Canadian manufacturers poised to grow, shift focus to on-shore: KPMG

Canada’s manufacturing sector is finally poised for a true recovery after spending the last eight years in survival mode, according to a new report from consulting firm KPMG.

In the report, KPMG says many of the headwinds that worked against the sector during and since the 2008-09 recession are set to reverse.

One of the most encouraging, KPMG says, is that far fewer Canadian firms are pre-occupied with cost-saving and outsourcing production to such places as China, and are more focused on growth.

The report, based on a survey of 154 senior industry executives, found only 14 per cent of manufacturers planned to source from China, down from 31 per cent in a 2013 survey.

As well, only three per cent said they planned to source from India, as opposed to 12 per cent last year.

“Rising energy and transportation costs, along with added pressure on lead times and increased inflation in China, have made Canada and the U.S. more competitive as sourcing nations,” the report states.

“Reasonable energy costs and the quality and consistency of products offered here at home have also driven Canadian manufacturers to look on-shore for their sourcing strategies.”

The sourcing response was “surprising,” said KPMG business unit leader Laurent Giguere, adding that it suggests the lure of cheap labour in emerging markets is starting to wane.

The report also cites the strengthening U.S. economy and weaker loonie as other factors working in favour of Canadian factories, which in February experienced the highest monthly growth since before the recession, with revenue rising 1.4 per cent across the sector.

The sector also recorded a strong month in May, as sales rose by 1.6 per cent over April. It was the fourth time in five months that sales improved.

Giguere said the recent uptick in output and the improving climate for domestic producers is good news for the economies of Ontario and Quebec, Canada’s two most populous provinces and home to the bulk of its manufacturing.

But Giguere cautioned that manufacturers in advanced countries still have to adapt to the needs of the global economy and secure a place in international supply chains.

“The challenge is we need to keep on innovating and being a leading product producer,” he said, noting that manufacturing for low-end jobs, such as in the textile sector, have likely disappeared forever.

“Canadian manufacturers rely on innovation…and as long as Canadian companies focus on R&D, they will likely manufacture products that are successful.”

The report is also largely positive about the availability of skilled workers for manufacturing. Giguere said companies still cite trouble finding workers, but said colleges and universities are turning out more young people with the right skills for the sector, and companies themselves are putting greater focus on training and retaining employees.

Manufacturing was among the most impacted sectors of the economy in the 2008-09 financial and economic crisis, mostly because demand in the U.S. and other parts of the world collapsed. Since then it has had difficulty recouping the losses.

But KPMG notes that it is still among Canada’s most important and dynamic sectors. In 2013, about 80,000 manufacturing firms generated revenues of close to $600 billion and employed about 1.8 million Canadians.

To access the full survey report, visit www.kpmg.ca/cmo2014.