Assessing the Location for a New
Manufacturing Plant for
Research in Motion Limited
Stephan Brünner -04/10/2001-
GG 611: Industrial Location Theory and Concepts
Instructors: Prof. Hecht, Dr. Mandres
Words ~ 5.700
Submitted by Stephan Bruenner
E-mail: [email protected]
Executive Summary
In this report the author elaborates a custom-tailored catalogue of locational requirements put
forward by the Research in Motion Limited. Then the resulting seventeen factors are used to
assess three different locations in regards to their suitability for a new manufacturing plant. Since
all the examined alternatives are well known high-tech locations in Ontario, only few criteria
comprise potential for differentiation. However, Waterloo, one of the examined locations, seems
to offer a perfect match of locational characteristics and locational requirements with regard to
the actual business strategy of Research in Motion Limited.
Background
The presented research report was conducted by the UniConsult Limited on behalf of
Research in Motion Limited (RIM) and provides findings related to spatial requirements of a
future business expansion for the Research in Motion Limited.
Research in Motion based in Waterloo Ontario, is a global leader in designing, manufacturing
and marketing of wireless technology for the mobile communication market. The company grew
hyper fast and tells the compelling success story of a University spin-off over the past 10 years.
Moreover, the wireless market promises to be one of the most dynamic growing sectors in the
future too and market growth is expected to be 800% from 1999 to 2003 (RIM, 2001). MERRILL
LYNCH (2001) actually estimates a market volume of 550 million handsets in 2001 and Research
in Motion is expected to ship 1 million devices. Consistent with the rapid growth and the speed of
technological evolution, RIM made significant investments into land, office buildings, production
equipment and tooling, research and development and computer infrastructure (RIM, 2001). In
2000, the constantly growing demand after office space led to the purchase of 2 adjacent
business parks (University Business Park and Technology Business Park) in Waterloo, Ontario,
Canada. Recently, RIM started to add an additional four-storey building to the already existing
273,000 Sq.ft. office space in the business parks. To satisfy the growing demand of RIM
products it is necessary to expand the production capacity (see p. 11). The selection question
arises regarding the location of the new manufacturing plant. Obviously, this is an important
question because the choice of a location has direct impact on the ability to achieve overall
corporate goals (FINCH and LUEBBE, 1995:310). This is even truer in times of decreasing
expectations regarding the market growth, industry wide cost cutting and increased price
competition.
The report is structured into five main sections, starting with the description of the applied
analytical framework. Next, we offer a brief historical overview, the company’s product divisions,
future products, significant business figures, and its actual spatial organisation. Our analytical
2
work starts in the third section where we derive locational requirements put forward by the
company’s economic activities. In the fourth section, the derived catalogue of locational
requirements provides us a good basis for the evaluation of potential locations. In the final
section we discuss the evaluation results in the light of the decision-maker’s matching rules and
strategic options.
Analytical Framework
In this paragraph we would like to provide the rationales for our study design which we found
most appropriate in custom-tailoring a modern site selection process for the Research in Motion
Ltd. Every decision-maker must positively match a number of spatial production requirements
put forward by an economic activity with a set of locational characteristics of choice alternatives
(W ITLOX, 2000:135). Presuming, that the decision heuristics of the subject are related to the
structural position of that subject, emphasis should be put on economic specific behaviour and
on structural constraints. Thus, our approach does favour neither an extreme structural nor an
extreme behavioural-cognitive perspective, but rather realistically acknowledges the existence of
a balance between choice and constraint. Consequently, we divide our location factors into
compensatory and non-compensatory factors.
Figure1: Finding a suitable location site through matching
Spatial production
requirements put
forward by
companies
Match
made by
decision-maker
Locational
properties and
characteristics of
location sites
Suitable location
site
Source: W ITLOX (2000:137)
Given that the same empirical properties of a location, or their combination, can have a very
different role for an economic activity (i.e. manufacturing) we found it necessary to develop a
unique set of location factors and locational requirements relevant to Research in Motion Ltd..
Furthermore, location specific properties must be considered. Hence, location specific demands
(e.g. environmental restrictions) can be ‘inverted’ and formulated as economic activity
requirements.
The selection of company specific location factors and the statement of company specific
locational requirements are based upon a causal argumentative analysis of RIMs economical
activities and on locational requirements stated by RIM itself respectively. Of course we reckon
3
that a more in-depth knowledge of these activities might lead to a modified set of relevant
location factors, locational requirements, and matching rules. Given that there might be a tradeoff in matching the production environment put forward by the firm and potential production
environment we use the term suitable location site rather than optimal location (Figure 1).
Since the analytical framework principally allows a combination of quantitative and qualitative
data we were able to include some factors without having exact figures. Thus, a comprehensive
location analysis was performed. Of course we are aware of the fact that broadly defined
categories do not contribute to an exact solution for the location problem. Despite this fact, we
think that a broad indicator is better than no one.
