PLANT’s annual Business Outlook survey shows senior executives plan to spend an average of $1.4 million on machinery, equipment, technology, training and R&D next year.
December 28, 2011
by Joe Terrett, Editor
The world may be perched on the brink of another economic meltdown, thanks to the precarious position in which the European Union finds itself, but even with several member countries perilously close to drowning in red ink, Canadian manufacturers are still optimistic about their prospects in 2012. That’s despite aggressive global competition, a high-value loonie, soaring costs and a sluggish US economy punctuated by another round of “Buy American” protectionist measures.
PLANT’s 2012 Business Outlook survey finds Canada’s manufacturers are investing in their plants and feeling pretty good about the next three years.
The survey, conducted in partnership with sponsor Grant Thornton, a global consulting firm, polled 367 senior manufacturing executives from across Canada. Most (71%) are small and medium enterprises, 87% privately owned, and 62% are family owned. Just 14% identified themselves as subsidiaries of a multinational company. Annual revenues for the entire group will average $62.3 million this year and potentially $70.1 million next year.
Of this group 83%, are most confident about their ability to forecast in 2012, but become less so in three years (55%) and five years out (38%) – a similar outcome to the views of last year’s respondents.
Most manufacturers (58%) expect orders and sales dollar values (59%) to increase next year, while 31% are looking at price increases and 41% are forecasting higher profits.
Of course, there are challenges and what keeps 46% of them up at night is controlling costs next year, although the number drops to 32% when they look ahead three years. Increasing sales and revenue in 2012 is a challenge for 40% of them, but in three years fewer (32%) see it as a concern. The economy is high on the list for 40% of the respondents, but their anxiety level drops at the three-year mark (29%).
Competition is the greatest constraint to increasing revenue outside North America for 42%, followed by transportation and logistics issues (38%).
Although the loonie is hovering near parity with the US greenback and is interfering with manufacturers’ export revenues, its higher-value and the Harper government’s extension of the two-year write off for machinery, equipment and technology investments are encouraging many of the respondents to spend some money on their plants over the next two years. Machinery and equipment top the list for 61% of them and are among the top three priorities for 75%. For 40% of respondents, machinery is the top priority. Training is next for 55%, followed by technology for 51% and R&D for 49%.
Investing in productivity
Canadian companies prefer to do their shopping closer to home: 88% look for machinery from Canada, 83% from the US. Germany is a distant third (34%) followed by Japan (18%) and Italy (15%). And 86% are either very or somewhat confident about getting financing. Not a lot of manufacturers have nice things to say about banks, yet 57% are using them; however, 51% are coming up with their own funds and government programs are part of the mix for 27%.
Almost three-quarters of the respondents (74%) are aware of or have used government incentives, but there are still 24% who identify themselves as unaware.
Most (26%) are investing under $100,000 next year, while 19% are putting up between $100,000 and just less than $500,000. Looking at all companies, they are averaging $835,000 in 2010, almost $1.4 million this year and is anticipated to be more than $1.3 million in 2012.
Only a small number of companies (11 of 367) were not investing this year or next and more than half said they either didn’t need to invest or were just trying to keep their companies going.
Investment in technologies is key to productivity improvement plans for 33% of the senior executives, followed by employee training for 28% and automation for 24%.
The survey results show companies are investing in product development again. In 2010, 21% spent nothing. The number dropped to 15% this year and just 11% will be keeping a lid on R&D next year. Most (30%) will be spending between 1% and 3% of revenues, 19% say 4% to 5%, 10% intend to spend between 7% and 10%, while another 10% say they’ll invest more than 10%. The anticipated average for all companies is 4.3% for 2012, compared to 3.8% in 2011.
More than half (52%) of the respondents have not taken advantage of the SR&ED tax credit compared to 44% who have done so.
Manufacturers are still playing primarily to a home audience: on average almost 70% of them derive most of their sales from Canada, although numbers reflect slowing of trade with the US (23% in 2009 to 20.7% in 2011). But they’re slowly increasing their dealings with China, up from 0.7% in 2009 to 2% this year.
The world may or may not be on the brink of another recession as conditions in Europe threaten to impact most points of the global economy, yet manufacturers are looking head with confidence – tempered, of course, by typical Canadian caution.