Making it in Canada
- August 12, 2013
by Mary Scianna
Can Canada's manufacturing industry compete on the world stage?
Let's set the record straight: Canada never has, nor will it ever be, a manufacturing powerhouse like China and India.
To compete on the global manufacturing stage, Canada must differentiate itself from its competitors by building upon its strengths: "the ability to respond rapidly to changing business conditions and to provide customers with what they want," says Jayson Myers, president and CEO of Canadian Manufacturers & Exporters (CME), Ottawa, ON. "Canadian manufacturers have a crucial strength in offering customized work combined with service to meet market needs faster and more flexibly than manufacturers in other countries."
To maintain this crucial strength, Canadian manufacturers must invest in innovative technologies, adds Frank Haydar, president of the Canadian Machine Tool Distributors' Association (CMTDA) and president of Canada's largest machine tool distributor, representing several brands and technologies, Elliott- Matsuura Canada Inc., Oakville, ON.
"The manufacturing sector in Canada is nowhere as big as other countries like the US, Japan and Germany. We're trying to make inroads with automation, and in our opinion, it's key. The only way for machine shops in Canada to stay in business is to have the right equipment and make products for the most cost effective unit price. Automation, such as lights out, makes sense in Canada because it addresses the issue of our skilled trades shortage. It's the nature of the manufacturing business in Canada and we need to do what we have to, to succeed."
Perhaps the most significant difference between Canada and its offshore competitors is the size of manufacturers in this country. We do not have a high number of OEMs and large manufacturing Tier 1 suppliers like Magna and Linamar. Approximately 70 to 80 per cent of the manufacturing businesses in this country are small to mid-sized manufacturers, many of which service larger OEMs in Canada and around the world.
Many SMEs may not have the financial resources of larger companies, but industry experts say it is even more imperative for SMEs to invest in manufacturing technologies to level the playing field against offshore competitors: automation, for example, has an upfront cost, but if it allows you to secure job contracts that may have been destined to go offshore, you'll quickly realize your ROI.
Les Payne, executive director of the Canadian Tooling and Machining Association (CTMA), Cambridge, ON, says we must change the culture of thinking when it comes to how we make things in North America.
"If you look at a British company like Renishaw, 95 per cent of manufacturing is still done in the UK and its wages are the same as ours. In Germany, tool shop workers are higher paid than ours, and they get five to six weeks of vacation time. Yet they [Renishaw and shops in Germany] remain globally competitive because they work smart. I don't think our manufacturers have come to the point of saying we have to work 24/7 because that's a big shift in thinking for us, but even if it's not 24/7 with lights out, we have to think about how we can use our plants and our equipment more effectively and longer."
Debbie Holton says she's seeing more manufacturers adopting automation. Holton is the North American director for events and industry strategy for SME, a North American manufacturing association based in Dearborn, MI. (SME Canada is based in Markham, ON).
"I was in China recently and there is more automation there in part because demographics in that country are changing and costs of manufacturing are going up. We have no choice but to adopt automated solutions to compete globally, but we need skilled people to run the automation. It's a different skill set and I think part of the reason why manufacturers here may not be adopting automation as quickly as manufacturers in other parts of the world may have to do with not fully understanding how to implement it effectively."
Addressing the skilled trades shortage
Canada faces an uphill battle to maintain a competitive manufacturing industry. The challenges are many: the rising cost of regulatory compliance, labour and materials, and the shortage of skilled trades people are just a few. But the battle can be won, if manufacturers adopt the right strategies, the right technologies and, perhaps most importantly, the right attitude about what they need to do to compete in an increasingly competitive global market.
Of the many challenges Canada faces, CTMA's Les Payne says nothing is more critical to the manufacturing's industry success than addressing the skilled trades shortage "and increasing opportunities for young Canadians to gain meaningful employment."
Payne recently returned from the annual meeting of the International Special Tooling & Machining Association, held in England.
"We received business conditions information from tooling associations representing 13 countries and all show industries that are busy, but there is a common concern about attracting skilled labour," says Payne. "No one here in Canada seems to be talking about the changes needed to address the situation. There is a lack of direct funding to employers for apprenticeship training and skills upgrading. In Canada, we see continued waste of public funding for institutional training that provides no guaranteed employment nor economic benefit."
Skilled trades people are an integral part of a manufacturing industry that competes in a global market and Canada needs to make a "culture shift" in the way it approaches training of young people.
"Most countries that Canadian manufacturing companies compete against start youth into apprenticeship training at the age of 16, putting Canada at a disadvantage right from the start. If public funds spent on education between the ages of 16-18 were directed toward pre-apprenticeship activitiesâ€“within high school or college, or directly into manufacturing companiesâ€“to start youth into apprenticeships at earlier ages, Canada would be one step closer to resolving the skilled trades shortage."
Bringing R&D innovation to market
"We've put a lot of emphasis on research and not nearly enough on product development and commercialization, and that's where you get the biggest economic impact," says CME's Jayson Myers.
Canada is strong in research and development, say business leaders SMT spoke with. There is no lack of government funding for research and development, but where Canada falters is in transferring innovative ideas created at the R&D level into viable commercial products Canadian manufacturers can sell around the world.
SME's Debbie Holton says both Canada and the US need to do a better job at "getting technology into the hands of people because that's when it takes off. Think of Apple's iPhone. It really took off when it got into the hands of people because all of sudden, you have hundreds of apps that add value to that iPhone. The same holds true for manufacturing."
Part of the issue lies in figuring out what innovative technologies at the R&D level are going to be truly applicable in the market. During her stint as acting deputy director of technology transition at the Additive Manufacturing Institute in the US, Holton says the biggest challenge was "trying to get these ideas in R&D off the ground, but the technology transition to bring ideas to market was difficult. It's the hardest thing to do and a lot of times it's because you're not engaging those end players in the process of developing the technology and getting the feedback you need to make a successful transition."
Will reshoring be short-lived?
The reshoring initiative in North Americaâ€“manufacturers bringing manufacturing operations back into the continent from low cost labour countriesâ€“has received a lot of attention, and for good reason. Bringing manufacturing back into Canada and the US can only help, but some industry experts question the motives of manufacturers involved in reshoring activities.
"If it's cost competitiveness these companies are looking for they aren't doing themselves any favours by coming here," says CME's Jayson Myers, "What they see as a cost advantage such as the low dollar in the US, for instance, can change very quickly and in ten years will these same companies be as cost competitive here or will they then be looking to move to other lower cost countries like Vietnam or Thailand?"
To his point, he says between 2002 and 2013, approximately 20,000 manufacturers went out of business in Canada, but more than 90 per cent of them went out of business before the recession hit "and all because of the high dollar."
And while Myers is seeing companies from China relocating production back to Canada, he is seeing more of these firms heading to the US and Mexico. That's because most of the manufacturers coming back are involved in high volume manufacturing "and they're not the specialized type of manufacturing you find in Canada. We need to invest in new technologies to stay in business here and Canada has learned that we can't rely on a low dollar as a cost advantage. It's really important for companies to continue to invest because we can't compete on cost and on volume, but we can compete on a combination of good customer service, design, engineering and quick product development," says Myers. SMT