Moreover it could be defined more exactly
later on, if required. Practically, all used data was drawn from publicly accessible Internet
publications, Newspaper articles, and RIM publications. While collecting data we made sure that
the Data is relatively up to date, and is comparable in terms of date and matter of fact.
At this point, we would like to give an overview of the company Research in Motion in order to
reveal the broader context for the analysis of RIM’s locational requirements.
Research in Motion’s History and Future
Throughout the entire history RIM distinguishes itself through successful product innovations
and hyper-growth. Nonetheless one can identify three major evolutionary phases in terms of key
products, target markets and competitors.
The start-up phase (1984-1987)
In 1984, Mike Lazaridis founded RIM as a University of Waterloo spin-off company in
Waterloo. The firm provided customised electronic and software engineering services for local
industries and General Motors plants in Canada. Its main product, an innovative electronic sign
system, functioned as a local area network (LAN) long before the term was coined (CAMAGAZINE,
2000). In the late eighties, RIM sold its industrial display business, including the subsidiaries in
Texas and Ottawa.
Entering the wireless world (1987-1999)
RIM invested the money in the development of wireless wide-area networks and wireless
devices resulting in the expansion of its business in Waterloo. Lazaridis, the visionary of RIM,
saw a big market for mobile data systems and allocated the majority of the company’s resources
to this field. In 1992, Jim Balsillie, an experienced high tech manager of Kitchener’s Sutherland
Schultz Ltd., became the Lazaridis partner and co-CEO of RIM (CAMAGAZINE, 2000). Using his
old business contacts, Balsillie formed financial and technology partnerships and alliances
4
enabling RIM’s growth. In 1994, RIM moved its headquarter to the University Business Park.
Three years later, the firm went public (IPO) and raised about US$ 150 million allowing further
investment in research and development, manufacturing and marketing. In the same year RIM
won the Canadian Award for Excellence and its products (radio modems, two-way pagers and
software connectivity tools) generated hyper-growing revenues. The unique features1 of the
Black Berry pager led to its success in time-sensitive and professional user groups thus the
corporate users account for most of the 200,000 BlackBerry’s in circulation (FORBES.COM,
27.Nov.2000).
Competing in the wireless world (1999-present)
In 1999 the next big chunk of money, US$ 258 million, was raised through the sale of five
million shares at USA’s NASDAQ stock market (CAMAGAZINE, 2000). Again, the money was
used to improve RIM’s products, strengthen the R&D, manufacturing and marketing power. The
figures in table 1 give an impression of the compelling success story Research in Motion.
Table 1: Growth of RIM’s labour force
Year
Employees
1984
3
1987
14
1994
42
1997
1998
100
270
Revenues
Gross margin
Cost of sales
R&D
Selling & Marketing
Income operations
Earnings per share
1999
530
47.3 million
18.5 million
28.8 million
7.9 million
6.5 million
4.8 million
0.10
2000
1000
84.9 million
36.4 million
48.5 million
12.2 million
14.0 million
10.0 million
0.16
Source: RIM (2001), Figures in US$
Source: NASDAQ (2001)
Overall, the company faced increased competition because competitors brought comparable
but cheaper devices on the market (Motorola, Handspring). This competition forced RIM to
develop a more sophisticated version of the two-way e-mail pager (personal digital assistant)
and to improve the marketing channels respectively. Due to its first-mover advantage RIM was
able to install its system in 7,000 North American companies (MERRILL LYNCH, 2001), but until
now was not very successful in targeted mass markets like US, Canada and Europe. By and
large, the development of innovative products is the pivotal point for RIM to persist in a highly
competitive environment.
1
Unique features are: Qwerty keyboard, security features, e-mail functionality, “always on, always connected”, inter-
5
Product Divisions and Strategies
RIM’s main hardware-divisions are wireless hand-helds (pager and personal digital assistants),
embedded radio modems, and wireless PC cards. These wireless handheld devices account for
75% of revenues in 2000 (RIM, 2001). Additional opportunities to generate both revenues and
more profits through service fees and software updates respectively are expected to come along
with the innovation of java-enabled device (RIM, 2001). However, so far the competitive
landscape is dominated by the Palm Incorporation (Table 2).
Table 2: Competitive Landscape for the Personal Digital Assistant Market
Source: THOMAS W EISEL PARTNERS (2000)
Far-reaching product diversification, especially the development of voice enabled devices,
should help to enter the mass markets too, and generally enhance profit opportunities for RIM.
