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Taking back manufacturing

The SME-Toronto initiative aims to rebalance Canada’s position in the global supply chain and bring some manufacturing home.


December 28, 2011
by Joe Terrett, Editor

There is much to gain from the opportunities offered by a global economy, but the downside has been the loss of North American manufacturing capacity and jobs.

In 1999, manufacturing generated 19.2% of the country’s GDP and was the biggest employer. Today it’s good for about 13% and has slipped to third-place as an employer behind trade, and health care/social assistance.

More than 322,000 jobs were lost between 2004 and 2008, according to Statistics Canada, and the erosion continues. In October another 48,000 jobs (mostly in Ontario) were lost out of a national total of 54,000.

Manufacturing jobs are key to our prosperity. In the automotive industry, one job at an assembly plant supports 7,500 other jobs. (Imagine the economic fallout that will follow the closure of Ford Motor Co.’s assembly plant in St. Thomas, Ont., which involves 1,200 lost jobs).

We are doing very nicely on the commodity side, exporting our natural resources to countries where someone else profits from adding the value. Yet ironically, commodities are driving up the value of the dollar, which is eroding manufacturers’ exports.

The Toronto chapter of the Society of Manufacturing Engineers (SME) believes it’s time to take action. It’s marshalling the country’s stakeholders to rebalance what is made offshore and what we should be manufacturing here.

“Manufacturing is not going to come back to North America until we take it back,” said Nigel Southway, a manufacturing consultant, engineer and operations team leader of the Toronto chapter. He is one of the SME volunteers driving the appropriately named Take Back Manufacturing  (TBM) campaign that endeavours to do just that.

Southway, who actually spent the last five years helping companies take products to China, has found that business leaders are thinking the exodus has gone too far.

“We’re not saying reverse the flow, but [apply] next-generation capability, using new automation and systems, and improve our prosperity.”

So far TBM has attracted an impressive list of stakeholders that includes technical associations, three trade associations and representatives from education, government, media and business.

“We looked at a lot of organizations actively working to improve the situation, but felt their efforts were largely being ignored,” says Marie Laird, the Toronto chapter’s chair. “We believed there’s an opportunity to work in a non-partisan way to get all the people with a vested interest in manufacturing to work together on one agenda, to make manufacturing strong again.”

TBM is more directly focused on manufacturing in Ontario, but Laird says the expectation is to engage interested parties and organizations across Canada.

Career development
The plan is to first raise awareness and prepare for the return of jobs. TBM held a kick-off meeting in June and followed with Southway and Laird running sessions throughout the Canadian Manufacturing Technology Show in Toronto.

Phase 2 will involve governments working on tax, trade and education policies that enhance manufacturing’s competitiveness.

The third phase involves ensuring manufacturers have the resources available to improve technology development, productivity and innovation and to create a strong infrastructure for career development. Canada is suffering from a chronic shortage of skilled people. The TBM plan recommends making the education/training stream more flexible and responsive by growing talent at home through a process that goes through progressive transitions.

This model is based on Southway’s education growing up in the UK, where work experience was combined with academics on an integrated path to career growth. A kid would start by learning a trade, then work as a technician for a year, as a technologist for another year and then move on to engineering and a degree. The current path to a career upgrade obliges the potential engineer to start over.

With the pending retirement of a generation of baby boomers, TBM’s approach also addresses the critical issue of knowledge transfer. When those people leave, their experience walks with them. Better they should pass valuable experience to an incoming generation tasked to move manufacturing into the future.

Stakeholders need to act now because some of the work and the jobs are on the way back. The Boston Consulting Group has released a report that observes China is approaching a tipping point where rising wages, high-energy costs and logistics challenges are shrinking the cost advantage. BCG says up to 3 million jobs will be back by 2015.

Transportation goods such as vehicles and auto parts, electrical equipment including household appliances and furniture are among seven sectors that will reach that tipping point. BCG says in many cases companies will shift production back from China or choose to locate new investments in the US, which is also expected to become a more competitive export base for Europe and Canada.

Other sectors most likely to return are plastics and rubber products, machinery, fabricated metal products and computers/electronics. The seven groups together mean an additional $100 billion in output for the US economy.

“This does not mean factories in China will close,” noted Michael Zinser, a BCG partner who leads the firm’s manufacturing work in the Americas. “Instead, more of their output will be consumed in the fast-growing domestic market and elsewhere in Asia.”

With Chinese wages rising at 15% to 20% per year and the value of the yuan continuing to appreciate against the US dollar, the report predicted the once-enormous labour-cost gap between Chinese coastal provinces and certain lower-cost US states will shrink to less than 40% by around 2015.

Chris Kuehl, economic analyst for the Rockford, Ill.-based Fabricators & Manufacturers Association Intl., notes the rising costs of production has become a major concern for the Chinese.

“There is no way to reverse that trend without creating some serious social unrest in China. Wages and salaries have been going up fast – estimates are that wages have risen by more than 1,000% in the coastal regions just in the last year or so,” says Kuehl. The Chinese are losing ground to rivals in other parts of Asia and to nations such as Mexico, where he says wages have risen by less than 25%.

Southway says Canadian manufacturers have an opportunity to return to the way manufacturing used to be done: come up with an idea, make a prototype and manufacture it at home rather than shipping the work and the intellectual property overseas. Continuing to follow the path we’re on, he warns, will make us “distribution centres for an economy that can’t afford to buy the goods in the shop window.”

Visit http://sme-tbm.org/tbm-information/ for details about the Take Back Manufacturing campaign.

Visit www.bcgperspectives.com to read The US Manufacturing Renaissance: Which Industries?