Manufacturers less optimistic despite growth predictions, report says

Manufacturers’ optimism about the Canadian economy dipped 22 points from last quarter’s high of 76 per cent despite indications that revenue and growth is looking stronger, according to the PwC Manufacturing Barometer report for the second quarter of 2012.

 With the Canadian economy dependent on exports and the current uncertainty in export markets (Asia, Europe and the United States), confidence levels among industrial manufacturers have lowered, the report found.

But despite the dip in optimism, survey respondents indicate that revenue projections are looking moderately strong. Ninety-three per cent of Canadian manufacturers expect positive revenue growth for their own companies, with seven per cent forecasting double-digit growth.

“Sustained interest in international markets is a contributing factor to the confidence manufacturers have with their revenue forecast for next year,” Calum Semple, industrial manufacturing leader, PwC, said in a statement. While a majority of North American deals were made locally, the five outbound deals were larger in terms of value, according to the second quarter M&A report on the global industrial manufacturing industry, assembling value.

“The bulk of the outbound transactions involved targets in Europe as investors looked to tap into attractive niche markets and acquire new technologies,” Semple said. “These strategies reflect companies’ aim to align their product mixes with the growing global demand for energy and energy efficiency.”

Looking ahead, the percentage of Canadian manufacturers who plan to expand to new markets abroad and establish new strategic alliances and joint ventures all increased this quarter. Of the Canadian manufacturers selling abroad, more than half of the respondents anticipate international sales to contribute to their total revenue over the next 12 months.

Sixty-three per cent of barometer respondents also said they need to increase investment in their operations and the leading area of operational interest is information technology (IT), with 40 per cent of surveyors highlighting this area as a priority.

Regardless of their belief that spending to improve their IT operations is good for business, in reality taking action to invest remains low. Overall spending on IT is three per cent, despite an industry average of 3.6 per cent for IT spending as a percentage of revenue in 2011.

“Investments in IT need to be viewed as a priority for manufactures as technology is inseparable from strategic thinking in today’s business climate,” Richard Jhang, technology advisory leader, PwC, said. “To stay afloat in the sea of an unstable global economy, organizations must view technology as an essential part of their entire business plan and not just part an IT department consigned to mundane functions such as keeping servers running and email flowing.”

Jhang added, “Success depends on the right alignment of technology and business strategies, as well as bringing them together in the early stages of any plan.”

To learn more about PwC’s second quarter manufacturing barometer survey, please visit www.pwc.com/ca/industrial-manufacturing.