However, such a new product line could simultaneously be seen as the beginning of the end for
two-way paging as it is known today (IDEAADVISOR, 2000). In this market, real competition is
expectable from “convergence” specialists like mobile-phone producers Nokia, Motorola and
Ericsson having the know-how to connect wireless voice and data transmission to the Internet
(THE RECORD, 09.Aug.2000). Of course it is a long way from a product idea to the customer
operationability with Windows NT, Palm OS and Lotus.
6
satisfaction and all the necessary activities can be differentiated into functional groups of
economic activities.
Analysis of Economic Activities – Locational Requirements
Regarding the array of economic activities necessary carrying out RIM’s product range one
has to classify the Research in Motion Ltd. as a simultaneously theory driven, product driven and
market driven firm. In theory each of theses stages focuses on a different set of typically
important location factors (Table 3), but it gets complicated when a firm can not be clearly
assigned to one particular stage.
Table 3: Stages of development and typically important location factors
Theory driven firm
Focus on innovation
Venture Capital
Product driven firm
Focus on research & management
Availability of skilled labour
Use of Information
Technology
Start-up environment
High productivity
Access to theory driven firms
Quality of life
Favourable business climate
Source: After STUTZ, F.; DE SOUZA, A. (1997)
Market driven firm
Focus on sales & competition
Cost, availability and attitude of
labour
Cost, availability, dependability
of facilities
Incentives
Thus, we found it more useful to divide the company in its main value adding entities or
economic activities, to determine properly the company’s locational requirements. According to
our mandate emphasis is put on the manufacturing activity. However, other key-activities are
outlined as they have spatial implications for RIM’s manufacturing activity. While assessing the
site selection process we successively completed:

activity driven location requirements

and more location driven set of location factors
The factors are summarised in table 10 (Appendix 1).
Since we regard the headquarter
functions, the distribution, the research and development functions, and the manufacturing as
the main value adding economic activities2 these are analysed in the following paragraphs.
Headquarter Functions
At present time, all headquarter functions are located in Kitchener-Waterloo, Ontario, Canada.
In 2000, RIM purchased the University Business Park in Waterloo’s high-tech corridor, and
2
The actual spatial allocation of these functions is summarised in table 9 (Appendix 1).
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according to a newspaper interview the firm will consolidate its local operations on this property3
(THE RECORD, 25.Apr. 2000). The recently purchased land adds 115,000 Sq.ft. office space to
already owned 56,000 Sq.ft. office space at this location. Because the office space is partially let
to other high-tech firms and further demand is foreseeable, RIM recently started to develop the
central square of the University Business Park.
The commitment to keep the headquarter functions in Waterloo is, at least to a large extent,
grounded in the companies generic history and especially the personal linkages between
Waterloo and Research in Motion Ltd. However, this concentration also could be understood as
induced through increased co-ordination demand arising from its’ hyper-growth. The new office
space provides an opportunity to reduce costs (rent for 30,000sq.ft office space). Furthermore,
the spatial proximity of the old and new locations largely reduces costs which often stem from
the relocation of administrational archives, employees, and working equipment. Moreover,
uncertainties and risks provoking unwanted lacks in the headquarters functionality could be kept
to a minimum.
Principally, we do not see a quantifiable profit caused by the spatial proximity between
headquarter and the manufacturing site. Nonetheless, we acknowledge a general impression of
advanced controllability and flexibility through spatial proximity between headquarter and the
manufacturing site within a one hour-drive facilitating immediate face-to-face feedback (~60 km).
Of course, these advantages are compensatory through other operational advantages realisable
when the manufacturing plant would be build at a different location4.
Distribution
The distribution of RIM products to final customers relies on an increasing number of strategic
allies. Allies like America Online, Compaq Computers, IBM, Aether Systems and Rogers AT&T
Wireless, have the ability to market RIM’s products over the Internet to spatially dispersed
customers in North America. Logistic specialists like FedEx or UPS using their net of
warehouses processing the physical delivery of products to final customers. In this distribution
model, the final customer has to pay for the delivery. The model efficiently reduces
complications resulting from a RIM-owned retailer system. Since most of the company’s
products are sold to the North American market a good transportation connection between RIM’s
manufacturing site and the distributors warehouse locations becomes essential. We think that
warehouses of our logistic partners should be within a 200-km zone allowing us to deliver our
3
These are actually spread out over five buildings in Kitchener and Waterloo.
The suggestions regarding how factors could be compensated remain quite arbitrarily because either the factor s are
not quantifiable or exact mathematical relationship are unknown by the author. Although compensatory rules are listed
in table 10 we forego to explicitly argue theses in the analysis section.
4
8
products once a day employing 2 part-time truckers. The same distance would allow a flexible
inventory management through just-in-time deliveries of raw materials.
