. These coating and heattreating firms serviced primarily the Southern Ontarioregion, but some of them had key customers locatedin the United States. A third category of assembler orsystem integration firms (two out of forty) had regionalcustomers located primarily in CTT and in the Greater

Toronto Area (GTA). These firms took standardizedproducts or commodities available from multiplethird-party sources or on-line catalogues, which theyassembled into a product according to customerdesigns. The fourth group of firms consisted of originalequipment manufacturers (OEMs) (twelve out of fortyfirms). The OEMs included headquarters of nationaland international firms, along with branch plants ofmultinational corporations. Among these were also ahandful of single-facility manufacturers that soldnationally and internationally.

Table 5. Structural data of firms interviewed

Interviewcode

Yearestablished

City (locationin Ontario)

NAICScode Firm type

Designinvolvement

Number ofemployees

Revenues (CA$,millions, 2008 or

2009)

Revenue growth(%) in the lastthree years

201 1976 Cambridge 3329 Fabrication None 25 5.0 3202 1994 Cambridge 3334 Fabrication Limited 10 1.0 15203 1988 Cambridge 3329 Fabrication Limited 25 4.0 20204 1996 Kitchener 3332 OEM Control 36 18.0 n.a.205 2003 Cambridge 3334 Assembler Limited 24 n.a. 100206 1996 Kitchener 3322 Fabrication Limited 25 3.0 0207 1993 Cambridge 3332 Fabrication None 22 n.a. 15208 1963 Cambridge 3325 OEM Control 85 n.a. 10209 1994 Cambridge 3325 Fabrication Limited 150 15.0 0210 1987 Guelph 3329 Assembler Limited 50 5.4 5211 1906 Waterloo 3352 OEM Control 600 200.0 12212 1985 Kitchener 3322 Fabrication None 70 8.0 10213 1992 Kitchener 3363 OEM Control 59 35.0 5214 1945 Guelph 3329 OEM Control 4 0.5 0215 1951 Guelph 3329 OEM Control 800 200.0 4216 1966 Waterloo 3323 Fabrication Limited 45 8.0 10217 1976 Kitchener 3369 OEM Control 95 26.0 35218 1986 Waterloo 3327 Fabrication None 20 n.a. n.a.219 1988 Waterloo 3334 Fabrication Limited 7 n.a. n.a.220 1957 Cambridge 3321 Fabrication Limited 245 35.0 –5221 1984 Cambridge 3327 Fabrication None 22 5.0 20222 1960 Kitchener 3323 Fabrication None 14 3.3 100223 1966 Guelph 3361 OEM Control 8087 2300.0 15224 1974 Cambridge 3322 Fabrication None 60 24.0 –45225 1948 Kitchener 3328 Coating/heat

treatingNone 675 75.0 –40

226 1994 Waterloo 3364 Fabrication None 12 n.a. 15227 1974 Waterloo 3329 Fabrication Limited 60 10.0 35228 1944 Waterloo 3329 Fabrication None 78 9.0 12229 1946 Guelph 3323 Fabrication None 65 15.0 4230 1989 Guelph 3328 Coating/heat

treatingNone 30 5.2 5

231 1991 Cambridge 3328 OEM Control 350 100.0 5232 1955 Guelph 3328 Coating/heat

treatingNone 8 n.a. n.a.

233 1917 Guelph 3359 OEM Control 501 75.0 9234 1990 Guelph 3324 OEM Control 4 n.a. n.a.235 1979 Guelph 3261 Coating/heat

treatingNone 2 n.a. n.a.

236 1990 Guelph 3327 Coating/heattreating

None 2 0.1 –66

237 1972 Guelph 3331 OEM Control 300 300.0 20238 1975 Guelph 3332 Fabrication Limited 7 1.3 3239 1988 Guelph 3327 Fabrication Limited 10 1.0 0240 1997 Guelph 3363 Fabrication Limited 70 24.0 –50

Note: OEM, original equipment manufacturer; n.a., not available, NAICS, North American Industry Classification System.Source: Survey results.


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Heterogeneous innovation practices

The firms were asked a series of questions to explore thenature of innovations introduced in the last two years(Table 6). A total of seven firms (17%) indicated thatthey had not added any new processes or productsover the last two years. These non-innovators were fab-rication or coating and heat-treating firms, workingwith mature processes or in niche markets with littlecompetition. Two of the firms interviewed, however,were floundering and, according to their owners,could not innovate because they were trying tosurvive. They operated in market segments with high-volume products and low-profit margins. These twofirms were seemingly unable to afford the costs of inno-vation because of fierce global competition and costpressure. Their problems long predated the global econ-omic crisis. They were limited in their capacity toproduce new linkages in the region, limiting theirability to assist in regional re-bundling efforts. But theremaining five non-innovative firms provided impor-tant services for other manufacturing firms in the region.

The majority of the firms (thirty-three firms or 83%)added new products or processes to their operationsover the past two years prior to the interviews. Thiswas much more than what was expected in a

manufacturing sector which is often viewed as lessinnovative. This indicates that many firms in this tra-ditional industry segment actively contributed toregional re-bundling activities. Of these firms, sixteensaid they added new products, while seventeenengaged in process innovation (Table 6). Of the firmsthat provided new products, the majority wereOEMs. These firms were fully involved in the designand manufacture of their products. Although outsour-cing parts of their production, they kept control overthe final assembly, marketing and distribution of theirproducts.

