Is There a Future for Manufacturing in Canada?

October 2, 2008

Dr. Jayson Myers

President, Canadian Manufacturers and Exporters Association

Is there a future for manufacturing in Canada?

Chairman: Jo-Ann McArthur,President, The Empire Club of Canada



Head Table Guests



Verity Craig: Managing Director, CV Management, and Director, The Empire Club of Canada

Brindini Selvarajah: Senior Student, Parkdale Collegiate Institute

Grant Kerr: Associate Pastor, St. Paul’s United Church, Brampton

Mark Romoff: President and CEO, Ontario Centres of Excellence Inc.

Dan Bordun: Group Publisher, Industry Group, Rogers Media

Gerry Remers: President and COO, Christie Digital Systems Canada Inc.

John W. Walker: President and CEO, Transition Plus Sustainability Solutions Inc., and Director, The Empire Club of Canada

Leslie Wood: Director, Administration, McKinsey & Co.

Craig Wright: Senior Vice-President and Chief Economist, RBC

Suzanne Kiraly: President, Canadian Standards Association.



Introduction by Jo-Ann McArthur



I grew up in Oshawa, the city that “motivated” Canada and was highly dependent on GM’s manufacturing base. Its city slogan has since changed to “Prepare to be Amazed.” My dad depends upon a GM pension. You can bet that they ask the question, “Is there a future for manufacturing in Canada?” in Oshawa—hourly.

Charles Darwin was busy publishing books in 1871, the year the Ontario Manufacturers Association, which became the CME, was founded. The definition of manufacturing then was very different from what it is today or indeed needs to be tomorrow. But as Darwin showed us, the survival or extinction of an organism is determined by its ability to adapt to its environment. We have a number of challenges facing us—a fast evolving world economy with disappearing borders, emerging economic powerhouses with low-cost labour, high commodity prices and a U.S. economy in crisis. Manufacturing is and needs to continue to be important to Canada, but as Darwin showed us it also needs to adapt and innovate.

CME’s membership accounts for an estimated 75 per cent of total manufacturing production and 90 per cent of Canada’s manufacturing exports. Prior to becoming President of CME, Dr. Myers was its Chief Economist, leading the association’s Manufacturing 20/20 initiative, the largest cross-country consultation ever convened by Canada’s business community on the future of manufacturing in Canada. He has been recognized by consulting firm Watson Wyatt as the most accurate economic forecaster in Canada so any crystal balling you want to share with us today would be most welcome! Please join me in welcoming Dr. Jayson Myers.



Jayson Myers



Thank you Madam President. Good afternoon ladies and gentlemen. I’m honoured to address the Empire Club today. This is a time of extraordinary economic challenge, uncertainty, and unprecedented market volatility. We need no reminder of the fact that we live in a global economy. The impact of the U.S. credit crisis is being felt by financial markets around the world. Asset values are evaporating. Seemingly secure financial institutions are in deep trouble; some have disappeared; we’ll no doubt see others fail in North America, Asia, and Europe. We’ve not yet seen the end of the credit crunch or the bailouts.

In my opinion, we’re in for a gut-wrenching ride on financial markets for the rest of this year and next. It’ll be a rough ride for us north of the border as well; already, we’re being affected as investors, consumers, and employees.

That’s why there’s no better time than now to reflect on what it means to create real economic wealth. Clearly the lesson of the U.S. financial meltdown is that value is not created on the basis of speculation or leverage based on thin air, on non-existent assets. As an economy, you can’t sustain wealth creation on the basis of higher and higher levels of debt. You’re just shuffling the chairs on a ship that’s bound to sink if asset values cannot be supported by something tangible. Wealth creation ultimately has to be secured on supply and demand for hard assets—for goods.

Now, think about it—there are only a few ways that we can produce tangible goods. We can grow them if you’re a farmer; we can extract them in the case of our primary industries; we can build them in construction, and we can make them. That’s what manufacturing is all about—adding value in the production of tangible goods.

Manufacturing is a very important part of the Canadian and Ontario economies. Despite the bad news of layoffs and plant closures, manufacturing still matters. Manufacturing remains the single-largest business sector in Canada and Ontario. It’s a $600-billion business across Canada. Companies that make things still account directly for 15 per cent of Canada’s total economic output and 18 per cent of economic activity in this province. Manufacturers still employ nearly two million Canadians in highly productive and high-paying jobs. They pay one-third of the taxes levied on Canadian business. Their contribution is critical for the wealth generation that sustains the standard of living of each and every Canadian.

