C
N A I D A AN ERS
R U T C A F U S R N E A T M R O P X E D AN
G N I D L I FOR BU N O I S I V R U O
THE
E R U T U F
The future of manufacturing in Canada Perspectives and Recommendations on International Business Development The future of manufacturing in Canada
Manufacturing 20/20 Canadian Manufacturers & Exporters © 2005
2
CONTENTS Executive Summary
5
Manufacturing 20/20: Overview
7
The Importance of Manufacturing in Canada
11
Global Trends in Manufacturing
17
The Future of Manufacturing
20
Implications for Manufacturing in Canada
25
Manufacturing & Global Enterprise
29
Global Business Prospects
31
International Market Opportunities
31
International Sourcing Activities
64
International Operations
93
Constraints on Export Development
120
International Investment & Business Partnerships
125
Canada-U.S. Business Relations
134
The Impact of China
137
Infrastructure
141
Recommendations for Action
142
A Strategy for Global Business Success
142
Strengthening Competitiveness at Home
142
Securing Access in World Markets
145
Trade & Investment Promotion
146
Taking the Lead
147
Appendix
149
3
LIST OF TABLES CME 2004 Management Issues Survey: Profile of Respondents
9
International Market Opportunities
34
International Sourcing Opportunities
65
International Investments & Joint Ventures
94
Capacity Constraints on Export Development
121
External Constraints on Canadian Exports
123
Investment Location Decisions
127
Interest in Finding Foreign Partners
128
Capacity Constraints on Direct Investment Abroad
131
External Constraints on Canadian Direct Investment Abroad
132
Percentage of Total Revenues Earned from Exports to the United States
136
The Impact of China
139
4
Executive Summary Canadian manufacturing is undergoing extensive change in response to the challenges that manufacturers face in global markets. But, Canadian industry is not alone. The emergence of new market opportunities and disruptive low-cost competition, the rapid development of new technological capabilities, more demanding customers, a more demanding public, and intense bottom-line pressures are changing the nature of manufacturing around the world. There is a revolution occurring worldwide in the business of manufacturing. Business strategies are changing. Manufacturers are entering new markets and striving to meet new and changing customer needs. They are outsourcing more components and services to suppliers around the world. Production processes are using the latest in automated technologies. Manufacturers are restructuring their internal operating and information systems and re-engineering production processes to eliminate waste and lower costs. And, they are changing the nature of their organizations by partnering with other companies in complex supply chains and business networks that now extend globally. Even more changes are to come as businesses respond to the globalization of industrial markets, production systems, supply networks, and competition. The business of manufacturing is being redefined by changes in the global market place and how companies react to them. Manufacturing is being transformed from a traditional model of individual companies working with mechanical mass production systems to produce standard products for local markets. Now, companies are operating with flexible and highly automated production systems, producing customized goods and services, and are both part of and dependent on supply chains with global reach. Manufacturing is a knowledge-based and service intensive business where success depends on delivering customer solutions, not simply producing things. New business strategies are required in light of the challenges and changes that manufacturers face in Canada and around the world. Industry leaders readily acknowledge that their goal must be to succeed in a global economy in which trade and investment, communication networks and business organizations, industrial and financial markets, competitive challenges and opportunities extend around the world. The vision expressed in Manufacturing 20/20 reflects what Canadian manufacturers themselves believe will be necessary to keep pace with the rapidly changing technologies, customer demands, and competitive pressures of the future: Canadian businesses must develop the capacity to operate on a global scale. In order to achieve this goal, there must be a more integrated market framework between Canada and the United States, and within the NAFTA as whole. The Canadian government must make it a strategic priority to maintain and improve access for Canadian businesses in the U.S. market. At the heart of its North American strategy, the Canadian government needs to adopt a “preventative maintenance” approach to potential trade disputes, make the Canada-U.S. border seamless for commerce between the two countries, update the rules of origin requirements of the NAFTA, ensure greater harmonization of regulatory compliance requirements between Canada and the United States, coordinate the enforcement of multilateral trade rules more effectively with its NAFTA partners, and eliminate local procurement preferences and withholding taxes across the NAFTA. Canada needs a China strategy – a coordinated and integrated approach to respond to the economic challenges and take advantage of the business opportunities posed by China and other rapidly emerging economies like those of India, Russia, and Brazil. We must ensure that multilateral trade rules are effectively enforced, and that health, safety, environmental, and labour standards are improved and enforced in emerging industrial economies. Our trade agreements must ensure that Canadian industrial and services companies can enjoy more secure and open access into major global markets. There must as well be greater coordination and alignment in trade policy, financing services, and support programs across all private and public agencies in
5
Canada aimed at more effectively enabling international trade, investment, intellectual property protection, and business partnerships in emerging economies. More generally, business strategies and public policies in Canada must move beyond a model in which Canadian companies are simply exporting to, importing from, or investing in other countries. They must focus instead on the requirements of the global enterprise – on businesses, supply chains, or business networks in which all aspects of commercial activity take place concurrently in a number of countries around the world – and on what is necessary to capture the highest economic benefits of that activity for Canadians. Canada’s governments, business and financial services, and educational and research institutions must be able to service and support the activities of manufacturers and other businesses that are operating on a global scale. There is also a need for much greater integration and coordination of Canadian trade policy, international development assistance, trade financing, and export and investment promotion services to meet these new business requirements. CME will use the following benchmarks to monitor progress toward meeting our goal: Benchmark
Current Status
2020 Target
•
Canada’s share of the U.S. import market.
17% of total U.S. imports
20% of total U.S. imports
•
Canadian goods and services exports into markets outside the United States
20% of total Canadian exports
30% of total Canadian exports
•
Outward direct investment from Canada
8% average annual growth (1998-2004)
16% annual growth (2005-2020)
•
Canada’s balance of payments with respect to licenses, royalties, and direct investment earnings.
$27 billion deficit
Surplus
This report summarizes the vision, challenges, and recommendations for action with respect to the international business development issues identified in the course of CME’s Manufacturing 20/20 discussions on the future of Canadian manufacturing and in CME’s Management Issues Survey for 2004. It deals specifically with: • • • • • •
The emergence of manufacturing as a global enterprise; Global business prospects for manufacturing exports, sourcing activity, investments and business partnerships; Constraints on export development and international direct investment activity; Concerns with respect to Canada-U.S. business relations; The Impact of China; and, Recommendations for government policy and programs facilitating international business development.
6
Manufacturing 20/20: Overview CME’s Manufacturing 20/20 initiative has resulted in the most extensive consultations ever undertaken exclusively by the private sector in the history of Canadian industry. Canadian Manufacturers & Exporters launched Manufacturing 20/20 in January 2004. The objectives of the initiative were to: •
Develop a long-term vision for manufacturing in Canada based on discussions with CEOs and senior executives from manufacturing companies across the country;
•
Consult with a wide range of Canadian manufacturers in order to better understand their concerns with respect to the mounting competitive challenges they are facing in rapidly changing global markets;
•
Increase awareness on the part of all Canadians about the importance of manufacturing in Canada and the changes that are redefining the industry in this country and around the world; and,
•
Bring manufacturers together with stakeholders from Canada’s educational institutions and research centres, labour groups, business and financial services, community organizations and economic development agencies, as well as with officials from all levels of government, to coordinate solutions in response to the issues identified by manufacturers as critical to their future competitive success.
Three documents were prepared as background material for discussion. Each are posted on CME’s Manufacturing 20/20 website at www.cme-mec.ca/mfg2020/index.asp. The discussion papers covered: •
The Economic Importance of Manufacturing in Canada;
•
The Challenges facing Canadian Manufacturers; and,
•
Global Trends in Manufacturing.
The first phase of Manufacturing 20/20 consisted of 64 discussion sessions that were organized with manufacturers across Canada. Over 900 senior executives from small, mid-sized, and large manufacturing companies, representing all sectors in the industry, participated in those meetings. The discussions focused on four crucial issues: •
What are the challenges and opportunities that will reshape manufacturing over the next ten to fifteen years?
•
What changes are occurring as a result of those challenges and opportunities?
•
What will the business of manufacturing look like in Canada 2020? What competitive advantages will there be for Canadian manufacturers?
•
What are the critical factors required to ensure future competitive success?
Reports from each of the local sessions with manufacturers can be found on CME’s Manufacturing 20/20 website. Locations of these meetings are listed in the Appendix to this report.
7
The second phase of the initiative involved a series of 36 community roundtables that were convened across Canada from September 2004 to January 2005. Over 2,500 people participated in these meetings, including manufacturers and executives from other local businesses and financial services companies; educators from local secondary schools, colleges, universities, and skills training organizations; representatives from labour groups and local research centres; officials from economic development agencies and other community organizations; and officials from municipal, provincial, and federal governments, including Members of Parliament, Members of Provincial Legislatures, mayors and local councilors. The roundtables provided an opportunity to report the issues raised by local manufacturers to community leaders. They provided a forum to discuss initiatives that could be undertaken in support of manufacturing in local communities, and were designed to bring the right community leaders to the table not only to coordinate action, but to get things done. Manufacturing 20/20 also draws upon two other sources of intelligence to identify those factors reshaping the business of manufacturing across Canada: •
Industry associations representing sub-sectors within manufacturing were asked to provide their views about the future of their respective industries in Canada as well as recommendations for change; and,
•
CME’s 2004 Management Issues Survey was designed to provide detailed input from a wide range of manufacturers across Canada with respect to the key issues affecting their business. A total of 834 companies participated in the 2004 Survey, making the results statistically accurate within three percentage points 19 times out of 20. This report focuses on input gathered from the 742 manufacturing firms that responded to the survey. A profile of the manufacturing respondents is provided in the following tables. Where applicable, this report provides detailed analysis on the basis of company location, size (number of employees), ownership, and manufacturing sector.
Many of CME’s members have taken part in the Manufacturing 20/20 initiative. However, participation in the local discussions with manufacturers, as well as in the community roundtables, industry association analysis, and 2004 Management Issues Survey, has not been restricted in any way, and has in fact extended well beyond CME’s membership. The number and the enthusiasm of the manufacturers and stakeholders who have taken an active role in CME’s Manufacturing 20/20 discussions clearly indicate how important manufacturing is to the future well-being of communities across Canada, as well as their common commitment to ensure future economic prosperity. Canadian Manufacturers & Exporters (CME) is Canada’s largest trade and industry association. Its mandate is to promote the competitiveness of Canadian manufacturers and enable the success of Canadian businesses in world markets. CME’s membership is drawn from all sectors of Canada’s manufacturing and exporting community, and from all provinces and territories. Over 85% of CME’s members are small- and medium-sized enterprises. The association also represents Canada’s leading global enterprises. Together, CME’s members account for an estimated 75% of total manufacturing production in Canada and 90% of Canadian exports.
8
CME 2004 MANAGEMENT ISSUES SURVEY PROFILE OF RESPONDENTS Location
Percent of Manufacturing Respondents (Total = 742)
British Columbia
9%
Alberta
17%
Saskatchewan
4%
Manitoba
5%
Ontario
45%
Quebec
16%
Atlantic Canada
3%
Employees
1 to 10
21%
11 to 50
30%
51 to 201
27%
201 to 500
12%
Over 500
10%
Ownership Canadian privately-owned firm Canadian publicly owned corporation Subsidiary of a foreign-owned corporation Other
70% 9% 18% 3%
9
RESPONDENTS BY MANUFACTURING SECTOR
Sector
Percent of Manufacturers (Total = 742)
Food, Beverage, Tobacco products
7
Textiles, Footwear, Clothing
1
Furniture
2
Paper/Wood products
3
Chemicals, Pharmaceuticals
5
Petroleum products
2
Plastic/Rubber products
5
Primary Metals
2
Fabricated Metal products
15
Machinery & Equipment
9
Computer/Electronic products
4
Automotive products
8
Other Transportation Equipment
3
Stone, Concrete, Glass products
2
Printing
5
Technology/Instrumentation
9
Engineering/Design
5
Software/Technology Services
4
Other
10
Totals
100
10
The Importance of Manufacturing in Canada Manufacturing is the business of embodying value for customers in tangible goods or products. Manufacturing is about making things; but, it is also much more than that. Manufacturers no longer see their activities simply in terms of transforming raw materials into components or finished products. Today, manufacturing is a business system encompassing all the activities that are required to deliver products that meet customer needs – a system that extends from research and development, design and engineering, to production, finance, sales and marketing, and after-sales service. It is a system that extends beyond any single enterprise, across supply chains and business networks that are increasingly global in scope and that incorporate services as well as production activities. Manufacturing is not simply about producing goods and selling them to customers. It is really about providing solutions to customers and providing the right mix of products and services to ensure customer success. The business of manufacturing is rapidly changing in the face of competitive challenges, new market opportunities, and global trends that are redefining the industry. The pace of change in Canadian manufacturing has quickened over the past decade as a result of freer trade across North America. It is now accelerating even more rapidly thanks to the emergence of new competitors and new markets around the world. Today, what is “made in Canada” must incorporate both global vision and global excellence – and increasingly products, services, and knowledge from around the world.
Quick Facts on Manufacturing • • • • • • • • • • •
Manufacturing directly accounts for 18% of the Canadian economy. Every dollar of manufacturing output in Canada generates $3.05 in total economic activity. More than 2.2 million Canadians are employed in manufacturing – about 15% of the Canadian workforce. Canadian manufacturers produced and shipped goods valued at $560 billion in 2004. Manufacturing has grown 16% faster than the Canadian economy as a whole since 1990. Manufacturing accounts for two-thirds of Canada’s total exports of goods and services. Manufactured exports have more than doubled since 1990. Over 95% of employees in manufacturing have full-time jobs. Manufacturing wages are 22% higher than the national average. Manufacturers invested over $20 billion in new technologies and production facilities in 2004. Manufacturing accounts for two-thirds of all business investment in research and development in Canada.
Manufacturing is the largest business sector in Canada. The jobs and quality of life that communities across this country enjoy depend on a strong and prosperous manufacturing sector, capable of competing on a global basis and expanding as a result of new investments and new business opportunities.
11
Canada’s manufacturing sector has expanded dramatically since the early 1990s. Available statistics by and large reflect the performance of companies that are primarily engaged in production activities. As such, they underestimate the total value of goods manufactured in Canada and exclude the value added by services companies that are an integral part of manufacturers’ networks. Even so, the statistics tell the story of a dynamic sector that has become an even more important part of the Canadian economy over the past ten years. Manufacturing contributes to the Canadian economy as a source of high paying jobs, personal savings, and consumer spending. Profits made in the sector are channeled into capital investments in construction, machinery, and equipment. Manufacturing also generates over 30% of the taxes revenues paid by businesses to all levels of government in Canada. Manufacturing also makes a very significant indirect contribution to the Canadian economy. It creates demand for goods and services from all other business sectors – from primary resources and energy production, to transportation, financial, and communication services, to legal, health and accounting professionals, to business management, design, engineering, and high technology support. The indirect economic contribution made by manufacturing has grown over time as more products and services originally produced by manufacturers are being outsourced to other business sectors. Every dollar of manufactured output generates an average $3.05 in total economic activity in Canada. The economic spin-offs are even higher in Ontario, Alberta, Saskatchewan, New Brunswick, Nova Scotia, and Prince Edward Island. Manufacturing is a knowledge-intensive business. Manufacturers invest more in new technologies, machinery and equipment, and the construction of production facilities than any other business sector in the country. Canadian manufacturers invested over $26 billion in research and development, new technology, and production facilities in 2003. That same year, they accounted for 62% of all private sector research and development spending in Canada.
CANADA'S EXPORT PERFORMANCE 500 BILLIONS OF DOLLARS
450 400 350 300 250 200 150 100 50 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 MANUFACTURED EXPORTS SERVICES EXPORTS •
OTHER MERCHANDISE EXPORTS
Canada exported about $400 billion worth of manufactured goods in 2003.
12
•
Manufacturing accounts for 77% of Canada’s merchandise exports and for two-thirds of our total exports of goods and services.
•
Manufactured exports have grown by 96% since 1990.
Manufacturing is a global enterprise. Canadian manufacturers sell into markets around the world. They are also sourcing raw materials, products, services, skills, knowledge, and technologies on a global basis. Many companies have investments and production facilities in other countries as well as in Canada. And, more and more international business partnerships are being formed among manufacturers, services, sales and distribution companies in order to deliver high-value, competitively priced products to customers in Canada and international markets.
EXPORTS AS A PERCENT OF MANUFACTURING SHIPMENTS
MANUFACTURING DEPENDS ON EXPORTS 65 60 55 50 45 40 35 30 90 9 91 9 92 9 93 9 94 9 95 9 96 9 97 9 98 9 99 0 00 0 01 0 02 19 1 1 1 1 1 1 1 1 1 2 2 2
Access to international markets – and particularly to markets in the United States – has provided Canadian manufacturers with the customer base they require to expand production and to specialize in higher value goods and services. Exports have become a more important part of most manufacturers’ business strategies. When the Canada-U.S. Free Trade Agreement came into effect in 1989, about 37% of Canada’s total manufactured output was exported. Today, over 55% of the goods manufactured in Canada are sold outside the country. Over half of what is made in Canada is exported into or through the United States. Manufacturing powers export growth across Canada. Ontario and Quebec are both heavily dependent on international exports of manufactured products. Ontario manufacturers exported $178 billion worth of goods to other countries in 2003. Manufactured exports from Quebec exceeded $63 billion. Almost $50 billion worth of goods were manufactured for international export in Western Canada, while manufactured exports from Atlantic Canada totaled $14.6 billion in 2003.
