Cheap tricks: how Canada can compete with low US production cost

TORONTO—Low labour prices and cheap energy are boosting the United States’ production cost advantage over leading western European nations and Japan, according to a new report from the Boston Consulting Group (BCG).

So where does that leave Canada?

The report, which calls the U.S. one of the developed world’s lowest-cost manufacturing hubs, may be right; production costs south of the border are down on the back of cheap labour and energy—categories even Canada isn’t going to compete in—but Canadian firms are still in fine position to grow exports and flourish in a world where demand is on the rise.

While American firms focus on reducing cost-competitiveness by way of lower prices, their Canadian counterparts can rest assured that they have a secret weapon up their sleeves that can lead to a production boost on home soil: Flexibility.

“We’re not going to compete on cost alone,” says Jayson Myers, president of Canadian Manufacturers and Exporters (CME). “But where Canadian companies can compete, and are competing extremely well, is in our ability to be flexible.”

While some of the biggest gains in U.S. exports are forecast to be seen are in machinery and transportation equipment, Canadian firms need to look beyond the high-volume production that will lead to the projected American boom.

“I guess the whole issue about how to compete is we’ve got to come to terms with the fact that we’re not going to compete on volume production, (and) we’re not going to compete when it comes to labour costs and people working in commoditized jobs,” Myers says.

Instead, Canadian manufacturers can take a leading position through custom production, innovation and customer service.

“The only way Canada can compete in a high-cost environment is to be somewhat specialized—to differentiate (itself) from the competition,” he says.

According to Myers, the three best ways to do so are through being innovative, and to focus on design and full-service solution for customers.

The innovation approach may be easier said than done, but developing new products and services can help keep a firm ahead of the game while high-volume competitors focus on contract obligations.

Custom production can be a big difference-maker because, Myers says, the “more customized products and services the more differentiated you are.”

“The third is you compete on the basis of service,” he says. “Customers will pay a higher price for service.”

At the end of the day, according to Myers, it’s all about finding innovative ways of combining service with new products and a degree of customization and flexibility in order to compete.

“I think regardless of the sector of manufacturing that’s what companies have to focus on,” he says.

“Companies in Canada that have done well coming out of the recession and (that are) doing well in the United States are the companies that are continuing to invest in new products, in training, in services (and) in new technologies.”