Since RIM made 93% of its’ 1999 revenues by exporting its products mainly to the US
(PROFITGUIDE, 2000), we argue that the export climate in terms of political agreements, currency
exchange ratio, and currency volatility impacts the ability to generate profits. Therefore, a new
manufacturing site should have a favourable export climate to the US markets. Of course, there
are many ways to compensate such ‘losses’ or resistances through otherwise reduced
operational costs or profit opportunities (e.g. labour costs).
Research and Development
As aforementioned it is very important to RIM to be innovative and to be a technology leader in
the industry. Not surprisingly, analysts regard RIM’s ability to establish its’ hand-helds as a java
application development platform as the major key for future success (MERRILL LYNCH, 2001).
Palm Inc., RIM’s major competitor, sold 1,000,000 hand-held units in the last quarter of 2000 in
Canada alone. In an interview conducted by the Toronto Star (Mar.19.2001), Palm alluded to
the large base of software developers (135,000) as their competitive advantage. In order to
attract some third-party software developers, RIM co-operates with SUN Microsystems (the
leading Java development platform developer), confident that these firms would create attractive
software for RIM devices. Most of the software-orientated research, development, and coordination activities are actually located in Waterloo, but do not have direct implications for the
manufacturing activity itself.
Additional revenues are expected to come from a voice-enabled device, which is actually
developed in co-operation with BT Cellnet, Microcell Connexions Inc. and Nortel Networks (THE
RECORD, 17.Oct.2000). At present time, these converge activities are mainly located5 in Ottawa
and the new research facilities in Kanata, Ontario (RIM, 2001:3). These locations allow the
access to a huge potential of specialised researchers and engineers at these locations, but
complicate fast face-to-face interaction with the core research and development activities in
Waterloo.
Waterloo is not only the home for RIM’s headquarter, but rather all the core research and
development function are located in buildings at Phillip St. and Columbia St., within a ten minute
drive to the company’s sole manufacturing plant. This spatial proximity between RIM’s engineers
and the manufacturing facility helps designing products that optimises manufacturing efficiency
(RIM, 2001:4) and must be regarded as beneficial. This quick ‘access’ should also ease
complications coming along with the production of special editions, customised devices, new raw
5
This conclusion is drawn upon the list of available vocation as posted on the RIM homepage.
9
materials, new production facilities, and so forth. We think that such ‘agglomeration’ advantages
can only be realised if the new manufacturing plant is located closer than a two-hour ride away
from the research and design facilities. Otherwise we assume that additional costs arise
resulting from managing and actually doing such exchanges.
Finally, the nearby universities (University of Waterloo and Wilfrid Laurier University) are
comprehensive first-class universities and help to provide for RIM’s huge demand for highly
qualified R&D personal at competitive labour costs. Of course, in this region not only Universities
are sources of human capital, but rather a variety of other high-tech companies feed into the
supply of RIM’s desire for experienced workforce.
Generally one might acknowledge that the complexity of interactions among engineers needed
to efficiently develop a high-tech product (hardware), allows the creation of additional research
facilities at a new location optimally, when a new product line is projected.
Table 4: Locational Requirements put forward by economic activities others than manufacturing
Locational Requirements
Factors
Non-compensatory
Good connection to
national street network
Engineers nearby one
manufacturing plant
Export climate
(policy)
(currency)
Proximity to HQ
Less than 200km
Compensatory
Very high
Lees than a 2 hourdrive
High
Good
[Through otherwise reduced operational
costs or profit opportunities]
Should be less than 40km
[Through other operational advantages]
Priority
High
Moderate
The discussion above, explicitly demarcated the location requirements put forward by RIM as
they pertain to the relevant manufacturing operations. These requirements are included in our
final factor catalogue (table 10, Appendix 1). However, the next paragraph will show that the
location decision is mainly constraint through requirements put forward by the manufacturing
process itself.
Production
At present time, the sole manufacturing plant is located at Shoemaker St. in Kitchener, Ontario
within an industrial park. The facility has a 36,000 Sq.ft. (RIM, 2000) large production floor and is
equipped with industry leading, highly automated production equipment. The Siemens showcase
facility includes an automated visual recognition and inspection system and is quickly scaleable.
The experienced manufacturing team works together with the product designer in order to make
the production process even more efficient (RIM, 2000). In 2000 the production capacity
10
amounts to approximately 1 million devices per year. The planned capacity expansion in the
Shoemaker plant should maximally allow the production of 4-5 million devices per year (THE
RECORD, 09.Aug.2000). When extrapolating RIM’s growth rate (70-90% per year) the maximal
capacity of the actual plant could equal total market demand for RIM products by the end of
2004 the latest (Figure 2). Thus, additional manufacturing capacity must be available and
functional in early 2004 and placing enormous pressure on the time schedule to actually plan,
built, and tune up the plant.
Figure 2: Manufacturing capacity of the Shoemaker plant equals market demand in 2004.