13
MANUFACTURING EXPORTS ACROSS CANADA
ALBERTA 6%
BRITISH COLUMBIA 8%
SASKATCHEWAN 1%
ATLANTIC CANADA 5% QUEBEC 21%
MANITOBA 2%
ONTARIO 57%
Manufactured goods account for 50% or more of total export sales in all provinces but Alberta and Saskatchewan.
•
Over 76% of all goods and services exported from Ontario and New Brunswick are manufactured products.
PERCENT OF TOTAL EXPORTS
•
MANUFACTURERS' SHARE OF TOTAL EXPORTS OF GOODS AND SERVICES 80 70 60 50 40 30 20 10 0 A N K A A C O IA TIA AND DOR RI EBE WIC R T EW A T O B AD MB O A E N I C T ISL BRA CA OLU ALB TCH QU UNS A S AN D ON R M C V R LA B H KA NO DWA D & S S I W A IT N S NE E E LA BR D NC I N PR FOU W NE
14
As manufacturers expand their operations around the world, Canada has become an integral part of a complex network of competing global supply chains.
ST OCK OF FOREIGN DIRECT INVESTMENT IN CANADA
BILLIONS OF DOLLARS
250 200 150 100 50 0 99 19
00 20
MANUFACTURING
01 20
02 20
OTHER BUSINESS SECTORS
•
Foreign investment in Canada’s manufacturing sector now totals over $155 billion, an increase of almost 50% over the past five years.
•
44% of all foreign direct investment in Canada is in the manufacturing sector.
BILLIONS OF DOLLARS
STOCK OF CANADIAN DIRECT INVESTMENT IN OTHER COUNTRIES 350 300 250 200 150 100 50 0 99 19
00 20
MANUFACTURING •
01 20
02 20
OTHER BUSINESS SECTORS
Canadian manufacturers are also expanding production facilities in other countries. Their stock of investment outside Canada now totals about $120 billion, up from $82 billion in 1999.
15
Canadian manufacturing has been a high growth business in Canada. Driven by success in export markets, manufacturing growth has outpaced the Canadian economy as a whole since 1990. The volume of manufacturing production in Canada has grown by almost 65%, while the value of manufacturing shipments has more than doubled, over the past 15 years. Employment in the sector is near record levels. Manufacturing sales exceeded $600 billion in 2004. A prosperous manufacturing sector is critical to Canada’s economic future, and to the lives of each and every Canadian. Our standard of living depends on the wealth-generating capacity of manufacturers across Canada – on their ability to innovate, continuously improve productivity, and deliver customer value. In this regard, manufacturing has become an even more important contributor to the economic prosperity of Canadians over the past 15 years.
16
Global Trends in Manufacturing There is a revolution occurring worldwide in the business of manufacturing. Business strategies are changing. Manufacturers are entering new markets and striving to meet new and changing customer needs. They are outsourcing more components and services to suppliers around the world. Production processes are using the latest in automated technologies. Manufacturers are restructuring their internal operating and information systems and re-engineering production processes to eliminate waste and lower costs. And, they are changing the nature of their organizations by partnering with other companies in complex supply chains and business networks that now extend globally. Even more changes are to come as businesses respond to the globalization of industrial markets, production systems, supply networks, and competition. The business of manufacturing is being redefined by changes in the market place and how companies react to them. Manufacturing is being transformed from a traditional model of individual companies working with mechanical mass production systems to produce standard products for local markets. Now, companies are operating with flexible and highly automated production systems, producing customized goods and services, and are both part of and dependent on supply chains with global reach.
Customers & Markets •
Manufacturers are going to where the money is – they are turning from traditional local and regional (North American) markets to serving customers around the world.
•
Their growth strategies are being driven by exports and international production capabilities.
•
The days of standard production when manufacturers could continually pass costs along to customers through higher prices are over. Manufacturers now have to focus on delivering customer value at the lowest possible cost.
•
Manufacturers have to meet the more stringent requirements of customers who are now sourcing globally instead of locally.
•
Money is made by meeting new or more specific customer needs rather than by increasing production volumes.
Products •
Manufacturers are moving from standard products to product differentiation in order to escape the effects of commoditization.
•
Products are becoming more specialized and more customized to individual requirements.
•
The pace of product innovation is accelerating – product life cycles are shrinking.
•
Products incorporate a greater degree of technological sophistication.
•
Services (design, quality assurance, financing, after-sales services) are now essential elements in adding customer value.
Operations •
Customer-pull systems are replacing production-push manufacturing.
17
•
Production systems are more flexible, allowing them to be reconfigured for shorter production runs.
•
Processes are more highly automated, controlled and integrated through advanced information and communication technologies.
•
Process efficiency and cost reductions are being driven throughout the business, from materials handling and production processes to information systems and supply chain logistics.
•
Lean principles of achieving customer value and eliminating waste are being systematically implemented.
•
Time has become the chief metric for making money. Companies are striving to reduce wait times, down times, and the time required for product and process changeovers.
•
Greater variability is allowing for greater control over product and production defects through quantitative methods of quality assurance.
•
Business strategies for growth must be based on product and process innovations, not simply adding volume.
•
Innovation is permeating the organization. It is no longer being performed solely in research and development and engineering departments, but is important on the shop floor, in purchasing and logistics, in marketing and design, as well as in management systems.
•
Work is now more flexible and knowledge-intensive. Scientific and technical knowledge is driving product and process innovations. Work requires a much greater degree of technical skills and experience, problem solving, multi-tasking, teaming and collaboration.
•
The standardization of materials, components, parts, and services is allowing for greater inter-changeability and an increasing trend to outsourcing from other suppliers.
•
Manufacturers are now outsourcing high value goods, services, technologies, and skills from around the world.
•
Logistics and supply chain management are crucial elements in delivering customer value at fully competitive costs.
•
Accountability is being passed throughout manufacturing organizations for financial reporting, quality assurance, and health, safety, and environmental protection.
Organizations •
Manufacturing has become a business that now extends across supply chains and value networks.
•
Production functions and services are being separated organizationally, but integrated through electronic networks and supply chain management.
•
Companies are no longer competing on their own strengths. Supply chains are now competing to deliver full value for customers.
18
•
Site-specific manufacturing and supply relationships are being replaced by international supply chains and globally distributed networks.
•
Large businesses are expanding their operations around the world but at the same time consolidating investment, research, design, engineering, and other key decision-making functions in one or a few locations.
•
Business units throughout the world are competing for investments and product mandates.
Traditional Manufacturing Domestic/North American market Customers sourcing locally Production push Higher costs are passed to customers in higher prices Prices determined by local competition Competing for market share Competitiveness based on cost, quality, time to market Value based on products Mass markets Efficiency drives competitiveness Internal performance standards Mass production Growth through higher volumes Static production processes Stand alone discreet technologies Mechanical processes Long production runs Cost cutting Sequential product development Corporate organizations Companies compete Purchasing & materials handling Manual skills Work under specifications Functional materials, products, processes Production management Reactive governance Pollution control
New Paradigm Global markets Customers sourcing globally Customer pull Higher costs have to be absorbed – prices are falling Prices set by disruptive global competition Competing for markets, investments, product mandates More of a premium on time, but also on customization, service – price competitiveness is more important than ever Value based on service Niche markets/individual customers Innovation drives competitiveness World-class benchmarks Customization Growth through innovation Flexible production systems Integrated technologies Automated processes Short production runs Waste elimination Complex systems Business networks Supply chains compete Supply chain management Knowledge based skills Problem solving Smart materials, products, processes Life cycle management Proactive governance Environmental sustainability
We are a long way from the world of smoke-stack industries, mass production, heavy machinery, and manual labour that characterized manufacturing in the past. Modern manufacturing is highly automated, heavily dependent on technological knowledge and skills, more and more customized and service oriented, and increasingly integrated in international markets and global supply chains. Manufacturers themselves no longer see their activities simply in terms of transforming raw materials into components or finished products. Today, manufacturing is a system that encompasses all the activities required to deliver products that meet customer needs – a system that extends from research and development, design, and engineering, through production, logistics, and supply chain management, to finance, marketing, and customer service, and now frequently to product maintenance and final recycling or disposal as well.
19
The Future of Manufacturing For manufacturers around the world, the future is one of global customers, global networks, and the potential to source from the best companies, the best technologies, and the best skills from on a global basis. It will be driven by customer needs and innovation. It will be built on sophisticated technologies with powerful capabilities to revolutionize products, businesses, and production processes. It will require greater and greater degrees of flexibility and precision. And, it will need new knowledge and highly skilled people to make it work. It is impossible to foresee all the changes that will characterize manufacturing in the future, but many trends are already apparent and technological capabilities already exist.
Global Integration Manufacturers will restructure their operations, production systems, and supply chains to serve global customers. They will continue to move where the money is – to the rapidly expanding markets of emerging economies. But, production and services will become more integrated worldwide to take advantage of the best in terms of skills, technologies, and cost structures, allowing companies to boost their profit margins while offering customers higher value at lower price. E-business technologies will allow manufacturers to connect anywhere at anytime with customers around the world. And, the world of manufacturing itself will be characterized by global operations, global competition, global business networks, and competing global supply chains. We are already well on the way there.
Knowledge Capture The real value created in the business of manufacturing will reside less in production processes – which will become more and more highly automated – and more in those knowledge-intensive activities associated with product research and development, design, modification, and service. For manufacturers, the money will be made in knowledge capture. It will depend on their ability to control intellectual property, anticipate customer requirements, and design innovative solutions to meet their needs.
Mass Customization Manufacturers will continue to compete on delivering customer value at lower and lower costs. That will require individual products to be designed and manufactured for individual customers to meet individual needs. Competitive advantage will be determined by production to individual specifications. But, competitive cost structures will have to be put in place in order to ensure that customization is commercially feasible. The ultimate goal will be the competitive batch of one. Mass customization will entail businesses tailoring product functionality, design, and service to satisfy individual customer requirements, but making differentiated products at high speed and in high volumes in order to keep unit costs to a minimum. Manufacturers will have to accelerate flexibility through continuous innovation and shorter production runs that can accommodate changing and more specialized customer requirements together with shorter product life cycles. Mass customization will require further changes within the business of manufacturing: •
Information systems that can quickly identify customer specifications, turn them into work orders, and create pull systems throughout supply chains and production processes, that meet both customer demands and manufacturing requirements;
•
Agile production facilities that can rapidly be reconfigured to produce different products or product variations with minimal changeover time;
20
•
Standard product platforms and easily interchangeable and compatible product parts;
•
Process-based quality control and certification systems;
•
Individualized tracking and materials management systems;
•
Lean, just-in-time supply chains;
•
Low-cost logistics infrastructure; and,
•
Customer services that cover the life cycle of products, from design through to financing, after-sales service, maintenance, recycling and disposal.
Environmental Sustainability In the future, manufacturers will be operating in a world of increasingly severe resource and energy constraints. They will also be expected by the public, governments, and other stakeholders to exercise responsibility for the way they interact with the environment. Environmental sustainability will be a critical driver of costs and a key operating principle in product design, engineering, and life-cycle management, the development and use of production and process technologies, as well as in the management of energy and natural resources.
Manufacturing as Service The business of manufacturing is driving toward providing customers complete service over the entire life cycle of products. As production systems become more flexible and more highly automated, differentiation and value creation will depend increasingly upon services. Manufacturers will aim to solve their customers’ problems, and become important elements in their customers’ success. They will do so by offering a complete service package – including research and development, design and engineering, testing and quality assurance, financing, maintenance, delivery logistics, after-sales service, upgrades, and ultimately product disposal. No company will be able to provide all of the services needed by customers. However, service providers will be integrated with companies that make things in international value networks, supply chains, and virtual enterprises.
Value Chains Manufacturers, their customers, and their suppliers together form value chains that compete against other value chains for sales to final consumers. Today, manufacturing depends on the efficient management of supply chains and business networks. However, the extended businesses of the future will be virtual enterprises in which business units around the world will continuously reconfigure their operations and supply chain relationships, forming and reforming networks on a project-by-project basis. They will rely on networked information systems and virtual engineering to ensure concurrent design, production, marketing, service, and sales support. They will operate as if their member firms were all units of a single continuously reconfigurable enterprise, regardless of their geographic location. And, when successful, they will all be aligned to provide solutions for the ultimate customer.
Knowledge Supply Chains Manufacturing will be an even more knowledge-intensive business in the future. Its focus on delivering full service solutions to customers will require a highly educated, highly flexible, and
21
highly skilled workforce in order to create, produce, manage, and deliver the innovative and differentiated products, processes, and services that future customers will demand. Manufacturers’ value chains will really be customers’ knowledge supply chains. The concept says a lot about how knowledge will be commercialized, how innovation will have to be managed, as well as about the importance of education, skills, and experience at every stage of the process. •
Business success will depend on aligning knowledge to meet customer needs;
•
Customer requirements will pull knowledge into commercial applications;
•
Knowledge, skills, and technologies will be sourced from around the world;
•
More individualized customer needs will require products and people to service them. Quality of service will be based primarily on communication and design – the ability to translate personal preferences into technical specifications on the one hand and manufacturing and service capabilities into simple, saleable solutions on the other;
•
Next generation production systems will rely on new technologies and highly automated production processes – requiring skilled technicians and managers to make things work;
•
Highly flexible, reconfigurable enterprises and production processes will demand continuous learning, problem-solving, teaming, effective communication, and creativity on the part of all employees;
•
Product and process innovations will be based on new technological capabilities and commercializable applications of intellectual property;
•
New technologies and intellectual property will in turn require advances in basic scientific, engineering, and mathematical research, while more attention will be focused on the science of manufacturing; and,
•
The effective management of innovation and knowledge supply chains will need to be based on a more advanced understanding of cause-and-effect relationships in theories of business management.
Intellectual property, skills, and experience will be key assets for manufacturers in the future. They are today as well.
Virtual Manufacturing Virtual manufacturing systems will be extremely agile, but they will also be intelligent. They will not only ensure rapid response, but integrate customers within design, testing, and service delivery. The manufacturing systems of the future will embody the intelligence of advanced software applications and modeling and simulation capabilities. They will be built around integrated systems of human and artificial intelligence – allowing for the specification, communication, and technical translation of exact customer expectations; the application of machine intelligence, expert systems, and neural networks in production; and the design, coordination, and integration of complex production, logistical, and business systems.
22
Future production systems are being planned on the basis of virtual engineering and virtual factories: •
Computer automated technologies are allowing manufacturers to combine design, engineering, testing, scheduling, production, maintenance, quality assurance, services, and supply chain management into single processes. Manufacturing capabilities will then depend on the efficient management of information and the rapid translation of that information into production systems.
•
The “factory” will become an information network. Customers will participate in the design and testing of products in accordance to their specific needs. Their requirements will be communicated to computer-integrated and mobile machining, processing, and material delivery systems. No assembly lines or stationary islands of automation – virtual factories will allow for machines and production cells to automatically reconfigure themselves on the production floor in response to new orders or new product variations. Purchasing and scheduling will take place automatically as orders are received. Machines will be capable of producing a wide variety of products and parts. Fully automated systems will allow for continuous “lights-out” production, and people will be employed to maintain, program, schedule, and plan processes of change. Eventually, shared, flexible, computer-integrated production facilities may be cloned around the world for remote satellite programming to make customized products whenever and wherever they are needed for just-in-time customer delivery. Smart machines will learn when to produce parts and what parts to produce. The virtual factory may itself evolve into the reproducible factory in the future.
•
Virtual engineering processes will integrate simulation, modeling, analysis, testing, diagnostic, and analytical technologies in design, production, and control functions affecting all aspects of manufacturing. Virtual reality will play a key role in permitting customer participation in design and engineering. Intelligent equipment, sensors, robotics, and smart materials will help to control quality and process flows. Manufacturers will be able to control, repair, and service their products on-line. Smart engineering systems will increase the degree of flexibility and speed up cycle times significantly. They will integrate and simplify manufacturing processes. And, they will be the key to making customization commercially viable.
New Enabling Technologies Advances in electronics, information and communication technologies, computing capabilities, software programming, and e-business networks are already revolutionizing the business of manufacturing. They provide the capabilities that make flexible, automated production systems, global supply chains, and global customer reach possible. New applications of information and communication technologies will continue to revolutionize manufacturing activity, including the use of advanced modeling and simulation, artificial intelligence, digital imaging, high density data storage, and virtual reality. Other advanced technologies will also revolutionize future manufacturing capabilities, including: •
Biotechnology and genetics. Manufacturers are already working with bio-materials, creating bio-products, and using bio-processes thanks to advances in the science of genomics.
•
Nano-technology. Molecular engineering is allowing manufacturers to build things from their most basic atomic structures up.
•
Micro-machining. Techniques that exist for producing devices and mechanical parts, whose size can be measured in microns, will enable greater precision, sensitivity, and flexibility in micro-production processes.
23
•
Metrology. Advanced measurement systems will allow for greater precision in production and process control.
•
Mechatronics. Systems that integrate sensors, actuators, and control functions in one intelligent system will improve product precision, performance, efficiency, and ease of use.
•
New materials. The development of new materials from bio-materials and advanced polymers, to light weight composites and super-conductive materials are providing manufacturers with a capacity to develop new and improved products and processes that can get the job done better for customers at much lower costs.