In line with FUCHS and KEMPERMANN’s (2010) andHAHN’s (2010) research of German mechanical engin-eering and automotive industries, the present authorsfound that many firms in CTT applied active innovationstrategies. Overall, five distinct, partly overlapping typesof innovative practices that generally corresponded withthe role firms had in the design of products were ident-ified. In aggregate form, this enables the followingconclusions about regional re-bundling processes to bedrawn.

No design involvement

Of the forty firms interviewed, fifteen had no involve-ment in the design of the products and little to noknowledge about the end use of the products onwhich they worked (Table 6). They communicated ina very limited way with their customers to solve pro-blems related to the manufacturability of products.This type of firm consisted of fabrication shops (tenfirms) and manufacturing process service firms (fivefirms). The firms operated according to blueprints orprocess specifications, worked mainly with mature pro-cesses and competed on price. Their innovation pro-cesses were primarily related to improvements inproduct flow and the minimization of waste material.

Only a few firms engaged in some minimal, primarilyprocess-related, innovation through their value chains.This was exemplified by the comments of the ownerand president of a friction-welding firm that sentsamples of its products to a metallurgical laboratory inthe region:

We have had a relationship with them for so long that theyhave developed the skills at that facility [to examine theproduct for fatiguing], and we recently discovered thatother [friction-welding] firms were sending their materialto this lab [as well], because they knew what they werelooking at.

(Interview I201)

Friction-welding was an uncommon process, and thefirm was supposedly one of a handful in North Americathat provided that service on a contract–job basis. Thelaboratory was thus able to offer a unique service tofriction-welding firms throughout North America.Although these firms are unlikely to be the drivers of

Table 6. Number of firms interviewed in Canada’s Tech-nology Triangle (CTT) by role in the innovation process, type

of innovation and firm type, 2008–2009

Primary formsof innovationby firm type

Role of firms in the innovation process

Norole indesign

Feedback onmanufacturingblueprints

Full controlof product/processdesigns Total

Product innovators(n1 = 16)

OEMs 0 0 12 12Assemblers 0 1 0 1Fabrication shops 0 2 0 2Coating/heat

treating1 0 0 1

Process innovators(n2 = 17)

OEMs 0 0 0 0Assemblers 0 1 0 1Fabrication shops 7 7 0 14Coating/heat

treating2 0 0 2

Non-innovators(n3 = 7)

OEMs 0 0 – 0Assemblers 0 0 – 0Fabrication shops 3 2 – 5Coating/heat

treating2 0 – 2

Total 15 13 12 40

Note: OEMs, original equipment manufacturers.Source: Survey results.


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regional re-bundling processes on their own, the aboveexample demonstrates that even firms with limitedinnovative capacity can provide novel capabilities to aregion and create cross-regional linkages.

Manufacturing according to customer specification

In addition to the fifteen firms not involved in thedesign of products, another eight firms also workedaccording to specifications provided by customers, but,when encountering problems in manufacturing, theywere able to provide some feedback to their customersand suggest changes to the design.6 This is best exempli-fied by the metal-fabrication shops in the sample. Mostof these firms focused on a few long-term clients for thebulk of their business and supplemented this with short-run contract projects from other firms.7 They typicallyreceived the blueprint, determined the best way to fab-ricate the parts internally, executed the fabrication of theparts and components accordingly, and shipped the fin-ished parts back to the customer or to other firms foradditional treatment or assembly. As one intervieweeput it:

The customer just wants the end product to their specs.They don’t need to know how we manufacture it.

(Interview I221)

These firms were expected to produce a product reliablyaccording to specifications, with quick turnaround timesand minimal delays. When problems were encountered,they were often the result of the customers’ design notbeing optimal for manufacturing.

Many of the firms had limited resources and were notable to research new technologies. Even some of thelarger fabrication firms were challenged to find resourcesfor innovation, as lean production practices and cost-cutting measures forced them to eliminate the capacityto engage in exploratory activities. The firms had gener-ally minimized their front office staff and focused on theday-to-day operations of coordinating logistics, pur-chasing supplies, liaising with customers and managingtheir employees.

Suppliers were key inputs into the innovative pro-cesses of firms in this category. One intervieweeemphasized:

[Our machinery equipment suppliers are] probably themost important input into our processes, and we rely onthem heavily to innovate and help solve problems in ourproducts.

(Interview I225)

They provide not only new equipment, but also assist-ance on how to improve processes with respect to theuse of machinery. According to the interviews, thedrive to innovate for short-run contract fabricatorscould come from the failure to compete for jobs, asone founder suggested:

You are going to go out and look for better, cheaper waysof doing things, based on the fact that you are not gettingsuccess in the bidding process.

(Interview I220)

From a regional perspective, the downside to this kind ofinnovating-by-purchasing was that firms became capital-intensive and reduced their workforce over time. Onefirm interviewed had expanded its capacity to providemetal coating bymaking capital investments in automatedequipment, but it found that customers backed out oftheir agreements in the wake of the financial crisis. Itbecomes an obvious risk for these firms to increase theircapacity to attract new customers and retain enoughexisting business to justify these expenditures.

Most of the supplies needed for day-to-day oper-ations were raw materials, but these suppliers were notimportant beyond the acquisition of informationregarding pricing. As one interviewee pointed outgraphically:

[M]ost suppliers do not give a damn what we do. They arejust providing you with material. It is generic stuff. Youcall them, they tell you they have it or they do not.