Estimated sales of RIM devices
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
Sold units
0
2000
2001
2002
2003
2004
Year
With respect to the estimated market growth, RIM needs a fundamental expansion of its’
production capacity in order to satisfy market demand in the long-term. An additional plant that
would accommodate sustainable future growth (until ~2007) should have at least 160,000 Sq.ft
production floor requiring about 300,000 Sq.ft. building space and at least 600,000 Sq.ft.
industrial land6. Of course, the availability of professional services (planning, construction, toolup) are crucial to build the plant in less than 3 years, however, the permanent availability of
these and other professional services (i.e. insurance agents, lawyers, financing, further training
and others) are just occasionally needed. Thus such services are necessary and should be
accessible within a two-hour drive, but should not seriously constrain the location decision.
6
These figures are more or less arbitrary and a one-storey building is assumed.
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The manufacturing activity also demands qualified personal for logistics, inventory
management, manufacturing and assembling, quality engineering, and facility management (the
Shoemaker plant offers ~30 directly manufacturing relevant occupations [Rim, 2001b]). These
directly manufacturing relevant activities presuppose spatial proximity to the plant. In other
words, RIM needs to find these human resources within a one-hour drive of the manufacturing
plant (labour costs are of concern in the next section).
The hardware inputs for RIM’s assembly line are delivered through a diversity of suppliers. In
order to minimise inventory costs the manufacturing facility should have a good road connection.
Additionally, the spatial proximity of the manufacturing plants could extensively reduce overhead
costs and redundant costs, allowing a more flexible inventory management.
RIM’s highly efficient production equipment also requires a stable natural environment.
Certainly, the site should not be located in natural hazard zones like earthquake zones, flooding
areas, hurricane areas, or landslide areas, which could cause severe damages. Moreover raw
materials, the production equipment, and of course the final products are highly susceptible to
humidity hence, a naturally droughty climate would reduce overall construction and operational
costs. Thus the location site must have a stable environment and only relatively little
atmospheric humidity.
Because of the highly efficient production equipment even a short machine outage could lead
to substantial costs. Therefore a suitable manufacturing site should provide good access to
specialised production equipment maintenance services within a two-hour radius.
Furthermore, the quality and the price of utilities, especially electricity, are important to
maintain an uninterrupted production process and a profitable production site respectively.
Therefore, we propose to select a location with attractive terms of electricity prices and reliability.
Restrictions due to environmental law could further influence RIM’s manufacturing design and
manufacturing costs, but in general the company’s production is environmentally sound and
does not interfere with environmental laws and standards of developed countries. Nonetheless
our manufacturing related factor catalogue (Table 5) would be incomplete when excluding this
factor.
Table 5: Locational Requirements put forward by manufacturing
Locational Requirements
Factors
Noncompensatory
Compensatory
Priority
Speed of construction
and tool up time
Land availability
Less than 3 years
Very high
Industrial land for
300,000 Sq.ft.
building space
Very high
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Proximity to labour
force
Natural environment
Proximity to specialised
services (tooling,
maintenance, etc.)
Permanent availability
of professional services
Price/Quality utilities
(electricity)
Proximity of plants
Less than 1 hour
Very high
Stable & relatively
little humidity
Within less than 2
hours.
Very high
Within a 2 hourdrive
Moderate
Environmental
Restrictions
Moderate
At least good (competitive)
[Through otherwise reduced operational costs]
Should be less than 50km.
[Through otherwise reduced manufacturing costs]
Should not cause extra costs or time delays.
[Through other low-priority factors]
Moderate
Moderate
Low
All the factors mentioned above are more or less necessary to manufacturing processes and
act as primarily constraints on the location decision. Opposed to this, the potential manufacturing
environment might seem to have a more passive role. Nevertheless, it is equally relevant for an
suitable site location.
Site Specific Requirements
Site specific demands can be ‘inverted’ and formulated as economic activity requirement as
done above with the example of environmental restrictions. However, some distinct site
demands are of concern in the following paragraph.
In the first place we regard the zoning bylaws as a site-specific demand and knockout criterion
because the aforementioned narrow time schedule allows no delays due to time consuming
administrative and political procedures to change the bylaws.
Moreover, we propose land costs and development charges as equally important but
compensatory factors in our model. We rank land cost as only ‘high’ critical to RIM because of
its nature as a singular long-term asset building investment allowing RIM for amortisation over
forty years. Though, a reasonable price should not exceed 25% of the average price whereby
the average price is composed out of our alternatives7 within southern Ontario. It is assumed
that a site if exceeding the 25% limit is overqualified for manufacturing purposes. The same
procedure is applied to assess the geographically varying industrial development charges.
