Time to shift from survival to excelling

Manufacturers have endured plenty of pain as a result of the recession in 2008-09, not that the period before wasn’t challenging. Many are small and assailed by competitive pressures from all directions. Economic conditions haven’t been inspiring so little wonder they advance cautiously.

PLANT’s 2016 Manufacturers’ Outlook survey shows 57% of senior executives and owners continue to proceed cautiously, as they have done since the surveys began in 2009. There are many positive indicators in the results. Canadian companies have proved themselves resilient despite many challenges, and collectively they have created a national brand that is respected around the world. But they lack boldness.

Canadian companies are criticized for lagging productivity (compared to peers in the US), slowness to invest in new technology, being unenthusiastic in their innovation efforts and they stick too close to home. Looking across the Outlook timeline, manufacturers have made slow progress in all of these areas.

The conclusion of free trade deals with Europe, South Korea and now the countries involved in the Trans-Pacific Partnership will open doors to opportunities beyond North America. Forty-five per cent of respondents see value in these agreements, but of those seeking new markets, 36% of companies intend to look within Canada, 37% in the US, 13% in Mexico. About 17% plan to venture to Central and South American countries, and 10% to Brazil. Currently 2% are doing business in China but as in past surveys, 10% plan to enter that market. These “plans” are consistent with other surveys, but the results demonstrate they have been short on follow-through.

Productivity is described as important to business growth, yet only 38% companies approach it with a formal strategy, almost half still collect and analyze data manually (22% don’t measure it at all) and a third declare they are not likely to connect the shop floor to top floor management systems.

The Conference Board of Canada views the nation’s innovation story as being more about inaction and poor commercialization. The research firm’s annual innovation report card did move Canada up to a C from a D. The improvement is mostly a result of surging entrepreneurial vigour, but investment in R&D is slipping.

Outlook results also tell the tale. Most companies (40%) devote less than 1% of their staff to R&D, 28% intend to invest just 1% to 3% in innovation (although 53% say they will increase investment over the next five years). Forty per cent took advantage of the SR&ED tax credit in the past but far fewer did so this year (30%) and 46% have not taken advantage of the tax credit nor do they intend to do so.

The Conference Board notes Canada is pursuing more patents and trademarks, but so are its competitors, and the survey results don’t offer much encouragement: 61% of the companies are not actively pursuing these indicators of innovative boldness.

The world is changing for manufacturers. Competitive challenges are plenty but so are the opportunities for companies that choose to venture into new markets, especially the developing economies where there will be significant growth.

The Lawrence Centre at Western University’s Ivey Business School has studied success factors and they can be summed up in three points: growing manufacturing is up to the companies with governments playing a supporting role; focus on producing high-value-added goods and related services that take advantage of Canada’s excellent technology, skills and reputation for quality; and leverage the highly skilled workforce.

Manufacturers have done a good job of surviving. Now is the time for bolder moves and more aggressive growth (where feasible) beyond the comfort of North America.