Optimism for Canadian manufacturing outpacing other sectors: Study

New research indicates a positive outlook for the Canadian manufacturing sector in 2013—including business leaders’ expectations of increased revenue growth, profits, orders, as well as plans to invest for growth.

However, a more detailed analysis reveals several important calls-to-action if manufacturers are to fully benefit from growth opportunities in the U.S. and emerging markets.

Fourth quarter Canadian results from The Grant Thornton International Business Report (IBR) indicate that across all sectors, profitability expectations jumped by 6 per cent (from 41 per cent to 47 per cent), and investment in plant and machinery also rose 6 per cent (from 36 per cent to 42 per cent). The IBR reveals a Canadian manufacturing sector that is significantly more optimistic about growth for the coming year – at 62 per cent versus only 47 per cent for other Canadian industries. IBR results also show that almost three-quarters (72 per cent) of manufacturers think exports will either hold steady or increase.

“Although the global manufacturing sector has been in survival mode for the last few years, Canada is well positioned for future growth,” Jim Menzies, national leader, Manufacturing and Distribution, Grant Thornton LLP, said in a statement. “Not only is our banking system strong, but access to finance—one of the driving forces of economic growth—is fluid. Manufacturers also tell us that despite their many challenges and constraints, they are increasingly optimistic.”

Still, manufacturers may be missing growth opportunities in emerging markets. “Canadian manufacturers are missing out on significant growth opportunities in emerging markets,” said Menzies. “Expanding to emerging markets is something Canadians have traditionally backed away from. As a result, they have not even scratched the surface of significant growth opportunities in many emerging regions, including places like South America.”

The re-emergence of the U.S. economy will also have a very profound and positive effect on the Canadian manufacturing sector. Menzies explained that our proximity to the U.S. has meant that Canadian manufacturers rely heavily on their largest trading partner, leaving them vulnerable to the U.S. economic recession, financial crisis, and more recent fiscal cliff issues. However, he continues, “The indicators over the past few months show that the U.S. economy is poised for a re-emergence over the next year or two as the United States comes through these more recent troubles.”
Menzies also believes Canadian manufacturers should take a more sophisticated approach to trading with the U.S. market. Instead of approaching the U.S. as a single entity, he believes it should be approached as a collection of different economies and cultures.

“The differences between certain regions within the U.S. is much more significant than its differences with regions of Canada. For example, Ontario has more in common with Michigan than Michigan has with Alabama or California.  Similarly, British Columbia has more in common with the Pacific Northwest than it does with New York. These regional economic pockets each have a unique set of demands for Canadian products that can be leveraged with the right strategy and approach.

“At the end of the day, Canadian manufacturers are learning to live with uncertainty and in doing so, becoming more comfortable with risk,” Menzies added. This means being more strategic and flexible, but it also means being prepared to face and manage risk. With so many variables out of their control, Canadian manufacturers need to focus on their risk strategies and better manage these variables. Instead of thinking day-to-day or quarter-to-quarter, manufacturers need to start proactively planning for uncertainty now and into the foreseeable future.”