Manufacturers bet on foreign markets and energy investments as key to growth
TORONTO—According to the PwC Manufacturing Barometer report for Q2 2012, manufacturers’ optimism about the Canadian economy dipped 22 points from last quarter’s high of 76 percent. With the Canadian economy dependent on exports and the current uncertainty in export markets (Asia, Europe and the US), confidence among industrial manufacturers has lowered.
Despite the dip in optimism, survey respondents indicate that revenue projections are looking moderately strong. Ninety-three per cent of Canadian manufacturers expect positive revenue growth for their own companies, with seven percent forecasting double-digit growth.
“Sustained interest in international markets is a contributing factor to the confidence manufacturers have with their revenue forecast for next year,” says Calum Semple, industrial manufacturing leader, PwC. While a majority of North American deals were made locally, the five outbound deals were larger in terms of value, according to the second quarter M&A report on the global industrial manufacturing industry, Assembling value.
“The bulk of the outbound transactions involved targets in Europe as investors looked to tap into attractive niche markets and acquire new technologies,” says, Mr. Semple. “These strategies reflect companies’ aim to align their product mixes with the growing global demand for energy and energy efficiency.”
Looking ahead, the percentage of Canadian manufacturers who plan to expand to new markets abroad and establish new strategic alliances and joint ventures all increased this quarter. Of the Canadian manufacturers selling abroad, more than half of the respondents anticipate international sales to contribute to their total revenue over the next 12 months.
Technology trending within manufacturing operations
Sixty-three per cent of barometer respondents also said they need to increase investment in their operations and the leading area of operational interest is information technology (IT) with 40 percent of surveyors highlighting this area as a priority. Regardless of their belief that spending to improve their IT operations is good for business, in reality taking action to invest remains low. Overall spending on IT is 3 percent despite an industry average of 3.6 percent for IT spending as a percentage of revenue in 2011.
“Investments in IT need to be viewed as a priority for manufactures as technology is inseparable from strategic thinking in today’s business climate,” says Richard Jhang, technology advisory leader, PwC. “To stay afloat in the sea of an unstable global economy, organizations must view technology as an essential part of their entire business plan and not just part an IT department consigned to mundane functions such as keeping servers running and email flowing.”
To learn more about PwC’s second quarter manufacturing barometer survey, visit www.pwc.com/ca/industrial-manufacturing.