Manufacturing confidence outpaces other sectors

But we need to be more sophisticated about trade with the US: Grant Thornton.

February 14, 2013   by PLANT STAFF

More than 70% of the Canadian manufacturers said they rely less on the US and take a more global approach.

TORONTO — Canadian manufacturers are significantly more optimistic than other sectors about growth this year, but they’re missing out on opportunities in the US and emerging markets, according to two international reports from Grant Thornton.

The Grant Thornton International Business Report (IBR) shows company leaders predict increased revenues, profits, orders, and they plan invest for growth. The fourth quarter Canadian results from all sectors reveal profitability expectations jumped from 41% to 47%, and investment in plant and machinery also rose from 36% to 42%. And manufacturing’s expectation for growth is way ahead of the other sectors – 62% versus 47% – and 72% of manufacturers think exports will either hold steady or increase.

However, the Grant Thornton 2013 Global Business Outlook shows Canadian optimism (at 47%) to be in tenth place globally, down 7% from the last quarter.

More than half (57%) of global business leaders considering international expansion are looking at the five biggest emerging economies (China, India, Russia, Brazil and Mexico) compared to 38% who are looking at Western Europe and one-third considering North America.

More than 70% of the Canadian businesses said they rely less on the US and take a more global approach. But Jim Menzies, national leader of manufacturing and distribution for Grant Thornton LLP in Canada, says Canadian manufacturers are missing out on significant growth opportunities in emerging markets.

“Expanding to emerging markets is something Canadians have traditionally backed away from,” he explains. “As a result, they have not even scratched the surface of significant growth opportunities in many emerging regions, including places like South America.”

Canadian manufacturers have relied heavily on the US, its largest trading partner, thanks to its proximity, which has left them vulnerable to swings in economic fortune. Instead of approaching the US as a single entity, he believes it should be approached as a collection of different economies and cultures.

“Ontario has more in common with Michigan than Michigan has with Alabama or California. Similarly, BC has more in common with the Pacific Northwest than it does with New York. These regional economic pockets each have a unique set of demands for Canadian products that can be leveraged with the right strategy and approach.”

The IBR shows fewer Canadian companies are planning to increase the number of employees in the coming year (24%, down 3% from last quarter), but 89% expect to give their employees a raise this year.

With the global economic outlook so uncertain for so long, Menzies says businesses are understandably cautious about upping investment in the future growth of their workforce and operations. Since Canada is a higher-cost producer that excels at high quality, more complex, more innovative and higher-priced products, manufacturers should invest in research and development, and innovation.

Manufacturers also need to act on strategic merger and acquisition (M&A) opportunities, an area where he says they need to be extremely agile.

Canadian companies are less worried about access to finances than other manufacturers, but they are concerned about the availability of a skilled workforce (32%) and regulations/red tape (24%).

Menzies says they are learning to live with uncertainty but need to be more comfortable with risk. “Instead of thinking day-to-day or quarter-to-quarter, manufacturers need to start proactively planning for uncertainty now and into the foreseeable future.”

Click here and check out the Insights section of the Grant Thornton LLP in Canada website for more on the reports.

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