But the business of manufacturing encompasses much more than those companies that make things. Manufacturers consume 48 per cent of the resources grown and extracted by Canada’s farming, fishing, forestry, mining, oil and gas industries. Manufacturing accounts for one-third of the output of Canada’s utilities sector. It consumes 30 per cent of the value delivered by business management, engineering, technical, and software services and 20 per cent of the services provided by our construction, information, transportation, distribution, and warehousing industries. Manufacturers are customers for 15 per cent of Canada’s hospitality sector and for 12 per cent of our financial-services sector. In fact, every dollar of value created by Canadian manufacturers generates more than $3 in total economic activity—$3.25 here in Ontario, the heartland of Canadian manufacturing.

That economic multiplier speaks to the supply chains that depend on manufacturing. It shows the importance of manufacturing as Canada’s most important wealth creator. After all, it’s that wealth that we count on at the end of the day to sustain consumer spending, along with our public and social services, our health care, education, income support, and community services.

It’s the manufacturing sector that is the home of Canada’s innovators; the sector whose business it is to find solutions for its customer’s problems. Manufacturers account for three-quarters of business investment in research and development in this country, and even more important from an innovation point of view, they’re responsible for bringing over 80 per cent of all new products to market.

Canada’s challenge is to generate more innovators—more businesses focused on solving customers’ problems in new and improved ways. That’s the role of manufacturing, and it’s what ultimately sustains prosperity in a 21st-century economy.

Manufacturers have to be innovative, because they’re at the forefront of global competition. Manufactured products represent two-thirds of the value that Canada derives from the rest of the world in our goods and services exports. Manufacturers are in turn the customers for about half of the goods and services sold to Canada from countries around the world.

Manufacturing matters to Ontario and to Canada. It matters to all Canadians because our standard of living ultimately depends on the wealth that manufacturers create.

I want to emphasize that point because all too often manufacturing is dismissed as an outdated industry, a traditional industry, and one that is rapidly going out of business in Canada and across North America. You have all heard of the 5Ds—the mistaken perception that manufacturing is dirty, dumb, dangerous, declining, and depressed. You have all heard many people, who should know better, say that Canada doesn’t need manufacturing because we are transitioning into a resources-and-services economy. Well, that’s just plain dumb. Who will 25 per cent of Canada’s services sector serve if it loses its manufacturing customer base?

Now, I can understand why many Canadians might think that manufacturing is bound to disappear. We hear the bad news daily—the plant closures, the 400,000 job losses across Canada, half of which have occurred here in Ontario. It’s a very serious situation.

Manufacturers face severe competitive pressures and financial strain. For six years, Canada’s manufacturers have been buffeted by a perfect storm that has now gained hurricane strength. A rapidly appreciating Canadian dollar has cut into export sales. At the same time, soaring costs for energy and materials have eroded profit margins and cash flow even further. More recently, manufacturers have suffered from the downturn in U.S. housing, consumer, automotive, and industrial equipment markets—all key export markets for significant portions of Canadian industry. All this has exerted tremendous pressure on the bottom line. Now, credit is becoming scarce thanks to the turmoil playing out in financial markets around the world.

I don’t want to minimize these challenges. Significant portions of Canadian manufacturing are at risk. I would also argue that the Canadian economy is itself at risk if we’re unable to sustain a competitive manufacturing base in Ontario or in Canada. We cannot continue to drive economic growth in this country on the basis of a commodity boom and pricing bubble that will inevitably come to an end.

Yesterday’s report by TD Financial certainly paints a gloomy picture of further job losses and business closures in our manufacturing sector as a result of the credit crisis. But, as the analysis points out, that forecast is based on the assumption that nothing will change. As an economist, I know that no forecast is inevitable. In fact, in order to avoid an economic meltdown, TD’s report calls for new strategies on the part of business, as well as for more concerted and urgent action on the part of governments and communities in support of our critical wealth-creating industries. Now, you may think that I’m crazy to be optimistic about the future of Canada’s manufacturing sector. I’ve been accused of worse—but I AM optimistic. I believe that we are witnessing not the demise of manufacturing in Canada, but the emergence of a new, more innovative, more high-tech, more service-intensive, and globally networked industry, bringing with it new opportunities for future growth.

