A 'Silicon Valley' takes shape with bustling high-tech firms

Canada is developing its own version of "Silicon Valley," the hub of the US high-technology electronics industry situated near Santa Clara, Calif. The Canadian model, nestled in the Ottawa Valley, hosts more than 80 high-technology companies employing 15,000 people, with a payroll of over $200 million. Like the US high- tech centers, it is peopled with aggressive, hardworking entrepreneurs, most of whom have started their own companies in the last 10 years.

The companies did not just blossom out of barren ground. Colin Patterson, the president of Gandalf Data Communications Ltd., notes: "You can't just produce high-tech companies. The growth seeds and the groundwork have to be there."

The foundations for the area were laid over 30 years ago when Canada began the National Research Council, a government research center, in Ottawa. Later, in the 1960s, a surge in defense spending increased the number of electronics companies in the area.

At the same time Bell Northern, the Canadian version of the American Telephone & Telegraph Company, also set up its research labs in the Ottawa area and two universities, Carleton and Ottawa, provided high-caliber graduates to work at the companies.

Finally, the government has tried to stimulate the development of some of the firms with cash grants for expansion purposes, such as a recent $21 million grant to Mitel, and through making purchases from Canadian companies.

"The Canadian government," comments Gordon Gow, vice-president at Data Logic Canada, "is willing to take a chance on new technology. It has a keenly aggressive approach to automated systems which has been good for the area." Still, officials note, Canada has a sizable "electronics gap" with the United States, since it imports far more than goods than it exports.

The area hasn't always flowered. In the late '60s, a steep recession took its toll on the economy and government defense spending. Micro Systems International, after raising about $50 million in capital, ran into financial difficulties, which Mr. Patterson says had a negative effect on the business climate for nearly 10 years. Micro Systems, he recalls, developed what he terms the "inch-thick-carpet syndrome." Before actually producing anything, it spent a lot of money on carpets and tropical plants, he remembers. Then when the recession came, it didn't have any capital left.

The growth in new businesses, which has been about 50 percent per year, will require some changes in Ottawa itself. For example, Mr. Gow notes there is a need for merchants to stay open later, since more husbands and wives are working.

Also, Ottawa is known as a quiet city, without much night life or entertainment facilities to draw young people. There is also a need for more hotel rooms, since business visitors must sometimes compete with government officials for the limited space available.

The city is trying to adapt somewhat. It recently allowed direct flights from Baltimore to Ottawa, via Eastern Air Lines, and agreed to screen travelers for customs purposes. Businessmen give the city high marks on cooperating with new plant facilities.

Mr. Patterson is optimistic that the area will develop into another Silicon Valley. "If we play our cards right . . . we will do fine," he says, adding, "You can't neglect your business and survive."

The best example of the phenomenal growth in the area is at Mitel, on the outskirts of Ottawa. Begun in 1972 by Terence H. Matthews and Michael C. Cowpland, the company has grown in nine years into an international manufacturer of telecommunications equipment with sales of $43.4 million, up 101 percent from 1979. For the company's 1981 fiscal year, ending this February, it is projecting sales of over $100 million and is predicting sales of $1 billion by 1985.

The reason for the company's success is its ability to produce an electronic telephone switching exchange, called "SUPERSWITCH," that is the smallest available, very energy-efficient, and extremely reliable. For example, it has compacted a 16- line telephone switching unit into a telephone console that is smaller than a shoe box. Ordinarily, it takes a closet to hold this equipment. "We have leapfrogged the competition," Robert Wright, manager of public relations, says, "and now have a two-, three-year lead on other companies." In 1981, Mitel expects to sell more of its PABX (private automatic branch exchange) systems than any other manufacturer in North America.

In fact, the company notes that AT&T dropped its development of its own system at Western Electric after using Mitel's system and is now buying its equipment from Mitel. "AT&T came in here," Mr. Wright says, "and turned the company upside down checking it out before placing orders."

Mitel's growth has come so fast that statistics about the company sometimes border on the incredible. For example, 60 percent of its work force of 2,200 employees have worked for the company less than a year; the average age is 28 years old; Mitel has lowered the cost of producing the circuitry that is the guts of the PABX system from $300 per board to $30 per silicon chip; and the company's most recent product, a smaller version of its "SUPERSWITCH," attracted so much interest that the company received over 2,000 orders before production started up.

All of these events would not have happened if Mr. Cowpland, the president, and Mr. Matthews, the executive vice-president, had pursued their original business plan: to manufacture electric lawn mowers. Both men, born in England, had decided to build and sell electric lawn mowers after a stint at Micro Systems International, an Ottawa-based company that went bankrupt. The order for the lawn mowers got lost, however, and they didn't get to Ottawa until late in the fall. No one buys lawn mowers in Ottawa in October. Instead they began their own electronics company -- naming it after their surnames -- Mike & Terry Electronics (Mitel).

Another British engineer, Mr. Patterson, the president of Gandalf, has had a similar success story. After working for another Canadian electronics company that went bankrupt ("My million-dollar education," says Mr. Patterson), he and a partner, Desmond Cunningham, began their own telecommunications company in 1970.

Mr. Patterson remembers buying the parts for their first order with his credit card. Ten years later, in 1980, the company had sales of $26 million and has seen its sales double every year since its founding.

Gandalf, named after the wizard in J. R. Tolkien's book "Lord of the Rings," has manufacturing facilities for its equipment, which permits high-speed data transmission, in Wheeling, Ill., and Warrington, England, as well as Ontario. Gandalf's biggest market is the US, particularly banks and universities that need to exchange large amounts of data over the phone lines.

A third "Ottawa Valley" success story is System House Ltd., a company that specializes in taking the most sophisticated computer technology -- both the actual computer and the programming -- then finding applications for it and finally reselling it to other, similar users. System House will develop a computer model for a provincial government on welfare delivery systems and then resell it to other governments. Its sales have grown nearly 50 percent a year since its founding in 1974.

The main reason for System House's initial success, says Jack Davies, its president, was its ability to perform well under pressure. Mr. Davies had developed this knack in 1968 when his first contract required him to make sure the government's computerized vote-tabulating system performed as it should during the 1968 election. He had six weeks to review the system and make sure it would not break down. It didn't. Soon afterward another government agency under a deadline hired him for a similar project.

"We developed a reputation for turning out quality programs," Mr. Davies remarked in an interview, "under pressure and at a fixed price."

His company eventually merged with Systems Dimensions Ltd. When SDL moved in a direction that was different from the way Mr. Davies wanted to go, he left and founded another company, System House Ltd., with Roderick Bryden, who was a government official.

"Our strategy," Mr. Davies says, "has been to always stay one step ahead of the industry in terms of what the application of new technology is going to do in the commercial marketplace." Thus, the firm sold a computerized cartography system to the Australian Army and used this expertise to sell another system to the Australian Navy and the Indian Navy.

Since its founding in 1974, System House has expanded from three employees to 625. It's now the largest company of its type in Canada.