Industry must embrace change to compete globally: KPMG

Oct. 26, 2015 – The international economic landscape is shifting, from the sharp decline in the price of oil, to the recent Chinese stock market crash. The ripple effect has resulted in volatility in some prominent industries, and despite an optimistic start, it is still challenging times for Canadian manufacturers. In past years, a risk averse attitude helped protect manufacturers in Canada during periods of volatility. But now, this approach may not be enough to keep pace with their global counterparts, according to KPMG’s Canadian Manufacturing Outlook 2015, released earlier this month.

The report reveals a gap between what Canadian manufacturers want (65 per cent of respondents list sales growth as their top strategic priority), and what they may risk to succeed (only 17 per cent list increasing R&D and new product development as a top strategic priority, compared to 32 per cent globally). The current incremental approach to growth and innovation is no longer the safety net it was for Canada in past years. With global competitors potentially surpassing Canadian companies in key strategic areas, the time to act is now.
 
“Canadian manufacturers must take decisive actions to help narrow the innovation gap. The industry is more competitive than ever and we must be willing to make the necessary investment and take some calculated risks to compete with – our global competitors,” said Bob Jolicoeur, national industry leader of Industrial Markets, KPMG

According to the report, Canada must:

• Seek growth in new geographic markets — While acknowledging the importance of entering new markets (36 per cent identified this as a top strategy for driving growth and innovation), Canadian manufacturers are slowly expanding outside North America. Increased export growth to foreign markets such as Indonesia, Vietnam and the ASEAN (Association of Southeast Asian Nations) region is expected. Canada should start exploring these and other geographies — the domestic market alone isn’t enough to feed the growth that Canadian companies need to achieve to remain competitive.

• Narrow the innovation gap – Although R&D and innovation is a critical focus for Canadian manufacturers, they aren’t spending as much on R&D as their global competitors. A quarter of Canadian manufacturers are focussed on longer-term (5-10 years) innovation strategies, with 12 per cent identifying breakthrough innovation as their primary strategy (enhancing existing products/services is the top focus for 78 per cent). In comparison, 41 per cent of global manufacturers are committed to driving growth through breakthrough innovation. Furthermore, while adopting new manufacturing technologies and increasing R&D spend were the top two focuses globally to drive growth and innovation (48 and 44 per cent), they were the bottom two in Canada (20 and 13 per cent). With this innovation disparity, Canadian companies need to develop innovations strategy to deal address this gap.

• Replace inventory with information along the supply chain – Today’s largest, most successful global manufacturers are streamlining their supply chains – gathering information on effectiveness, identifying areas for improved efficiencies, and increasing communication along the entire supply chain to dramatically reduce inventory and ultimately, costs. This should be a priority area for leadership in Canadian manufacturing companies over the coming year.

Although KPMG’s 2014 Manufacturing Outlook found growth opportunities to be within grasp of Canadian manufacturers, unexpectedly rough economic times have proven challenging for the Canadian manufacturing sector. With challenges come opportunities, and manufacturers have a real opportunity to embrace disruptive changes in the global economy.
 
“The success of the manufacturing sector is vital to the overall economic success of our country. Change is happening fast, and it is time for industry leaders to take major action, from developing innovative products to investigating and entering new geographic markets,” said Laurent Giguère, national sector leader, Transportation, KPMG.

“If Canadian manufacturers want to continue competing with leading global manufacturers, they need to invest in skilled people, innovative processes and collaboration tools that will help drive efficiencies in their own supply chains,” continued Don Matthew, national sector leader, Diversified Industrials at KPMG

The Canadian Manufacturing Outlook is an annual survey based on the KPMG International Global Manufacturing Outlook survey. Over 200 manufacturing executives from across Canada were surveyed in early 2015, representing a range of industries including: industrial products, technology and electronics; consumer products, food and beverage; transportation; construction; financial services; automotive; aerospace and defence; energy; mining and metals; forestry; chemicals; biotechnology and pharmaceuticals. CLICK HERE to access the full survey report.