•
Smart Materials. Smart materials change shape, colour, form, phase, electric and magnetic fields, temperature, optical qualities, and other characteristics in response to external stimuli. Designers will be able to use smart materials to set new standards in meeting customer needs, as well as simplify products, add features, reduce material use, and lower the expense of product specialization. Future smart materials will be capable of self-diagnosis, repair, and learning.
•
Fuel Cells and Alternative Energy. Hydrogen fuel cells, solar energy, and nuclear applications will be used in products and processes as alternative energy sources.
•
Integrated technologies. Future manufacturing capabilities will be expanded even more by the integration of these technologies.
24
Implications for Manufacturing in Canada In 2020, the business of manufacturing will look very different in Canada than it does today. Changes taking place in the global market, new technological capabilities, and the re-organization of manufacturing enterprises will transform all aspects of the business in this country. Across all sectors, manufacturers foresee a future for their industry in Canada that will characterized by:
1. Product Specialization Standard products that can be mass-produced and shipped long distances will be manufactured in newly industrialized countries, where production and delivery costs will be only a fraction of those in Canada, and manufacturers will be able to offer improved standards of quality, technical sophistication, and product and vendor reliability. Product lines that remain in Canada will be more specialized, because they will have to command a higher premium from customers. They will be products that require a high degree of innovation and customization, smaller production runs, and flexible production systems. Or, they will be products specially designed for local customers, or manufactured by companies where proximity to customers is a necessity.
2. Higher-End Production Processes and Business Activities Product specialization will drive Canadian manufacturers further up the value-chain in terms of the nature of their enterprise as well. There will be fewer Tier 4 suppliers of standard materials, products, and parts, and more Tier 3 companies involved in specialized sub-assembly or integrated batch processing. More Tier 2 suppliers will be engaged in integrating materials, subassemblies, and components. And, there will be more Tier 1 companies – the original equipment manufacturers (OEMs) – whose business is in developing new products or customer solutions and bringing them to market. In short, value will be created more at the front end rather than in the basic fabrication and processing phase of product cycles.
Tier 1 (OEM)
2
3
4
Production System
Core Business
Market Scope
Supply Chain
Intellectual Property
Global
Global
Product Technology
Prototype Development Design Validation
Global Regional
Global Regional
Technology Process
Sub-Assembly/ Process Validation Integrated Pre-Production Processing/ Planning Fabrication
Regional Local
Regional Local
Process
Local
Local
None
Final Technology/ Integration/ Product Concept Testing Product Development (Proof of Concept) Brand/Service Integration/ Assembly/ Fabrication
Fabrication Processing
Production Materials Handling
The business of manufacturing will also change in Canada as companies graduate up the value chain. Market scope will expand from local and regional to a more global customer base. Supply chains will also become more global in reach. Companies will depend more on managing
25
knowledge rather than physical assets, and the intellectual property that will define the value of their business will be attached not so much to production processes as to specific technologies and specialized products. As production evolves from fabrication to assembly and integration, so too will the primary functions of the enterprise – from a focus on materials management and production processes, to process validation and pre-production planning, to prototype development and design validation, and finally at the stage of the OEM to technology genesis, product development, and testing.
3. An Emphasis on Innovation, Design, Branding, Customer Service and Financing Activities The pace of technological change and the intensity of global competition will mean that Canadian manufacturers will derive their revenue on the basis of differentiated products and services. Innovation, design, branding, customer service, and financing will be at the heart of value creation.
4. Lean Business Systems The business of manufacturing will be focused on anticipating and meeting customer requirements – and it will require operating processes within companies and across supply chains that are aligned and extremely efficient in delivering customer value. Canadian manufacturers will have to aim at eliminating waste – activities that do not contribute to providing value to customers – throughout their own manufacturing operations, on an enterprise-wide level, as well as across supply chains and business networks.
5. Highly Automated and Flexible Production Processes Production processes will be highly automated and integrated through advanced information and communication technology with design, marketing, service, and business planning and control functions. They will be flexible as well – to allow for rapid reconfiguration to meet new, modified, or changing customer requirements.
6. Rapid Development and Use of Innovative Products and Technologies The management of innovation will be a core competency across Canada’s manufacturing sector. Companies will have rapid response systems in place to allow them to meet changing market circumstances. Continuous product development processes, reconfigurable production technologies, and rapid access to new technologies will underlie both product differentiation and agile business strategies.
7. Flexibility as a Competitive Advantage Agility will become critical in light of a much shorter product development cycle – where the time from concept through prototype development, testing, and production and service scale-up is a matter of months not years – and more exacting and changeable customer expectations.
8. Integration through Electronic Networks All business functions – from management and administration, purchasing and materials management, design, engineering, production, inventory control, financing, and customer relations – will be integrated through electronic information and communication systems. Those functions will be integrated within manufacturing companies, as well as across supply chains and business networks – with customers, suppliers, and other business partners.
26
9. Integration in Global Value Chains and Business Networks Manufacturers in Canada will be part of a global system of competing supply chains and business networks aligned to meet the needs of consumers in markets around the world. Those value chains will include businesses that produce things as well as services companies. And, they will be reconfigurable, continually reforming and realigning to meet new and different customer requirements.
10. Global Enterprise More manufacturers in Canada will be global enterprises. As such, the scope of their international business activities will extend far beyond trade. Companies will not just import goods for further processing or distribution in Canada and produce goods in this country for export. They will operate their businesses on a global scale, investing to secure assets around the world, expanding their operations into other countries, sourcing skills and technologies on a worldwide basis, allocating resources and consolidating their activities according to global business plans. They will do business wherever the money is, wherever the returns on their investments are the highest – if not in Canada, then somewhere else.
Anchoring the Enterprise In the global economy of 2020, money, knowledge, and people will be highly mobile. What will anchor the high value-adding activities that are part of the business of manufacturing here in Canada? Our existing assets – our resources, our skilled workforce, our proximity to the United States, our political, legal, and fiscal regimes – will help, but they can no longer guarantee our economic prosperity nor that Canada will be able to retain, let alone grow, its manufacturing base. According to manufacturers, the vitality of their industry in Canada will be determined by: •
Leadership – the ability to define and achieve a vision for future business success;
•
Capital formation – the basis for business growth.
•
People – the knowledge, skills, experience, creativity, flexibility, entrepreneurship, and dynamism of their workforce.
•
Knowledge capture – the ability to control design, branding, and intellectual property, and therefore the returns on innovation;
•
Market control – the ability of companies in Canada to “be masters of what customers want” around the world;
•
Access to a robust North American and Canadian marketplace, to provide the critical mass or platform for global business development; and,
•
A high-value production base that will in turn attract and retain services, design, and innovation activities.
27
Competing in 2020 In looking to the next ten to fifteen years, Canadian manufacturers indicate that their future competitiveness and growth opportunities will depend on the following differentiators of business success: •
Time – the “Currency of the 21st century” – will become an advantage for Canadian manufacturers capable of rapid customer response, managing short product lead times and fast production changeovers, quick delivery schedules, and the rapid commercialization of new products and processes;
•
Customer solutions. Companies will generate high performance results if they align their business plans and manufacturing strategies to anticipating and meeting the needs of customers. Manufacturers that provide integrated solutions become integral to their customers’ success;
•
Product differentiation through greater specialization, service, customized design and functionality, superior branding, and the development of niche products and markets;
•
A culture of innovation extending to all parts of the business, from the development and commercialization of new and improved products and services, to the adoption of new technologies, production and business processes, to the development of new market opportunities and the execution of new business plans;
•
Global sourcing – the ability to access the best products, technologies, skills, and expertise from around the world that meet business requirements;
•
Global marketing – taking advantage of business opportunities in markets around the world;
•
Continuous improvement – a commitment to Lean business principles (eliminating wasteful activities that do not contribute to customer value), total quality products and processes, and zero defects;
•
Agility – strategic flexibility in terms of products, processes, operations, and customer service;
•
Integrity – a business culture and operating practices built on trust, reliability, accountability, community involvement, a healthy and safe workforce, and environmental stewardship;
•
Close collaboration through cross-functional teams in the workplace, across value chains involving both suppliers and customers, and with other companies in sharing resources, expertise, and best practice; and,
•
Cost competitiveness with respect to the total cost of delivering products to customers;
•
Responsible management – accountability and control extending to all aspects of workplace health and safety, manufacturing operations, business enterprises, supply chains, and business networks;
•
Environmental sustainability – applied energy use, resource management, as well as product life cycle issues; and,
•
A commitment to perfection with respect to product quality, production processes, and business systems.
28
Manufacturing & Global Enterprise Manufacturers are changing their business strategies in light of the challenges, the opportunities, and the changes they face in international markets, in the business of manufacturing, and in the nature of global business activity. In the process, they are having to revise their basic assumptions about the drivers of business success. Crucial to their considerations are new ways of thinking about manufacturing and global enterprise. Manufacturers are defining a new paradigm for their business. From a strategic point of view, successful business planning must now take into account that: •
Manufacturing is not a business that succeeds simply by producing things and trying to sell them to customers. It is a business that must aim to provide solutions to customers, delivering the customized products and services required to enable customer success rapidly and at competitive prices.
•
Customer value is not based on production, but on integrated solutions combining new technologies, products with customized functionality, service, financing, and rapid response.
•
Value is not generated simply by transforming raw materials and components into finished products, but on capturing the value of knowledge in new and specialized product development, design, and engineering, as well as in customer service.
•
The business of manufacturing is not resident within individual enterprises, but spans across a number of companies integrated more or less formally in value chains and reconfigurable business networks.
•
Companies do not compete. Value chains and business networks compete. Manufacturers can only be as competitive as their suppliers and business partners allow them to be.
•
The development, production, and delivery of products and services to customers is not a sequential process, but a highly complex and concurrent business system occurring across value chains and business networks.
•
Manufacturing is no longer a local or a national business. It is a global enterprise. Competition comes from around the world today and competitors are active in domestic as well as international markets. Market opportunities are global in scope. Companies are sourcing materials, components, finished products, services, knowledge, skills, technologies, and capital from around the world. They are competing for investments and product mandates on a world-wide basis. Businesses are operating around the world. And, value chains and business networks now cover the globe.
The sweeping structural changes that are occurring in the business of manufacturing must also lead to new ways of thinking and new strategies with respect to international business development: •
Businesses must no longer see their export activities as simply a process of producing goods or services and selling them in international markets. Today, export success is based on providing integrated solutions to international customers combining the new technologies, customized functionality, service, and financing, they need – all rapidly and at competitive prices.
•
Trade is no longer simply a matter of buying and selling products and services, exchanging them from one country to another. It has become a complex and multilateral system, based
29
on value chains and business networks, in which sales and sourcing activities are occurring on a global basis. •
International investments, business partnerships, and joint ventures are now critical aspects of business strategies – enabling companies to expand their operations around the world to gain access to new markets, access new technologies, skills, distribution systems, as well as raw materials, and combine capabilities to service customers around the world.
•
Global enterprises are not sequential supply chains but networks and organizations in which all aspects of business activity are being carried out concurrently on an international and in some cases a worldwide scale.
For Canadian manufacturers, international business development entails not only growth in export sales, but their success around the world in: •
Meeting the needs of customers on a global basis;
•
Sourcing product, services, technologies, and knowledge;
•
Expanding and integrating product development activities, production, and business operations;
•
Gaining access to marketing and distribution systems;
•
Controlling technologies and intellectual property;
•
Accessing capital;
•
Providing customer service and financing;
•
Collaborating in innovative research and development, as well as in sharing best practice; and,
•
Partnering with other businesses and organizations to combine capabilities in order to serve international markets.
30
Global Business Prospects The North American Free Trade Agreement has opened up the North American market for a large majority of Canadian manufacturers. Today over 55% of what is manufactured in Canada is exported to other countries. Over half of Canadian manufacturing output is sold into or through the United States. A large part of those exports to the U.S. are then distributed outside of North America. That is on top of about $25 billion of goods manufactured in Canada for direct export to other countries. Now new and highly lucrative market opportunities are opening up around the world – in Europe, Africa, the Middle East, Latin America, India, Southeast Asia, and China. According to CME’s 2004 Management Issues Survey, all are on the radar screens of Canadian companies as they look at expanding their sales and investments outside North America. Canadian companies are looking for customers, investment opportunities, and attractive locations for opening production facilities to serve new markets. They are also searching for international business partners, particularly for purposes of marketing and sales, distribution, and establishing manufacturing joint ventures.
International Market Opportunities A majority of the manufacturers that participated in CME’s 2004 Management Issues Survey now see markets outside Canada as their prime focus for sales and business development. While 23% report that they are focused primarily on regional or local markets, and 21% sell primarily across Canada, 38% say that they focus on the entire North American market, and 18% report that their primary market is global.
PRIMARY MARKET FOR CANADIAN MANUFACTURERS
GLOBAL 18%
NORTH AMERICA 38%
LOCAL/REGIONAL 23%
CANADA 21%
The survey results indicate that the larger a company is, the broader the scope of its marketing activities. They also show that Canadian based, publicly traded corporations, as well as foreign
31
subsidiaries operating in Canada, are much more likely to view North America or other countries as their primary market than privately owned Canadian companies. Those sectors of manufacturing that are particularly oriented to exports (with 60% or more of companies reporting that their primary market is either North America or global in scope) are: • • • • • • •
Furniture; Rubber and plastic products; Computer and electronic products; Automotive products; Other transportation equipment (especially aerospace); Technology and instrumentation; and, Engineering and design.
Canadian manufacturers sell their products around the world, either directly or indirectly through distribution systems based primarily in the United States. According to those manufacturers that responded to CME’s 2004 Management Issues Survey, the United States, European Union, Mexico, Japan, and China are the top five destinations for manufactured exports from Canada. Ten percent of companies or more also report current sales to other Latin American and Caribbean countries (excluding Brazil and Chile), Australia and New Zealand, Korea and Southeast Asia, and the Middle East. The only markets where manufacturers see future potential outstripping current sales are in China, Korea and Southeast Asia, the Middle East, Brazil, India, and Russia and Eastern Europe.
INTERNATIONAL MARKET OPPORTUNITIES UNITED STATES EUROPEAN UNION MEXICO JAPAN CHINA OTHER LATIN AMERICAN/ CARIBBEAN AUSTRALIA & NEW ZEALAND KOREA & SOUTHEAST ASIA MIDDLE EAST BRAZIL CHILE INDIA AFRICA
PERCENTAGE OF MANUFACTURERS
RUSSIA, EASTERN EUROPE 0
10
20
CURRENT SALES
30
40
50
60
70
80
FUTURE POTENTIAL
32
The following tables provide an analysis of the export opportunities identified by manufacturers that participated in CME’s 2004 Management Issues Survey on a country by country basis. They categorize responses by location, company size, ownership, and sector. Some broad generalizations can be made about the results: •
Larger companies tend to be more actively involved in foreign markets.
•
Publicly traded Canadian companies and subsidiaries of foreign firms are more actively engaged in export activity than privately owned Canadian enterprises.
•
Smaller and mid-sized firms see more future potential for exports into the United States and Mexico.
•
Mid-sized and larger manufacturers see more future potential for exports to countries outside North America.
•
China attracts the attention of all sizes of firms regardless of ownership. However, the companies reporting the largest increase in the future potential of the Chinese market are small firms with ten or fewer employees. These companies may not have the capacity required to realize the promise of the Chinese market.
•
Those sectors reporting the highest rate of current export sales and future market potential are the same industries that see North America or other countries as their primary market base.
