The Canadian manufacturing industry lacks a clear identity, and it’s hindering our ability to be competitive on a global stage. In 2015, Canadian manufacturing sales totalled $610 billion. As of September 2016, sales are on pace to hit $571.9 billion. This $38 billion decline in sales further compounds losses from 2014-15 and continues to jeopardize the sustainability of Canadian manufacturers.
As reported in Industrie 2030: Manufacturing Growth, Innovation and Prosperity for Canada, Canada is at risk of reduced global manufacturing competitiveness because we are too advanced and regulated to compete with low-cost producers, but not advanced enough to keep up with top innovators. Lack of an innovative advantage over other industrialized nations is diminishing Canada’s manufacturing competitiveness.
However, Canadian Manufacturers & Exporters (CME), the association who commissioned Industrie 2030, are optimistic that manufacturers across the country can re-ignite manufacturing competitiveness within a fairly short timeframe. They suggest that by investing in innovative equipment, research and development, and skilled labour, it is possible for Canada to double its manufacturing output by 2030.
Manufacturing’s Significant Economic Impact in Canada
The Canadian economy has been built around manufacturing, both directly and indirectly.
In 2015, manufacturing generated $475 billion in economic activity outside of direct manufacturing sales. This includes $183 billion to acquire raw materials and transport them throughout the production process, $186 in indirect impacts throughout the value chain, and another $106 billion in induced impacts, such as wages and salaries then re-invested into the economy.
Manufacturing’s $475 billion economic impact drives 28% of Canada’s economy.
Canada’s manufacturing industry also contributes to 4.72 million jobs across the country. 1.81 million jobs are directly tied to the manufacturing process, 1.69 million are indirectly influenced, while another 1.22 million jobs result of manufacturing’s induced impacts.
Manufacturing’s 4.72 million jobs account for 27% of Canada’s workforce.
With more than a quarter of all economic activity and jobs in Canada tied to manufacturing, it’s extremely important that Canadian manufacturers and the government work together to promote long-term competitiveness and sustainability. But to do this, actions must be taken to overcome some of the greatest issues to ever face Canada’s business and economic landscape.
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Top Issues Affecting Canada’s Manufacturing Competitiveness
Canada is becoming less competitive within the global manufacturing industry, and as result, is declining in manufacturing output. In 1984, Canada ranked as high as eighth in the world’s manufacturing output while 30 years later, in 2014, Canada ranked 14th.
Our declining competitiveness has been experienced mostly in the last decade, where between 2004 and 2014 Canada dropped 4 spots and lost its foothold in the top 10 countries. During this time, China and other developing nations have gained new capabilities, while the United States and Germany developed and adopted innovative manufacturing technologies at a furious pace.
So what’s keeping Canadian manufacturers from experiencing similar growth? Industrie 2030 suggests the following three factors have a lot to do with it:
1. Labour Productivity and Equipment Investment
While businesses across the world are increasing their investment in capital equipment and advanced technologies, Canadian firms are reducing machinery investments. The United States leads all countries in this regard, with manufacturers investing 58% more in equipment than they did in 2002. Canadian manufacturers have dropped by 5% in the same period of time.
Canadian manufacturers are producing fewer innovations than they used to. From 2012 to 2014 the percentage of manufacturers developing zero new products/processes rose from 18.8% to 38.8%.
Canadian manufacturers will not be able to compete with our American or international competitors who invest more into efficiency enhancements. To drive industry growth, we must develop and adopt technological advancements that differentiate ourselves and create value.
2. Attracting and Retaining Skilled Labour
35% of Canadian manufacturers cite “attracting or retaining skilled labour” as a top challenge facing their company. This was the most common challenge facing manufacturers, and could be a factor contributing to the hesitation to adopt innovative equipment. By not having access to the talent pool manufacturers need, it greatly limits the industry’s potential.
Only 61% of Canadian manufacturers plan on investing in hiring and training skilled employees over the next three years.
Canadian manufacturers have two ways of tapping into innovative, technologically-focused employees. Employers may access a deepening pool of recent college and or university graduates who’ve been trained on innovative technologies, or they can choose to train and upskill current employees to boost effectiveness. Manufacturers must invest in their workforce to remain globally competitive.
3. Developing New Export Markets
Likewise, 17% of Canadian manufacturers believe establishing export markets is a top issue impacting their ability to grow and succeed. Global market penetration will increase the manufacturing industry’s ability to drive revenue and further increase the reputation of Canadian-made products.
Only 21% of manufacturers will develop/grow their United States operations and only 13% will develop/grow their business outside of North America over the next three years.
For the Canada to become a top 10 manufacturer again, manufacturers must invest in export markets, both within the United States and across the world. Canada’s trade balance was relatively neutral until 2004, after which point it has ballooned to an annual deficit of over $120 billion.
How the Canadian Manufacturing Industry Can Double its Output
Canadian manufacturers could double their output by 2030 if investments are made to increase product and process innovation. This is less a dream, and more of a necessity should Canada’s manufacturing industry remain competitive in the next 10, 20, or 30 years.
