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A study of innovation activity in Canada’s Technology Triangle since the onset of the 2008 recession shows that traditional manufacturing industries have fared much better than expected, contradicting what some analysts suggest are the best bets for future prosperity.

The study, led by Professor Harald Bathelt, Canada Research Chair in Innovation and Governance in the Department of Political Science and the Department of Geography and Program in Planning, shows that traditional industries in the Kitchener-Waterloo and Guelph metropolitan regions of southwestern Ontario were well prepared to deal with the effects of the global financial crisis due to ongoing innovation and diversification stimulated by prior economic crises.

“Two-thirds of the region's firms engaged in traditional manufacturing - plastics, metal stamping, automotive parts, etc. - were active product or process innovators, with many having partial or full control of the design process of their products,” says Bathelt, who conducted the study with graduate students Andrew Munro and Ben Spigel. “This suggests that there is substantial innovation and adjustment potential in the region's traditional industries.”

Bathelt says the results have important messages regarding current discussions about the creative economy as well as for policy makers in the area of regional economic policy. “These traditional industries should not be discounted,” he says. “They can be quite innovative."

The region's manufacturing sector was hit substantially by the global financial crisis, but restructuring processes and layoffs were not as severe as could have been expected. As a result, the region remains a strong hub for manufacturing activities.

The researchers found that firms in the region's manufacturing sector did not reduce innovation activity during the financial crisis but instead used it as an offensive strategy to overcome the crisis' effects. Many were well-prepared for the recent crisis as they had already gained adaptability in their responses to prior crises stemming from increased raw material costs and the high value of the Canadian dollar.

"By introducing new innovation strategies, integrated manufacturing and research capabilities, as well as increased collaboration with their own customers, these firms emerged from the recent recession – and are today – in better shape than some of their peers in other sectors," says Bathelt. “Their success stems less from networks and linkages to universities and research centres in the region, and more from close connections with long-term customers and corporate branches abroad, and diversification of output and purpose.”

With Canadian Minister of Finance Jim Flaherty recently calling for more investment in innovative research and development, the study raises some valuable points to consider as Canada and the world struggle to return to sure economic footing.