a strategic outlook for canada’s manufacturers and …...–partnerships – customers, suppliers,...
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Economic Reset A Strategic Outlook for Canada’s Manufacturers and Exporters
January 2013
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Manufacturing Sales
30
35
40
45
50
55
60
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Bill
ion
s o
f D
olla
rs p
er M
on
th
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Merchandise Exports November 2012
1.5
-14.3
-25.9
-17.8
-7.9
2.5
-1.3
-10.2
13.9
16.4
-7.8
-6.3
-30 -25 -20 -15 -10 -5 0 5 10 15 20
Food Products
Energy
Mining Ores
Metal & non-metallic mineral products
Chemical, Plastic, Rubber Products
Wood Products
Industrial Equipment
Electronics & Electrical Equipment
Auto Products
Other Transportation Equipment
Consumer Products
Total Exports
Year-over-Year Percent Change
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Exports to Key Markets November 2012
-1.5
-5.2
-38.1
-16.8
-11.8
-16.1
-6.3
-45 -40 -35 -30 -25 -20 -15 -10 -5 0
United States
Japan
United Kingdom
European Union
Other Developed Countries
Other Countries
Total Exports
Year-over-Year Percent Change
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Manufacturing Sales November 2012
0.5
4.3
-6.5
4.7
1.3 2.7
-2.0
9.3
-5.8
-3.4
-8.1
-20
-15
-10
-5
0
5
10
15
Canada BC Alta Sask Man Ont Que NB NS PEI NL
Year
-ove
r-Ye
ar P
erc
en
t C
han
ge
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Manufacturing Sales by Sector November 2012
-1.3
5.7
11.1
-2.8
-16.6
-12.6
11.0
-4.7
9.1
2.0
0.9
0.5
7.5
14.4
-10.2
-2.2
4.3
-20 -15 -10 -5 0 5 10 15 20
Food Products
Beverage & Tobacco Products
Textile Mills
Textile Products
Clothing
Leather Products
Wood Products
Paper
Printing
Petroleum Products
Chemicals
TOTAL MANUFACTURING
Year-over-Year Percent Change Canada British Columbia
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Manufacturing Sales by Sector November 2012
-4.6
-2.4
-2.9
1.8
-10.3
-4.3
6.3
4.8
7.8
9.4
6.9
6.8
0.5
-2.5
0.4
-1.4
-4.7
18.4
5.8
4.5
-2.3
4.3
-15 -10 -5 0 5 10 15 20
Plastic & Rubber Products
Non-Metallic Mineral Products
Primary Metals
Fabricated Metal Products
Machinery
Computers & Electronics
Electrical Equipment
Transportation Equipment
AUTO ASSEMBLY
AUTO PARTS
Furniture
Miscellaneous
TOTAL MANUFACTURING
Year-over-Year Percent Change Canada British Columbia
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Manufacturing in Canada • A $560 billion industry ($620 billion in 2004)
• 13% of GDP (18% in 2004)
• 1.85 million direct employees (2.4 million in 2004)
• The largest payroll of any business sector
• Two-thirds of Canada’s goods & services exports
• 80% of private sector R&D
• 85% of all new patents
• Every $1 of output generates $3.50 in total economic activity ($3.05 in 2004)
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Jobs Depend on Manufacturing 83%
47%
46%
31%
29%
29%
26%
24%
19%
19%
18%
15%
15%
11%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
FORESTRY
CROP & ANIMAL PRODUCTION
FORESTRY & AGRICULTURAL SERVICES
UTILITIES
PROFESSIONAL & TECHNICAL SERVICES
MINING, OIL & GAS
ENVIRONMENTAL SERVICES
WHOLESALE TRADE
CONSTRUCTION & ENGINEERING
TRANSPORTATION & WAREHOUSING
INFORMATION & CULTURAL INDUSTRIES
OTHER BUSINESS SERVICES
ARTS, ENTERTAINMENT, RECREATION
FINANCIAL SERVICES & REAL ESTATE
PERCENT OF EMPLOYMENT ATTRIBUTABLE TO MANUFACTURING
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The Importance of Manufacturing in BC
• 11.2% of BC’s GDP – up 43% since 1997
• Every dollar of manufacturing output generates $3.00 in total economic activity
• Over 60% of all BC exports
• 400,000 direct and indirect jobs across the province
• $8.6 billion in wages – wage levels 15% higher than average
• 88% of patents
• 12,000 BC-based manufacturing companies
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A Global Engine of Growth Global Canada
Manufacturing Value Add $10.5 trillion $190 billion
Percent of GDP 16% 13%
Percent of Exports 70% 75%
Multiplier 2.6 3.5
Percent of Private Sector R&D
77% 80%
Share of Service Jobs in Manufacturing
30 – 55% 74%
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Top 15 Manufacturing Nations Rank 1980 1990 2000 2010
1 United States United States United States United States
2 Germany Japan Japan China
3 Japan Germany Germany Japan
4 United Kingdom Italy China Germany
5 France United Kingdom United Kingdom Italy
6 Italy France Italy Brazil
7 China China France South Korea
8 Brazil Brazil South Korea France
9 Spain Spain Canada United Kingdom
10 Canada Canada Mexico India
11 Mexico South Korea Spain Russia
12 Australia Mexico Brazil Mexico
13 Netherlands Turkey Taiwan Indonesia
14 Argentina India India Spain
15 India Taiwan Turkey Canada
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Manufacturing Share of GDP Top 15 Manufacturing Nations
33
28
25
20
19
17
15
14
13
13
13
12
11
10
10
0 5 10 15 20 25 30 35
China
South Korea
Indonesia
Japan
Germany
Mexico
Italy
Russia
Brazil
India
Canada
Spain
United States
France
United Kindom
Percent of GDP
Global Average
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Manufacturing is Changing • Complex networks of competing global and regional value
chains
• Manufacturers and countries competing to add value within those value chains
• Distinction between manufacturing and services is blurring
• As economies mature, manufacturing becomes less important as a source of employment and more important as a driver of productivity, innovation, exports, and service sector jobs