33
INTERNATIONAL MARKET OPPORTUNITIES (Percent of Manufacturers)
Primary Market Location
Local/Regional
Canada
North America
Global
British Columbia
29
14
43
14
Alberta
41
16
29
14
Saskatchewan
46
31
8
15
Manitoba
18
18
53
12
Ontario
15
24
44
17
Quebec
14
27
41
18
New Brunswick
27
18
40
15
Nova Scotia
25
23
33
15
Prince Edward Island
33
33
18
16
Newfoundland & Labrador
33
24
19
24
Totals
23
21
38
18
Employees
Local/Regional
Canada
North America
Global
1 to 10
55
11
25
9
11 to 50
21
25
40
14
51 to 200
20
12
59
11
201 to 500
6
27
61
6
501 to 1,000
3
24
37
36
Over 1,000
2
15
37
46
Totals
23
21
38
18
Ownership
Local/Regional
Canada
North America
Global
Canadian privately-owned firm
33
15
43
9
Canadian publicly owned corporation
8
21
42
29
Subsidiary of a foreign-owned corporation
0
28
46
26
Other
20
40
20
20
Totals
23
21
38
18
34
Primary Market Sector
Local/Regional
Canada
North America
Global
Food, Beverage, Tobacco products
20
53
7
20
Textiles, Footwear, Clothing
0
50
50
0
Furniture
0
25
67
8
Paper/Wood products
35
8
43
14
Chemicals, Pharmaceuticals
0
60
20
20
Petroleum products
60
40
0
0
Plastic/Rubber products
0
11
84
5
Primary Metals
62
8
30
0
Fabricated Metal products
30
14
40
16
Machinery & Equipment
17
28
33
22
Computer/Electronic products
0
23
62
15
Automotive products
8
8
67
17
Other Transportation Equipment
12
6
54
28
Stone, Concrete, Glass products
20
35
45
0
Printing
70
9
18
3
Technology/Instrumentation
10
5
65
20
Engineering/Design
25
8
58
8
Software/Technology Services
67
17
17
0
Other
39
17
35
9
Totals
23
21
38
18
35
United States Location
Current Sales
Future Potential
British Columbia
68
29
Alberta
62
47
Saskatchewan
62
38
Manitoba
88
53
Ontario
74
53
Quebec
82
36
Atlantic Canada
78
44
Totals
73
48
Employees
Current Sales
Future Potential
1 to 10
46
55
11 to 50
77
42
51 to 200
80
47
201 to 500
87
55
501 to 1,000
73
18
Over 1,000
93
43
Totals
73
48
Ownership
Current Sales
Future Potential
Canadian privately-owned firm
74
45
Canadian publicly owned corporation
63
52
Subsidiary of a foreign-owned corporation
79
50
Other
80
60
Totals
73
48
36
United States
Sector
Current Sales
Future Potential
Food, Beverage, Tobacco products
53
47
Textiles, Footwear, Clothing
67
40
Furniture
80
50
Paper/Wood products
71
33
Chemicals, Pharmaceuticals
60
76
Petroleum products
50
58
Plastic/Rubber products
82
56
Primary Metals
67
50
Fabricated Metal products
77
42
Machinery & Equipment
78
50
Computer/Electronic products
80
85
Automotive products
83
45
Other Transportation Equipment
75
55
Stone, Concrete, Glass products
50
35
Printing
45
45
Technology/Instrumentation
52
72
Engineering/Design
67
12
Software/Technology Services
33
63
Other
65
55
Totals
73
48
37
Mexico Location
Current Sales
Future Potential
British Columbia
11
25
Alberta
22
17
Saskatchewan
15
15
Manitoba
12
18
Ontario
27
16
Quebec
23
14
Atlantic Canada
11
11
Totals
22
17
Employees
Current Sales
Future Potential
1 to 10
4
11
11 to 50
22
22
51 to 200
26
21
201 to 500
39
16
501 to 1,000
45
27
Over 1,000
36
7
Totals
22
17
Ownership
Current Sales
Future Potential
Canadian privately-owned firm
17
17
Canadian publicly owned corporation
33
11
Subsidiary of a foreign-owned corporation
30
19
Other
40
25
Totals
22
17
38
Mexico Current Sales
Future Potential
Food, Beverage, Tobacco products
13
7
Textiles, Footwear, Clothing
33
17
Furniture
0
0
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
25
12
Petroleum products
33
33
Plastic/Rubber products
30
11
Primary Metals
33
17
Fabricated Metal products
28
9
Machinery & Equipment
28
30
Computer/Electronic products
40
25
Automotive products
42
42
Other Transportation Equipment
33
33
Stone, Concrete, Glass products
0
0
Printing
40
15
Technology/Instrumentation
29
24
Engineering/Design
17
9
Software/Technology Services
33
17
Other
22
9
Totals
22
17
39
Brazil Location
Current Sales
Future Potential
British Columbia
4
8
Alberta
10
17
Saskatchewan
0
0
Manitoba
0
0
Ontario
12
11
Quebec
8
8
Atlantic Canada
2
4
Totals
9
10
Employees
Current Sales
Future Potential
1 to 10
0
9
11 to 50
9
13
51 to 200
12
8
201 to 500
19
13
501 to 1,000
18
9
Over 1,000
14
14
Totals
9
10
Ownership
Current Sales
Future Potential
Canadian privately-owned firm
6
10
Canadian publicly owned corporation
7
19
Subsidiary of a foreign-owned corporation
28
5
Other
0
0
Totals
9
10
40
Brazil Sector
Current Sales
Future Potential
Food, Beverage, Tobacco products
0
7
Textiles, Footwear, Clothing
0
0
Furniture
0
0
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
15
6
Petroleum products
17
9
Plastic/Rubber products
0
22
Primary Metals
0
0
Fabricated Metal products
12
12
Machinery & Equipment
11
11
Computer/Electronic products
40
30
Automotive products
4
8
Other Transportation Equipment
16
9
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
9
9
Engineering/Design
16
8
Software/Technology Services
0
12
Other
9
9
Totals
9
10
41
Chile Location
Current Sales
Future Potential
British Columbia
4
8
Alberta
9
10
Saskatchewan
0
0
Manitoba
6
0
Ontario
11
7
Quebec
5
5
Atlantic Canada
11
28
Totals
9
8
Employees
Current Sales
Future Potential
1 to 10
1
5
11 to 50
13
10
51 to 200
9
9
201 to 500
13
6
501 to 1,000
27
18
Over 1,000
14
14
Totals
9
8
Ownership
Current Sales
Future Potential
Canadian privately-owned firm
4
7
Canadian publicly owned corporation
15
15
Subsidiary of a foreign-owned corporation
28
5
Other
20
20
Totals
9
8
42
Chile Sector
Current Sales
Future Potential
Food, Beverage, Tobacco products
7
4
Textiles, Footwear, Clothing
0
0
Furniture
0
0
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
18
9
Petroleum products
0
0
Plastic/Rubber products
11
5
Primary Metals
17
17
Fabricated Metal products
14
14
Machinery & Equipment
17
11
Computer/Electronic products
20
20
Automotive products
4
8
Other Transportation Equipment
12
12
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
10
5
Engineering/Design
8
8
Software/Technology Services
8
5
Other
9
9
Totals
9
8
43
Other Latin American & Caribbean Countries Location
Current Sales
Future Potential
British Columbia
4
8
Alberta
10
14
Saskatchewan
0
0
Manitoba
0
0
Ontario
21
13
Quebec
14
5
Atlantic Canada
11
18
Totals
14
11
Employees
Current Sales
Future Potential
1 to 10
2
9
11 to 50
7
10
51 to 200
15
9
201 to 500
29
23
501 to 1,000
36
27
Over 1,000
21
14
Totals
14
11
Ownership
Current Sales
Future Potential
Canadian privately-owned firm
10
10
Canadian publicly owned corporation
19
11
Subsidiary of a foreign-owned corporation
35
12
Other
20
20
Totals
14
11
44
Other Latin American & Caribbean Countries Sector
Current Sales
Future Potential
Food, Beverage, Tobacco products
24
15
Textiles, Footwear, Clothing
17
0
Furniture
17
0
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
17
0
Petroleum products
0
0
Plastic/Rubber products
8
4
Primary Metals
0
0
Fabricated Metal products
16
9
Machinery & Equipment
6
3
Computer/Electronic products
20
33
Automotive products
17
8
Other Transportation Equipment
12
9
Stone, Concrete, Glass products
0
0
Printing
0
15
Technology/Instrumentation
29
24
Engineering/Design
16
16
Software/Technology Services
12
10
Other
17
22
Totals
14
11
45
China Location
Current Sales
Future Potential
British Columbia
14
14
Alberta
16
21
Saskatchewan
15
8
Manitoba
24
6
Ontario
15
21
Quebec
14
18
Atlantic Canada
11
18
Totals
15
19
Employees
Current Sales
Future Potential
1 to 10
4
18
11 to 50
13
15
51 to 200
14
14
201 to 500
26
23
501 to 1,000
27
36
Over 1,000
22
36
Totals
15
19
Ownership
Current Sales
Future Potential
Canadian privately-owned firm
9
12
Canadian publicly owned corporation
15
30
Subsidiary of a foreign-owned corporation
28
29
Other
12
36
Totals
15
19
46
China Sector
Current Sales
Future Potential
Food, Beverage, Tobacco products
7
13
Textiles, Footwear, Clothing
0
0
Furniture
0
0
Paper/Wood products
25
13
Chemicals, Pharmaceuticals
18
9
Petroleum products
0
0
Plastic/Rubber products
11
16
Primary Metals
0
23
Fabricated Metal products
23
26
Machinery & Equipment
22
45
Computer/Electronic products
20
45
Automotive products
8
42
Other Transportation Equipment
12
45
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
14
29
Engineering
17
23
Software/Technology Services
4
18
Other
9
13
Totals
15
19
47
India Location
Current Sales
Future Potential
British Columbia
4
8
Alberta
3
8
Saskatchewan
0
0
Manitoba
0
0
Ontario
8
11
Quebec
6
11
Atlantic Canada
11
18
Totals
7
11
Employees
Current Sales
Future Potential
1 to 10
3
13
11 to 50
5
6
51 to 200
3
9
201 to 500
10
13
501 to 1,000
27
27
Over 1,000
14
14
Totals
7
11
Ownership
Current Sales
Future Potential
Canadian privately-owned firm
3
8
Canadian publicly owned corporation
7
15
Subsidiary of a foreign-owned corporation
16
12
Other
8
12
Totals
7
11
48
India Sector
Current Sales
Future Potential
Food, Beverage, Tobacco products
0
0
Textiles, Footwear, Clothing
0
0
Furniture
12
12
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
20
14
Petroleum products
0
0
Plastic/Rubber products
0
0
Primary Metals
0
0
Fabricated Metal products
9
9
Machinery & Equipment
6
22
Computer/Electronic products
24
24
Automotive products
3
14
Other Transportation Equipment
6
6
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
5
5
Engineering/Design
17
23
Software/Technology Services
12
21
Other
4
4
Totals
7
11
49
Japan Location
Current Sales
Future Potential
British Columbia
21
16
Alberta
9
12
Saskatchewan
8
8
Manitoba
9
9
Ontario
19
13
Quebec
9
14
Atlantic Canada
18
18
Totals
16
13
Employees
Current Sales
Future Potential
1 to 10
7
6
11 to 50
13
9
51 to 200
17
15
201 to 500
23
16
501 to 1,000
27
27
Over 1,000
50
14
Totals
16
13
Ownership
Current Sales
Future Potential
Canadian privately-owned firm
10
8
Canadian publicly owned corporation
22
20
Subsidiary of a foreign-owned corporation
28
16
Other
6
12
Totals
16
13
50
Japan Sector
Current Sales
Future Potential
Food, Beverage, Tobacco products
18
14
Textiles, Footwear, Clothing
0
0
Furniture
18
12
Paper/Wood products
14
14
Chemicals, Pharmaceuticals
0
0
Petroleum products
11
4
Plastic/Rubber products
11
8
Primary Metals
0
0
Fabricated Metal products
16
5
Machinery & Equipment
17
11
Computer/Electronic products
18
23
Automotive products
28
24
Other Transportation Equipment
6
12
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
24
29
Engineering/Design
17
8
Software/Technology Services
12
4
Other
9
13
Totals
16
13
51
Korea & Southeast Asia
Location
Current Sales
Future Potential
British Columbia
7
12
Alberta
4
12
Saskatchewan
0
0
Manitoba
0
6
Ontario
14
9
Quebec
9
12
Atlantic Canada
11
18
Totals
10
11
Employees
Current Sales
Future Potential
1 to 10
4
9
11 to 50
10
8
51 to 200
11
12
201 to 500
8
10
501 to 1,000
18
18
Over 1,000
29
21
Totals
10
11
Ownership
Current Sales
Future Potential
Canadian privately-owned firm
10
14
Canadian publicly owned corporation
9
5
Subsidiary of a foreign-owned corporation
19
14
Other
0
20
Totals
10
11
52
Korea & Southeast Asia Sector
Current Sales
Future Potential
Food, Beverage, Tobacco products
16
12
Textiles, Footwear, Clothing
0
0
Furniture
12
16
Paper/Wood products
0
8
Chemicals, Pharmaceuticals
14
6
Petroleum products
0
0
Plastic/Rubber products
9
9
Primary Metals
0
0
Fabricated Metal products
14
18
Machinery & Equipment
8
10
Computer/Electronic products
17
24
Automotive products
8
12
Other Transportation Equipment
12
12
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
14
17
Engineering/Design
5
8
Software/Technology Services
14
8
Other
9
9
Totals
10
11
53
European Union Location
Current Sales
Future Potential
British Columbia
11
23
Alberta
16
17
Saskatchewan
23
23
Manitoba
18
18
Ontario
34
23
Quebec
14
18
Atlantic Canada
26
32
Totals
26
21
Employees
Current Sales
Future Potential
1 to 10
11
8
11 to 50
23
18
51 to 200
26
20
201 to 500
35
32
501 to 1,000
36
26
Over 1,000
43
29
Totals
26
21
Ownership
Current Sales
Future Potential
Canadian privately-owned firm
15
12
Canadian publicly owned corporation
37
42
Subsidiary of a foreign-owned corporation
40
36
Other
60
60
Totals
26
21
54
European Union Sector
Current Sales
Future Potential
Food, Beverage, Tobacco products
20
18
Textiles, Footwear, Clothing
8
16
Furniture
17
23
Paper/Wood products
14
14
Chemicals, Pharmaceuticals
18
18
Petroleum products
23
23
Plastic/Rubber products
28
16
Primary Metals
24
12
Fabricated Metal products
26
16
Machinery & Equipment
28
22
Computer/Electronic products
42
36
Automotive products
32
28
Other Transportation Equipment
28
20
Stone, Concrete, Glass products
0
0
Printing
4
8
Technology/Instrumentation
32
53
Engineering/Design
18
18
Software/Technology Services
6
12
Other
9
22
Totals
26
21
55
Russia, Eastern Europe, & Central Asia Location
Current Sales
Future Potential
British Columbia
2
14
Alberta
9
16
Saskatchewan
8
16
Manitoba
6
6
Ontario
5
9
Quebec
4
8
Atlantic Canada
4
11
Totals
5
9
Employees
Current Sales
Future Potential
1 to 10
1
5
11 to 50
4
6
51 to 200
9
8
201 to 500
6
19
501 to 1,000
18
18
Over 1,000
14
26
Totals
5
9
Ownership
Current Sales
Future Potential
Canadian privately-owned firm
4
6
Canadian publicly owned corporation
8
24
Subsidiary of a foreign-owned corporation
12
16
Other
20
20
Totals
5
9
56
Russia, Eastern Europe, & Central Asia Sector
Current Sales
Future Potential
Food, Beverage, Tobacco products
0
7
Textiles, Footwear, Clothing
0
0
Furniture
0
0
Paper/Wood products
0
6
Chemicals, Pharmaceuticals
0
0
Petroleum products
33
33
Plastic/Rubber products
0
11
Primary Metals
0
16
Fabricated Metal products
9
7
Machinery & Equipment
11
18
Computer/Electronic products
12
16
Automotive products
8
12
Other Transportation Equipment
0
0
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
5
9
Engineering/Design
8
14
Software/Technology Services
4
8
Other
4
8
Totals
5
9
57
Middle East Location:
Current Sales
Future Potential
British Columbia
7
7
Alberta
10
12
Saskatchewan
0
0
Manitoba
6
6
Ontario
11
9
Quebec
9
12
Atlantic Canada
11
14
Totals
10
10
Employees
Current Sales
Future Potential
1 to 10
4
5
11 to 50
11
11
51 to 200
8
8
201 to 500
13
13
501 to 1,000
18
18
Over 1,000
24
24
Totals
10
10
Ownership
Current Sales
Future Potential
Canadian privately-owned firm
8
8
Canadian publicly owned corporation
16
19
Subsidiary of a foreign-owned corporation
16
13
Other
0
0
Totals
10
10
58
Middle East Sector
Current Sales
Future Potential
Food, Beverage, Tobacco products
7
7
Textiles, Footwear, Clothing
0
0
Furniture
8
8
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
0
0
Petroleum products
17
23
Plastic/Rubber products
0
0
Primary Metals
0
0
Fabricated Metal products
10
8
Machinery & Equipment
11
13
Computer/Electronic products
15
15
Automotive products
8
8
Other Transportation Equipment
0
0
Stone, Concrete, Glass products
15
15
Printing
12
12
Technology/Instrumentation
17
17
Engineering/Design
14
8
Software/Technology Services
5
5
Other
4
6
Totals
10
10
59
Africa Location
Current Sales
Future Potential
British Columbia
5
2
Alberta
6
5
Saskatchewan
0
0
Manitoba
5
3
Ontario
7
6
Quebec
9
7
Atlantic Canada
4
5
Totals
7
6
Employees
Current Sales
Future Potential
1 to 10
3
8
11 to 50
6
5
51 to 200
6
5
201 to 500
14
10
501 to 1,000
16
16
Over 1,000
7
7
Totals
7
6
Ownership
Current Sales
Future Potential
Canadian privately-owned firm
4
5
Canadian publicly owned corporation
14
12
Subsidiary of a foreign-owned corporation
21
18
Other
20
20
Totals
7
6
60
Africa Sector
Current Sales
Future Potential
Food, Beverage, Tobacco products
5
5
Textiles, Footwear, Clothing
12
8
Furniture
0
0
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
12
6
Petroleum products
23
14
Plastic/Rubber products
11
4
Primary Metals
0
0
Fabricated Metal products
4
2
Machinery & Equipment
9
5
Computer/Electronic products
17
17
Automotive products
4
11
Other Transportation Equipment
0
0
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
10
6
Engineering/Design
15
12
Software/Technology Services
4
0
Other
0
4
Totals
7
6
61
Australia & New Zealand Location
Current Sales
Future Potential
British Columbia
12
8
Alberta
12
10
Saskatchewan
23
23
Manitoba
18
8
Ontario
16
13
Quebec
14
8
Atlantic Canada
21
18
Totals
14
9
Employees
Current Sales
Future Potential
1 to 10
4
5
11 to 50
12
6
51 to 200
18
13
201 to 500
23
16
501 to 1,000
18
20
Over 1,000
29
16
Totals
14
9
Ownership
Current Sales
Future Potential
Canadian privately-owned firm
10
7
Canadian publicly owned corporation
18
12
Subsidiary of a foreign-owned corporation
28
21
Other
0
20
Totals
14
9
62
Australia & New Zealand Sector
Current Sales
Future Potential
Food, Beverage, Tobacco products
7
0
Textiles, Footwear, Clothing
0
0
Furniture
0
0
Paper/Wood products
14
8
Chemicals, Pharmaceuticals
16
12
Petroleum products
16
8
Plastic/Rubber products
11
5
Primary Metals
0
0
Fabricated Metal products
18
7
Machinery & Equipment
17
11
Computer/Electronic products
18
12
Automotive products
12
18
Other Transportation Equipment
12
6
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
24
18
Engineering/Design
14
7
Software/Technology Services
6
9
Other
4
9
Totals
14
9
63
International Sourcing Activities Canadian manufacturers are sourcing raw materials, energy, parts and components, technologies, knowledge, services, and skills from around the world. The United States is the prime source for offshore purchasing and is seen by nearly 40% of manufacturers participating in CME’s 2004 Management Issues Survey as the country with the greatest future potential for international sourcing activities. Close to 30% of manufacturers report that they are currently sourcing from the European Union, 25% from China, and 10% or more from Japan, Korea and Southeast Asia, and Mexico. Apart from the United States, China, Japan, Southeast Asia, and the European Union show the greatest future potential as outsourcing locations.