Last but not least we identify geographically differentiated labour costs as a relevant sitespecific factor. With regard to typical manufacturing occupations the cost of labour should not
exceed a 10% threshold above the average within a geographic cluster (here southern Ontario).
Since RIM’s manufacturing process is highly automated we identify labour as a factor more
7
In our case all the alternatives are located in southern Ontario, but if fundamentally different alternatives should be
evaluated with the model, then a cluster analysis could be the basis composing an average.
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relevant in terms of quality and reliability instead of hourly wages. Thus, labour costs are just a
moderate important factor and could be compensated through other operational costs (Table 6).
Table 6: Site Specific Locational Requirements
Locational Requirements
Factors
Zoning laws
Land costs and
development charges
Noncompensatory
Compensatory
Ready to built
Costs of labour
Should not exceed 25% of average price.
[Through otherwise reduced operational costs]
Should be relatively competitive
[Through otherwise reduced operational costs]
Priority
High
High
Moderate
Given all the location factors and the locational requirements above we can rationally evaluate
some potential manufacturing sites (the complete factor catalogue is provided in Appendix 1).
Evaluation of Potential Locations
In this report, the search area for potential sites is limited to Ontario, Canada since it seemed
to us as a potentially good choice regarding the following facts (MEDT, 2001).





Ontario businesses enjoy overall cost advantages relative to other U.S. and European
locations.
Ontario allows access to North America’s industrial heartland and massive consumer
markets within a day’s drive (120 million consumers).
Ontario is one of the most industrialised provinces and has a diversified industrial base.
Ontario has generally an excellent infrastructure (road, rail, airports, and energy) and an
enabling business environment.
Existence of manufactures, which are industry related in terms of skills, technologies or
common inputs (e.g. manufacturing equipment, processes and tools).
Additionally, the perhaps most relevant reason for RIM to locate its new manufacturing plant in
Ontario might be that it is already familiar with existing laws, regulations, institutions, and cost
structures. Furthermore RIM already established functioning flows with its suppliers and logistic
partners in Ontario.
In fact, the next section focuses on Mississauga, Waterloo and Kanata and provides an
overview of revisited sites and their attributes with regard to factors as determined above.
Important to us is that we do not try to advertise the sites in the manner of local economic
developers, but rather the focus will be on giving a plain and comprehensive comparison of the
sites. Nonetheless these locations were pre-selected because of their well-known suitability for
high-tech companies.
The collected data is summarised in table 7 (p. 15). For every location factor at each potential
site there is an indication if the factor outmatches, meets, or not fulfils the requirement. These
14
findings are then briefly discussed in terms of similarities and differences, which are of course
the basis for our final conclusions.
Table 7: Evaluation of Potential Location Areas
Potential Locations
Non compensatory
factors
Good connection to
national street network
Speed of construction
and tool up time
Land availability
Prox. to labour force
Natural environment
Engineers nearby one
manufacturing plant
Mississauga
Export climate to US
Political
Financial
Land costs
Indus. Development
charges
Price/Quality utilities
(electricity9)
Proximity of plants
Proximity to HQ
Cost of labour
Environmental
Restrictions
Legend
Waterloo
Highway, Train, Airport
Very good
Less than 3 years
Highway, Airport
Highway (Airport)
Less than 3 Years
Less than 3 Years
Yes, > 300,000 Sq.ft.
Very good
Qualified (plain, relatively
little humidity)
-10 to +20 C,
Yes,
even when Shoemaker
plant will be shut down
Not critical
Yes
Yes, > 300,000 Sq.ft.
Good
Qualified (plain, relatively
little humidity)
-10 to +20 C,
Yes,
if Shoemaker plant
continuos production
Not critical
Yes
Yes, > 300,000 Sq.ft.
Good
Qualified (plain, relatively
little humidity)
-10 to +20 C,
Yes,
High
even when Shoemaker plant
will be shut down
Not critical
High
Yes
Moderate
High
(less than 1 hour-drive)
Good enough
(less than 2 hour-drive)
Zoning laws
Prox. Specialised
services (tooling,
maintenance, etc.)
