Create a free account to continue

Survey: Canada Manufacturing Will Survive With Change

Canada's troubled manufacturing sector can survive, but only by becoming more global, leaner and smarter and outsourcing jobs to low-wage countries.

OTTAWA (CP) -- Canada's troubled manufacturing sector can survive and even thrive, but only by becoming more global, leaner and smarter and outsourcing jobs to low-wage countries such as China and India, a massive new survey of North American executives has found.

The prescription, in a Deloitte consulting firm survey of 321 leading manufacturing executives in Canada, the United States and Mexico, will come as both welcome and bitter news to the about two million Canadians still employed in the sector.

The survey was conducted by Deloitte with North American manufacturing groups including the Canadian Manufacturers and Exporters.

''What surprised me is how optimistic not only Canadian, but North American manufacturers are about the future of the business,'' said Jayson Myers of the Canadian Manufacturers and Exporters.

''Far too many people dismiss manufacturing and say it's going out of business. This is a $600 billion business in Canada that may be employing fewer people and may be going through tremendous change and challenges right now, but by no means is manufacturing going out of business.''

Myers concedes that the sector must adapt to a high-dollar environment, the slowdown in U.S. demand and more importantly the unrelenting and growing competition from China, India, Brazil and other emerging economies.

As the study reports, the adaptation is already occurring.

Many firms are looking to expand outside Canadian borders in order to join global supply chains. Only 24 percent of the over 100 Canadian executives surveyed said they planned to expand domestically.

And while only about a third of executives felt they were currently globally competitive, many recognized that the future lies with operating outside North America and 46 percent said they expected to be ready to take on the world within five years.

While the survey does not deal directly with jobs, it is clear that the implications of executives' thinking is that there will be even fewer factory jobs in Canada in the future despite the sector shedding over 300,000 in the last five years.

The untold story, says Myers, is that while the sector was laying off workers, it was increasing production.

''Even with the appreciation of the dollar, value production was increasing up until last year (when U.S. demand collapsed),'' noted Myers. ''Manufacturing output in Canada reached a peak in March last year of about $610 billion and that was up from $280 billion in 1990.''

The analysis will be cold comfort for the thousands of workers who have been laid off in the sector since 2002.

And it will be cold comfort going forward, suggests TD Bank chief economist Don Drummond, who said he expects Ontario to drop another 250,000 jobs and Quebec 125,000 before the restructuring process is complete.

''We have made a huge deal about the loss of manufacturing employment in this decade and we have had job losses, but the fact is we've had the smallest reduction in employment in manufacturing in the (industrial) world,'' he said.

The TD Bank, which released an new economic forecast Wednesday, says the Canadian economy will continue to feel the impacts of the U.S. slowdown for at least the next two years, limiting growth to one percent this year and 1.8 percent next.

Drummond says while domestic demand is holding on and the commodities sector is booming, manufacturing exports lag and will continue to do so as long as the United States is slumping and the loonie is strong.

More evidence of the manufacturing weakness came Wednesday with a decision by Magna International Inc. (TSX:MG.A) to cut 400 jobs at a plant in St. Thomas, Ont., in September.

But while the present is bleak, Myers said the survey's findings paint a picture of Canadian manufacturers preparing to adapt and change in order to compete globally.

One key is to increase productivity and innovation, producing more sophisticated goods and expanding in research and development, engineering, sales, material management, maintenance, quality control and distribution.

''You can outsource production and at the same time grow your business by moving into higher value, more innovative, service-based manufacturing activities,'' he said.

The executives said a major strength for manufacturers is NAFTA, which they said gives them a platform from which to go global.

But the Canadians executives also cite formidable barriers such as high labor costs, the exchange rate, raw material prices and availability of skilled labor.

Myers said governments can help the sector maintain a strong presence in North America by dealing with border issues, reduce taxes, eliminate inter-provincial trade barriers, and eliminate inefficiencies such as different regulations between the three NAFTA countries.
More in Supply Chain