INTERNATIONAL SOURCING ACTIVITIES UNITED STATES EUROPEAN UNION CHINA JAPAN KOREA & SOUTHEAST ASIA MEXICO BRAZIL INDIA AUSTRALIA & NEW ZEALAND CHILE MIDDLE EAST OTHER LATIN AMERICAN/ CARIBBEAN AFRICA
PERCENTAGE OF MANUFACTURERS
RUSSIA, EASTERN EUROPE 0
10
20
30
CURRENT SOURCING
40
50
60
70
80
90
FUTURE POTENTIAL
The following tables analyze current and potential sourcing activities on the part of those manufacturers that participated in CME’s 2004 Management Issues Survey. Again larger companies are more active in sourcing from other countries, as are foreign subsidiaries and publicly traded Canadian companies. The industries with the most extensive international sourcing networks are either those that produce complex products and therefore have the widest supply chains within the manufacturing sector – automotive and other transportation equipment,
64
machinery, computers and electronic equipment, technology and instrumentation – or those that depend on imports of raw materials and other commodities from abroad.
INTERNATIONAL SOURCING ACTIVITY (Percent of Manufacturers)
United States
Location
Current Sourcing
Future Potential
British Columbia
71
24
Alberta
78
40
Saskatchewan
77
46
Manitoba
71
47
Ontario
82
40
Quebec
78
32
Atlantic Canada
78
38
Totals
78
38
Employees
Current Sourcing
Future Potential
1 to 10
59
39
11 to 50
86
35
51 to 200
89
42
201 to 500
81
45
501 to 1,000
82
30
Over 1,000
93
29
Totals
78
38
Ownership
Current Sourcing
Future Potential
Canadian privately-owned firm
72
35
Canadian publicly owned corporation
81
46
Subsidiary of a foreign-owned corporation
84
38
Other
100
50
Totals
78
38
65
United States
Sector
Current Sourcing
Future Potential
Food, Beverage, Tobacco products
73
20
Textiles, Footwear, Clothing
100
0
Furniture
67
23
Paper/Wood products
71
43
Chemicals, Pharmaceuticals
84
45
Petroleum products
50
13
Plastic/Rubber products
89
56
Primary Metals
100
33
Fabricated Metal products
81
30
Machinery & Equipment
100
38
Computer/Electronic products
100
100
Automotive products
75
25
Other Transportation Equipment
86
67
Stone, Concrete, Glass products
33
17
Printing
92
23
Technology/Instrumentation
81
38
Engineering/Design
67
42
Software/Technology Services
82
40
Other
70
39
Totals
78
38
66
Mexico
Location
Current Sourcing
Future Potential
British Columbia
7
14
Alberta
10
14
Saskatchewan
0
24
Manitoba
6
8
Ontario
11
9
Quebec
9
9
Atlantic Canada
11
11
Totals
10
10
Employees
Current Sourcing
Future Potential
1 to 10
2
9
11 to 50
5
11
51 to 200
12
11
201 to 500
10
16
501 to 1,000
27
9
Over 1,000
21
8
Totals
10
10
Ownership
Current Sourcing
Future Potential
Canadian privately-owned firm
5
10
Canadian publicly owned corporation
19
8
Subsidiary of a foreign-owned corporation
16
12
Other
60
20
Totals
10
10
67
Mexico
Sector
Current Sourcing
Future Potential
Food, Beverage, Tobacco products
13
7
Textiles, Footwear, Clothing
0
0
Furniture
0
0
Paper/Wood products
0
14
Chemicals, Pharmaceuticals
17
9
Petroleum products
16
8
Plastic/Rubber products
11
11
Primary Metals
0
0
Fabricated Metal products
10
5
Machinery & Equipment
22
27
Computer/Electronic products
12
5
Automotive products
17
15
Other Transportation Equipment
8
8
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
0
14
Engineering/Design
0
17
Software/Technology Services
0
12
Other
9
13
Totals
10
10
68
Brazil
Location
Current Sourcing
Future Potential
British Columbia
7
10
Alberta
3
9
Saskatchewan
0
7
Manitoba
0
6
Ontario
6
9
Quebec
9
12
Atlantic Canada
4
4
Totals
7
8
Employees
Current Sourcing
Future Potential
1 to 10
0
4
11 to 50
5
5
51 to 200
7
9
201 to 500
8
12
501 to 1,000
9
17
Over 1,000
14
9
Totals
7
8
Ownership
Current Sourcing
Future Potential
Canadian privately-owned firm
5
7
Canadian publicly owned corporation
6
14
Subsidiary of a foreign-owned corporation
10
5
Other
20
0
Totals
7
8
69
Brazil
Sector
Current Sourcing
Future Potential
Food, Beverage, Tobacco products
13
6
Textiles, Footwear, Clothing
0
0
Furniture
12
0
Paper/Wood products
23
6
Chemicals, Pharmaceuticals
0
0
Petroleum products
0
0
Plastic/Rubber products
0
11
Primary Metals
0
0
Fabricated Metal products
5
12
Machinery & Equipment
11
18
Computer/Electronic products
0
0
Automotive products
17
17
Other Transportation Equipment
0
0
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
0
0
Engineering/Design
8
8
Software/Technology Services
5
10
Other
0
9
Totals
7
8
70
Chile
Location
Current Sourcing
Future Potential
British Columbia
4
7
Alberta
2
5
Saskatchewan
0
0
Manitoba
3
3
Ontario
2
5
Quebec
4
2
Atlantic Canada
8
11
Totals
3
4
Employees
Current Sourcing
Future Potential
1 to 10
2
2
11 to 50
2
4
51 to 200
4
5
201 to 500
3
4
501 to 1,000
3
4
Over 1,000
2
3
Totals
3
4
Ownership
Current Sourcing
Future Potential
Canadian privately-owned firm
2
5
Canadian publicly owned corporation
2
4
Subsidiary of a foreign-owned corporation
6
2
Other
0
0
Totals
3
4
71
Chile
Sector
Current Sourcing
Future Potential
Food, Beverage, Tobacco products
7
7
Textiles, Footwear, Clothing
0
0
Furniture
0
0
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
0
0
Petroleum products
0
0
Plastic/Rubber products
0
6
Primary Metals
0
0
Fabricated Metal products
3
8
Machinery & Equipment
5
8
Computer/Electronic products
0
0
Automotive products
4
8
Other Transportation Equipment
0
0
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
5
5
Engineering/Design
4
8
Software/Technology Services
2
6
Other
4
4
Totals
3
4
72
Other Latin American & Caribbean Countries
Location
Current Sourcing
Future Potential
British Columbia
2
4
Alberta
2
8
Saskatchewan
0
7
Manitoba
0
6
Ontario
2
5
Quebec
3
3
Atlantic Canada
4
8
Totals
2
4
Employees
Current Sourcing
Future Potential
1 to 10
1
2
11 to 50
2
2
51 to 200
2
4
201 to 500
5
6
501 to 1,000
2
12
Over 1,000
6
14
Totals
2
4
Ownership
Current Sourcing
Future Potential
Canadian privately-owned firm
2
3
Canadian publicly owned corporation
2
9
Subsidiary of a foreign-owned corporation
3
7
Other
0
20
Totals
2
4
73
Other Latin American & Caribbean Countries
Sector
Current Sourcing
Future Potential
Food, Beverage, Tobacco products
7
7
Textiles, Footwear, Clothing
12
36
Furniture
0
0
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
4
8
Petroleum products
12
12
Plastic/Rubber products
0
0
Primary Metals
0
0
Fabricated Metal products
2
4
Machinery & Equipment
0
0
Computer/Electronic products
0
0
Automotive products
4
8
Other Transportation Equipment
7
7
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
0
0
Engineering/Design
0
8
Software/Technology Services
4
8
Other
4
10
Totals
2
4
74
China
Location
Current Sourcing
Future Potential
British Columbia
18
21
Alberta
19
22
Saskatchewan
8
17
Manitoba
6
13
Ontario
23
32
Quebec
27
23
Atlantic Canada
11
18
Totals
23
29
Employees
Current Sourcing
Future Potential
1 to 10
7
18
11 to 50
15
28
51 to 200
36
38
201 to 500
23
29
501 to 1,000
35
37
Over 1,000
29
31
Totals
23
29
Ownership
Current Sourcing
Future Potential
Canadian privately-owned firm
18
25
Canadian publicly owned corporation
23
33
Subsidiary of a foreign-owned corporation
35
37
Other
60
20
Totals
23
29
75
China
Sector
Current Sourcing
Future Potential
Food, Beverage, Tobacco products
26
18
Textiles, Footwear, Clothing
84
76
Furniture
50
50
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
20
45
Petroleum products
0
0
Plastic/Rubber products
22
33
Primary Metals
0
33
Fabricated Metal products
26
30
Machinery & Equipment
22
32
Computer/Electronic products
16
45
Automotive products
33
43
Other Transportation Equipment
17
50
Stone, Concrete, Glass products
8
24
Printing
7
14
Technology/Instrumentation
24
29
Engineering/Design
8
32
Software/Technology Services
5
20
Other
13
17
Totals
23
29
76
India
Location
Current Sourcing
Future Potential
British Columbia
7
7
Alberta
6
12
Saskatchewan
0
0
Manitoba
6
6
Ontario
7
13
Quebec
5
9
Atlantic Canada
7
7
Totals
6
9
Employees
Current Sourcing
Future Potential
1 to 10
3
11
11 to 50
6
8
51 to 200
9
11
201 to 500
10
7
501 to 1,000
9
18
Over 1,000
7
7
Totals
6
9
Ownership
Current Sourcing
Future Potential
Canadian privately-owned firm
5
9
Canadian publicly owned corporation
7
10
Subsidiary of a foreign-owned corporation
7
12
Other
20
0
Totals
6
9
77
India
Sector
Current Sourcing
Future Potential
Food, Beverage, Tobacco products
13
7
Textiles, Footwear, Clothing
33
33
Furniture
12
18
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
18
6
Petroleum products
0
0
Plastic/Rubber products
11
5
Primary Metals
0
0
Fabricated Metal products
7
12
Machinery & Equipment
3
17
Computer/Electronic products
14
18
Automotive products
8
12
Other Transportation Equipment
0
0
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
10
15
Engineering/Design
8
21
Software/Technology Services
4
23
Other
9
9
Totals
6
9
78
Japan
Location
Current Sourcing
Future Potential
British Columbia
11
11
Alberta
9
9
Saskatchewan
8
12
Manitoba
6
11
Ontario
14
10
Quebec
15
11
Atlantic Canada
5
16
Totals
14
11
Employees
Current Sourcing
Future Potential
1 to 10
7
5
11 to 50
8
7
51 to 200
14
13
201 to 500
18
16
501 to 1,000
21
19
Over 1,000
32
26
Totals
14
11
Ownership
Current Sourcing
Future Potential
Canadian privately-owned firm
8
6
Canadian publicly owned corporation
15
12
Subsidiary of a foreign-owned corporation
25
21
Other
20
20
Totals
14
11
79
Japan
Sector
Current Sourcing
Future Potential
Food, Beverage, Tobacco products
0
0
Textiles, Footwear, Clothing
0
0
Furniture
0
0
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
0
0
Petroleum products
0
0
Plastic/Rubber products
23
18
Primary Metals
25
20
Fabricated Metal products
18
12
Machinery & Equipment
28
23
Computer/Electronic products
38
38
Automotive products
18
15
Other Transportation Equipment
0
0
Stone, Concrete, Glass products
0
0
Printing
12
12
Technology/Instrumentation
10
8
Engineering/Design
8
8
Software/Technology Services
12
12
Other
8
4
Totals
14
11
80
Korea & Southeast Asia
Location
Current Sourcing
Future Potential
British Columbia
12
16
Alberta
12
14
Saskatchewan
0
0
Manitoba
6
6
Ontario
10
14
Quebec
14
14
Atlantic Canada
11
11
Totals
12
14
Employees
Current Sourcing
Future Potential
1 to 10
6
10
11 to 50
10
14
51 to 200
12
16
201 to 500
13
15
501 to 1,000
18
18
Over 1,000
21
21
Totals
12
14
Ownership
Current Sourcing
Future Potential
Canadian privately-owned firm
8
12
Canadian publicly owned corporation
13
14
Subsidiary of a foreign-owned corporation
16
21
Other
40
20
Totals
12
14
81
Korea & Southeast Asia
Sector
Current Sourcing
Future Potential
Food, Beverage, Tobacco products
7
7
Textiles, Footwear, Clothing
23
23
Furniture
25
25
Paper/Wood products
14
18
Chemicals, Pharmaceuticals
0
0
Petroleum products
0
0
Plastic/Rubber products
11
18
Primary Metals
0
0
Fabricated Metal products
7
5
Machinery & Equipment
11
11
Computer/Electronic products
14
23
Automotive products
18
25
Other Transportation Equipment
0
0
Stone, Concrete, Glass products
0
0
Printing
0
12
Technology/Instrumentation
14
18
Engineering/Design
4
8
Software/Technology Services
6
12
Other
13
9
Totals
12
14
82
European Union
Location
Current Sourcing
Future Potential
British Columbia
21
11
Alberta
24
14
Saskatchewan
8
0
Manitoba
12
12
Ontario
28
11
Quebec
32
18
Atlantic Canada
23
16
Totals
29
14
Employees
Current Sourcing
Future Potential
1 to 10
16
7
11 to 50
24
13
51 to 200
32
12
201 to 500
36
26
501 to 1,000
45
23
Over 1,000
50
14
Totals
29
14
Ownership
Current Sourcing
Future Potential
Canadian privately-owned firm
22
9
Canadian publicly owned corporation
30
16
Subsidiary of a foreign-owned corporation
36
21
Other
50
60
Totals
29
14
83
European Union
Sector
Current Sourcing
Future Potential
Food, Beverage, Tobacco products
33
16
Textiles, Footwear, Clothing
33
8
Furniture
25
13
Paper/Wood products
11
5
Chemicals, Pharmaceuticals
18
15
Petroleum products
0
0
Plastic/Rubber products
38
18
Primary Metals
0
0
Fabricated Metal products
16
12
Machinery & Equipment
39
6
Computer/Electronic products
34
26
Automotive products
33
22
Other Transportation Equipment
24
14
Stone, Concrete, Glass products
25
25
Printing
8
4
Technology/Instrumentation
29
24
Engineering/Design
24
13
Software/Technology Services
28
12
Other
30
17
Totals
29
14
84
Russia, Eastern Europe, & Central Asia
Location
Current Sourcing
Future Potential
British Columbia
0
4
Alberta
0
2
Saskatchewan
7
0
Manitoba
0
0
Ontario
1
2
Quebec
2
1
Atlantic Canada
4
8
Totals
1
2
Employment
Current Sourcing
Future Potential
1 to 10
2
3
11 to 50
0
1
51 to 200
1
2
201 to 500
1
1
501 to 1,000
1
1
Over 1,000
1
3
Totals
1
2
Ownership
Current Sourcing
Future Potential
Canadian privately-owned firm
1
1
Canadian publicly owned corporation
2
3
Subsidiary of a foreign-owned corporation
1
1
Other
0
20
Totals
1
2
85
Russia, Eastern Europe, & Central Asia
Sector
Current Sourcing
Future Potential
Food, Beverage, Tobacco products
0
0
Textiles, Footwear, Clothing
0
0
Furniture
4
4
Paper/Wood products
4
6
Chemicals, Pharmaceuticals
0
0
Petroleum products
0
0
Plastic/Rubber products
4
6
Primary Metals
0
0
Fabricated Metal products
3
6
Machinery & Equipment
4
8
Computer/Electronic products
8
12
Automotive products
0
0
Other Transportation Equipment
0
0
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
0
0
Engineering/Design
8
14
Software/Technology Services
0
0
Other
4
6
Totals
1
2
86
Middle East
Location
Current Sourcing
Future Potential
British Columbia
4
7
Alberta
6
4
Saskatchewan
0
0
Manitoba
0
0
Ontario
3
4
Quebec
5
4
Atlantic Canada
0
0
Totals
3
4
Employees
Current Sourcing
Future Potential
1 to 10
2
1
11 to 50
2
2
51 to 200
2
3
201 to 500
2
5
501 to 1,000
8
8
Over 1,000
10
14
Totals
3
4
Ownership
Current Sourcing
Future Potential
Canadian privately-owned firm
2
3
Canadian publicly owned corporation
4
5
Subsidiary of a foreign-owned corporation
5
5
Other
20
20
Totals
3
4
87
Middle East
Sector
Current Sourcing
Future Potential
Food, Beverage, Tobacco products
0
0
Textiles, Footwear, Clothing
5
5
Furniture
4
4
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
8
10
Petroleum products
16
16
Plastic/Rubber products
4
6
Primary Metals
0
0
Fabricated Metal products
6
8
Machinery & Equipment
0
0
Computer/Electronic products
0
0
Automotive products
0
0
Other Transportation Equipment
0
0
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
5
12
Engineering/Design
4
8
Software/Technology Services
8
14
Other
5
8
Totals
3
4
88
Africa
Location
Current Sourcing
Future Potential
British Columbia
0
4
Alberta
2
4
Saskatchewan
0
0
Manitoba
0
0
Ontario
1
2
Quebec
2
5
Atlantic Canada
0
0
Totals
1
2
Employees
Current Sourcing
Future Potential
1 to 10
0
0
11 to 50
1
2
51 to 200
1
1
201 to 500
1
2
501 to 1,000
1
2
Over 1,000
0
2
Totals
1
2
Ownership
Current Sourcing
Future Potential
Canadian privately-owned firm
1
1
Canadian publicly owned corporation
1
2
Subsidiary of a foreign-owned corporation
1
2
Other
20
20
Totals
1
2
89
Africa
Sector
Current Sourcing
Future Potential
Food, Beverage, Tobacco products
7
12
Textiles, Footwear, Clothing
0
8
Furniture
0
0
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
0
0
Petroleum products
12
18
Plastic/Rubber products
0
0
Primary Metals
0
0
Fabricated Metal products
2
4
Machinery & Equipment
3
5
Computer/Electronic products
0
0
Automotive products
0
0
Other Transportation Equipment
0
0
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
2
2
Engineering/Design
0
6
Software/Technology Services
0
2
Other
1
1
Totals
1
2
90
Australia & New Zealand
Location
Current Sourcing
Future Potential
British Columbia
4
4
Alberta
6
3
Saskatchewan
0
0
Manitoba
0
0
Ontario
7
2
Quebec
5
3
Atlantic Canada
0
11
Totals
6
2
Employees
Current Sourcing
Future Potential
1 to 10
5
2
11 to 50
6
1
51 to 200
6
1
201 to 500
8
2
501 to 1,000
5
2
Over 1,000
10
4
Totals
6
2
Ownership
Current Sourcing
Future Potential
Canadian privately-owned firm
4
2
Canadian publicly owned corporation
7
2
Subsidiary of a foreign-owned corporation
10
2
Other
40
20
Totals
6
2
91
Australia & New Zealand
Sector
Current Sourcing
Future Potential
Food, Beverage, Tobacco products
18
12
Textiles, Footwear, Clothing
0
0
Furniture
0
0
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
0
0
Petroleum products
0
0
Plastic/Rubber products
0
0
Primary Metals
0
0
Fabricated Metal products
8
6
Machinery & Equipment
12
1
Computer/Electronic products
14
0
Automotive products
10
2
Other Transportation Equipment
14
5
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
12
6
Engineering/Design
0
8
Software/Technology Services
0
0
Other
8
1
Totals
6
2
92
International Operations Canadian manufacturers are expanding their operations around the world, not only in terms of direct investments and business expansion, but also through joint ventures and business partnerships. The United States, European Union, China, Mexico, and Japan are the countries in which Canadian companies are most actively involved. Manufacturers see future potential for direct investments and business partnerships outstripping current activity in China, Southeast Asia, Latin America and the Caribbean, the Middle East, and India.