(Interview I202)

While these firms credited their customers withdemanding innovation, suppliers – particularly thelocal sales and support divisions of international CNCmachinery manufacturers – were necessary in helpingthem to identify the equipment needed to meet custo-mer demand, to install new equipment and to train staff(for example, GERTLER, 2004). This kind of capitalinvestment drew heavily on resources from outside theregion, but increased the capabilities of firms inside.From a regional re-bundling perspective, this kind ofprocess innovation through capital investments offerslimited competitive advantage over other firms (andother regions) that also invest in the same kinds ofequipment (Fig. 2); yet, it shows that these firms wereadaptive and generally willing to extend their techno-logical capabilities and move into new directions.These firms had some competence to innovate andsupport incremental regional re-bundling.

Innovation through customer consultation

A few firms (five of forty) were encountered that oper-ated similarly to those eight firms that manufacturedaccording to customer specifications, but were set apartby the fact that they consulted on the original productdesign for a few key customers. From this consultation,the firms developed an internal capacity to providedesign feedback to ease manufacturing, thereby loweringproduction costs. Through such exchanges, the firmsbecame increasingly involved in early-stage productdesign. This was not necessarily a capability demandedby all clients, but some of those firms, which wereengaged in collaborative design processes, also became


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good at solving manufacturing problems for otherclients at a faster pace than their competitors, increasingproduct turn-around times.

For example, one of the firms interviewed started offmanufacturing tooling and moulds for PET (polyethy-lene terephthalate) bottle manufacturing, but overtime grew to incorporate design consultation. It devel-oped a prototype-testing capacity to ensure customerswere choosing the cheapest resins for their products.The firm increasingly leveraged this prototyping capa-bility into a broader design capacity, allowing the firmto create and produce the bottle designs. As the chiefengineer explained:

When we started out, we used to just build one part of thetooling. Now we have taken the same industry and we doeverything. We do the equipment, we do the prototyping… we have made it so that we are the one source as far asthe bottling industry is concerned. Every year, we try toexpand on what we can offer our clients.

(Interview 203)

The design and prototyping capacity was expanded intoan R&D programme allowing the firm to test the viabi-lity of bioplastic-based resins, which they hoped tocommercialize and offer to customers who werelooking to produce environmentally friendly products.This is an extreme example of a firm that managed toreconfigure itself radically from a CNC machine shopinto a firm with a broader product offering. Toextend its R&D activities into bioplastics, the firmworked very closely with resin suppliers who had aninterest in seeing their raw plastic resins being commer-cialized on a broader basis.

More generally, firms of this type of collaborative andinteractive innovation help strengthen the value chainby developing their own novel products, as well as byassisting other firms in developing new products. Inno-vation driven by such practices offers robust opportu-nities for re-bundling in ongoing adjustments andimprovements by virtue of strengthened value chainsand the potential for novel product development. Thecase study clearly indicates that a necessary conditionfor innovation through customer consultation is thefirm-specific knowledge to provide useful feedback onthe manufacturability of part designs and openness ofthe customers to receive feedback. It should be reiter-ated, however, that firms indicated that this capacitydeveloped with just one or two clients and became afirm competence through these few significant custo-mer relationships.

Innovation through integrated manufacturing and researchcapabilities

A number of firms that explicitly moved beyond thepoint of providing feedback on the manufacturabilityof products (twelve of forty firms) were further encoun-tered. They extended their manufacturing activities and

became systematically involved in early-stage productdesign with long-term customers. Over time, theydeveloped broader manufacturing and research capabili-ties and created at least one division that produced theirown designs. This kind of build-up of knowledge fromproviding feedback on the manufacturability of parts tothe creation of new products is an example of ongoingre-bundling at the firm level that led to the develop-ment of new products and a constant reconfigurationof the resource base (Fig. 2).

One of the few firms interviewed with fully inte-grated manufacturing capabilities was the maker ofseveral national brands of outdoor cooking appliancesand barbeques. The firm was one of the most successfulfirms in the region and its innovation processes werebased on internal competencies. It drew little benefitfrom the region other than access to a strong labourpool. The firm used generic and simple manufacturingprocesses – iron and steel forging – where labour rep-resented only a small fraction of its costs and much ofthe firm’s competitiveness derived from design capabili-ties. The primary benefit the firm received from the sur-rounding region was its flagship store in a nearbylocation that provided direct market feedback, as theregional population mirrored the target customerrange (primarily middle-class homeowners).

One of the challenges the firm faced was the trendtoward rising manufacturing costs. Further, customersseemed to expect more product features over time,which increased product complexity. At one point,the firm tried to hire design firms to develop new pro-ducts for it, but the contract designers did not under-stand the limitations of the existing manufacturingcapabilities. They failed to incorporate the currenttooling and did not utilize enough of the legacy partsfrom other models, complicating the production linesand the distribution of replacement parts. By re-estab-lishing control over the design processes, the firm wasable to ensure that new products retained a highdegree of similarity to previous and concurrentmodels, thereby reducing production costs. Since thefirm produces numerous new models each year, andnot every model sells well to consumers, having ahigh degree of similarity across product lines allowsthe firm to adjust quickly to demand trends. This is astrategy shared with other firms of this type.

