Embrace change to compete globally: KPMG
Study says Canadian manufacturers must look to innovation, new geographies to fuel growth.
TORONTO — Being risk averse may not be enough for Canadian manufacturers to keep pace with their global counterparts, according to KPMG’s Canadian Manufacturing Outlook 2015.
The global advisory firm notes the international economic landscape is shifting because of factors that include the sharp decline in the price of oil and the recent Chinese stock market crash. The ripple effect has resulted in volatility in some prominent industries, and despite an optimistic start, it’s creating challenging times for manufacturers.
The report reveals a gap between what Canadian manufacturers want (65% list sales growth as their top strategic priority), and what they may risk to succeed (17% list increasing R&D and new product development as a top strategic priority, compared to 32% globally).
KPMG warns the current incremental approach to growth and innovation is no longer the safety net it was for Canada in past years. It says with global competitors potentially surpassing Canadian companies in key strategic areas, the time to act is now by pursuing the following:
• Seeking growth in new geographic markets. While acknowledging the importance of entering new markets (identified by 36% as a top strategy for driving growth and innovation), manufacturers are slowly expanding outside North America.
Increased export growth to foreign markets such as Indonesia, Vietnam and the ASEAN (Association of Southeast Asian Nations) region is expected.
Canada should start exploring these and other geographies – the domestic market alone isn’t enough to feed the growth that Canadian companies need to achieve to remain competitive.
• Narrowing the innovation gap. Although R&D and innovation is a critical focus for Canadian manufacturers, they aren’t spending as much on R&D as their global competitors.
A quarter of Canadian manufacturers are focussed on longer-term (5 to10 years) innovation strategies, with 12% identifying breakthrough innovation as their primary strategy (enhancing existing products/services is the top focus for 78%). In comparison, 41% of global manufacturers are committed to driving growth through breakthrough innovation.
Furthermore, while adopting new manufacturing technologies and increasing R&D spend were the top two focuses globally to drive growth and innovation (48% and 44%), they were the bottom two in Canada (20% and 13%). With this innovation disparity, Canadian companies need to develop innovations strategy to deal address this gap.
• Replacing inventory with information along the supply chain. Today’s largest, most successful global manufacturers are streamlining their supply chains by gathering information on effectiveness, identifying areas for improved efficiencies, and increasing communication along the entire supply chain to dramatically reduce inventory and ultimately, costs.
This should be a priority area for leadership in Canadian manufacturing companies over the coming year.
Although KPMG’s 2014 Manufacturing Outlook found growth opportunities to be within grasp of Canadian manufacturers, unexpectedly rough economic times have proven challenging for the Canadian manufacturing sector. With challenges come opportunities, and manufacturers have a real opportunity to embrace disruptive changes in the global economy.
The Canadian Manufacturing Outlook is an annual survey involving more than 200 manufacturing executives from across Canada based on the KPMG International Global Manufacturing Outlook survey early this year.
Click here for a copy of the report.