Update: Canadian manufacturers show concern over U.S. protectionism in 2019 outlook

January 29, 2019 – Canadian manufacturers are optimistic about their prospects in 2019, but significantly less confident than last year as concern mounts that Trump administration policies and other disruptive factors will affect their businesses, according to a new survey of senior manufacturing executives that we outlined earlier this month here.

PLANT Magazine’s Manufacturers’ Outlook 2019 study shows 39 per cent of senior company executives are very optimistic about the coming year, compared to 44 per cent last year. 

They’re either very or somewhat concerned about what’s going on in America. US protectionism is very worrying to 65 per cent of executives compared to 54 per cent last year, followed by US protectionism (65 per cent), U.S. President Donald Trump’s impact on nation-to-nation relationships (61 per cent) and changes resulting from the NAFTA renegotiation (56 per cent). 

“Canadian manufacturing has been booming, but there are storm clouds on the horizon and that’s eroding Canadian CEOs’ confidence in 2019,” says Jeff Brownlee, publisher of PLANT Magazine, which commissioned the survey. (PLANT Magazine is owned by Manufacturing AUTOMATION‘s parent company, Annex Business Media.)

How are companies staying ahead of the risks? Two-thirds (66 per cent) are conducting assessments, 29 per cent regularly and 37 per cent sometimes. Regulatory change leads the list of concerns for 41 per cent.

The survey, in partnership with Grant Thornton LLP, SYSPRO Canada and Machines Italia with the Italian Trade Commission, is based on 501 replies from senior manufacturing executives.

“It is true the world is changing fast, and in today’s exciting but uncertain times, PLANT Magazine’s annual Manufacturers’ Outlook survey has never been more significant,” says Rob Riecken, national leader, manufacturing and distribution at Grant Thornton LLP. “Manufacturers’ Outlook 2019 provides Canada’s manufacturing businesses with material that will help them to brave uncharted waters. We firmly believe these businesses have the ability to adapt to this new era, and in new innovative ways.”

Despite their concerns, manufacturers are demonstrating their confidence with plans to make significant investments in their businesses.

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Top choices for investment over the next three years are machinery, equipment and technology (75 per cent of respondents) and training (63 per cent). Average investment is more than $1.7 million.

More than half of the senior executives (55 per cent) expect sales to increase (an average 12 per cent); 60 per cent predict orders will increase (13 per cent) but costs will also increase (nine per cent). Pricing will rise for 54 per cent, averaging eight per cent. Thirty-five per cent see profits rising (11 per cent).

Controlling costs tops the list of challenges for 65 per cent of respondents, followed by pressures on prices (61 per cent) and filling skills needs/management talent (46 per cent).

Companies lag in the adoption of advanced measures and technologies that would improve productivity. Only 33 per cent make use of automatic data access, analysis and review to measure and monitor productivity; 43 per cent do it manually; and eight per cent don’t measure.

Respondents demonstrated a very limited engagement with IIoT, which connects and optimizes machines via the internet. Only seven per cent are applying IIoT capabilities, 32 per cent are not familiar with these capabilities and 31 per cent said they were not applicable.

This year’s survey added questions about corporate culture – the values, beliefs and attitudes that characterize a company and guide its practices – as part of a formal business strategy. Most companies (28 per cent) include a formal program and/or policies, 24 per cent have an informal program in place and 23 per cent are working on it, while 26 per cent aren’t doing anything.

Other highlights from the survey:

• 67 per cent of companies report most revenue comes from Canada, the US (23 per cent), Europe (2.9 per cent), Mexico (1.9 per cent) and China (1.3 per cent).
• Companies entering new markets over the next three years are favouring the US (29 per cent), Canada (26 per cent) and Mexico (13 per cent).
• 48 per cent of executives cite a growing risk of cyber attacks aimed at industrial targets as a medium concern. More than half (57 per cent) haven’t experienced an intrusion but 21 per cent were attacked within the last year. Sixty-two per cent cite phishing as the most common breach.
• 57 per cent of respondents are focusing products, processes (56 per cent) and technologies (47 per cent).
• The average innovation spend for 2019 will be 3.6 per cent of revenue but 49 per cent do not intend to take advantage of the SR&ED federal tax credit for investment in research.

The survey, conducted by Toronto research firm RK Insights, has a margin of error of +/- 3.6 per cent, 19 times out of 20.

Most of the surveyed companies (66 per cent) fall into the small business category (under 100 employees); 23 per cent are medium-sized (under 500); and 11 per cent are large (500 or more). 

Download a copy of the Manufacturers’ Outlook 2019 report, which includes an executive roundtable discussion, here.