I’m optimistic because of the good news that often goes unreported in manufacturing. I’m optimistic because I see how manufacturers across Canada are responding to the challenges they face by changing their business strategies, investing in new product development, new technologies and new markets, and improving their business processes. I’m optimistic about the new investments being made in innovative businesses and product lines, about the business opportunities that Canadian manufacturers are exploiting in new markets both at home and abroad. I’m optimistic when I see manufacturers continuing to grow their business in these challenging times.

Clearly it cannot be business as usual for anyone in manufacturing today. If companies are doing the same thing today that they were doing five years ago, I know that they’re in trouble. If manufacturers intend to do the same thing they are doing today in five years’ time, I guarantee they’ll be out of business.

Canada’s manufacturers will succeed as long as they continue to create value for both customers and investors in this fast-paced, high-risk, global economy. No company can base its competitive future today on low labour costs, nor should they try. Nor can Canadian industry compete on high volume production that the advantages of market scale and high rates of capitalization offer. Our manufacturing companies are relatively small. Where Canadian manufacturers do have a competitive edge is in their flexibility—their ability to respond rapidly to changing customer demands, to specialize and customize production for niche markets, and to add value through the quality and services they bring to solving their customer’s problems.

These competitive strengths will become even more important as we look at future market trends. In a world of intense global competition where products and services literally become commodities overnight, companies have to differentiate themselves and their products in order to compete for business and to grow. Rapid advances in technology are changing production capabilities and at the same time opening new business opportunities. Customer expectations are changing. Environmental and social sustainability are becoming standard operating practices for business. And, as more and more constraints are placed on energy and carbon consumption, even large-scale producers will have to become more specialized in terms of their products and production processes.

Now, in order to compete and grow in light of these new global market realities, manufacturers in Canada need to focus on the rapid development and commercialization of new products. They need to adopt flexible, automated, integrated, and reconfigurable technologies and production systems. They need to be lean—to focus on what their customers value and eliminate wasteful non-value-adding activities in their businesses and supply chains. They need to be fast because time is the currency of 21st-century business. They need to see their business no longer as one of getting product out the door but as one of using their capabilities to provide customer solutions. And so they need to focus on customer service throughout the whole life cycle of their products. And they need to do all this better, faster, and at lower cost than anyone else.

That’s a big order. But it’s what successful manufacturing companies do day in and day out. And, I’m pleased to say that some of the best are here in this room this afternoon.

The reality is that production itself is becoming a smaller and smaller component of the value being added in the business of manufacturing. Today, value is generated by the knowledge and the services that go into solving customers’ problems. Value is created—and money is made—in product development, engineering, and design, in quality control, process and materials management, logistics, distribution, and supply-chain management, and in customer service and financing.

Is production important? Absolutely—it’s the anchor without which many of those value-adding activities would not be required. The more important production is in providing customer solutions, the more important it is to keep production close at hand. But today manufacturing is a global business system with production and services supply chains extending, competing, and constantly reconfiguring around the world.

This is the new age of manufacturing (pulls out BlackBerry). Not a single product in the past 50 years has revolutionized the way you and I work on a daily basis as much as this tool. The BlackBerry is synonymous with innovation and yes it is also synonymous with manufacturing—Canadian manufacturing.

The BlackBerry is a testament to the changing face of manufacturing. We consider it to be a Canadian product, and we are proud of that fact. Did you know that BlackBerrys are manufactured in seven different countries?

We consider the BlackBerry to be a made-in-Canada product because it is designed by Canadians. It is engineered here, in Canada’s Technology Triangle, and it is supported and marketed here. And yes, some parts of it—the newest models and the most critical parts for new product development—are assembled here.

Welcome to the reality of manufacturing in the 21st century.

It’s a new reality. It’s requiring manufacturers to change their business strategies, their products, processes, and market priorities.

The future of Canadian manufacturing will be shaped by how our business leaders meet those challenges. The onus for success lies primarily on them.

We have globally successful manufacturing firms in every sector of industry in the country—from concrete and clothing, to foundry and bicycle makers, automotive and aerospace, pharmaceuticals and electronics. It’s not the sector that’s important, but the business leadership that counts—the ability to assess the current competitive situation and global trends, to develop and implement new strategies for growth, to take advantage of new opportunities for product and market development, and to drive cash flow and efficiency throughout their business through continuous improvement in operations and supply-chain partnerships.

Leadership depends on setting a vision, setting a course, and persevering with commitment toward strategic objectives. That’s not an easy job in today’s turbulent waters.