This firm’s experience as an integrated manufacturerillustrates the value of having an internal design depart-ment that understands the practical needs of the manu-facturing process. Despite this success, the demographictrends suggested that the firm will be increasingly underpressure to seek ways to lower its labour costs, whichcould lead to un-bundling processes in the future, asthe CEO suggested. At this point, however, firms ofthis type had a distinct manufacturing and research com-petence. Due to their learning and integrated processingand design experience, the firms had become quite flex-ible and were able to engage in ongoing re-bundling


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activities during periods of constant changes and crisis(BATHELT and BOGGS, 2003).

Innovation as diversification strategy

A subgroup of ten firms, which were already assigned toone of the other firm types, also indicated that they hadmade conscious efforts to diversify their operations. Thisstrategy was most common amongst fabrication firmsworking in the automotive sector. Of the twelveOEMs/firms that reported working in the automotiveindustry (Table 6), seven stated that they aimed tobecome less reliant on automotive customers and hadalready invested in diversification processes before theglobal financial crisis. The comment of one intervieweethat ‘[y]ou might not be familiar with the automotiveindustry, but it is nerve-racking’ (Interview I236) isrepresentative of the opinions of the firms which weresuppliers in this sector:

It is [a] challenge every year to come up with cost savingson each and every component you are producing.… [Theautomobile producers] are all demanding a 10% reduction.It is a tough business.

(Interview I240)

The challenges and demands of the automotive sector,however, also benefited some of the firms by forcingthem to improve their efficiency despite the requestfor year-over-year cost cutting that put a significantstrain on the firms’ capabilities. This resulted in asearch for opportunities to diversify.8 A particularlypoignant example of this was a tier-two automotivesupplier that specialized in transmission systems. Thefirm sought to diversify by purchasing the patents foran off-road suspension dampening system, primarilyused on large trucks in mining, forestry and the militarysector. Through this, the firm tried to re-bundle itsexisting resources while gradually adding on new onesto enter new markets. Other firms took the approachof remaining at current capacity, but decreasing the per-centage of work in the automotive sector. Four firmsmentioned wind turbine manufacturing, aerospace andmedical devices as areas in which they engaged moreheavily in an effort to diversify and decrease their depen-dence on the automotive industry.9

Although several firms shifted away from the auto-motive value chain, some interviewees suggested that,in the end, they benefited from prior interaction withautomotive firms. Through this, they developedinternal competencies to improve their own capabilitiescontinuously. One firm, specializing in manufacturingfor an OEM, commented as follows:

In order to be a supplier for someone like … [this OEMmanufacturer], you need to have a very strong qualityprogram to drive down costs every year. So I think thatthey have made us a better company.

(Interview I229)

Beyond providing encouragement to drive down costsin production, the firms also improved substantially intheir ability to design products. As a consequence,OEMs turned to them for more assistance in reducingcosts. A tier-two supplier commented:

We have become more involved in … [providing] feed-back and recommendations on product design, and how[a product] could be redesigned from the beginning todrive out costs at the end. … There are design limitationsthat the designers need to understand, and that helpsreduce costs.

(Interview 225)

An interviewee at a tier-one automotive supplier speak-ing on the same topic emphasized the necessity tocombine research and manufacturing in innovation:

If the engineers are allowed to just go out and design it in[their] own space without looking at the manufacturingside of things, then to take those drawings and to say,‘make this and drive costs out of it’, you have wasted60% of your possible cost savings. So, we tie in the man-ufacturing guy with our design engineers. We are bigbelievers in design-for-manufacture.

(Interview 223)

As a result, the firm began to design and manufacture itsown products through a consumer products division,although it was originally a tier-two parts manufacturermaking simple fuel-pump components. The firm madesmall improvements in the parts it manufactured thathelped increase fuel efficiency in the end product.Due to past successes, the firm quickly expanded itsdesign capabilities through internal developments andacquisitions (such as purchasing an automotive designfirm in Detroit). The firm was particularly conscientiousabout creating regional supplier–customer networks andhelping their suppliers grow with the firm. This attitude,along with the mobilization of resources external tothe region, created the potential for more radical re-bundling processes taking hold regionally, in the formof knowledge spillovers along supplier–customer lin-kages (Fig. 2). Certainly, this helped create a settingthat fostered ongoing learning, adaptation and adjust-ment processes.

In general, most firms interviewed were proceedingwith operations as usual and did not plan on changesin their supplier–customer linkages in response to theglobal financial crisis. Many firms remained internallyinnovative and developed even stronger collaborativerelationships within their value chains, as indicated bytheir increased involvement in the design of products.This involvement in design increased the potential toadjust to external economic pressures and had furtherpositive effects on other firms. As will be discussed inthe next section, the global economic crisis was, forthese firms, just one more crisis they had to weatherover the past decade.


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GLOBAL CRISIS AND REGIONALINNOVATION

Firm responses to the crisis

Generally, the interviewees confirmed they were nega-tively affected by the 2008 financial crisis. Two-thirds ofthe managers who were asked about the effects of thecrisis (twenty-two of thirty firms) suggested that theirbusiness had significantly decreased due to the crisis’ssudden nature. Of these firms, all but two reportedlosses of sales and/or customers due to either cutbackson orders or the bankruptcy of their clients, particularlyin the automobile industry. As one plant manager of atier-two supplier said:

The ‘little three’ as I call them [now] were 75% of ourbusiness, but now they have stopped dead. So they arenot doing anything. Any work we are doing is for the[Japanese] transplants.

