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Facing slowdown, B.C. company steps on the gas

From Tuesday's Globe and Mail

Brad Miller

(Laura Leyshon for the Globe and Mail)

By the middle of 2006, Brad Miller knew his natural gas equipment manufacturing company in Chilliwack, B.C., was in trouble.

The soaring Canadian dollar was killing business at IMW Industries Ltd., which did almost all of its business beyond Canada's borders.

International demand for the type of basic infrastructure IMW builds for natural gas service stations – such as compressors, storage tanks and fuel dispensers – was strong. Yet the company couldn't compete with foreign-owned rivals because of the traditionally high cost of manufacturing such items, coupled with the high value of the Canadian dollar.

Sales were dwindling and IMW was bleeding profits with every product shipped because it had to lower prices to stay in the competition.

As he watched the dollar continue its steady rise, Mr. Miller thought he might have to do the unthinkable: Lay off staff and pray IMW would somehow weather the storm.

For Mr. Miller, a tenacious entrepreneur and mechanical engineer, that alternative could end only in failure.

“The other possibility was to rethink the business and dramatically lower the costs and get aggressive and go after the global market in a much bigger way, which is kind of counterintuitive, but it's what we did,” he said.

Two years later, IMW's annual revenue hit $52-million in 2008, up from the $8-million mark in 2006. The work force has grown from 40 employees to 260, 140 of them in Canada, and annual production capacity has jumped to 600 units from 32. IMW's physical size has also mushroomed by more than 400 per cent.

Charles Darwin, who said it's neither the strongest nor the smartest who survive, but the most adaptable, would no doubt approve.

“It was a realization that this was not something you could fix by trying to shave 5 per cent off of this and 10 per cent off of that; it needed wholesale rethinking, reinventing yourself and figuring out the most cost-effective, efficient way to deliver what your customers want,” Mr. Miller said of his strategy to change course for IMW.

While changes were made to maximize productivity, which allowed the company to lower prices, it did not downsize. Instead, IMW ramped up operations. It invested in redesigns and more efficient machinery, bought a larger factory in Chilliwack, started building another in China, and aggressively began marketing its equipment to more developing markets.

IMW redesigned its bulky compressors so that shipping costs were reduced to $1,500 per item from more than $15,000. It diversified from providing not only products and installation of those products, but also diagnostics and technical services.

Almost $750,000 was spent on an integrated mill-turning machine that manufactures a part in a single process instead of through multiple stages. As a result of that investment, it now takes one hour to make a crankshaft, rather than the previous nine hours.

In February, 2008, IMW moved from its 20,000-square-foot factory in Chilliwack to its new 55,000-square-foot space, which helped it to update its manufacturing processes.

With the ability to charge lower prices to customers, IMW is finding new customers in developing countries, where there is a lot of natural gas but little oil-refining capacity. Since 2006, it has more than quadrupled the number of countries where it does business, to more than 26 from less than six. In fact, less than 1 per cent of IMW's business is in Canada, which leaves its president miffed.

“Developing markets are quick to embrace our technology because their consumers are highly motivated to take advantage of any economic advantage,” Mr. Miller said, “whereas, in North America, we tend to whine but not want to accept change.”

IMW's international customers include large global corporations such as Petronas, Shell Egypt NV and Chevron Corp., as well as mom-and-pop operations with one to three filling stations.

In August, 2006, the company opened a new office in Shanghai and is building a 30,000-square-foot factory there, which it plans to open this summer to serve the Chinese market.

IMW is supplying ChinaGas Holdings Ltd., which is developing an urban natural gas pipeline in that country, with its complete product, installation and services solutions.

The move is key to IMW's expansion strategy. According to a forecast last year by the U.S. Energy Information Administration, natural gas consumption in Chinese cities should grow 11 per cent between 2006 and 2015, and 88 per cent between 2015 and 2030.

Struggling with smothering air pollution and diminishing natural resources, China is pursuing cleaner, more efficient fuels for vehicles. Natural gas can provide a 25-per-cent reduction in greenhouse gas emissions over gasoline and can be 40 to 90 per cent cheaper than gasoline.

Mr. Miller expects some slowing of China's environmental ambitions as it deals with recessionary economic challenges; however, he believes demand will continue to grow because several major natural gas pipelines are about to come on stream. “As they reach cities, compressed natural gas vehicle fuelling will follow,” he said.

IMW's bold plans could have fallen apart at one point when its bank became squeamish about the company's growth plans. IMW was in danger of losing the financing it desperately needed to continue its expansion and transformation.

Fortunately, it found a new backer in HSBC Bank Canada, which allowed the expansion plans to continue.

The U.S. Energy Information Administration forecasts global natural gas consumption will continue to rise 12 per cent between 2005 and 2010, or 2 per cent annually, and will grow again by 12 per cent between 2010 and 2015. However, it's expected that growth in demand for natural gas will slow until 2025 as coal, nuclear power and other sources fulfill world energy needs.

Given the global recession, Mr. Miller expects IMW's revenue will drop to about $42-million for fiscal 2009, as some companies and organizations put big projects on hold. Nonetheless, he says IMW is still winning major contracts and he forecasts continued strong growth.

“Fundamentally, the world needs fuel, it needs energy,” he said. “People want to drive cars and get around and natural gas is the only clean alternative that's out there and can be done on a large scale.”

Special to The Globe and Mail

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Expert Insight

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