• More complex and uncertain environment = New business opportunities
• New business and policy strategies are needed to respond
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The Modern Business of Manufacturing
• Generating solutions/value for customers through the production of tangible goods
• A business of global business networks & value chains
• Facing fierce global competition – For customers, investment, product mandates, people & knowledge
• An anchor of value creation in the economy
• Succeeding by providing customers with cost competitive, manageable, and differentiated solutions based on productivity, innovation, agility, engineering, design, logistics, and customer service
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Global Risks • Economic & Financial Conditions
• Income Disparities leading to Social Unrest
• Cyber Warfare
• Middle East
• Energy Security
• Global Governance
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Forces Affecting Manufacturing
• Demand
– Shift to emerging markets
– Fragmentation – need for customization
– Growth of service business models
• Supply
– Shift in relative labour costs
– Talent shortage
– Commodity price changes
– Energy & transport costs
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Forces Affecting Manufacturing
• Technology & Innovation
– New materials
– Product design & rapid prototyping
– New production technologies
– Information & communication capabilities
– New business models
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Forces Affecting Manufacturing • Policy & Regulation
– Support for domestic manufacturing
– Safety, quality, sustainability regulations
– Intellectual property protection
– Changing and competing tax structures
• Risks & Uncertainty – Demand volatility
– Commodity & energy price volatility
– Currency fluctuations
– Supply chain risks
– Location-specific risks
– Capital cost uncertainty
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Challenges for Canadian Business • Intense competition – for customers, investment & product
mandates, people, knowledge, & skills
• Rising costs – labour, materials, energy, transportation, regulatory compliance
• Currency appreciation
– Canadian dollar 60% higher than in 2002
• Recession & consolidation of supply chains
• Uncertain recovery, volatile markets, housing
• Aging workforce & skill shortages
• New market opportunities
– In Canada, Europe, Asia, Latin America
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Global Challenges = Opportunities • Productivity = Value Up, Costs Down
• Health, safety, environmental sustainability
• Aging populations, talent shortages, health care
• Energy security, efficiency, and carbon footprint
• Food and water quality, security, and supply
• Physical security
• Transportation and communication
• Financial constraints
• Risk management
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Key Market Opportunities • Within Canada
– Over $650 billion in energy, resource, infrastructure, shipbuilding, defence projects across Canada over the next ten years
• Across North America – New investments and supply chain opportunities in automotive,
aerospace, food, energy, health care, environment, equipment, infrastructure, and technology sectors
– Innovation & services to grow market share
• Around the World – Resource and infrastructure investments
– EU market opportunities
– Following customers to grow supply chain opportunities – automotive, aerospace, energy, equipment, technologies
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For Canada’s Manufacturers and Exporters, Future Success depends on: • Finding new customers and/or winning global product mandates
• Differentiating themselves from the competition through:
– A focus on customer solutions, not getting product out the door
– Product & process innovation, design, engineering, logistics, service
– Partnerships – customers, suppliers, manufacturers, distributors, innovators, peers
• Unit cost competitiveness – total delivered cost to customer
• Adopting the most productive processes and technologies
• Having access to skilled people and continually upgrading the capabilities of their workforce
• The investments they make in new markets, product and process innovation, new technologies, and workforce development
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Policy Leadership Matters • Recognize the strategic importance of manufacturing
• Competitive taxes – low corporate tax rates, 2-year depreciation, R&D tax credit, tariff elimination on inputs, value-added sales taxes
• Strategic investment incentives
• Canada-US Border Action Plan & Regulatory Cooperation
• Lean regulation
• Open markets – US, EU, Asia, Latin America – and effective enforcement of trade rules
• Support for innovation & productivity improvements
• Education & training for an advanced manufacturing workforce
• Available, reliable & competitive infrastructure
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Where CME is Taking the Lead
• Strategic thinking
• Policy advocacy
• Education & access to talent
• Technology partnerships
• Business support to improve productivity and enter export markets
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Worth a Read
• WEF Report on Manufacturing
• Manufacturing the Future, McKinsey
• Manufacturing our Future, CME
• Report on Manufacturing, Conference Board