INTERNATIONAL INVESTMENTS & BUSINESS PARTNERSHIPS UNITED STATES EUROPEAN UNION CHINA MEXICO JAPAN RUSSIA, EASTERN EUROPE KOREA & SOUTHEAST ASIA OTHER LATIN AMERICAN/ CARIBBEAN BRAZIL AUSTRALIA & NEW ZEALAND MIDDLE EAST AFRICA INDIA
PERCENTAGE OF MANUFACTURERS
CHILE 0
5
10
15
20
CURRENT OPERATIONS
25
30
35
40
FUTURE POTENTIAL
As the following tables illustrate, the involvement and degree of interest on the part of manufacturers in international direct investment, business partnerships, and joint venture activity vary according to company size, ownership, and sector. Larger firms and publicly traded enterprises are more likely to have operations in other countries, and to see future potential for expansion or new partnerships in those markets. Companies from all sectors report investments and business operations in the United States. Companies within the primary metals, machinery and equipment, fabricated metals, computer and electronic products, engineering, advanced technology, automotive products and other transportation equipment industries are more actively engaged in international investment and joint venture activities in Mexico and countries outside the NAFTA.
93
INTERNATIONAL INVESTMENTS & JOINT VENTURES (Percent of Manufacturers)
United States
Location
Current Operations
Future Potential
British Columbia
25
21
Alberta
21
18
Saskatchewan
23
23
Manitoba
18
28
Ontario
35
26
Quebec
38
27
Atlantic Canada
35
35
Totals
35
26
Employees
Current Operations
Future Potential
1 to 10
11
20
11 to 50
18
21
51 to 200
29
25
201 to 500
36
42
501 to 1,000
73
21
Over 1,000
79
29
Totals
35
26
Ownership
Current Operations
Future Potential
Canadian privately-owned firm
18
26
Canadian publicly owned corporation
41
33
Subsidiary of a foreign-owned corporation
56
20
Other
60
20
Totals
35
26
94
United States
Sector
Current Operations
Future Potential
Food, Beverage, Tobacco products
27
27
Textiles, Footwear, Clothing
25
25
Furniture
25
33
Paper/Wood products
14
14
Chemicals, Pharmaceuticals
40
67
Petroleum products
50
16
Plastic/Rubber products
33
22
Primary Metals
24
40
Fabricated Metal products
31
29
Machinery & Equipment
33
33
Computer/Electronic products
50
67
Automotive products
42
33
Other Transportation Equipment
50
25
Stone, Concrete, Glass products
13
0
Printing
17
17
Technology/Instrumentation
19
19
Engineering/Design
33
25
Software/Technology Services
15
8
Other
30
18
Totals
35
26
95
Mexico
Location
Current Operations
Future Potential
British Columbia
4
11
Alberta
2
6
Saskatchewan
8
8
Manitoba
6
6
Ontario
11
6
Quebec
5
5
Atlantic Canada
6
11
Totals
7
6
Employees
Current Operations
Future Potential
1 to 10
1
2
11 to 50
3
2
51 to 200
5
8
201 to 500
16
13
501 to 1,000
18
9
Over 1,000
26
7
Totals
7
6
Ownership
Current Operations
Future Potential
Canadian privately-owned firm
1
5
Canadian publicly owned corporation
26
8
Subsidiary of a foreign-owned corporation
19
7
Other
0
20
Totals
7
6
96
Mexico
Sector
Current Operations
Future Potential
Food, Beverage, Tobacco products
11
6
Textiles, Footwear, Clothing
0
0
Furniture
0
0
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
13
0
Petroleum products
17
0
Plastic/Rubber products
15
7
Primary Metals
12
12
Fabricated Metal products
8
4
Machinery & Equipment
9
12
Computer/Electronic products
12
8
Automotive products
25
18
Other Transportation Equipment
16
12
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
11
6
Engineering/Design
5
5
Software/Technology Services
0
7
Other
9
17
Totals
7
6
97
Brazil
Location
Current Operations
Future Potential
British Columbia
2
4
Alberta
2
5
Saskatchewan
0
0
Manitoba
0
0
Ontario
6
4
Quebec
2
3
Atlantic Canada
0
0
Totals
4
4
Employees
Current Operations
Future Potential
1 to 10
2
1
11 to 50
2
1
51 to 200
1
6
201 to 500
9
9
501 to 1,000
16
9
Over 1,000
14
7
Totals
4
4
Ownership
Current Operations
Future Potential
Canadian privately-owned firm
1
3
Canadian publicly owned corporation
7
7
Subsidiary of a foreign-owned corporation
14
6
Other
0
0
Totals
4
4
98
Brazil
Sector
Current Operations
Future Potential
Food, Beverage, Tobacco products
8
6
Textiles, Footwear, Clothing
0
0
Furniture
0
0
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
13
6
Petroleum products
13
6
Plastic/Rubber products
0
11
Primary Metals
0
0
Fabricated Metal products
12
18
Machinery & Equipment
5
5
Computer/Electronic products
8
0
Automotive products
8
13
Other Transportation Equipment
0
0
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
4
4
Engineering/Design
6
6
Software/Technology Services
8
8
Other
0
4
Totals
4
4
99
Chile
Location
Current Operations
Future Potential
British Columbia
2
4
Alberta
2
3
Saskatchewan
0
0
Manitoba
0
0
Ontario
2
2
Quebec
3
2
Atlantic Canada
5
5
Totals
2
2
Employees
Current Operations
Future Potential
1 to 10
0
1
11 to 50
1
1
51 to 200
1
1
201 to 500
6
6
501 to 1,000
9
9
Over 1,000
4
0
Totals
2
2
Ownership
Current Operations
Future Potential
Canadian privately-owned firm
1
3
Canadian publicly owned corporation
2
1
Subsidiary of a foreign-owned corporation
7
2
Other
0
0
Totals
2
2
100
Chile
Sector
Current Operations
Future Potential
Food, Beverage, Tobacco products
5
5
Textiles, Footwear, Clothing
0
0
Furniture
0
0
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
6
3
Petroleum products
12
0
Plastic/Rubber products
0
8
Primary Metals
18
18
Fabricated Metal products
2
2
Machinery & Equipment
6
6
Computer/Electronic products
4
4
Automotive products
4
6
Other Transportation Equipment
0
0
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
4
4
Engineering/Design
4
8
Software/Technology Services
0
5
Other
0
4
Totals
2
2
101
Other Latin American & Caribbean Countries
Location
Current Operations
Future Potential
British Columbia
2
4
Alberta
2
3
Saskatchewan
0
0
Manitoba
0
0
Ontario
4
5
Quebec
5
5
Atlantic Canada
9
5
Totals
4
5
Employees
Current Operations
Future Potential
1 to 10
0
0
11 to 50
4
5
51 to 200
4
6
201 to 500
3
6
501 to 1,000
9
13
Over 1,000
7
10
Totals
4
5
Ownership
Current Operations
Future Potential
Canadian privately-owned firm
2
6
Canadian publicly owned corporation
8
3
Subsidiary of a foreign-owned corporation
7
5
Other
0
20
Totals
4
5
102
Other Latin American & Caribbean Countries
Sector
Current Operations
Future Potential
Food, Beverage, Tobacco products
5
8
Textiles, Footwear, Clothing
0
13
Furniture
0
0
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
12
12
Petroleum products
16
16
Plastic/Rubber products
0
0
Primary Metals
6
6
Fabricated Metal products
4
4
Machinery & Equipment
0
0
Computer/Electronic products
8
8
Automotive products
4
6
Other Transportation Equipment
8
8
Stone, Concrete, Glass products
8
8
Printing
8
8
Technology/Instrumentation
8
12
Engineering/Design
0
6
Software/Technology Services
4
8
Other
0
5
Totals
4
5
103
China
Location
Current Operations
Future Potential
British Columbia
4
16
Alberta
3
5
Saskatchewan
8
8
Manitoba
12
12
Ontario
11
16
Quebec
11
15
Atlantic Canada
11
11
Totals
10
15
Employees
Current Operations
Future Potential
1 to 10
2
10
11 to 50
2
14
51 to 200
11
18
201 to 500
10
23
501 to 1,000
18
28
Over 1,000
25
13
Totals
10
15
Ownership
Current Operations
Future Potential
Canadian privately-owned firm
4
8
Canadian publicly owned corporation
15
26
Subsidiary of a foreign-owned corporation
21
24
Other
40
20
Totals
10
15
104
China
Sector
Current Operations
Future Potential
Food, Beverage, Tobacco products
0
20
Textiles, Footwear, Clothing
0
0
Furniture
0
12
Paper/Wood products
12
18
Chemicals, Pharmaceuticals
18
18
Petroleum products
17
17
Plastic/Rubber products
0
24
Primary Metals
18
36
Fabricated Metal products
8
15
Machinery & Equipment
12
18
Computer/Electronic products
25
67
Automotive products
17
42
Other Transportation Equipment
13
25
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
14
29
Engineering/Design
8
33
Software/Technology Services
4
12
Other
0
13
Totals
10
15
105
India
Location
Current Operations
Future Potential
British Columbia
2
4
Alberta
2
3
Saskatchewan
0
0
Manitoba
0
0
Ontario
3
6
Quebec
2
2
Atlantic Canada
5
5
Totals
2
4
Employees
Current Operations
Future Potential
1 to 10
1
2
11 to 50
2
4
51 to 200
2
4
201 to 500
3
6
501 to 1,000
4
8
Over 1,000
2
3
Totals
2
4
Ownership
Current Operations
Future Potential
Canadian privately-owned firm
1
3
Canadian publicly owned corporation
2
4
Subsidiary of a foreign-owned corporation
8
12
Other
0
20
Totals
2
4
106
India
Sector
Current Operations
Future Potential
Food, Beverage, Tobacco products
2
4
Textiles, Footwear, Clothing
0
0
Furniture
0
0
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
12
8
Petroleum products
12
0
Plastic/Rubber products
2
11
Primary Metals
0
0
Fabricated Metal products
12
18
Machinery & Equipment
5
10
Computer/Electronic products
6
12
Automotive products
4
8
Other Transportation Equipment
0
0
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
4
12
Engineering
8
17
Software/Technology Services
4
12
Other
4
8
Totals
2
4
107
Japan
Location
Current Operations
Future Potential
British Columbia
7
4
Alberta
3
7
Saskatchewan
8
8
Manitoba
6
8
Ontario
5
4
Quebec
5
5
Atlantic Canada
5
0
Totals
5
5
Employees
Current Operations
Future Potential
1 to 10
0
0
11 to 50
2
2
51 to 200
4
4
201 to 500
7
7
501 to 1,000
9
16
Over 1,000
18
7
Totals
5
5
Ownership
Current Operations
Future Potential
Canadian privately-owned firm
2
3
Canadian publicly owned corporation
11
15
Subsidiary of a foreign-owned corporation
12
5
Other
0
20
Totals
5
5
108
Japan
Sector
Current Operations
Future Potential
Food, Beverage, Tobacco products
0
0
Textiles, Footwear, Clothing
0
0
Furniture
13
13
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
8
0
Petroleum products
13
0
Plastic/Rubber products
0
0
Primary Metals
18
18
Fabricated Metal products
7
7
Machinery & Equipment
6
6
Computer/Electronic products
12
12
Automotive products
15
15
Other Transportation Equipment
0
0
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
10
12
Engineering/Design
8
8
Software/Technology Services
12
12
Other
5
5
Totals
5
5
109
Korea & Southeast Asia
Location
Current Operations
Future Potential
British Columbia
4
7
Alberta
3
6
Saskatchewan
8
8
Manitoba
6
6
Ontario
4
5
Quebec
5
8
Atlantic Canada
5
0
Totals
4
6
Employees
Current Operations
Future Potential
1 to 10
2
2
11 to 50
3
4
51 to 200
4
5
201 to 500
5
8
501 to 1,000
8
12
Over 1,000
18
14
Totals
4
6
Ownership
Current Operations
Future Potential
Canadian privately-owned firm
2
4
Canadian publicly owned corporation
7
9
Subsidiary of a foreign-owned corporation
8
10
Other
0
0
Totals
4
6
110
Korea & Southeast Asia
Sector
Current Operations
Future Potential
Food, Beverage, Tobacco products
5
5
Textiles, Footwear, Clothing
0
0
Furniture
13
18
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
13
6
Petroleum products
13
0
Plastic/Rubber products
0
0
Primary Metals
12
18
Fabricated Metal products
6
8
Machinery & Equipment
5
8
Computer/Electronic products
24
45
Automotive products
6
8
Other Transportation Equipment
13
13
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
5
8
Engineering/Design
5
9
Software/Technology Services
0
0
Other
0
4
Totals
4
6
111
European Union
Location
Current Operations
Future Potential
British Columbia
7
12
Alberta
4
6
Saskatchewan
8
8
Manitoba
6
6
Ontario
16
5
Quebec
12
9
Atlantic Canada
5
11
Totals
14
7
Employees
Current Operations
Future Potential
1 to 10
2
1
11 to 50
9
5
51 to 200
11
7
201 to 500
14
9
501 to 1,000
27
11
Over 1,000
36
15
Totals
14
7
Ownership
Current Operations
Future Potential
Canadian privately-owned firm
3
2
Canadian publicly owned corporation
26
15
Subsidiary of a foreign-owned corporation
21
12
Other
40
20
Totals
14
7
112
European Union
Sector
Current Operations
Future Potential
Food, Beverage, Tobacco products
13
7
Textiles, Footwear, Clothing
0
8
Furniture
13
13
Paper/Wood products
9
0
Chemicals, Pharmaceuticals
18
12
Petroleum products
25
13
Plastic/Rubber products
11
0
Primary Metals
18
12
Fabricated Metal products
16
8
Machinery & Equipment
22
14
Computer/Electronic products
25
13
Automotive products
58
24
Other Transportation Equipment
25
13
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
33
17
Engineering/Design
12
8
Software/Technology Services
0
5
Other
8
4
Totals
14
7
113
Russia, Eastern Europe, & Central Asia
Location
Current Operations
Future Potential
British Columbia
2
4
Alberta
3
6
Saskatchewan
0
8
Manitoba
0
0
Ontario
6
6
Quebec
5
5
Atlantic Canada
5
5
Totals
5
5
Employees
Current Operations
Future Potential
1 to 10
2
4
11 to 50
2
2
51 to 200
4
3
201 to 500
10
10
501 to 1,000
18
18
Over 1,000
14
8
Totals
5
5
Ownership
Current Operations
Future Potential
Canadian privately-owned firm
2
4
Canadian publicly owned corporation
12
12
Subsidiary of a foreign-owned corporation
8
5
Other
20
0
Totals
5
5
114
Russia, Eastern Europe, & Central Asia
Sector
Current Operations
Future Potential
Food, Beverage, Tobacco products
7
0
Textiles, Footwear, Clothing
0
0
Furniture
0
0
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
13
13
Petroleum products
13
13
Plastic/Rubber products
8
12
Primary Metals
12
12
Fabricated Metal products
8
8
Machinery & Equipment
16
16
Computer/Electronic products
13
13
Automotive products
33
33
Other Transportation Equipment
0
0
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
8
12
Engineering/Design
8
18
Software/Technology Services
0
0
Other
12
4
Totals
5
5
115
Middle East
Location
Current Operations
Future Potential
British Columbia
2
4
Alberta
6
8
Saskatchewan
0
0
Manitoba
0
0
Ontario
3
3
Quebec
4
5
Atlantic Canada
0
0
Totals
3
3
Employees
Current Operations
Future Potential
1 to 10
1
1
11 to 50
1
1
51 to 200
2
4
201 to 500
6
8
501 to 1,000
9
9
Over 1,000
7
0
Totals
3
3
Ownership
Current Operations
Future Potential
Canadian privately-owned firm
1
2
Canadian publicly owned corporation
4
4
Subsidiary of a foreign-owned corporation
7
5
Other
0
20
Totals
3
3
116
Middle East
Sector
Current Operations
Future Potential
Food, Beverage, Tobacco products
0
0
Textiles, Footwear, Clothing
0
0
Furniture
8
8
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
12
12
Petroleum products
25
25
Plastic/Rubber products
0
0
Primary Metals
12
0
Fabricated Metal products
0
0
Machinery & Equipment
6
6
Computer/Electronic products
13
13
Automotive products
8
8
Other Transportation Equipment
0
0
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
9
14
Engineering/Design
0
8
Software/Technology Services
6
0
Other
4
4
Totals
3
3
117
Australia & New Zealand
Location
Current Operations
Future Potential
British Columbia
2
7
Alberta
2
8
Saskatchewan
0
0
Manitoba
0
0
Ontario
5
4
Quebec
5
3
Atlantic Canada
5
0
Totals
4
4
Employees
Current Operations
Future Potential
1 to 10
0
2
11 to 50
2
0
51 to 200
1
1
201 to 500
6
8
501 to 1,000
9
12
Over 1,000
28
14
Totals
4
4
Ownership
Current Operations
Future Potential
Canadian privately-owned firm
2
3
Canadian publicly owned corporation
8
8
Subsidiary of a foreign-owned corporation
12
6
Other
0
0
Totals
4
4
118
Australia & New Zealand
Sector
Current Operations
Future Potential
Food, Beverage, Tobacco products
7
7
Textiles, Footwear, Clothing
0
0
Furniture
0
0
Paper/Wood products
0
0
Chemicals, Pharmaceuticals
7
0
Petroleum products
8
8
Plastic/Rubber products
0
0
Primary Metals
12
12
Fabricated Metal products
6
4
Machinery & Equipment
6
6
Computer/Electronic products
12
12
Automotive products
3
14
Other Transportation Equipment
0
0
Stone, Concrete, Glass products
0
0
Printing
0
0
Technology/Instrumentation
5
9
Engineering/Design
8
8
Software/Technology Services
4
8
Other
0
4
Totals
4
4
119
Constraints on Export Development Canadian manufacturers face a number of constraints in expanding sales into international markets. There are constraints related to the internal capacity of companies to develop products and services, expand production capabilities, develop distribution, sales, and marketing channels, and obtain the financing they require for export development. Capacity constraints are related mainly to company size. There is no significant statistical variation with respect to company location, ownership, or industry sector. Canadian manufacturers also face export constraints in international markets. These external constraints depend mainly on the market that firms are targeting. In some cases, manufacturers report that they are excluded from international markets as a result of the restrictions or difficulties they face. There is no significant variation in the challenges posed by external export constraints with respect to company location, size, or ownership. And, with the notable exception of wood products companies, food processing firms, and manufacturers selling into state and local procurement markets, all of which report difficulties in exporting directly to the United States, there is no significant statistical relationship that can be drawn from CME’s survey results between external constraints and industrial sectors.
