TORONTO--(2013 Business Outlook Survey by Grant Thornton LLP and PLANT Magazine. Sixty-one per cent of survey respondents expect orders to increase in the coming year, 59% are looking at sales dollar values rising, while 46% are banking on higher profits and 37% anticipate higher pricing.)--The Canadian manufacturing sector is confident the coming year will be a good one, according to the recently released
“some are now viewing growth on a broader basis. Manufacturers are taking a more holistic approach to growth by considering alternative ways of achieving it. Improved productivity, enhanced workforces, and a more sophisticated approach to strategy and risk management are some of the actions to which manufacturers are turning.”
“The past few years have not been easy for manufacturers,” says Jim Menzies, National Leader, Manufacturing and Distribution, Grant Thornton LLP. “While the world’s economic troubles may be on the minds of Canadian companies, they continue to feel positive about the future.”
Manufacturing’s share of economic activity may have contracted over the last decade, but it still accounts for a hefty 13% or so (as of 2010) of GDP. As 2012 draws to a close, the global economy continues to be sluggish. Meanwhile, manufacturers are still dealing with the fallout of a high dollar, escalating costs such as energy, a shortage of skilled workers that will be exacerbated by waves of retiring baby boomers, regulatory blockages at the US border and festering American protectionism.
While last year’s optimism continues for 2013, plans for growth have taken on a different look. Manufacturers realize there are still many challenges to be faced going forward. There is an increasing trend of growing through on-shoring, investing closer to home and bringing operations back to North America, while growing through expansion into emerging, offshore markets has declined somewhat. Manufacturers also continue to focus on taking advantage of research and development, innovation and new products. With these issues in mind, more than ever they need to form a solid strategy around such changes, says Menzies.
The following are some survey highlights:
Identifying the challenges
The greatest challenge over the next three years, according to 57% of respondents, is increasing sales, followed by controlling and reducing costs (48%). Both of these issues represent considerable jumps from the previous two years when they registered in the low thirties. Respondents are also acknowledging their lagging productivity as a challenge (39%) and a surprising 90% say improving it is a major issue, although they intend to address it primarily through training (66%) and to a lesser extent technology (45%). But finding the skilled workers to train is a concern for 39%. Also of concern is the economy (31%) and being competitive (32%).
Strong anticipated sales impact investment planning
There’s a significant jump in the percentage of companies that intend to hire over the next three years (from 43% in 2011 to 54%), add new lines of business (33% to 39%), expand their plants (29% to 33%) and acquire companies or lines of business (22% to 28%), all of which reflect confidence that sales will grow.
Investment in machinery and equipment
Manufacturers are ramping up their investments and forecasting average spending of more than $1.2 million in 2013, an increase of almost 40% over 2012. Seventy-eight per cent of them are investing in machinery and equipment, which is the top priority for 39%. Financing capital projects doesn’t appear to be an issue, with 78% indicating they are confident they’ll find the money. Companies continue to pursue traditional avenues for financing such as banks and from their own revenues, while 25% are taking advantage of government programs.
Managing a high-value loonie
The value of the Canadian dollar will be a challenge over the next three years for 28% of the surveyed companies and a concern for almost half (49%) of those who agree it’s making it harder for them to sell to export markets. Only 22% see the loonie’s high value as a positive. Forty-one per cent of them have a formal strategy for managing the dollar and most (46%) are doing so by dealing in US funds, finding a niche to serve (38%) and diversifying their markets (35%).
Productivity is a significant issue
In the past decade, Canada’s productivity growth has almost ground to a halt1, so it’s not surprising that 44% of manufacturers say that improving productivity is a major issue. Most have taken or plan to take steps to make improvements, with training, technology investments and process improvement receiving the most attention this year.
Competitive advantage: Growing across various areas of the business
Although only 20% see their pricing as a plus, 64% cite quality, service (60%), flexibility (52%) and the ability to engineer and customize (51%) as competitive advantages. Leaner manufacturing (38%), a skilled workforce (34%) and innovation/R&D (30%) were farther down the list. A significant percentage of respondents feel they can’t grow through higher prices. While 37% will increase prices, 48% indicate prices will remain the same. This may be a function of the competitive landscape or there’s not enough innovation to command premium prices.
Neglecting acquisition opportunities
Most respondents intend to drive growth by developing new supplier relationships (45%), creating strategic alliances, joint ventures and partnerships (35%) and entering new markets (30%). But 60% of the senior executives don’t have an acquisition strategy, a number that is striking and should be a major point of concern.
Reluctance to enter new markets
There is still reluctance to look outside Canada and the US. Seventy per cent of Canada’s exports still go south. Respondents expect 66.4% of their revenues to come from Canada. That’s a drop from 69.7% in 2011, which suggests they’re diversifying, but at a snail’s pace compared to other economies growing by 6% to 10% a year. (Canada’s growth will be about 2% next year.) Most companies are also looking for new business in the next one to five years at home (40%) and in the US (41%), but intend to sell in Brazil (16%), Central/South America (16%), Mexico (15%), China (15%) and India (12%).
Innovation is a top priority
Innovation came well down the list of competitive advantages, but 82% of the respondents agree (strongly and somewhat) that their companies have a strong culture of innovation. However, as a competitive advantage, innovation is a top priority for only 30%. Only 49% of respondents are planning R&D investments by the end of 2013, and through 2015, that number slips to 43%.
Though the mood is even more optimistic than last year, Menzies believes it’s time for manufacturers to stop working “in” their businesses and to start working “on” them, and think about how to do things better. “I would say that for the past couple of years, there’s been a yellow light approach, cautious optimism. Now the light’s changing to green. Most people believe their sales will jump, profits will jump,” says Menzies.
Because of their smaller size and the economic circumstances over which they have no control, Canadian manufacturers face many obstacles but recognize which issues need to be addressed to succeed in their marketplaces. As the economic indicators begin to point in a more favourable direction, Canadian companies will best serve their interests and reinforce their confidence by addressing lagging productivity and developing more strategic growth plans that will position them to capitalize on the opportunities the world has to offer.
“Although a majority of respondents in the Outlook survey believe they will experience an increase in revenues through the coming year,” Menzies continues, “some are now viewing growth on a broader basis. Manufacturers are taking a more holistic approach to growth by considering alternative ways of achieving it. Improved productivity, enhanced workforces, and a more sophisticated approach to strategy and risk management are some of the actions to which manufacturers are turning.”
About the survey
The survey was conducted by Bram Research, who polled 484 senior manufacturing executives from across Canada with a margin of error of +/- 4.5%, 18 times out of 20. The poll was conducted in September and October 2012. Sixty-five per cent of the companies are small and medium enterprises (SMEs), and 83% are privately-owned.
About Grant Thornton LLP
Grant Thornton LLP is a leading Canadian accounting and advisory firm providing audit, tax and advisory services to private and public organizations. We help dynamic organizations unlock their potential for growth by providing meaningful, actionable advice through a broad range of services. Together with the Quebec firm Raymond Chabot Grant Thornton LLP, Grant Thornton in Canada has approximately 4,000 people in offices across Canada. Grant Thornton LLP is a Canadian member of Grant Thornton International Ltd, whose member firms operate in close to 100 countries worldwide. For more information, visit www.grantthornton.ca.
About PLANT Magazine
PLANT is a Business Information Group business publication serving Canada's manufacturing and process industry sectors. Visit www.plant.ca.
1 Between 200-2008, Canadian productivity grew 0.9% while the US grew by 4.4% each year, according to the Institute for Research on Public Policy.