(Interview I224)

Other firms, ranging from the largest industrialemployer in the region to small grinding and platingshops with only a few employees, mentioned similar,sudden drops in orders.

Many of the firms avoided a steep decline in the crisisdue to existing contracts with partners that ensuredstable sales (also FUCHS and KEMPERMANN, 2010).This was true even for some firms supplying the auto-motive sector.10 Others reported strong sales to sectorsnot as heavily affected by the crisis, such as Alberta’soil industry or the alternative energy sector (forexample, SPEARS, 2010). The firms typically respondedto the crisis in three ways: by laying off workers; byfinding internal efficiencies and cost savings; and/or bydiversifying their markets and customer bases:

. Job decline. As expected, the most common strategy todeal with the decline in sales was to eliminate jobs. Ofthe twenty-two firms that were explicitly asked aboutthe crisis and responded that they were affected by it,twelve confirmed that they laid off workers as a directresult of the crisis,11 and many others were signifi-cantly smaller than they were three years ago. Someof these layoffs were characterized as temporary, andseveral firms had taken advantage of provincial pro-grammes that used unemployment insurance to payfor three days of salary a week, with the companypaying the remaining two days. Overall, however,layoffs were smaller than expected, and many inter-viewees mentioned that they would try to delaylaying off qualified personnel for as long as possiblein order to preserve their valuable human capitaland institutional memory. This is a trend generallynot expected in an economy that is often classifiedas a liberal market economy.

. Increasing efficiency. Many firms depended on findinginternal efficiencies and reductions in manufacturing

waste to offset lower sales. However, this strategywas mostly seen in larger firms with sufficient cashreserves necessary for internal reorganization. Twofirms were working towards implementing leaner,more flexible material procurement and trackingsystems. Smaller firms, and those already sufferingheavy losses before 2008, lacked the internal resourcesto undertake intense efficiency improvementmeasures and were forced to rely mainly on cuttinglabour costs to deal with lower order volumes.

. Diversification. Firms with primary customers indeclining industries, such as automotive, constructionor resource extraction, emphasized diversification as acritical strategy (HAMILTON, 2009). One firm began astrategic movement away from heavy industrial fabri-cation towards architectural steel, while otherspursued markets that were perceived to be eithergrowing or holding steady. However, as suggestedabove, larger firms with in-house R&D and engineer-ing competencies were better equipped for suchchanges. Smaller firms or firms with large capitalinvestments in specialized equipment – especiallysmall tool and die and fabrication shops – lacked thecapacity to re-bundle internal and external resourcesand enter more diverse markets quickly.

Impact of the financial crisis on innovation

In an economic crisis marked by declining sales to long-term customers, innovation is a key strategy for openingup new markets and meeting the clients’ cost-cuttingdemands, but innovation is difficult to implement orsustain in the midst of an economic crisis. Almostwithout exception, firms acknowledged innovation asa main survival tool in a faltering economy. Manyfirms saw new products or lower costs as essential forfinding new customers and maintaining existing ones.Yet, most of the managers and owners, particularlyamongst the fabricators and treatment and material prep-aration firms, did not view themselves as especially inno-vative. They regarded innovation as internally directedR&D projects aimed at creating new products. Lackingtheir own R&D divisions, these firms did not perceiveinnovation as a core competence. When broadeningthe discussion to the implementation of efficiencymeasures, reducing turn-around times and the reductionof waste, it became clear that many firms in the tra-ditional manufacturing sector were indeed innovativeand regarded themselves as quite competent at reducingcosts and improving their manufacturing routines.Similar patterns of innovation oriented towards internalefficiencies rather than product development were alsonoted in studies of other regions dependent on traditionalmanufacturing (KAUFMANN et al., 2003; RUTHERFORD

and HOLMES, 2007; HIRSCH-KREINSEN, 2008).As suggested by the re-bundling perspective

(BATHELT and BOGGS, 2003), a crisis is simultaneouslythe best and worst time for innovation. Innovation


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requires sufficient human capital to find ways to increaseproduction or reduce costs, as well as sufficient financialcapital either to bring in outside talent or to purchasenecessary equipment (BATHELT, 2009). During thecrisis, some firms found that customers were no longerwilling to invest in up-front redesign to secure costsavings down the line. As one manager put it:

What we think we do is bring innovative processes tofirms. … Everything has come to a standstill with newbusiness. Companies are dealing with the crisis and arenot looking to change. They do not want to changesources. So, that limits our ability to grow [our] market.

(Interview I209)

Many small firms in the present study, especially fabrica-tors, worked with their clients to find new materials anddesigns that reduced production costs. The firms thatdeveloped these new capabilities through ongoing cus-tomer consultation in manufacturing and design haddone this before the crisis.

Many of the smaller fabrication firms that relied onthe purchase of new equipment to introduce new firmcapabilities were cautious about making large capitalinvestments in this uncertain period. The owner of asmall production shop said:

we were going to bring in a new product at a lower pricepoint due to the economic conditions … [but] when wehad that second drop [in the market], we were a bitmore challenged to make that capital outlay.

(Interview I234)

The introduction of new equipment is a form of inno-vation both in evaluating which equipment to buy andintegrating it into an existing production line. Theeconomic crisis made it harder for small firms withoutlarge cash reserves to justify such capital outlays.