Permanent availability of Very high
professional services
(less than 1 hour-drive)
Compensatory
factors
Priority
Kanata
Mississauga
Very
high
Very
high
Very high
Very high
Very high
Moderate
Kanata
Waterloo
NAFTA,
US very good
EU moderate
Flexible ($Can 592,000716,000 per ha)
Can$ 45 per sqm
NAFTA,
US very good
EU moderate
Flexible ($Can370.500432.000 per ha8)
Max. Can$ 10.2 per sqm
Moderate
(Can$0.063/Kwh)
Moderate (~80km)
No
Composite Index 148,72
Standard
Good –
Can$0.0469/Kwh
No (~500km)
No
Composite Index 148,1
Standard
NAFTA,
US very good
EU moderate
Flexibl ($Can 220,000270,000 per ha)
Local Municipality Can$22.8
per sqm
Region Can$ 14.31 per sqm
Very good –
Can$0.042/Kwh
High (~<20km)
Very high
Composite Index 147,49
Standard
High
Outmatch
Not fulfilled
High
High
Moderate
Moderate
Moderate
Moderate
Low
Meets Requirements
Similarities
In all revisited areas the minimal required industrial land with appropriate zoning laws is
available (Sources: Coldwell Banker [Oct.2000], City of Mississauga [2001b], City of Ottawa [22
8
In 1999, Nortel purchased 17 acres industrial land on the Terry Fox Park in order to built a 125,000sq,ft. building and
paid Can$ 225,000$ per acre (Can$555.000 per ha) (Ottawa Business Journal, 08.Nov.1999).
15
February 2001]). Moreover RIM already owns appropriate industrial land in Waterloo, which is
zoned as industrial land type I. Since all areas are high-tech areas one can assume that overall
construction time should not exceed the three years limit.
It is also reasonable to assume that
professional services to tool-up and maintain the production equipment are sufficiently available.
Even a look at occupations typically tied to high-tech manufacturing does not reveal potential for
differentiation (Table 8).
Table 8: Most frequently paid wages in the Kitchener, Ottawa and Toronto Region in 1999
Occupation
Purchasing Managers
Transportation Managers
Facility Operation and Maintenance
Managers
Manufacturing Managers
Machinists and Machining and
Tooling Inspectors
Janitors, Caretakers and Building
Superintendents
Material Handlers
Electronics Assemblers,
Fabricators, Inspectors and Testers
Composite Index (Sum)
Source: HRDC (2001)
Most Frequently Paid Wages (Can$ per hour)
Kitchener
Ottawa
Toronto
24,11
24,67
22,40
23,93
23,93
20,99
19,85
19,85
21,59
24,76
17,20
24,77
18,14
24,75
17,16
13,78
11,27
15,55
12,33
11,53
12,21
13,26
13,57
12,71
147,49
148,1
148,72
Finally, all focused communities provide a plain and stable environment without tropical
atmospheric humidity. The export climate especially with regard to US, where 93% of RIMs
revenues are generated, is similarly good in all surveyed areas (PROFITGUIDE, 2000). Much
more interesting are the differentiating factors at the community level, which inevitably influence
the location decision.
Differences
Mississauga is located approximately 20km south-west of Toronto in the Greater Toronto Area
(Figure 3, Appendix 2) and is nearby the Pearson International Airport, major highways, and the
national road network. Kanata, the 4th ward of Ottawa, is located near Highway 16, 417, and 15
west to Ottawa and is connected to Canada’s capitol through public transportation. Furthermore
it is located within a 20 minutes drive to Ottawa International Airport. Waterloo is located
approximately 100 km south-east of Toronto and has good access to Hwy 401,86,7, and 8. Thus
we can summarise that all areas provide the desired connection to the street-network. Moreover,
9
On peak Winter-rates for business consumer (500kW-5000kW per month).
16
Mississauga provides an overly good transportation infrastructure and even Kanata seems to
outmatch our requirement.
Due to the spatial proximity to Toronto we regard Mississauga’s proximity to labour forces as
the best one, but not as the required one. This spatial proximity also accounts for unnecessarily
good availability of other professional services, which are only occasionally required by RIM.
We also want to point out that Waterloo and Kanata provide sufficient access to the required
labour force.
The geographic distance between the Research and Development facilities in Waterloo and
Kanata puts a constraint on strategic choices regarding the potential closure of the
manufacturing plant at Shoemaker St. in Kitchener. This is because only a ‘producing’
Shoemaker plant could ensure the desired fast interaction between researchers and the
manufacturing process when building a new manufacturing plant in Kanata. Perhaps, the most
obvious criterion for differentiation is the land cost factor differing from Can$220,000 to $Can
716,000 per ha (Sources: The Record [25.Apr.2000], Ottawa Business Journal [08.Nov.1999],
City of Mississauga [2001b]). According to the limits defined above we must identify Mississauga
as an overpriced candidate. The figure for Waterloo is the result of our own calculations based
on publicly available figures10. Additionally, Mississauga asks for the highest industrial
development charge and exceeds our 25% above-average limit by far (Sources: City Of
Mississauga [2001], Coldwell Banker [2000], EDCO [1999]). Waterloo again seems to have the
best offer when considering electricity rate for non-residential users.
On a side note, it is
important to state that the electricity rate payable in Kanata could be still regarded as
competitive (Sources: City Of Waterloo [2001], OED [2000], Hydro Mississauga [2001]). Overall
downtime or electricity outages are generally quite low (Hydro Mississauga [1999] reports 32
minutes per customer per year downtime) and are not system immanent.
