Fit to survive

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by Mary Scianna

Shop Metalworking Technology asks readers what  they foresee for manufacturing in Canada. 

The manufacturing industry has faced an uphill battle since it came tumbling down in 2008. For most, it has been a slow climb back up among the economic ebb and flow of the past several years.

In our first benchmarking survey, Shop Metalworking Technology reached out to you, our readers, to gauge your sentiments on manufacturing in Canada. We received 141 responses to our survey, with a margin of error of +/- 8.2 per cent, 19 times out of 20. Survey participants are involved in a range of industry sectors. Close to 60 per cent state they are involved in general industrial manufacturing, while more than 14 per cent work in the energy sector (identified as oil, gas, resources/mining, wind, solar). Close to 14 per cent represent the automotive sector, 9.3 per cent work in aerospace and 3.5 per cent are involved in transportation (bus, truck, railroad). 

Optimism prevails
Given the hardships many manufacturers have faced in the past four years, you would think the overriding sentiment would be pessimism. Yet most survey participants are optimistic about 2013 and many have seen business improve. Close to half, 49 per cent, say business has improved in 2012, and close to 70 per cent expect business to grow between 1 and 10 per cent in 2013, while 28 per cent forecast their business to grow 10 to 25 per cent.

Indeed, Dan Kelly, president and CEO of the Canadian Federation of Independent Business (CFIB), says that its “manufacturing member sector is one of 
themore optimistic sectors.” Of the 109,000 members in CFIB, the largest member segment is manufacturing, representing 15 per cent of CFIB’s membership or 17,000.

“Manufacturers have had a rough couple of years with the recession hitting in 2008 and the rising value of the Canadian dollar taking its toll on our members, but we’ve seen a fairly nice rebound among small manufacturers,” says Kelly.

Recent data from Statistics Canada also points to a rebound. August 2012 data shows manufacturing sales increased 1.5 per cent to $49.5 billion, the highest sales level since March 2012. Manufacturers in 11 out of 21 industries reported higher sales, representing more than three quarters of total manufacturing in the country.

“Overall, the wheels are still on the economy and the good news is that more businesses are optimistic than pessimistic, based on our latest business barometer. There is still uncertainty because of what we’re seeing internationally, but the domestic economy seems reasonably stable,” says Kelly.

The new normal: High Canadian dollar
For many years Canadian manufacturers could site our low Canadian dollar as a cost advantage of doing business in the country, but with our dollar hitting parity in recent years, that cost advantage has eroded and it has left many manufacturers struggling to find innovative ways to continue to compete on the Canadian manufacturing front. It’s not all bad news though, says CFIB’s Dan Kelly.

“The high Canadian dollar has hurt some of our members and helped others. When we do our surveys, about half prefer the high Canadian dollar and the other half prefers a lower one.”

Either way, Kelly predicts our dollar will remain around parity “for some time and businesses need to plan around this.”

While a significant percentage of survey participants, 40 per cent, say the high Canadian dollar has had a negative effect, and 18 per cent indicate it has had a positive effective, surprisingly, 46 per cent say it has had no effect.

The high Canadian dollar is an issue for some manufacturers, but many have not taken steps to deal with it: 71 per cent say they have not done anything specific, while 20 per cent note they have addressed the issue.

Survey participants concur with CFIB’s Dan Kelly that the high Canadian dollar is here to stay for some time: 85 per cent do not think our Canadian dollar will go down below $0.80, while 15 per cent think it will.

Managing and growing in a tough market
Manufacturers who want to survive and grow in Canada’s manufacturing sector understand what they need to do to grow their operations. Most recognize they must invest in technologies and skilled staff to compete with offshore imports. And survey participants’ responses illustrate that manufacturers aren’t sitting back but taking initiatives to improve their operations.

Asked what they plan to do to improve their manufacturing operations in the next two to five years, the top two actions 
were purchasing software for CAD/CAM, manufacturing or plant management (73 per cent), and purchasing machinery (73 per cent). This was followed closely by hiring of new personnel, 68 per cent.

Business leaders: tackling issues and barriers
Canada’s manufacturing industry has a bright future, if it can tackle the issues and overcome the barriers it faces—poor productivity, high energy prices, regulatory pressures, lack of skilled workers and competition from foreign markets are just a few of the items cited by recent reports from Deloitte (The Future of Productivity-Clear Choice for a Competitive Canada) and from PwC (Canadian Manufacturing Barometer, Business Outlook Q2 2012). 

One of the biggest challenges Canada faces is taking advantage of the reshoring initiative underway as manufacturers continue to bring manufacturing back into North America.

Reshoring makes economic sense, says Eion O’Conner, manager, financial advisory with Deloitte, Toronto. O’Conner spoke at a “Take Back Manufacturing” symposium held recently at the University of Toronto and organized by Professional Engineers Ontario, West Toronto Chapter.

“The question is which shore is it going to go to? Canada or the US? Canada has some pretty fundamental issues it needs to tackle if it’s going to get its fair share,” says O’Connor.

One of Canada’s biggest issues is the productivity gap. “Canadians are 28 per cent less productive than Americans and we need to tackle this,” he says. He cites Deloitte’s recent report “The Future of Productivity” as an example of what Canada can do to decrease the productivity gap and ensure it is able to take advantage of the growing reshoring initiative. The report identifies key action points for businesses, government and academia. 

Among the key points for business, it says companies must: build national and international businesses, and leverage new capital equipment: “Canadian businesses spend only 65 per cent [in capital equipment investments] of our counterparts in the US. We need to develop our plants so we’re at optimum capacity,” says O’Conner. For government, the report recommends that it encourage Foreign Direct Investments, continue to improve Canada’s immigration system, and provide incentives for growing, rather than for being small. “Canadian policy makers have tended to design policies that favour small firms. Our analysis shows this strategy is unbalanced, as small firms are no more likely than their larger peers to drive growth,” notes the Deloitte report. Finally, for academia, it suggests creating a curriculum to support productivity, addressing the need for better apprenticeship training.

In the PwC Business Outlook, Canadian industrial manufacturers are generally optimistic about the economy: 54 per cent of the 43 Canadian-based industrial manufacturing executives interviewed say they’re optimistic about the prospects for the Canadian economy over the next 12 months. They cite several barriers to growth, namely high oil/energy costs, concern about the lack of demand, a lack of qualified workers and the monetary exchanges rate.

While Canadian businesses are not spending as much on capital equipment as their US counterparts, 44 per cent of executives interviewed by PwC say they are planning major new investments of capital over the next 12 months. “But their mean investment as a percentage of total sales is expected to be lower than 3.5 per cent.” SMT





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