With a weakened global economic foundation, Canada could stand tall by leaning on manufacturing
Unless you’ve been living under a rock, you’ve likely noticed the ebb and flow of Canada’s economy has looked more like the tides at the Bay of Fundy.
But as economists and politicians search for ways to stabilize the Canadian economy, it’s important not to forget a pillar of strength that’s been standing in this country since long before we stepped from the shadows of the British Empire: manufacturing.
While manufacturing still dominates much of the nation’s economic wheelhouse—the industry employs 1.8-million Canadians and contributes billions of dollars to the economy—it ain’t what it used to be.
Gone are the days when Canadian-made products could be found everywhere you turned.
Globalization has changed the way we shop and work, and competitive pricing has scattered commercial and industrial manufacturing to all corners of the globe.
And as the recent recession and euro zone crisis have slowed our fiscal wheels, something must be done to prop up manufacturing as a cornerstone to an advanced economy in Canada.
“I think manufacturing is very important just as an anchor for creating value in an economy,” said Jayson Myers, president of Canadian Manufacturers and Exporters (CME).
The biggest reason behind Myers’ logic isn’t his position with the largest industry and trade association in the country—it’s how the industrial sector has proven to be all-encompassing.
Naturally, manufacturing adds value to Canada’s economy through gross domestic product (GDP) and direct job creation and retention, but the ripple effect it has in other industries should also be recognized.
From research and development to engineering and design, logistics and distribution to marketing, finance and more, many thousands of jobs are built on manufacturing.
As Myers points out, if you take away a core manufacturing sector in the country, it’s more than just assemblers that feel the burn.
“Maybe it takes a recession to prove it, but what happened when the auto industry in Canada was having difficulty, it wasn’t just the auto industry,” Myers said, noting a specific decline in advertising, which the auto industry represents its largest client base.
“What that tells me is that we’ve got more people working in the services sector or in services companies … but they’re still working in the business of manufacturing.”
Only adding to the pressure on our economy and a sector like manufacturing is competition from abroad.
International competition amongst manufacturers is a staple of an open economy—as evidenced by mergers and acquisitions activity, and how Canada has been a target for foreign investment—and it has only seemed to have intensified in the wake of the recent recession.
With some of the highest wages in the world, it’s not uncommon to see operations in Canada moved to other jurisdictions where workers get paid half of their Canuck counterparts’ wages.
But doing it cheaper doesn’t always mean doing it better.
Canadian manufacturers may be getting burned by their foreign foes, but innovation can go a long way in maintaining a competitive edge internationally and putting the nation on a trajectory to sustainable success.
“I would argue that Germany and central Europe have shown us that you can compete extremely well around the world with high wages if you are focused on the best in technology and extremely good design and engineering capabilities,” Myers said.
“I see a lot of Canadian manufacturers out there that are doing that—continuing to invest in new products and new technologies and are paying a high wage, too.”
Investing in new technology and innovation while paying employees handsomely won’t do the job on its own, though.
“If everyone else is doing that around the world then you have to be ahead of the competition,” Myers said.
While there isn’t a standard playbook for all companies to follow, Myers said the simply answer is to find a way to improve productivity or create value faster than the relative cost structure increases.
Another way to stay ahead of the competition is through specialization; something more Canadian companies must recognize in order to create a niche in the global market.
“Companies have to realize that, yeah, they’re competing on competitive pricing in terms of the overall cost of getting a product to a customer, but what they’ve got to be looking at is how (to) specialize your offering—how do you become different from every other company,” Myers said.
It’s that mentality that is encouraging companies to invest more in innovation and new products and services.
“Manufacturing today is much more than getting product out the door,” Myers said. “It’s really providing the specialized service and solution to customers through a product … but it’s also created in the service that’s provided around the product.”
Looking up to the south
In the U.S., President Barrack Obama and his circle of advisors have taken notice of the importance of manufacturing to that nation’s struggling economy, establishing a consortium aimed at the advancement of the industry for the country’s prosperity.
A White House statement released in July 2012 stressed Obama’s belief that a strong domestic manufacturing sector is critical to achieve a strong middle class and an “economy built to last.”
When you cut out the fat of the bureaucratic bologna, its undeniable the U.S. is ready to bolster manufacturing in the world’s biggest economy.
Through the President’s Council of Advisors on Science and Technology (PCAST) and the Advanced Manufacturing Partnership (AMP), Obama’s inner circle is bringing together business, academia and government to find ways to improve and grow the industry.
Myers said he “very much” agrees that Canada needs to take similar action if manufacturing is going to grow on home soil, though he finds the U.S. initiatives are aimed more at protecting the industry rather than investing in it.
“I unfortunately see more in the way of moves to protect manufacturing by throwing up ‘buy America’ or other trade barriers in the U.S. rather than to invest in manufacturing,” he said. “What I see in Canada is both the federal government and provincial governments … making direct investments in manufacturing and in technology, and that’s all good.
“What we lack in Canada, though, are governments that get up and basically say our future depends on manufacturing … (and) they could certainly be doing more.”
To that end, it’s time manufacturing had a strong political proponent in Canada that is willing to stand up for the industry that helped build and carry the nation.
“We need a champion for manufacturing,” Myers said, simply.
“We spend a lot of money, for instance, on (research and development) in universities and in colleges, and not a lot of money actually supporting the companies that would bring those ideas to market in Canada,” he said.
Striking a balance between strategic government procurement and providing incentives to conduct R&D in order to get products out the door is crucial to the future of Canada and manufacturing, Myers said.
With the economic tides making serious waves, it’s time for manufacturing to take the helm and reinforce Canada’s foundation before it starts to crumble.