1. Secondary Wood Cluster Study WOOD in the WEST Innovation Systems Research Network Sixth Annual Meeting in Vancouver May 13 and 14, 2004 Hans G. Schuetze

2. Secondary Wood Cluster Study Determinants and boundaries of the secondary wood industry Secondary Wood Cluster Study PRIMARYSECONDARYTERTIARY High employment per m 3 Low use of raw materials unfinishedfinished

3. Secondary Wood Cluster Study 15% 10% 50% 25% Secondary Wood Cluster Study

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5. Secondary Wood Cluster Study Clusters and principal factors for clustering –Proximity to raw material (“fibre,” wood) –Proximity to clients/the market –Proximity to other companies in the same category –Convenient transportation routes –Proximity to labour pool; training institutions –Proximity to R & D institutions Secondary Wood Cluster Study

6. Other factors influencing the decision to locate/stay –Immigration patterns –Local networks –“Quality of life” (climate, nature, tolerance, opportunity to make a living and exercise a way of life) Secondary Wood Cluster Study

7. Typology and characteristics of wood manufacturing firms in BC and Alberta Secondary Wood Cluster Study Company Type ProductsMarketsTechnologyWorkforceOwner/ Manager Type of Innovation Clustering 1. Crafts 2. Small manufac- turing 3. Industrial manufac- turing

8. Secondary Wood Cluster Study Factors of change –Globalization Competition Joint ventures Corporate mergers and strategic agreements Outsourcing across borders (especially China) –ITTs Rationalization Integration of the marketing/production process Customized mass production –The new owners/managers Secondary Wood Cluster Study

9. Local Interaction –Among the seven sub-sectors (ranging from re- manufacturing to furniture), there is almost no interaction across, and relatively little interaction within. Secondary Wood Cluster Study

10. Local Interaction  There is some interaction between craft and small manufacturing firms in local markets  The industrial manufacturing companies produce mostly for customers outside of their own local region.  They buy most of their wood and other supplies from suppliers (or sales agents) located outside their own local region.  However, companies tend to use local business services (banking, accounting, legal services). Secondary Wood Cluster Study

11. Knowledge Flows (lateral flows)  There are only very few larger, local "champion" companies from which other firms have spun-off. In particular, there are almost no spin-offs from the primary sector and some limited flow of qualified personell among firms. There is some limited flow of qualified other firms in the same sector.  With few exceptions, there is no R & D collaboration with universities. Some R & D work is done in conjunction with FORINTEK and some specialized programs in colleges/institutes. Secondary Wood Cluster Study

12. Knowledge Flows (through qualified personnel ) Most workers are unskilled. They are recruited locally, receive only basic training, earn low wages, and often move to other local firms. Graduates from college programs specializing in wood- related training programs are sought after, they are mostly adequately paid and given career development chances. Secondary Wood Cluster Study

13. Knowledge Flows (through Suppliers and competitors) –The most important knowledge flows into the industry come from suppliers and customers, often met at specialized trade shows. Most of these shows take place outside the region (mainly in the US and Europe). –Technical and related (e.g. design) knowledge flowing from these trade shows originate from two sources: –competitors –producers of wood working equipment Secondary Wood Cluster Study

14. Innovation Most innovation comes in one of four forms:  product design and quality improvement (mostly incremental product innovation)  rationalization (often radical process innovation)  new materials (substitution of wood)  new markets Secondary Wood Cluster Study

15. Traditional Structures and New Developments  On the whole, the industry has still low tech equipment, a low-skilled workforce and autocratic management, and is rarely innovative, both with respect to products, processes and markets. This is changing, however, as four new trends are emerging, which are changing the traditional structures and dynamics of the industry. Secondary Wood Cluster Study

16. New Developments  Diversification of markets (Southeast Asia, US)  Globalization of production  Professionalization of management and core staff  Rationalization and full integration of the entire business process through IT. Secondary Wood Cluster Study

17. Clusters or agglomoration of firms? First Generation - Clusters building around:  Skilled labour (immigration)  Proximity to new materials  Proximity to local markets (clients) Secondary Wood Cluster Study

18. Clusters or agglomoration of firms? Second Generation - cluster development:  Attraction of new firms  Spin-offs  Some specialization Secondary Wood Cluster Study

19. Clusters or agglomoration of firms? Third Generation – (partial) de-clustering due to:  Move towards new national/international markets  National/international suppliers of raw materials  National/international suppliers of equipment  Professionalization of management, no longer crafts type or self-made man  High degree of specialisation Secondary Wood Cluster Study

20. Clustering and de-clustering in the wood sector  The industry grew significantly around small local clusters.  As the sector, and many firms grew, the clusters became both more and less important.  In the third phase of development, local clusters have little or no importance. Secondary Wood Cluster Study

21. Different views about secondary wood clusters today A.There are (local) clusters, sometimes supported by craft or industry associations 'We communicate with our competitors through our Association …We talk about apprenticeships, standards of quality and quality control. We meet each month. We subcontract to them, work together, especially if we are busy. We favor each other. So if my competition is fine, I am fine, too' (AB 1) Secondary Wood Cluster Study

22. cont’d B.There are no such clusters since: Proximity to raw materials, clients (markets) are no longer important for larger, specialized firms (effects of globalization, ITTs) There are no/very few spin-offs through employees leaving and setting p their own shop (due to lack of qualifications, high start-up costs) Little down-stream diversification of the primary wood industry Among smaller firms there is a lack of trust. Instead sense of competition and secrecy. Secondary Wood Cluster Study

23. WOOD IN THE WEST Still missing:… Some additional cases in Saskatchewan and Manitoba Wood in the East?