US protectionism concerns otherwise optimistic Canadian manufacturers

PLANT Manufacturers' Outlook 2018 study shows they’re expecting business to be good, will invest in growth.

January 18, 2018

PLANT Magazine’s 2018 Manufacturers’ Outlook study shows 44% of senior company executives are optimistic about the coming year.

TORONTO — Canadian manufacturers are optimistic about their prospects in 2018, but they’re concerned about how Trump administration policies and other disruptive factors might affect their businesses, according to a new survey of senior manufacturing executives.

PLANT Magazine’s 2018 Manufacturers’ Outlook study shows 44% of senior company executives are optimistic about the coming year, although most (50%) qualify their optimism with caution.

They’re either very or somewhat concerned about what’s going on in America. US protectionism is worrying 92% of executives followed by global protectionism (90%), US President Donald Trump’s impact on nation-to-nation relationships (89%) and the NAFTA renegotiation (88%).

The survey, in partnership with Grant Thornton LLP, SYSPRO Canada and Machines Italia with the Italian Trade Commission, is based on 495 replies from senior manufacturing executives.

“In today’s uncertain world, exporters must be deliberate and agile especially with policies like NAFTA hanging in the balance,” said Jim Menzies, national manufacturing industry leader for Grant Thornton LLP. “With or without NAFTA, Canadian manufacturers will always do business with our neighbour to the south. However, the existing NAFTA uncertainty does provide added incentive for manufacturers to look beyond the United States to leverage the strong manufacturing reputation Canada has earned in the global marketplace.”

Despite their concerns, manufacturers are demonstrating their confidence with plans to make significant investments in their businesses.

Top choices for investment over the next three years are machinery, equipment and technology (79% of respondents) and training (68%). Average investment is more than $1 million.

More than half of the senior executives are expecting orders and sales to increase (averaging 12% and 13%); but costs will also increase by 6%. Pricing will stay the same for 48% but 43% expect increases of 5%. Thirty-nine per cent see profits rising 8%.

Controlling costs tops the list of challenges for 66% of respondents, followed by pressures on prices (53%) and improving productivity (49%).

Companies lag in the adoption of advanced measures and technologies that would improve productivity. Only 36% make use of automatic data access, analysis and review to measure and monitor productivity; 46% do it manually; 18% don’t measure; and 59% do not plan on a digital production transformation involving Industry 4.0 and IIoT over the next 12 months.

Respondents demonstrated limited engagement with the Industrial Internet of Things (IIoT), which connects and optimizes machines via the internet. Only 9% are applying IIoT capabilities, 33% are not familiar with these capabilities and 29% said they were not applicable.

“Canadian manufacturers have a real opportunity to embrace disruptive change in this global economy,” said James Weir, vice-president of sales for SYSPRO Canada. “The results indicate that more than half of those surveyed are manually measuring and monitoring their productivity levels, or not at all. Investing wisely in automation (and innovation) should not be a scary notion for companies, but rather a strategic business approach that is embraced. Companies that do so are more likely to increase production volume, reduce costs and improve the quality of delivering goods to meet customer demand.”

Other highlights from the survey:

• 62% of companies report revenues from Canada, the US (36%) and Mexico (13%). After North America, 23% report revenues from Western and Central/Eastern Europe, with much smaller percentages from other regions.

• Those companies entering new markets over the next three years are favouring the same regions: the US (29%), Canada (26%) and Western Europe (13%) are their top choices.

• 45% of executives cite a growing risk of cyber attacks aimed at industrial targets is a medium concern. Less than half are very prepared for a variety of attacks. Twenty-five per cent are least prepared for targeted external attacks.

• 54% see innovation as very important to their business strategies. Top areas of focus are products for 66%, processes (65%) and technologies (51%).

• The average innovation spend for 2018 will be 4.9% of revenue and 55% plan to increase their investment over the next five years while 41% will invest at the current level.

• 75% indicated they were very or at least somewhat engaged in the reduction of carbon emissions, but 44% do not include carbon reduction as a part of a formal business strategy.

The survey, conducted by Toronto research firm RK Insights, has a margin of error of +/- 3.6%, 19 times out of 20.

Most of the surveyed companies (64%) fall into the small business category (under 100 employees); 34% are medium-sized (under 500); and 12% are large (500 or more).

Click here for a copy of the Manufacturers’ Outlook 2018 report, which includes an executive roundtable discussion.

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