Manufacturing on the verge of an investment boom

TORONTO—Business bankruptcies have dropped to an all-time low in Canada, according to a new report from CIBC World Market.

For most of last year, there were 3,500 bankruptcies—3.4 per every 1,000 businesses.

That’s 26 per cent below the previous year’s rate and half the average level over the past two decades.

CIBC deputy chief economist Benajmin Tal says last year’s record-low was partly the result of protective measures Canadian firms took during the economic downturn.

Instead of waiting too long and being forced into plant closures, companies reacted swiftly by rationing and downsizing, he says.

While spending cuts did mean lay-offs, Tal says this allowed companies to withstand the downturn and ramp up hiring as they come out of it.

He predicts it won’t take more than a few months to return to pre-recession job levels.

Those were just some of the strategies businesses adopted to stay afloat, says Tahir Ayub, Canadian leader of private company services at the consulting firm, PricewaterhouseCoopers.

In a PwC survey of more than 200 private companies, the majority credited their success throughout the downturn to focusing on efficiency.

“About 70 per cent realigned and improved the way they looked at development plans. This kept them them focused on what activities were most important,” Ayub says.

Another positive finding was that 32 per cent continued to spend on capital equipment despite tightened purse strings.

“They were still investing in technology and capital assets, positioning them well coming out of the recession,” he says.

A good relationship with the banks didn’t hurt either.

“If you keep your banker appraised of how the business is doing and work closely with them, you’ll often have a good enough relationship to carry you through difficult periods—we saw this in spades throughout the recession.”

Every province saw bankruptcy rates fall, but B.C. especially fared well with 43 per cent fewer bankruptcies than the previous year.

Ontario was a strong second; its rate dropped by 30 per cent, followed by Manitoba and Saskatchewan, where there was a 28 per cent decline.

CIBC’s Tal says B.C. companies are taking advantage of their direct link to Asian markets, but that story could change.

“I think Ontario and even to an extent Quebec will soon be in a much better position to take advantage of the new manufacturing wave that’s hitting the US,” he says.

Tal says the industry there is experiencing a “renaissance” driven by new Chinese demand for quality-made toys.

“This momentum in the US is generating a significant wave of supply chain opportunities in Canada,” he says.

“For the first time, companies are going to be able to compete on quality as opposed to cost.”