Larger firms, especially OEMs with integrated man-ufacturing and research capabilities, were more likely tosee the crisis as an opportunity to lower costs or find newclients. Several firms noted that because of the crisis,costs of capital goods and raw materials decreased. Atotal of five firms, including some of the largest in thesample, reported taking advantage of the downturn inthe economy by beginning projects designed to increasethe range of products and services they offered. Firmsable to undertake such projects saw themselves as wellpositioned to expand rapidly after the crisis. Theseforms of re-bundling activities were only possiblewhen a firm had sufficient internal capital reserves oraccess to external credit.

Innovation in traditional manufacturing industries isnever an easy task. In a crisis, firms are under increasedpressure to reduce their costs to retain customers andmake up for lost ones. Simultaneously, less credit isavailable for expansion. In the study region, savingswere more often found in eliminating waste and ineffi-ciencies in the manufacturing process either by changingthe materials used, or by reducing the time to make a

product or by automating labour-intensive processes.Nearly all firms reported that they eliminated inefficien-cies for many years in response to previous crises anddownturns in the regional economy. Some respondentsfound that there were no inexpensive or easy optionsleft for reducing waste that were not already adopted.

Innovation due to prior crises adjustments

Although it was expected that the recent global financialcrisis would stand out as a major rupture in economicdevelopment, firms saw this crisis in the context of prioreconomic ruptures and presented their current actionsin the light of innovations that resulted from formercrisis adjustments (also FUCHS and KEMPERMANN,2010; HAHN, 2010). The current financial crisiswas only one of several crises and downturns in theregion’s manufacturing sector experienced since the1990s. While the Canadian dollar was worth betweenUS$0.60 and US$0.80 in the 1980s and 1990s, helpingCanadian manufacturers remain competitive, the early2000s saw a sharp appreciation, driving up the relativeprice of Canadian manufacturers selling to the UnitedStates (by 2010 both currencies were basically on par).This rise in the Canadian dollar made the region’s manu-facturing firms, in the words of a plant manager, ‘lessattractive, instead of really attractive’ (Interview I229).Another manager supplying to the automotive sectornoted that

[i]f you see the [Canadian] dollar trading at 0.68 [USdollars] when the pricing is determined, and it moves to0.81 [US dollars], that is a huge difference in an industrythat does not allow for large margins.

(Interview I209)

At the same time, of course, the rise in the Canadiandollar decreased the relative price of supplies and equip-ment from the United States, partially offsetting the pro-blems with exports.

Beyond the effects of currency rates, manufacturersthroughout the world were hit hard by an unprece-dented increase in the cost of commodities such asiron, steel and aluminium. Between 2005 and 2007,the International Monetary Fund’s (IMF) internationalindex of industrial commodities increased by over 70%before dropping off significantly in the wake of theglobal financial crisis (IMF, 2010). Consequently,many firms saw customers shift their purchases to low-cost producers located in Asia and South America.These two crises – the shift in the Canadian currencyand price increases in industrial inputs, combined withthe recent financial crisis and global economic down-turn – represent almost a complete decade of continuouscrises in the Southern Ontario manufacturing sector.One manager succinctly summarized this situation:

This is our third crisis in a row. There’s the currenteconomy downturn that is more systemic through the


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economy, but we were also affected by the CanadianDollar moving to par, and the increase in steel costs. So,we’ve been hit by a series of three crises over threeyears. The steel pricing doubled, so when the price ofthe commodity is 20% to 80% of the cost of the finishedproduct and you get a doubling in the commodity price,you see a doubling in the cost of the part. The situationwas not unique in the industry. The price the consumerpaid did not change.… That was a huge issue; it continuesto be a big issue. The parts we manufacture are not pro-ducts that change on an annual basis.

(Interview I209)

The strategies of regional firms in traditional manufac-turing to gain control of the design and innovation pro-cesses were, thus, a consequence of earlier economiccrises. The responses of many of the intervieweessuggest that innovation strategies were chosen or modi-fied in reaction to these crises. This included tendenciesto play a more active role in customer-specified manu-facturing; increasing customer involvement in incre-mental innovation; and the use of innovation as adriver of diversification. This leads to the conclusionthat adjustments to prior crises have strengthened theadaptability and reduced the vulnerability of theregion’s traditional manufacturing sector, increasing its‘resiliency’ in the face of larger structural crises. Inresponse to both this and previous crises, firms havere-bundled their existing internal resources andattempted to acquire new external resources to re-orient themselves to deal with new economic realitieson an ongoing basis (Fig. 2) (BATHELT and BOGGS,2003).

CONCLUSIONS

It has been argued in this paper that regional economicdevelopment trajectories are routinely ruptured by crisesof different nature. Ruptures such as the global financialcrisis set off in 2008 have a strong impact on the existingregional transaction linkages and networks, potentiallyleading to an abrupt halt in the trajectory or triggeringpath-shifting processes. The argument developed inthis paper is that whatever the restructuring or adjust-ment processes may be, they necessarily require anability to mobilize new and recombine existing regionaland extra-regional agents and resources into new, moreor less coherent, development frameworks eventually toovercome the crisis.

