Not business as usual

Is it possible for manufacturers to experience a significant pickup in growth with an expectation of prosperity after several years of lacklustre performance, while at the same time teetering on the precipice of chaos?

That appears to be the dichotomy Canadian companies face as the good times are counterbalanced by the Trump administration clown show in the US.

The maelstrom of tweets, erratic decisions (tear up NAFTA), climb downs (don’t tear up NAFTA), Russian intrigue, investigations, random lunacy and now suggestions that impeachment might be in order, have created the troubling backdrop to pivotal trade negotiations that will soon take place between Canada, Mexico and the US. What’s the upshot for manufacturers? As has been clear from the beginning of the Trump regime, it’s not business as usual.
Manufacturing accounts for more than two-thirds of Canada’s exports, and more than 80% go to the US. Canada and Mexico are preparing the ground for trade talks with the US, aiming to improve NAFTA despite the president’s antics.

Reinvigorating the trade deal must be left to politics, clearer heads and fate, but whatever the outcome, companies should direct their attention to issues over which they do have some control. Doing so is essential preparation for future global trade flows.

Yet companies are ill-prepared on a number of fronts to adapt to what may turn out to be a new world order. The enthusiasm for protectionist polices in the US strongly suggests looking beyond North America – not a new message for Canadian manufacturers, except now there is some urgency for action.

This requires investment in modern machinery and equipment and smart technologies that elevate per worker productivity to more competitive levels. But Canadian firms have fallen behind investments of their global peers. Compared to a US worker, investment has slipped to 55 cents from 77 cents in 2013, and is 67 cents per dollar spent in OECD countries, according to a C.D. Howe report.

Canadian companies are not exactly embracing smart technologies. About 72% of PLANT’s Outlook survey respondents were either not familiar with the Industrial Internet of Things (IIoT) or didn’t think it was applicable to their businesses.

Globally, manufacturing executives are seeing the benefits, according to a study by the MPI Group. Implementation is up 50% and 68% of respondents plan to embed smart devices or intelligence into products. The message for Canadian companies: “Keep up.”

The recent global cyber attack brings into sharp focus the need for manufacturers to have a strategy for dealing with hackers and other intrusions. Yet the Outlook report revealed only 22% of companies rated their level of preparedness as high, and 17% had taken no defensive steps. No company can afford to be the opening for an attack that could spread through a supply chain.

Companies also need to put more effort into longer-term workforce planning. Shortages of people with the right skills will become more pronounced as baby boomers retire. In 2016, 243,000 people said good-bye to the working life, but for every job created, companies had to cover for the loss of 1.8 people, according to a Conference Board of Canada study. In 2005, filling technical and skilled trades took 40 days. Now it’s 60 days, raising the costs from $3,000 to $5,000 per worker.

How far ahead are most firms planning? Just two years.

Canadian manufacturers have been good at cautious optimism. The time has come for more action.

Correction: April’s editorial, No benefit to Wynne’s hydro price bribe, provided some incorrect statistics. Automotive accounts for about 12% of manufacturing GDP, and about 2.4% of Ontario’s GDP.