Capacity Constraints Manufacturers report a number of constraints on their capacity to develop and sustain sales into export markets. The cost and availability of insurance – particularly product liability insurance for companies exporting to the United States – is an issue raised by manufacturers across Canada. The cost of liability (and other forms of) insurance has risen steeply since 2001. Some companies report that their insurance coverage has been terminated because they export to the United States. Just over 76% of the manufacturers participating in CME’s Management Issues Survey identify insurance issues as an export challenge. There is little variation according to company size, although smaller firms are more likely to report difficulties in accessing insurance coverage. Managing exchange rate risk is another challenge identified by a majority of manufacturers, although it is a problem noted by smaller companies in particular. Most Canadian exporters price their exports in U.S. dollars. For Canadian manufacturers who now depend on international markets for more than 55% of their total operating revenue, the recent appreciation of the Canadian dollar has been like a 30% price cut on export sales over a period of two years. Canadian companies have never experienced such a rapid rise in exchange rates or such volatility in currency markets before. There are some benefits from a higher Canadian dollar. It reduces the cost of imported goods, technologies, and capital equipment. It lowers labour costs if paid in U.S. dollars. And, it makes it easier for Canadian companies to invest in new products, intellectual property rights, and skilled workers around the world. For many manufacturers, however, the appreciation of the Canadian dollar has had a significant negative impact on profit margins, cash flow, and competitiveness. It is forcing companies to restructure their internal operations, their supply chains, their marketing strategies, and their pricing policies in order to retain customers, cut costs, and boost productivity performance. Smaller firms in particular find it difficult and costly to develop financial and operational hedging strategies, diversify export markets, or restructure supply chains in order to offset the costs of rapid appreciation and the volatility of the dollar. It takes money, time, expertise, and a great deal of effort and internal resources for any company to develop and sustain export sales in foreign markets – even in markets as close by as the United States. Around half of the manufacturers responding to CME’s 2004 Management Issues Survey cite costs and the lack of adequate internal resources, expertise, and personnel as
120
constraints on their export development activities. Again these are challenges reported primarily by smaller companies rather than mid-sized or large enterprises.
CAPACITY CONSTRAINTS ON EXPORT DEVELOPMENT (Percent of Manufacturers) 1 to 10
11 to 50
51 to 200
201 to 500
501 to 1,000
Over 1,000
Totals
Cost/availability of insurance
72
74
78
80
75
74
76
Exchange rate risks
85
72
66
62
32
12
63
Lack of internal resources
95
84
42
26
12
9
54
Cost/Inadequate returns
84
74
50
22
28
36
52
Lack of time to develop new markets
78
80
63
33
18
12
51
Lack of qualified personnel
76
72
38
25
14
6
48
Lack of expertise in offshore markets
76
78
33
21
19
4
43
Corporate organization
58
42
38
32
35
56
43
Product development capabilities
63
54
22
18
8
6
33
Corporate plan
33
35
23
18
15
23
26
Difficulty finding partners, distributors, or sales agents
45
34
26
12
9
3
25
Difficulty in providing customer service
52
33
25
15
15
4
25
Limited capacity to scale up production
45
43
18
11
10
10
25
Difficulties obtaining working capital
25
24
15
3
7
5
18
Difficulty identifying market opportunities
21
19
8
5
2
0
11
Difficulties in obtaining export financing
1
5
4
9
9
11
5
Employees
Companies of all sizes acknowledge that business planning and corporate organization are both significant factors in determining export readiness. Smaller companies are also more likely to cite product development, difficulties in providing customer service, and production scale-up constraints as challenges in export development. One-quarter of manufacturers report difficulties in finding partners, distributors, and sales agents for entry into new markets. Just over 10% of companies cite difficulties in identifying market
121
opportunities in other countries. These problems again pose more significant constraints for smaller firms than on mid-sized or large companies. Manufacturers finally cite financial constraints. Just over 18% report difficulties in obtaining working capital. Smaller firms face the greatest challenges in this regard. Only 5% say that the availability of export financing poses a constraint on their export development activities, but larger companies appear to have more problems than smaller firms in obtaining adequate export coverage. In discussion sessions across the country, manufacturers noted four major types of challenges with respect to trade financing: •
Accessing finance for exports into higher risk developing markets. China and the Middle East were specifically mentioned;
•
Accessing finance for equity participation in international projects and business expansion purposes;
•
Accessing finance to cover international receivables and sourcing inventories; and,
•
The lack of Canadian financial presence in developing markets to provide integrated business development and trade finance facilities.
External Constraints In addition to internal capacity problems, manufacturers report a number of externally imposed constraints on exports into developed as well as emerging markets. In general, the more involved companies are in exporting into particular markets, the more likely they are to report constraints on their trading activity. More companies, for instance, identify export constraints in the United States than in any other market. But, more firms are also engaged in exporting to the Unites States than to any other market as well. The survey results summarized in the following tables should not be read as an indicator of the severity of constraints for that reason. They are, however, an indication of the type of constraints and challenges that manufacturers face in international markets. The manufacturers participating in CME’s 2004 Management Issues Survey identify the following as significant external constraints on international market development: •
Import tariffs on manufactured goods;
•
Import quotas;
•
Regulatory restrictions imposed on imported products;
•
Differences in regulatory requirements;
•
Differences in product and process standards;
•
Restrictions imposed on foreign investments;
•
Other conditions imposed on foreign investments, including conditions affecting employment, local business partners, technology transfer, and investment quotas;
•
Preferential government procurement practices at local, state, as well as national levels;
•
Concerns over intellectual property protection;
122
•
Restrictions imposed on business travel and labour mobility;
•
Security and customs requirements, particularly those causing delays at the Canada-U.S. border;
•
Government subsidies and protection; and,
•
The use of anti-dumping and countervailing trade actions.
EXTERNAL CONSTRAINTS ON CANADIAN EXPORTS: DEVELOPED COUNTRIES (Percent of Manufacturers) United States
European Union
Japan
Other OECD
Currently Exporting
73
26
18
13
Future Potential
48
21
13
8
Not Able to Access Market due to Constraints
6
12
10
4
Tariffs on Imports
12
4
12
2
Import Quotas
1
6
9
1
Regulated Restrictions on Imports
4
4
5
1
Other Regulatory Compliance Requirements
35
24
28
2
Different Product/Process Standards
12
12
16
4
Restrictions on Investment
0
5
5
1
Other Conditions Imposed on Investment
4
6
7
1
Preferential Government Procurement
8
4
2
1
Failure to Protect Intellectual Property
0
3
5
0
Restrictions on Business Travel/Labour Mobility
25
8
4
1
Security/Customs Requirements
55
8
4
1
Government Subsidies/Protection
8
10
15
1
Anti-Dumping/Countervailing Trade Action
6
2
1
0
Reported Constraints:
123
EXTERNAL CONSTRAINTS ON CANADIAN EXPORTS: EMERGING MARKETS (Percent of Manufacturers)
China
Mexico
Latin America
Other Asia/Middle East
Currently Exporting
15
22
19
16
Future Potential
19
17
17
17
Not Able to Access Market due to Constraints
12
8
4
4
Tariffs on Imports
18
1
1
2
Import Quotas
6
0
0
1
Regulated Restrictions on Imports
12
1
2
3
Other Regulatory Compliance Requirements
20
2
2
3
Different Product/Process Standards
11
1
1
2
Restrictions on Investment
12
2
2
4
Other Conditions Imposed on Investment
18
3
7
6
Preferential Government Procurement
3
1
2
1
Failure to Protect Intellectual Property
25
1
3
5
Restrictions on Business Travel/Labour Mobility
5
1
1
1
Security/Customs Requirements
3
3
4
5
Government Subsidies/Protection
23
2
5
7
Anti-Dumping/Countervailing Trade Action
0
0
0
0
Reported Constraints:
124
International Investment & Business Partnerships Canadian manufacturers are expanding their operations in North American and world markets. They are increasing their direct investment activity abroad – either in the form of greenfield expansions or through the acquisition of foreign companies. They are also entering into joint ventures with businesses around the world for purposes of product design and engineering, production, sales, marketing, distribution, and technology transfer.
Strategic Considerations Canadian manufacturers invest abroad for a variety of reasons. Some are more positive than others. For many companies, the establishment of on-site operations through direct investment in other countries is a means of entering a market that would otherwise be closed to exports. Specific examples reported by manufacturers participating in discussions on the future of their industry in Canada include: •
The establishment of operations in the United States in order to comply with Buy-America procurement policies on the part of state and local governments;
•
The establishment of U.S. facilities in the face of growing protectionist pressures in that country and the preference on the part of some customers to source on a domestic basis;
•
The establishment of production facilities in Europe in order to comply with increasingly stringent regulatory and standards requirements;
•
The establishment of production facilities in Europe, Brazil, China, and Southeast Asia in order to access procurement or other contracts; and,
•
The establishment of research and design facilities in Europe, the United States, and other markets in order to access R&D programs and resources in those countries.
Some companies report that they are expanding operations in the United States in preference to Canada because of easier access to the U.S. market or because investment incentives are more favourable in the United States. Manufacturers that are particularly reliant on just-in-time delivery systems are opening warehousing, distribution, and in some cases production facilities in the U.S. to avoid the security concerns and processing delays at the Canada-U.S. border. Many midsized and larger firms report that they are basing their location decisions on tax, regulatory, or other cost considerations, and are expanding in other countries because Canada cannot compete. In particular, they cite the following advantages in other countries, and particularly in the United States: •
More attractive tax treatment for investments in manufacturing and other businesses. Nominal corporate tax rates in Canada may be competitive on average with those of the United States, but they are much higher than those of many other industrial countries including Japan, the United Kingdom, Ireland, and the Scandinavian countries, not to mention many newly developing industrial economies. The tax treatment of investments in Canadian manufacturing is even less attractive when effective tax rates are taken into account. Effective rates adjust for the write-offs, credits, and deductions that companies can claim with respect to corporate income tax. Analysis by the C.D. Howe Institute shows that manufacturers in Canada pay the second highest effective corporate tax rate in the world. Only Germany’s tax rate is higher.
125
The effective tax rate paid by Canadian manufacturers (28.8% in 2004) remains well above that in the United States (21.9%), and the gap will widen even further given the pace of tax reductions likely to be implemented by Canadian and U.S. governments over the next five years. Although nominal corporate tax rates in Canada are near or slightly lower than U.S. rates, American manufacturers benefit from a 50% bonus depreciation provision for shorter lived industrial assets, higher inventory cost deductions, lower or no capital taxes, and lower sales taxes on capital, energy, and materials inputs. Canada’s high rate of taxation on invested capital is cited by multi-national companies as a major impediment in retaining and attracting manufacturing operations and product mandates in this country. •
Speedier regulatory approvals and the desire to avoid duplicative and wasteful regulatory compliance costs in both Canada and the United States.
•
Direct investment incentives provided by local, state, and sometimes national governments, including tax holidays, workforce training, free or low-cost land, plant construction, and infrastructure, and preferential financing.
•
The availability of competitively priced energy.
On the positive side, many Canadian manufacturers are investing and expanding operations in other countries to strengthen their competitive capabilities, enter into new markets, and strengthen working relationships with customers that are themselves expanding on a global basis: •
The establishment of production facilities may bring Canadian companies closer to their customers when proximity is an issue because of the need for close collaboration or because unit transportation and delivery costs are relatively high.
•
Market presence allows companies to respond more rapidly to customers with respect to meeting their requirements, developing sales, and providing service – particularly in large and rapidly growing markets like China, India, Mexico, and Brazil. (Service-based companies are especially dependent on proximity to customers.)
•
Some companies invest abroad in order to gain better or less expensive access to energy, raw materials, or manufactured inputs. Low labour costs are a significant incentive for many manufacturers looking to establish production facilities in China and other emerging industrial economies.
•
Greenfield investments and foreign acquisitions give Canadian manufacturers access to new technologies, new skill sets, research and other knowledge-based resources.
•
Foreign acquisitions may also provide Canadian companies with distribution, sales, and business networks in foreign markets.
•
International operations and joint ventures are also seen as important elements of business strategies aimed at combining business strengths around the world for product development, manufacturing, and sales across international markets.
Canadian manufacturers report that they base their investment location decisions on several factors, including access to new markets, tax and regulatory environments, proximity to customers, access to skilled or low cost labour, available infrastructure, proximity of suppliers, access to resources or to new technology, access to a secure supply of cost competitive energy, and the overall cost of delivering products to customers. Larger companies, and primarily subsidiaries of multinational enterprises, report that their investment decisions are based on
126
policies established at corporate headquarters. Generally, though, there is not a great deal of variability in factors affecting investment location decisions with respect to company size.