As mentioned above a spatial proximity between the plant itself and the spatial proximity
between plant and headquarter could be fairly valuable to RIM. In this respect, the relatively
remote geographic location of Kanata, impedes the realisation of the potential advantages
associated with spatial proximity. In contrast, the distance between Waterloo (HQ and actual
plant) and Mississauga might allow the joint use of inventory. However, the overall flexible
manufacturing management and the reduction of redundant overhead costs could be realised
more comprehensively with a new manufacturing plant in Waterloo. Moreover, research has
demonstrated that proximity at different geographical scales (national, regional, firm level) must
10
In 2000, Rim purchased the Technology Business Park and the Waterloo business Park in Waterloo, Ontario,
Canada. The deal was totally worth about Can$ 9,6 million (The Record, 25.Apr.2000) and included five buildings
(2,536 ha office space on estimated 2.5 ha building area) on a total of estimated 19 ha land. Assuming a price of
Can$2,500 per sqm office space RIM paid approximately Can$ 220,000-270,000 per ha industrial land.
17
be seen as a necessity for innovative activities (KIRAT and LUNG, 1999). In our case, only a new
plant in Waterloo would provide proximity at all three geographical scales.
Conclusion
So far, the discussion excluded somehow the application of above defined compensation
rules. This is of course partly due to the fact that Waterloo must be regarded as a ‘perfect
match’. In the case of Mississauga and Kanata we have to recognise that the compensatory
rules are not applicable because these both do not have anything to compensate with. Of
course, some non-compensatory factors outmatch our requirements and might become valuable
in light of different strategic choices. Kanata could be a good alternative if the new plant would
heavily rely on airfreight and other professional services since these requirements are readily
available and are well priced. This alternative becomes even more reasonable if RIM plans to
expand its’ research and development facilities in Kanata (i.e. new product line) since
advantages evolving through interactions would be realisable. In the case of Mississauga it
remains either-way very doubtful that the company should pay extra for unnecessarily good
transport connections, proximity of labour force and professional services while simultaneously
reducing overall flexibility.
By and large the alternative providing the most advantages at an absolute low price is
Waterloo. Given the fact that RIM already purchased adequate industrial land in Waterloo
(zoned as industrial land type I) and assuming that the aforementioned locational requirements
are realistic, we recommend Waterloo, Ontario, as the suitable location. The value of this
location is further augmented If Research in Motion Ltd. continues focussing on Waterloo as the
centre for Research and Development.
18
Appendix 1
Table 9: Actual spatial allocation of business functions.
Waterloo (Phillip St., Columbia St.) R&D centres and headquarters (56,000 sq. ft. [1999]), ca.
Kitchener (Weber St.)
100 occupations.
Pre-sales, sales, customer services, tech support (30,000
sq. ft. [1999])
Ottawa & Kanata Ontario
R&D (Newer Radio Hardware), ca. 26 occupations.
Toronto
R&D (Software), ca. 10 occupations.
United Kingdom
(Sales, Marketing, customer service), ca. 12 occupations.
Throughout USA
Independent sales offices
Source: RIM (2000)
Table 10: Overview of locational requirements put forward by RIM’s economic activities.
Locational Requirements
Factors
Non-compensatory
Good connection to
national street network
Speed of construction
and tool up time
Land availability
Less than 200km
Very high
Less than 3 years
Very high
Industrial land for
300,000 Sq.ft. building
space
Less than 1 hour
Stable & relatively little
humidity
Ready to built
Lees than a 2 hourdrive
Within less than 2
hours.
Very high
Proximity to labour force
Natural environment
Zoning laws
Engineers nearby one
manufacturing plant
Proximity to specialised
services (tooling,
maintenance, etc.)
Permanent availability of
professional services
Land costs and
development charges
Export climate
(policy)
(currency)
Costs of labour
Price/Quality utilities
(electricity)
Proximity to HQ
Proximity of plants
Environmental
Restrictions
Compensatory
Priority
Very high
Very high
High
High
Moderate
Within a 2 hour-drive
Moderate
Should not exceed 25% of average
price.
[Through otherwise reduced operational
costs]
Good
[Through otherwise reduced operational
costs or profit opportunities]
Should be relatively competitive
[Through otherwise reduced operational
costs]
At least good (competitive)
[Through otherwise reduced operational
costs]
Should be less than 40km
[Through other operational advantages]
Should be less than 50km.
[Through otherwise reduced
manufacturing costs]
Should not cause extra costs or time
delays.
[Through other low-priority factors]
High
High
Moderate
Moderate
Moderate
Moderate
Low
19
Appendix 2
Figure 3: Overview map of potential location areas
Source: MAPQUEST.COM (2001)
20
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22