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Ontario's economic engine sputters RICHARD FOOT, Canwest News Service Published: 7 hours ago As Canada's industrial heartland struggles with a reeling automotive sector, high dollar and foreign competition, innovative value-added manufacturers - like Kitchener's Christie Digital - have found a way to thrive in the global economy When Barack Obama accepts his party's nomination for the U.S. presidency at the Democratic convention in Denver next month, his image will be displayed on giant screens at Mile High Stadium by digital projectors made in Kitchener, Ont. Christie Digital's projectors - highly engineered cubes of optical technology that sell from $20,000 to $100,000 apiece - also have been used at the Academy Awards, and are exported from Canada to cinema chains around the world as movie theatres discard their traditional projectors in favour of new digital equipment. Christie and its 400 employees are a manufacturing success story in a province, and a country, where factories are closing and Canadian-made products are steadily being killed off by foreign competition, a high dollar, soaring energy costs and a stagnant U.S. economy. "These are anxious times," Ontario Premier Dalton McGuinty declared during an economic speech in May. Ontario's most severe manufacturing losses have come from the auto sector, which once fuelled the province's economic wealth but has shed more than 25,000 jobs over the past five years, according to the Canadian Auto Workers union. This summer, in particular, has brought an avalanche of bad news for the cities across southern Ontario whose fortunes are tied to those of the big North American automakers and their suppliers: S Three thousand jobs cut at General Motors' plants in both Windsor and Oshawa. S Two thousand jobs cut at Progressive Moulded Products plants near Toronto. S Another 400 jobs lost at the Magna International plant in St. Thomas and 720 at the city's Sterling Trucks. As the Ontario economy bleeds, Canada's resource-rich provinces - including two traditional have-not players, Saskatchewan and Newfoundland - are growing rich off the global commodities boom and surging exports of oil, potash, uranium and grain. Consider their sudden affluence relative to Ontario: In 2002, according to the TD Bank, Ontario had Canada's second- highest nominal GDP per capita, after Alberta, including a seven-per-cent advantage over the national average. By 2007, Ontario's per capita GDP had dropped to fourth among the provinces and was two per cent below the national average. This year, it's expected to fall to four per cent below the average. The TD Bank also predicts Ontario could become an equalization-receiving province as early as 2010. Despite the hardships facing the Ontario economy, there are enclaves of economic strength and good news, where innovative companies such as Christie Digital offer a way forward for manufacturers and resource-rich economies as well. "Selling resources during a commodities boom is great while it lasts," said Ihor Stech, vice-president (operations) at Christie. "But we need to be more intelligent about how we use our resources. Selling more value-added products would create a more permanent, global force out of our economy." Stech works at an old factory in the heart of Kitchener that was once filled with low-skilled workers churning out small electric motors, television sets and other consumer appliances for Electrohome, once one of Canada's most famous companies. While the Electrohome name still hangs on the outside of the building, and company CEO John Pollock keeps an office inside, globalization and low-wage Asian competition have pushed it to the sidelines. Pollock, whose grandfather founded the firm 100 years ago, is winding up Electrohome's affairs. "I have three employees today," he said, "compared to 4,300 in the 1980s." In 1999, Electrohome was a major player in the commercial-projection business, but lacked the cash necessary to purchase new technology, update its assembly line system and compete in the emerging digital-projection market. Rather than watch the business die a slow death, Pollock sold the projection arm, one of Electrohome's last operations, to U.S.-based Christie Digital, whose Japanese parent, Ushio Inc., had the deep pockets to renovate the Kitchener plant and pursue the necessary technology that would allow the operation to survive. "At the time (of the sale), this factory was very tired," Stech said. "It was a dark place - an old, historical building that required a lot of investment. The infrastructure of the plant is now almost completely changed." Today, the inside looks more like a modern surgical unit than a manufacturing plant. Workers in lab coats, hair nets and slippers circulate quietly around the clinically clean, brightly lit assembly floor, where high-tech projectors are pieced together by technicians following blueprints on computer screens. While a high school certificate was enough for most of Electrohome's former workers, many of Christie's employees have college diplomas in electronics, material sciences, plastics and optics. The company also employs 150 engineers on site, who design the projectors and discuss technical changes directly with the production staff. In the eight years since Christie took over, sales at the Kitchener plant have grown from roughly $100 million a year to $280 million and are expected to rise as markets for the company's product continue to expand. Christie's successful formula - a sophisticated, high-end product on the cutting edge of technology, built by a relatively small but well educated workforce - cannot be easily duplicated in the low-cost industrial factories of China or India, a fact that insulates Christie somewhat from cheap overseas competition. It's a business strategy shared by a handful of other thriving, high-tech manufacturers in the Kitchener-Waterloo area, including Research in Motion, maker of the BlackBerry wireless device. David Johnston, president of the University of Waterloo, which supplies many of the young engineers at both companies and fosters a climate of innovation in the local business community, said manufacturers can thrive in Canada in the face of overwhelming global pressures, as long as they remember the lessons of RIM and Christie: relentless innovation and investment, plus a focus on technology as a path to prosperity. "It's not just a challenge for manufacturing centres like Ontario, but for the whole country," Johnston said. "Resource booms come and go. Even in provinces like Saskatchewan, Alberta and Newfoundland, we have to work smarter." Said John Pollock: "The products made in our future factories will require little labour, but they will also require sophisticated components and be assembled in very sophisticated ways. The technology will make it successful, as opposed to low labour rates." Stech agrees that brains and technology are the keys to surviving low-wage foreign competition, but said competing merely with the developing world is not enough. "The threat from low-cost countries is only half the story. Canada also needs to be mindful of competition from countries just like us. A lot of our competitors come from Japan and Norway - not exactly the cheapest markets. "Is Canada really prepared to succeed against the most developed countries? I think we have a long way to go, specifically in terms of government policies." For example, Stech said southern Ontario's transportation infrastructure pales in comparison to what's available in Europe or Japan. He said a fellow executive at Christie's parent company in Japan, who lives in Kobe and works in Osaka, commutes by train every morning, working on his email or catching up on the newspaper, "and comes into the office fully prepared for his day." Stech, who lives in Mississauga and commutes a similar distance each morning, faces only one choice, an hour-long drive on a crowded highway. Stech said Canada's manufacturing heartland is undergoing a similar process of change and adaptation that shook England during the industrial revolution. "Steam engines were putting people out of work, and people said it's the end of living standards because no one will be able to make money. Well, that didn't happen," he said. "Industries and labour reapplied themselves to new technologies. "I believe we are going through that same stage as well. The key to industry in Canada is to keep in mind that we are competing on all fronts - against cheap-labour countries, but also against higher-labour-cost countries, developed countries with secure infrastructure. We need to be mindful of that competition as well."