A recent survey completed by StatsCan indicated a 3.1% decline in sales for the manufacturing industry in the month of December 2012. The total manufacturing sales in December was $48 billion. The chart below illustrates Canadian manufacturing sales since 2007 in current dollars.
The transportation equipment industry suffered the highest percentage decrease in sales compared to other manufacturing sectors. Sales fell by 9.1% in the transportation equipment sector for December, which represented the largest percentage decrease since February 2011. However, this decrease can be attributed to a 15.4% decline in motor vehicle assembly, which is expected given that assembly plants are normally closed for a portion of the month in December. Other sectors that experienced decline include chemical manufacturing, petroleum and coal products and the fabricated metal industry.
The total decline in Canadian manufacturing sales was concentrated within Ontario, which contributed to more than 2/3 of the total national decline. Ontario sales fell by 4.6% while Alberta faced a decline of 4.5%, representing a third consecutive monthly decrease for the province. Overall for 2012, the Canadian manufacturing industry as a whole had a 3.4% increase in total sales compared to 2011 sales numbers. However this increase is less than half the rate of growth in sales for 2011 and 2010, which was 7.8% and 8.9% respectively and can be accredited to a slowdown in growth in the manufacturing industry as a whole for 2012.
To stay competitive, manufacturers are encouraged to take advantage of Canadian business funding programs. In Ontario, there are numerous programs that fund research and development (SR&ED and IRAP), equipment purchases (CME Smart Prosperity Now), and export market development (Export Market Access).
A recent study indicates a sense of optimism within Canada’s manufacturing sector. The survey, “Canadian Manufacturing Outlook 2012: Push and Pull – Reducing Costs and Investing in Innovation,” is based on input from senior Canadian manufacturing executives and indicates a positive outlook across the industry.
According to StatsCan, manufacturing accounts for over 7 percent of the Canadian job market, and almost 13 percent of the GDP. The results report that the industry is confident: 85% of respondents reported having an optimistic or very optimistic business outlook, up 11 percent from the previous year, and about 10 percent higher than the global outlook.
The optimism translates into a recognized need and desire for innovation in the industry. Almost a quarter (23 percent) of respondents plan to develop new product lines, and 50 percent identify the requirement to increase productivity and efficiency as essential to remaining competitive. Over 60 percent of respondents predicted a phase of transformational innovation to be underway or occurring over the next 12 to 24 months.
“As smaller, niche players operating with a strong dollar, Canadian companies realize they need to innovate in order to compete. They know they have to focus on R&D to develop new products that are leading edge and keep them ahead of the curve; otherwise the lower-cost global producers will catch up with standardized products and outperform them on price.”
Canada’s manufacturing industry’s commitment to R&D is being punctuated by GM’s announcement of a $750 million commitment to R&D by 2016. The industry’s positive outlook follows a period of economic recovery, and to deal with the competitive nature of growth, the manufacturing sector should look to innovation.
Read the full report here.
The RBC Purchasing Managers Index shows that Canadian factory orders rose in June, inching up to 54.8- its highest level since last September. The report found that both output and new orders rose strongly in June, even with the ongoing eurozone crisis’ dampening effects on the global economy. Manufacturing employment increased for the fifth successive month, while the rate of input price inflation slowed sharply to its weakest pace since October 2010.
Similar data has shown factory orders to be slowing down in the US, eurozone and Asia. However, Canada’s manufacturers are benefiting from a relatively strong domestic economy, and increased demand in the US for new cars. The strong manufacturing performance this year has been led by medium-sized companies with 50 to 199 employees, but smaller firms have also reported improvements.
In a letter to Finance Minister Jim Flaherty, the Canadian Manufacturing Coalition (CMC) addressed concerns about recent changes to the SR&ED program.
1. Reducing the SR&ED Investment Tax Credit (ITC) rate from 20% to 15% will directly and negatively affect Canada’s top R&D performers.
2. Eliminating capital expenditures from eligible expenses will significantly and negatively impact the largest users of SR&ED – Canada’s manufacturing sector – which is much more capital intensive than other sectors.
According to CMC, the budget includes other measures in support of science and technology, including increasing funding for NRC-IRAP and the Canadian Foundation for Innovation. However these measures will not offset the proposed changes to the SR&ED program in the manufacturing sector.
The Economist featured a special report on manufacturing and innovation. According to Paul Markillie, as manufacturing goes digital, smaller runs and massive customizations will be the key to customer satisfaction. The reshoring of manufacturing into North America may be driven by several factors, including:
- The rising costs of transportation from oversea suppliers
- The shortening of supply chain lead times to get to market quicker
- The rise of digital printers to allow for rapid prototyping
- The unconventional customization opportunities afforded by the Internet and by social media to allow for the personalization of products.
