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news Title: The resurrection of Canadian manufacturing
news ID: 1259
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By the end of 2009, the manufacturing sector in Canada had been all but officially written off. Once the economic lifeline of a country whose commerce depended on the vitality of natural resources and production, demand for Canadian manufacturing had been slowly fading. Between 2004 and 2008, more than 300,000 workers were forced to leave the security of lifelong jobs that had either become obsolete or had been off-shored for cost efficiency.

The crash of the financial markets and the damage it wrought spared few casualties as it tore through the manufacturing heartland of Ontario’s golden horseshoe. Hardly a week would pass without headlines of more layoffs at auto plants and gloomy employment predictions from economists. At the time, most experts opined cheap labour in Asia would inevitably erode Canadian manufacturing to a shadow of its former self, leaving the country’s economic fate to the knowledge economy.

Yet only a few years later, signs of resurrection abound. A Statistics Canada report issued less than two weeks ago showed manufacturing sales rose 0.6% in December to $49.9 billion, the climax of a steady climb throughout 2011 that left the sector within a hair’s breadth of its 2008 position.

Suddenly, the manufacturing landscape has a rosier hue, particularly for those businesses that had managed their companies well enough to weather the worst of the storm and that had shied away from the traditional slash-and-save recession mentality.

Innovating for the future

Peter Kelk, president of George Kelk Corporation, had a front-row seat to the manufacturing hardship of the recession. His Toronto-based company, which exports about 98% of its extreme weather-oriented industrial equipment, felt the pinch of the rapidly appreciating Canadian dollar and the plunge of investment, yet steered clear of off-shoring production. It’s ability to innovate allowed it to maintain its Gold Standard status as a Best Managed company

“We had to be extremely aggressive in terms of our pricing and every large order has to be negotiated and requires some willingness to discount,” says Mr. Kelk, adding that investment in administrative technology has allowed the company to ensure it functions smoothly without having to invest in additional administrative staff.

Innovation in engineering, product design and customer-service processes is set to become the new bedrock of Canadian manufacturing. So says Jay Myers, head of Canadian Manufacturers and Exporters, who believes the sector’s businesses can no longer afford to compete on the basis of price alone.

“A lot of people think manufacturing is dying,” says Mr. Myers. “ It’s just transforming itself into something that’s more dependent on high-tech design and engineering and the service component of providing solutions for customers. Here in Canada, we have a lot strength in being able to innovate products and services. I am optimistic [about the future of manufacturing], but it’s not going to be business as usual.”

The investment conundrum

Yet many business owners are reluctant to invest while financial markets in Europe and elsewhere remain unstable and are creating volatility among currencies, commodity prices and the availability of financing. Couple those global issues with increasing protectionist sentiment and aggressive re-shoring incentives south of the border and you have what appears to be a less-than-desirable environment for Canadian manufacturers.

Still, these problems are far from new. Global economic instability has been the norm for nearly four years and protectionist sentiment in the U.S. emerged in early 2009.  Yet the Canadian manufacturing sector has continued to persevere in spite of these seemingly insurmountable obstacles.

Labour woes

One of the few areas where Canadian manufacturing continues to lag is one over which it has little control ― staffing. The aging workforce and the dearth of skilled labour is having a profound impact on a sector that has become increasingly reliant on technical skills.

Builders and developers in Saskatchewan are struggling to keep up with demand in a provincial construction industry that has boomed with the recent influx of migrants from other provinces. Similarly, hiring managers in Alberta’s natural resources industries are maddened by their inability to attract adequate labour despite extremely aggressive recruitment tactics involving generous compensation packages. The situations has become so dire that Alberta Premier Alison Redford has even taken to pilgrimages to the U.S. to recruit prospective workers.

Back in Ontario’s traditionally employment-rich food processing industry, a shortfall of 364,000 workers is projected by 2025. While many in the industry see lower productivity, thinner profit margins and increased foreign competition as inevitable, others are less willing to be passive about the issue.

Craig Richardson, president of food-processing giant Grand River Foods – a Best Managed Gold Standard company which employs 400 workers in its 100,000 sq. ft. production facility — says the average age of workers in his industry is 56.

“This is a high-tech industry,” says Mr. Richardson. “There was a time when it was all done around the kitchen table, but now it’s high tech where we buy equipment from around the world and you have to have people that are skilled enough to select, install, use and clean it.”

Unwilling to wait for the problem to correct itself, Richardson presented his dilemma to the government and other private-industry players. The result was the establishment of the Institute of Food Processing Technology (IFPT) in Cambridge, Ont. ― a 3P-funded educational institute that graduates food processing sector-specific skilled trade workers. In addition to helping Ontario’s unemployed or underemployed find new livelihoods, the IFPT will also help foreign workers interested in making their way into the province’s food processing industry attain the skills necessary to do so.

“I think [foreign worker policies] need to be modified,” says Mr. Myers. “They’re too slow [in being processed] and there are too many restrictions placed on people coming to the country. They’re not focused as much as they should be on trades and technical skills and frankly the bureaucratic process to get workers here is a real problem that I hear right across the country.”

Myers’ sentiments are echoed by David Taylor, president of Calgary-based Best Managed Gold Standard company Engineered Air, where approximately 100 foreign visa workers from Mexico, the Philippines and Ecuador worked before the 2008 downturn. Unfortunately, new federal restrictions dried up that labour pool, forcing Taylor to compete with the generous oil sands industry for a drying pool of skilled workers.

Even with 1,350 employees across Canada and the U.S., the custom manufacturer of commercial and industrial heating and ventilating equipment struggles to keep up with the demand of its niche market.

“It results in lost business,” says Mr. Taylor. “I can’t build it; I can’t meet the construction time and the shipping time required. And people from other areas of the country don’t want to move. [Alberta] is an expensive promised land.”

The great off-shore debate

While some have suggested Canada’s labour woes are best solved by off-shoring tasks to workers in Asia or South America who are willing to take much lower pay, the solution isn’t as simple as it seems.

Mr. Kelk, who has maintained an office in Shanghai for 11 years, has seen the wages of staff in that office increase significantly over that time period. Moreover, with infrequent production runs across the ocean, it makes little sense for him to off-shore production that inevitably would have to be overseen and administered from Toronto.

“We have to constantly look at every step [of the process] and make a decision about whether it makes sense for us to do it or sub-contract it out,” he says.

The 2012 horizon

The labour challenge won’t be the only hill manufacturers in Canada will have to climb. Aggressive re-shoring policies in the U.S. are enticing more manufacturers to relocate production States’ side. This will have a profound impact on those manufacturers’ suppliers and partners who continue to rely predominantly on domestic business.

In addition, more stringent government regulations on everything from hiring practices and energy efficiency to trade regulations and licensing requirements will complicate production and administrative processes.

Despite these challenges on the horizon, optimism remains the norm among manufacturers like Messrs. Kelk, Richardson, Taylor and Myers.

“Conditions are better than a lot of companies’ perceptions of the business climate and at the end of [2011] what we saw was that a lot of manufacturers in Canada didn’t want to hold a lot of inventory or make a lot of investments until they saw the economic situation stabilized,” says Mr. Myers. “We saw companies realizing that inventory was too low and the strength in the U.S. has caught some [of them] by surprise and at the end of the year manufacturers weren’t hiring more people but there were a lot more people working double or triple overtime.”

Mr. Myers’ comments highlight a positive, albeit exasperating sign, that there are good things to come for Canadian manufacturing.

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