Labour shortage, not Dutch Disease, biggest obstacle for manufacturers: CME

The salvation of Canada’s manufacturing sector lies in taking advantage of opportunities in the natural resources sector and emerging markets through enhanced productivity, says one of Canada’s foremost authorities on the industry.

Jay Myers, president of Ottawa-based Canadian Manufacturers and Exporters, said during a BMO-hosted panel discussion today that if Canada’s manufacturing industry is to continue its upward trend, it will need to seize opportunities in Alberta’s oil sands, Quebec’s Plan Nord projects and natural resource-related initiatives in Newfoundland.

Despite claims from federal NDP leader Thomas Mulcair that the sector cannot compete because of a high dollar generated by natural resource exports, Mr. Myers says manufacturing’s biggest challenge is the country’s shortage of labour.

“I think [Dutch Disease] is taking a look at some of the symptoms, but it’s a misdiagnosis,” said Mr. Myers, later adding that “If anything, the first thing I hear talking to those companies that supply [the natural resources] sector is [the challenge in] finding people and I think what we’ll see over the next couple of years is that those labour shortages will spread across the country and companies will have to be more innovative in the way they supply these projects.”

‘Most companies are more intent on focusing on the opportunities than wringing their hands about what Mr. Mulcair is saying’
Canadian manufacturing has seen a significant boom in the past year with approximately 1150,000 jobs created in the past six months — the most for any similar period in the past. In addition, Canadian factories were at 81% in potential capacity — the highest since the financial market crash of 2008.

Mr. Myers later added that the true catalyst to the high loonie is the low U.S. dollar, which has pushed up the price of natural resources and, in turn, the value of the Canadian dollar.

“The price of oil is closely related to the trade-weighted value of the U.S. dollar and it only makes sense that if the U.S. dollar falls in value then the price of U.S. dollar-denominated resources (i.e. oil) will increase, and that has had much more of an impact on oil prices than the other way around.”

Mr. Myers added that manufacturers can find numerous ways to streamline operations and reduce costs by doing away with peripheral expenses that aren’t directly related to consumer needs. In doing so, he says, companies will be able to provide faster and more efficient service to the natural resources sector’s many projects and, in turn, see greater profits.

“There will be a premium on those companies that can supply these projects fast. If you can position yourself as a solution provider there, you’ve got a pretty good business opportunity in the domestic market. And most companies are more intent on focusing on the opportunities than wringing their hands about what Mr. Mulcair is saying.”

An estimated $0.5-trillion in private sector investment will be made in the natural resources sector over the course of the next five years — much of which will drive demand for technology and services from the manufacturing sector.

Nominal manufacturing sales have recently seen a return to pre-recession levels while production levels are just slightly shy of the levels of that period. At least part of that success can be attributed to an increase in market diversification through investment in emerging markets.

According to the CME, 2011 was the first year in which sales of Canadian affiliates of markets outside of Canada exceeded exports to foreign markets.

Also in 2011, countries outside the United States represented 26% of merchandise exports, compared with 16% in 2005, and the Asia-Pacific region now accounts for 11% of exports (compared with 6.5% in 2005); and, Europe is now the destination for 10% of exports compared to 6.6% in 2005, according to the Canadian Chamber of Commerce.

Despite reports earlier this month from the Canadian Auto Workers Union that an estimated 2,000 jobs are likely to be lost when GM closes one of its plants in Oshawa, Ont., automotive production has grown 30% over the past year — much of which is being sold to the United States.

“It has been doing very well over the past 10 months and continuing to show ongoing strength in sales in both Canada and the U.S.,” said Tina Kremmidas, chief economist at the Canadian Chamber of Commerce.

To ensure continued growth, Mr. Myers says manufacturers will need to learn to do more with less by finding ways creative and innovative ways around the labour shortage. In other words, be more productive.

“Productivity isn’t just about removing costs. It’s about increasing the value around your existing product or increasing the value of the product itself, and you do that by new product development through innovation and improving technology and the functional capabilities of the product; or, customizing through design or through the service you’re providing for the product — the support services, the logistics, the customer service, the financing, which is really important.”

Posted in: Executive, Productive Conversations  Tags: Canadian Manufacturers & Exporters, Dutch Disease, Jay Myers, Manufacturing, Thomas Mulclair


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