But leadership also depends on getting people to follow. Manufacturers require not only people with the right skills sets, they need to mobilize the people within their organizations to work together to achieve new goals. If leadership is about doing the right things, then equally it’s about achieving results through people. Government leaders also have a role to play in shaping the future of manufacturing in Canada and the future of the Canadian economy. Government cannot ensure the success of any company; that’s the role of the business itself. But governments can work to improve the business climate that will help manufacturers succeed. As Ford’s Executive Chairman Bill Ford has eloquently put it, governments need to create business conditions in which winning is possible and losing is not inevitable. Our governments need first of all to recognize the critical role that manufacturing plays in economic growth. Simply put, they have to place more of a priority on creating wealth before they redistribute it. Our governments need to work together to create the winning conditions for the advanced, flexible, innovative, and integrated business of manufacturing that will continue to shape prospects for Canada’s economic future.

To that end, they need to encourage investment in productive assets—in new technologies, innovation, and skills development.

Governments should leave more money in the hands of those businesses investing in value-creating assets. They should make the two-year write-off for investment in manufacturing and processing technologies introduced in the 2007 federal budget permanent. They should make tax credits for research and development refundable. They should introduce an employer’s tax credit for training, creditable against Employment Insurance premiums. They should eliminate other taxes on investments that create wealth.

There’s more. Our governments should simplify regulatory compliance. Streamline border procedures. Eliminate barriers to trade and labour mobility across the country. Negotiate secure and open access to international markets and effectively enforce our trade rules. Invest more in business, engineering, technical and applied education. Streamline entry procedures for immigrants with the skills and experience required by business. Ensure that all Canadians have access to telecommunications and high speed Internet access. Expand and integrate our transportation and logistics infrastructure. Assure cost-competitive access to energy. It would be reassuring if at least some of these issues were acknowledged by our federal party leaders in the current election campaign.

Business, governments, labour, and communities must work together.

Our common vision should be one of Canadian manufacturers excelling and growing in global markets—setting world benchmarks for innovation and business success.

We need to address four priorities in order to achieve that goal:

1. Continuous improvements that drive efficiencies and deliver cash savings;

2. Innovation in products, processes, and supply chains;

3. The realization of new business opportunities; and

4. The skills and capabilities of our work force.

To that end, I’m very pleased to announce today the launch of CME’s new Smart Manufacturing Program. Our Smart Program is funded by the government of Ontario, and will provide $25 million in support of manufacturers across the province. I’d personally like to acknowledge and thank Premier McGuinty for his government’s commitment to assisting hundreds of manufacturers invest in their future.

The program will provide small and mid-sized manufacturers with matching funds of up to $50,000 to invest in productivity-enhancing projects. Eligible projects include lean implementation, design and quality improvement, energy efficiency and environmental management, as well as projects that focus on best practices in implementing information technology and automation.

We’ll be helping manufacturers make tangible improvements in their performance, and we’ll be doing this very quickly. Recipients will reap the benefits of their projects in less than 12 months and those benefits will give them the breathing room they need to take the next step, to enter the next market, to introduce the next new innovative product.

As I said, this a partnership. CME is working with the Ontario Centres of Excellence: the Information Technology Association of Canada, NRC-IRAP, Ontario’s Ministry of Economic Development, the Ministry of Small Business and Consumer Services, as well as with many municipal economic development organizations across the province. We’ll be reaching into Ontario communities through workshops organized over the next couple of months to help manufacturers capitalize on this important opportunity.

You can visit our website www.CME-smart.ca for more information. Members of CME’s SMART team are here today to answer any of your questions. We also have information kits on the program available onsite.

I know that our new program is no silver bullet. There is no over-the-counter remedy that will magically solve the challenges facing manufacturers in Ontario or across Canada. But the program does make a contribution. It’ll be important in supporting Ontario manufacturers who continue to invest in their future.

There is a future for manufacturing in Ontario and across Canada. But the future is not a continuation of the past. And it cannot be taken for granted. We have to build our future, fighting step by step through economic uncertainty and adversity. It has to be a community effort.

The one lesson we should all take away from the current financial crisis is that every boom goes bust if it is not supported by investments that sustain wealth creation. Wealth creation is the business of manufacturing. That’s why manufacturing matters. That’s why it’s so important to every Canadian. Our quality of life depends on it.

Now, no more talking—it’s time to take action—now. Thank you.

The appreciation of the meeting was expressed by John W. Walker, President and CEO, Transition Plus Sustainability Solutions Inc., and Director, The Empire Club of Canada.