Canada’s 2015 manufacturing output reached $610 billion with exports totalling $348 billion. Doubling this by 2030 would require Canadian manufacturers to grow at a sustained rate of 4.7% annually. If successful, Canadian manufacturers would command $1.2 trillion in output, with nearly $700 billion in exports.
Not only would this inject more money into the Canadian economy, but it could also create as many as 4.1 million new jobs through direct, indirect, and induced effects.
But without swift and unified action, this dream will be impossible to reach. All Canadian manufacturers have a role to play and can increase their competitiveness through five priority action areas.
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Priority Action Areas for the Canadian Manufacturing Industry
As outlined in CME’s Industrie 2030 report, Canadian manufacturers are responsible for becoming more competitive and can do so through the following actions:
1. Develop a Skilled Workforce
Technology is changing the manufacturing industry at unprecedented rates. Skills and labour shortages resulting from new technologies is impeding the profitability of companies and reducing competitiveness.
The Canadian and provincial governments are ambitiously educating students on the high-skilled manufacturing careers now available, which is a step in the right direction, however businesses also need to do more to upskill manufacturing workers.
Approximately 40% of Canadian manufacturers currently experience labour shortages, and this figure is expected to increase to 60% within 5 years. To reduce this risk, manufacturers must develop a skilled workforce by training their employees.
2. Adopt Advanced Manufacturing Technologies
Canada’s ability to compete globally will ultimately depend on how labourers can use equipment to increase their productivity. Advanced manufacturing technologies will make workers more efficient and increase overall output, but require significant investment in order to achieve these benefits.
When asked what’s preventing manufacturers from implementing advanced technologies, 46% said it was the cost of purchasing, 32% believed there isn’t enough financial incentive, and 31% are unclear on the return on investment (ROI) that it would bring and therefore don’t want to take on the risk.
Luckily for Canadian manufacturers who are looking to purchase innovative/advanced manufacturing technology, Canadian government funding can reduce the cost, and therefore risk of these machines. This reduced cost improves ROI and makes the decision to purchase equipment much easier.
3. Foster Innovation, Commercialization, and Product Development
Canadian manufacturers must do more than just adopt advanced technologies, they need to be at the forefront of innovative research. To drive global innovation and increase the demand for Canadian goods, research must be performed into new products and production techniques.
Manufacturers who have used the Scientific Research and Experimental Development (SR&ED) tax credit have noticed changes over the last couple of years, such as loss of support for capital equipment and tightening of claims eligibility, but other financial resources exist to reduce the cost of technology research and development.
Canadian government grants are available to support innovative research, either internally, with a research institution, or as a collaboration with other partners. Manufacturers are typically unaware of their research funding options because it can be difficult or confusing to determine the most appropriate program, although applying for these funding programs can be very rewarding.
4. Develop a More Competitive Business Environment
Canada’s declining ability to secure international manufacturing investments are direct result of regulatory conditions like tax rates and energy costs. Competition for these investments are sought by countries across the world, and ultimately Canada must become stronger to secure more. Especially if Donald Trump makes tax rates more favourable in the United States, it could spell more hardships for Canadian manufacturers in this regard.
While this responsibility falls mostly on the government, Canadian manufacturers can take steps to reduce the impact of high energy costs. Investing in efficient machinery reduces energy demand and will help manufacturers stay ahead of ambitious climate change legislations that reduce greenhouse gas (GHG) emissions.
5. Deepen Penetration of Domestic and Foreign Markets
Manufacturing success starts at home and expands internationally. In 1990, 55% of Canadian demand for manufactured goods were filled domestically, however in 2015 this was reduced to just 38%. Likewise, Canada accounted for 3.7% of global exports in 2000 but commanded just 1.8% of the market in 2015.
To grow and become sustainable, Canadian manufacturers need to invest in the development of domestic and foreign markets. Not only does this help individual manufacturers to increase profits, but it will also help Canada reduce its $121 million manufacturing trade deficit.
Luckily for manufacturers, Canadian business grants will offset a significant portion of the costs related to market expansion both nationally and internationally. Grants will support project expenses related to the development or expansion of production facilities in Canada, while there is also funding available to perform export market intelligence or attend trade shows.
How to Increase Your Competitiveness in the Canadian Manufacturing Industry
In order for the Canadian manufacturing industry to become more competitive, companies must commit to investing in product and process improvements. Failure to purchase equipment and train Canada’s manufacturing labourers will result in the continued drop in our competitiveness.
Each manufacturer can make innovative investments by accessing Canadian government funding programs to reduce cost and increase ROI. Manufacturers are often surprised to learn that there are millions of dollars in government funding available to them. In fact, less than half of manufacturers are using incentives of any kind to finance strategic investments.
Growth-oriented manufacturers should contact Mentor Works to discover the full spectrum of Canadian government grants, loans, and tax incentives available. We can confirm your eligibility for more than 60 of the most lucrative funding programs available and accelerate the application process for you.
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