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Economic Development: Smaller is Better

Just before Christmas, the George Morris Centre published a report that revolved around on the closings of the Heinz Leamington and Kellogg’s London plants as indicators of a transition in food manufacturing.  A number of points that the report raises seem to resonate well beyond the food industry.  A close look at the report suggests that cities in southwestern Ontario such as London need to fundamentally rethink the way they approach economic development.  The days of large plants employing many workers are on the way out and there is no going back.  Instead, the future of economic success lies in attracting many small firms producing speciality goods and employing fewer than 50 workers. 

The George Morris report does not even make it past the introduction before pointing out that the food industry is in a state of transition and although we are seeing multiple plant closures, the industry is ripe with opportunity for investment for those willing to accept the new economic challenges.  The statistics alone tell the story that many are all too willing to ignore.  84% of Canadian food and beverage manufacturers employ fewer than 50 employees while only 3% employ over 200.  Despite the fact that the majority of media attention tends to focus on the comings and goings of large facilities with hundreds of employees, the fact of the matter is that these businesses are in the minority.  We also know that most of these large firms are facing a number of pressures that are leading to consolidation, layoffs and plant closings.  Regardless of finger pointing, this is simply a fact and no amount of protectionist laws or policy will change it.  Given this fact, it is no longer practical for cities and workers to place their bets on finding a single large plant to set up shop and provide hundreds of jobs in one fell swoop.

It is now to the 83% of manufacturers that we must start paying more attention.  Instead of trying to attract a single employer of 500 workers, we need to attract 50 employers with 10 workers each – at the end of the day, the same number of workers have employment.  Far too often are such small firms scoffed at by those out of work or politicians who realize that there is little fanfare in an announcement for 10 new jobs in communities with high unemployment.  Realistically, these small businesses are the ones where investment is being made.  One needs to look no farther than London to see investment in smaller businesses such as Fire Roasted Coffee or Forked River Brewing investing in the region.  Just take a look at the shelf of your local LCBO at the rapidly increasing number of Ontario microbreweries and you will see that investment in Ontario as alive and well.  It is also important to note that investment in small facilities is not just entrepreneurs and upstarts – large corporations with deep pockets have invested in facilities such as Dr. Oetker pizza and Natra chocolate.  Of course smaller businesses are more likely to experience ups and downs.  London’s Little Red Roaster Coffee recently had to close a number of franchise locations.  This is the reality of small business.  However, the success stories can be just as plentiful. 

One of my favourite local businesses is Fire Roasted Coffee.  I once had a chance to speak with the owner who described the business starting with roasting coffee beans on the barbeque in his backyard.  Fire Roasted Coffee is now a permanent fixture of the Western Fair Farmer’s Market, have a new cafĂ© across the street from Budweiser Gardens, have coffee stocked on the shelves at Loblaws and have expanded with a complimentary company called Habitual Chocolate.  What started as a – quite literal – backyard operation is now an East London fixture experiencing growth in both sales and staff.  These are the kinds of successes that we should be cultivating in Ontario.  The George Morris report points out that consumer preferences have changed.  Customers are demanding specialized products: organic, gluten-free, free-trade, microbrew, on-the-go.  Investment and profit is rapidly slipping away from those who are maintaining the status quo of mass marketed goods.  Industry winners are those willing to innovate and focus on small-scale production of high quality goods with a strong focus on emerging consumer preferences and the customer ‘experience’.

It is understandable that there is a focus on attracting large companies who can employ many workers.  With so many people out of work, it is easy to fall into visions of a white knight saving the day and bringing work to the masses with a single new plant.  Sadly this is no longer a realistic expectation.  Interestingly, new industries have already adopted the correct mindset.  Nobody bemoans the fact that London does not have a Google or Microsoft headquarters yet we applaud the success of small firms such as Digital Echinda, rTraction and Atmos Marketing.  Although these firms are small today they have the potential to grow.  It is this potential for growth and entrepreneurial spirit that London and the rest of Ontario needs to harness. 

We gain nothing by looking back at where industry and Ontario’s economy were decades or even years ago.  Progress comes from looking forward at where opportunity is.  Today growth means small, innovative and adaptable.  So long as we continue to seek out large, traditional mass employers, southwestern Ontario’s economy will continue to stagnate.