Of the four scenarios of re-bundling discussed in thispaper, Case C which emphasizes the role of ongoing re-bundling, innovation and proactive adjustments to crisesseems best to describe the restructuring in the traditionalmanufacturing sector of the Kitchener and Guelphmetropolitan regions (Fig. 2). Although investigatingre-bundling processes at a firm level, an aggregateview allows some conclusions to be drawn about theregional consequences in Canada’s Technology

Triangle (CTT). There is no evidence that eitherskilled industrial workers or research specialists haveleft the region after the initial shock; indeed regionaldata point toward reinvigorated growth as, for instance,the number of employees in the Kitchener CMAmanufacturing sector increased by 17.6% from 48200in August 2009 to 56700 one year later (STATISTICS

CANADA, 2010b). There is also no indication of conti-nuing un-bundling after some initial firm closures.Nor have key firms such as Linamar or Toyota divestedin the area.

Many of the firms that were affected by the econ-omic problems of the past decade attempted ‘to inno-vate their way out’ either by expanding their currentarray of products and services or by finding ways toservice new markets and industries using mostly existingcompetencies. Firms used a combination of their owninternal resources along with other resources availablein the community to make this adjustment.Wider inter-national customer and/or corporate networks helpedthese re-bundling activities. Of course, not all firmswere able to adjust successfully and had to implementcost-cutting measures such as layoffs and strategic exitsfrom competitive markets. Overall, however, theregion’s trajectory points toward a branching-outprocess where new structures develop based on existingcompetencies, leading in the present case to continueddiversification. With respect to adjustment processes,this study reveals some unexpected findings that chal-lenge existing explanations of economic developmentin the study region:

. CTT was and still is strongly shaped by traditionalmanufacturing industries and is not well characterizedas a ‘post-industrial’ economy.

. The region’s traditional manufacturing sector was hitsubstantially by the global financial crisis, but restruc-turing processes and layoffs were not as severe aswould have been expected. The region remains astrong hub for such manufacturing activities.

. Although about one-third of the firms interviewedwere not engaged in active innovation, anotherone-third had much or full control of the innovationand design process, suggesting that there is substantialinnovation and adjustment potential in the region’straditional industries.

. In terms of the spatiality of innovation, results aresomewhat mixed. By no means, however, was itfound that innovation linkages were primarily localor regional in character (BATHELT et al., 2011). Itwas expected that some of the smaller fabricationshops would be closely tied to the region, supplyinglocal OEMs, but this was rarely the case. Several ofthese shops serviced important clients throughoutSouthern Ontario and the US Mid-West. The firmsclosely tied to the region were located there dueto low costs in shipping their products to majormarket regions. Some outstanding exceptions existed


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though, such as a tier-one automobile supplier thatexplicitly developed a supplier clustering strategy.12

. In terms of ‘regional resilience’, firms in traditionalmanufacturing industries were not as strongly affectedby the financial crisis as expected. As shown in thepresent research, firms gained adaptability in theirresponses to prior crises, especially related to newinnovation strategies, integrated manufacturing andresearch capabilities, stronger customer involvement,as well as increased control over the innovation anddesign process.

These findings, although based on a relatively smallsample of firms, could have wide-ranging policy impli-cations, particularly for economic development policiesthat accept the sacrifice of traditional manufacturingsectors for the benefit of support for high-technologyindustries. The study shows that traditional manufactur-ing firms are not necessarily less resilient towards econ-omic crises than other industries. As demonstrated inCTT, traditional manufacturing firms can be quiteinnovative and flexibly adjust to new market situationsif they engage in ongoing re-bundling activities invol-ving incremental improvements and adjustments, theacquisition of new resources, and related diversificationand renewal processes. This suggests that such regions donot necessarily have to develop a completely new econ-omic make-up, but may be able to remain competitivebased on existing competencies that enable dynamicadaptability. It might, in fact, be more effective to con-centrate policy activities to support existing traditionalindustries in individual and collective learning, inno-vation and diversification activities than to focus oncreating a completely new set of capabilities and indus-tries (BOSCHMA and LAMBOOY, 1999). This is especiallyimportant in regions, such as CTT, that have a largertraditional manufacturing sector. When aggregatedover the entire region, ongoing incremental and discon-tinuous shifts in firm practices and routines involvinginternal and external resources may contribute to devel-oping strong regional re-bundling capabilities andongoing growth after the crisis. The study regionindeed indicates a reinvigorated economic performancein 2009 and 2010.

As a consequence of these findings, the suggestionsmade by FLORIDA and MARTIN (2009) in a recenteconomic consulting report about the future develop-ment of Ontario, prepared for the provincial govern-ment, have to be re-evaluated. Florida and Martinsuggested focusing government support on the growthof the ‘creative economy’, while giving up support fortraditional manufacturing industries. Notwithstandingthe criticism of this approach, the suggestion to ignoretraditional manufacturing industries appears prematuregiven the evidence provided in this paper. In contrastto this view, the ONTARIO MANUFACTURING

COUNCIL (2010, p. 9) concluded that ‘[t]he manufac-turing sector will need to play a central role in reversing

Canada’s underperformance in innovation.’ The manu-facturing sector in the Kitchener and Guelph metropo-litan regions not only covers a substantial part of theregional economy, but also it has substantive innovativepotential and has successfully adapted to both the pastand current crises, thus increasing its resistance towardsruptures in the future. In fact, the present researchsuggests that specific policy programmes for traditionalmanufacturing industries – which focus on supportingknowledge exchange; strengthening research, develop-ment and design competencies; investing in humancapital development; and building wider internationalproducer–user networks – could be decisive to helpfirms engage in ongoing adaptation and innovation byreconfiguring existing and new resources into newcoherent development paths. Nonetheless, of course,the pervasiveness of current trends in the region iscontingent upon the recovery of the overall globaleconomy – which is still open.

Acknowledgements – This paper, to which all authorscontributed equally, was presented in 2010 at: the AnnualMeeting of the Association of American Geographers inWashington, DC; the IGU Conference on ‘Industrial Tran-sition – New Patterns of Production, Work, and Innovative-ness in Global–Local Spaces’ in Cologne, Germany; and theEuropean Urban and Regional Studies Conference on‘Repositioning Europe in an Era of Global Transformations’in Vienna, Austria. The authors would like to thank RonBoschma, Susan Christopherson, Andy Cumbers, Peter Dör-renbächer, Martina Fromhold-Eisebith, Martina Fuchs, ArneIsaksen, Arnould Lagendijk, Rünno Lumiste, Andy Pike,Mike Taylor, Alain Thierstein, Franz Tödtling, Jici Wangand Stefan Wetzstein, as well as the anonymous reviewers,for valuable comments and feedback. Financial support bythe Canadian Social Sciences and Humanities ResearchCouncil (File Number 410-2007-2167) and the CanadaResearch Chair Program is greatly appreciated.

NOTES

1. CTT was jointly established in the late 1980s by the citiesof Cambridge, Guelph, Kitchener and Waterloo tomarket the region’s technological strengths and reduceinter-municipal competition (CITIES OF CAMBRIDGE,WATERLOO, KITCHENER AND GUELPH, 1988;BATHELT and HECHT, 1990). Although Guelph leftthis initiative later to market its strengths individually,the local economies are still linked to one another,draw from a shared labour market and depend onsimilar economic conditions, even in traditional manu-facturing industries. Therefore, the entire region isreferred to here as ‘CTT’.

2. An example is the interpretation of Leipzig’s economictrajectory as one along a related-variety path (NEFFKE

et al., 2011).3. Within economic analysis, the term ‘resiliency’ is con-

tested due to the implication that the goal of regionswould be to return to economic or industrial equilibrium


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after an external shock (CHRISTOPHERSON et al., 2010;HASSINK, 2010; PIKE et al., 2010; PARK, 2010). Re-bundling, in contrast, does not presuppose a return toprevious spatial and industrial configurations, but ratherit emphasizes and examines the ability of networks offirms and institutions to adjust to new economic realitiesafter periods of rupture.

4. To conduct research during such an important event, ofcourse, raises serious methodological considerations. Inparticular, the immediate stress of the crises no doubthad an impact on the respondents. However, this bias islikely to be no greater than that produced by investigatingthe effects of the crisis years after they have occurred.Studies conducted during a crisis are an important sourceof knowledge of how firms and regions react to theintense economic pressures brought about. As the mostsevere effects of the crisis were seemingly overcomewhen this research was completed, the authors are confi-dent that the structures and processes identified are notjust short-term reactions to the crisis. In fact, the positiveevaluation of the ability of firms to minimize crisis effectsthrough innovation, as discussed in the empirical section,is also supported by comments from industry observers.WILDING (2010), for instance, President of the TorontoBoard of Trade, expresses concerns about the economicstrength of Toronto in relation toCTT after the economiccrisis. In a commentary about a future regional strategy ofthe Toronto region,Wildingwrote that ‘city-regions suchas London [UK], Chicago and evenKitchener/Waterloo/Cambridge act as regional zones, snatching new invest-ment and jobs away from Toronto….’ CTT’s economicrevival also goes along with a recovery of the SouthernOntario automobile parts industry in 2010 (VANALPHEN, 2010). It is clear, however, that future studieswill have to be conducted to measure and understandthe full effects of the crisis.

5. This was not always obvious when attempting to bookinterviews with the firms as the telephone numberswere still in place. It sometimes took up to ten telephone

calls to find out about the actual state of the firms andreceive an answer regarding the interview requests. Theprocess of making initial contact included a diverse setof, often unexpected, replies ranging from crying sec-retaries and an offer to buy a recently closed factory toa telephone call with a security guard who was the onlyperson left in the warehouse to make sure the inventorywas safe.

6. Changes to improve the manufacturability of a part werelimited to modifications that reduced production costsbut did not affect the function of the part in its finalassembly.

7. Some firms suggested that this was an intentional strategy.They benefited from the consistency and efficiency ofworking with a few large customers, but used smallerprojects to explore potential opportunities to diversifytheir customer base and the industries they serve.

8. Diversification was also an important strategy in therenewal of the Aberdeen oil complex since the 1990s(CHAPMAN et al., 2004).

9. The trend to diversify into areas such as green machining,wind turbines and solar energy has been an important partof the innovation strategy of regional automobile suppli-ers, such as Linamar, Magna International and MeikleAutomation (HAMILTON, 2009).

10. Even in the middle of Chevrolet’s bankruptcy, severalsmaller firms reported increased sales to Chevroletbecause of high consumer demand for the 2010 Camaro.

11. The layoffs were strongest in the automobile productionand supplier sector of the region (VAN ALPHEN, 2008,2009), and particularly hit those operations that werelargely or exclusively dependent on Chrysler and GM(KEENAN, 2009; GUELPHMERCURY.COM, 2009).

12. The firm worked closely with local material suppliers andallied metal-finishing firms to help them grow largeenough to support the firm’s operations. This was partof the broader strategy to shift to consumer productsand broaden product offerings.

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Challenges of Transformation: Innovation, Re-bundling and Traditional Manufacturing in Canada's...

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