INVESTMENT LOCATION DECISIONS (Percent of Manufacturers) 1 to 10
11 to 50
51 to 200
201 to 500
501 to 1,000
Over 1,000
Totals
Legal/regulatory environment
30
27
33
26
27
28
28
Tax environment
25
33
35
42
46
54
34
Access to skilled labour
25
42
41
48
55
43
39
Proximity to market
32
47
42
42
55
40
41
Transportation/communication infrastructure
18
36
33
39
18
36
30
Availability of serviced industrial land
7
10
9
19
16
14
11
Labour costs
20
42
56
45
42
36
40
Secure supply of cost competitive energy
4
16
8
16
30
32
11
Government location incentives
9
3
11
6
9
9
7
Overall cost of delivering products to customers
29
37
26
29
45
42
30
Proximity of suppliers
25
16
20
13
18
21
18
Proximity to research centres
5
3
3
0
0
5
2
Access to new markets
25
23
30
16
18
21
24
Access to new technology
5
5
2
10
9
9
6
Access to resources
7
5
5
10
9
9
7
Business management
13
27
15
16
18
18
18
Parent company policy
0
8
12
26
35
33
10
Customer requirements
25
21
21
23
30
14
21
Other
2
4
0
0
0
0
2
Employees
In addition to direct investment, Canadian companies are also participating in a variety of international joint ventures. The manufacturers that participated in CME’s 2004 Management Issues Survey report that they are interested in finding foreign partners for several reasons, but especially to establish manufacturing joint ventures, for international marketing purposes, to find distributors and sales agents, and to source materials and components. Smaller manufacturers with fewer than 200 employees tend to be most interested in finding foreign partners for marketing, distribution, sales, and after-sales service. Mid-sized and larger companies are more interested in partnerships for R&D, design and engineering, sourcing as well as licensing technologies, and establishing manufacturing and service joint ventures. Canadian based, publicly traded companies appear to have the greatest interest in partnering at an international level.
127
INTEREST IN FINDING FOREIGN PARTNERS (Percent of Manufacturers)
Location
British Atlantic Alberta Saskatchewan Manitoba Ontario Quebec Columbia Canada Totals
Licensing technology/service
7
5
8
12
11
9
11
10
Manufacturing joint ventures
29
28
8
24
30
27
11
28
Service-sector joint ventures
11
10
8
6
9
11
11
10
Sourcing materials & components
14
12
0
12
20
22
11
20
Sourcing technologies/services
4
9
0
0
9
5
11
7
International marketing
14
14
15
12
23
27
18
24
Distribution
21
29
23
18
23
26
24
24
Sales agents
14
16
8
27
24
27
24
24
Design and engineering
14
5
0
0
5
5
0
5
Contract manufacturing
11
12
0
9
13
12
0
12
Research and development
7
9
8
6
9
9
11
9
After-sales service
11
7
8
6
7
18
5
9
128
Interest in Finding Foreign Partners 1 to 10
11 to 50
51 to 200
201 to 500
501 to 1,000
Over 1,000
Totals
Licensing technology/service
9
8
15
13
12
9
10
Manufacturing joint ventures
21
31
32
29
28
36
28
Service-sector joint ventures
9
6
10
13
15
12
10
Sourcing materials & components
14
18
23
24
20
21
20
Sourcing technologies/services
4
12
6
13
5
14
7
International marketing
25
28
25
16
18
14
24
Distribution
27
28
24
16
15
29
24
Sales agents
29
30
24
23
18
7
24
Design and engineering
2
6
6
6
9
14
5
Contract manufacturing
13
13
17
13
8
10
12
Research and development
5
8
9
19
20
7
9
After-sales service
23
8
8
6
5
12
9
Employees
Canadian privatelyowned firm
Canadian publicly owned corporation
Subsidiary of a foreign-owned corporation
Other
Totals
Licensing technology/service
12
10
7
0
10
Manufacturing joint ventures
34
37
16
20
28
Service-sector joint ventures
8
15
16
0
10
Sourcing materials & components
22
22
16
40
20
Sourcing technologies/services
5
15
9
0
7
International marketing
24
28
16
20
24
Distribution
29
26
12
60
24
Sales agents
29
30
12
0
24
Design and engineering
4
15
5
0
5
Contract manufacturing
10
15
12
0
12
Research and development
6
22
5
20
9
After-sales service
7
7
12
20
9
Ownership
129
Constraints on Canadian Direct Investment Abroad Canadian manufacturers report capacity constraints as well as external impediments with respect to their international investment activities. They cite the following constraints on their company’s capacity to expand abroad: •
Inadequate returns expected from offshore investments;
•
A lack of expertise in international markets;
•
Constraints within their corporate plan and corporate organization;
•
Resource and time constraints;
•
Lack of internal funds for investment or expansion purposes;
•
Lack of qualified personnel to manage offshore investment decisions;
•
Difficulties in finding reliable business partners; and,
•
Lack of available financing for their investments, acquisitions, and participation in international projects.
The prevalence of these constraints varies significantly according to company size. Smaller companies are less likely to be looking to expand in foreign markets. They face greater constraints in terms of internal resources, time, expertise, and cash flow. As a result, they also tend to assess the risks associated with international investments higher than larger companies and expected returns lower. Smaller companies find that financing for international business expansion is more difficult to obtain. A higher proportion of small manufacturers also report difficulties in identifying and assessing investment opportunities, as well as in identifying reliable business partners. Corporate business plans and organizations pose constraints for companies regardless of size. A relatively high proportion of mid-sized and larger manufacturers also report difficulties in finding reliable business partners. Larger firms are also more likely to report difficulties obtaining financing for international acquisitions and participation in international projects – mainly because they are the companies that would be more extensively engaged in those activities. Companies of all sizes report difficulties in obtaining financing through Canada’s SR&ED Tax Credit system or other government programs for participation in collaborative international R&D and innovation initiatives. The external constraints that manufacturers face in opening or expanding operations in international markets include: •
The threat of political instability and expropriation;
•
Explicit restrictions on foreign ownership;
•
Government interference in investment decisions and government imposed performance requirements (with regard, for instance, to employment, R&D activities and technology transfer, suppliers, contracts, and disposal of earnings);
•
Regulatory approvals for merger and acquisition activities;
130
•
Unstable or uncompetitive tax regimes;
•
Unreliable and undeveloped systems of contract and business law;
•
Concerns over the protection of intellectual property;
•
Capital and currency controls;
•
Protective government regulations; and,
•
Corruption on the part of public officials and business partners.
In developed markets, protective regulations, competition policy, and government imposed performance requirements are the constraints most frequently reported by Canadian manufacturers with respect to their offshore investment activity. In emerging markets, companies face more severe problems in the form of political uncertainty, government interference, ownership restrictions, unreliable legal systems, protective regulations, theft of intellectual property, capital and currency restrictions, and corruption.
CAPACITY CONSTRAINTS ON DIRECT INVESTMENT ABROAD (Percent of Manufacturers) 1 to 10
11 to 50
51 to 200
201 to 500
501 to 1,000
Over 1,000
Totals
Inadequate returns
75
48
54
36
18
21
46
Lack of expertise in offshore markets
80
80
36
23
19
6
46
Corporate plan
45
42
43
38
42
36
41
Lack of internal funds
72
45
42
26
12
9
39
Lack of qualified personnel
62
42
38
26
12
4
38
Corporate organization
54
34
38
26
31
42
37
Time constraints
67
54
14
13
3
6
31
Difficulty finding reliable partners
22
34
26
29
19
15
26
Not looking to expand business outside Canada
68
32
18
6
3
0
25
Difficulty identifying investment opportunities
28
24
18
6
0
0
15
Lack of investment financing
21
18
16
8
5
2
13
Lack of financing for international mergers & acquisitions
0
2
8
6
5
5
4
Lack of international project financing
0
2
4
5
5
4
3
Lack of financing for collaborative R&D projects
2
4
2
4
5
2
3
Employees
131
EXTERNAL CONSTRAINTS ON CANADIAN DIRECT INVESTMENT ABROAD: DEVELOPED COUNTRIES (Percent of Manufacturers) United States
European Union
Japan
Other OECD
Current Operations/Joint Ventures
35
14
5
4
Future Potential
26
7
5
4
Not Able to Gain Access due to Constraints
0
1
1
0
Political Instability/Uncertainty
0
0
0
0
Government Interference
1
2
1
0
Ownership Restrictions
0
4
3
0
Competition Policy
3
4
2
0
Government Imposed Performance Requirements
2
3
1
0
Threat of Expropriation
1
1
1
0
Unreliable Legal System
0
0
0
0
Protective Regulations
4
6
1
0
Theft of Intellectual Property
0
1
1
0
Unstable/Uncompetitive Tax Regime
0
3
0
1
Capital/Currency Restrictions
0
0
0
0
Corruption
0
0
0
0
Reported Constraints:
132
EXTERNAL CONSTRAINTS ON CANADIAN DIRECT INVESTMENT ABROAD: EMERGING MARKETS (Percent of Manufacturers)
China
Mexico
Latin America
Other Asia/Middle East
Current Operations/Joint Ventures
10
7
5
6
Future Potential
15
6
5
7
Not Able to Gain Access due to Constraints
3
0
1
0
Political Instability/Uncertainty
18
1
1
2
Government Interference
16
1
2
2
Ownership Restrictions
12
0
1
2
Competition Policy
2
0
0
0
Government Imposed Performance Requirements
7
1
2
3
Threat of Expropriation
5
0
1
2
Unreliable Legal System
15
0
0
2
Protective Regulations
17
1
2
4
Theft of Intellectual Property
15
1
3
5
Unstable/Uncompetitive Tax Regime
0
0
2
2
Capital/Currency Restrictions
5
0
2
1
Corruption
5
1
3
3
Reported Constraints:
133
Canada-U.S. Business Relations Industrial markets, business organizations, manufacturing activity, supply chains and business networks are closely integrated between Canada and the United States. Among the manufacturers participating in CME’s 2004 Management Issues Survey, 73% report that they are currently selling into the American market; 78% say that they are sourcing materials, components, finished goods, technologies, or services from the United States; and 35% have business operations in the U.S., either in the form of direct investments or joint ventures. The United States also figures most prominently when it comes to assessing the future potential of markets around the world. Almost half of the manufacturers surveyed see future potential for exports into the U.S. market; 38% expect sourcing activity from the U.S. to increase; and 26% see greater potential for expanding operations or joint ventures in the United States. Canadian manufacturers depend on secure and low cost access to industrial customers, wholesalers, and distributors in the U.S. Among respondents to CME’s 2004 Management Issues Survey, 42% of manufacturers report that 50% or more of their sales revenue over the past three years was earned from exports into the United States – 23% report that exports to the U.S. accounted for over 80% of their total sales. Only 9% of companies report that they did not earn export revenues from sales into the U.S. between 2001 and 2004. Generally larger companies are more dependent on exports to the U.S. than smaller ones, but there are also a significant number of firms with fewer than ten employees that report a majority of sales in American markets. These survey results along with other statistics measuring the value of trade and investment flows between Canada and the United States still underestimate the importance of CanadianAmerican business relations. Materials, components, and finished products may cross the border several times before making their way to the ultimate consumer. Every time they cross the border, they are counted as an export or an import. What is not counted is how critical these goods and services are to the business success of manufacturers operating in both countries. Unexpected production shut-downs or delays in trade flows have far-reaching impacts if they affect the delivery of critical parts in supply chains and business networks that depend on highly efficient and predictable logistics schedules. On the whole, Canadian-American business relationships are working well, as witnessed by the rapidly growing trade and investment flows between our two countries. Nevertheless, manufacturers do identify a number of immediate problems and concerns that must be rectified in order to strengthen bilateral trade and investment, and the prosperity of both the Canadian and U.S. economies. The issues raised most frequently by companies participating in CME’s Manufacturing 20/20 discussions are: 1. Border delays. Heightened security at the Canada-U.S. border have meant delays for shipping goods as well as for people crossing the border to get to work in border communities and regular business travelers to the United States. Security problems have also focused attention on the inadequacy of border infrastructure to handle the growing volumes of goods and people crossing between Canada and the United States each day. Manufacturers identify an urgent need to increase the number of border crossings and improve transportation infrastructure leading to border crossings, especially in Ontario – and in Windsor, the most heavily used border point in the country. Pre-clearance systems need to be put in place to remove as many customs, immigration, and regulatory inspections as possible away from the border. FAST, NEXUS, and other systems for expediting business traffic must be expanded. At the same time, manufacturers must be prepared to meet the more exacting security and inspection standards required for cross-border transit. And, regulatory requirements must be simplified and compliance costs kept low to ensure that border security does not itself become a barrier to trade.
134
2. Outstanding trade disputes affecting softwood lumber and beef exports. Manufacturers want a speedy and long-term resolution of these disputes. They are concerned not only about the immediate costs of trade actions undertaken by the U.S., but also about rising protectionist pressures in the United States and the tendency of the U.S. government to ignore or dilute the dispute resolution provisions of the NAFTA. 3. Increasing protectionist pressures in the U.S. There is widespread concern that U.S. trade remedies may sideswipe Canadian manufacturers. Many manufacturers note that U.S. companies are increasing pressures for trade action to be taken against counterfeit and fraudulently marked products being imported through Canada. Canadian manufacturers are also concerned that problems in political relations between the two countries have a negative impact on contracting and investment decisions on the part of American companies. 4. Different regulations and product standards. The existence of duplicate and sometimes multiple sets of regulations and standards affecting products, processes, and business practices in Canada and the United States significantly increase the costs of trans-border trade for many manufacturers and slow regulatory approval processes for new product introductions. In some cases, additional costs and regulatory restrictions impede the entry of new products into the smaller Canadian market. For other companies, the complexity of regulatory requirements significantly increase compliance costs and delay market entry without leading to any improvement in regulatory outcomes with respect to health, safety, or environmental protection. 5. Rules of origin that exclude certain products from tariff-free treatment under the NAFTA. Manufacturers of machinery and equipment and certain consumer products like toys identify a need to update rules of origin to ensure a level playing field for all North American manufacturers under the NAFTA. 6. Buy-America rules that exclude Canadian companies from state and local procurement markets in the U.S. 7. U.S. and Canadian credentialing requirements that make it difficult for companies to transfer qualified personnel – like engineers – easily within or between Canada and the United States.
135
PERCENTAGE OF TOTAL REVENUES EARNED FOM EXPORTS TO THE UNITED STATES (Percent of Manufacturers)
Location
0%
Less than 10%
10% to 30%
30% to 50%
50% to 80%
80% to 100%
British Columbia
24
11
7
18
29
11
Alberta
29
9
5
12
26
19
Saskatchewan
21
15
15
15
21
15
Manitoba
12
6
18
29
30
6
Ontario
6
10
16
30
23
15
Quebec
5
10
15
21
40
9
Atlantic Canada
18
18
22
15
18
9
Totals
9
10
15
24
29
13
Employees
0%
Less than 10%
10% to 30%
30% to 50%
50% to 80%
50% to 100%
1 to 10
31
7
5
11
18
18
11 to 50
15
15
15
10
24
21
51 to 200
2
9
20
29
32
9
201 to 500
4
7
22
32
26
8
501 to 1,000
0
4
16
32
36
12
Over 1,000
0
6
18
25
36
15
Totals
9
10
15
24
29
13
Ownership
0%
Less than 10%
10% to 30%
30% to 50%
50% to 80%
80% to 100%
Canadian privatelyowned firm
18
12
10
16
29
15
Canadian publicly owned corporation
13
8
17
26
25
11
Subsidiary of a foreign-owned corporation
6
9
26
29
30
10
Other
60
20
20
0
0
0
Totals
9
10
15
24
29
13
136
The Impact of China China is the world’s new industrial powerhouse. It is also a large and rapidly growing market for raw materials, industrial goods, capital equipment, and consumer products. With average labour costs about 1/40th of those in Canada, China has become a major competitor in investment and industrial markets around the world. China’s liberalization has produced rapid economic growth, rising standards of living for the Chinese, and a boom in both foreign investment and industrial output. China is now a leading manufacturer, not only of textiles and consumer products, but of increasingly sophisticated electronic equipment, software, and other technologies as well. It is competing increasingly on the basis of innovative, high-end, value-added products, as well as costs, using some of the world’s best technologies and drawing from a pool of highly skilled talent. China has also become an integral part of manufacturers’ global supply chains – a manufacturing hub for the rest of the world, but also a major source of demand for high-end, more capital-intensive products. Faced with the rapid expansion of low-cost production capacity in China, manufacturers around the world are experiencing competitive pressures as never before. Canadian manufacturers are losing market share in domestic markets, in the United States, and in other countries to Chinese imports. China’s excess industrial capacity and cost advantage have dramatically lowered the price of manufactured goods being sold around the world. At the same time, however, shipping costs have risen dramatically, while escalating demand for raw materials in China is driving up the price of commodities from lumber and coal to scrap metal and chemical feedstocks. Problems with products being dumped into the North American market at prices that are even lower than production (and sometimes materials) costs, as well as with counterfeit products and fraudulently marked imports from China, only compound the difficulties that manufacturers are experiencing. At the same time, China is a source of dynamic market growth and for manufacturers a means of cutting production costs, improving supply chain efficiencies, buoying up profits, and lowering prices for customers. China is a huge market. It is becoming a more important source of investment funds for manufacturers in Canada. For many companies, there are also significant opportunities to be gained by outsourcing to China and, in some instances, locating production there to serve not only the Chinese market but as part of a larger global supply chain. Some Canadian suppliers may have no choice but to locate production in China, because their customers have already done so. Yet, gaining access into the Chinese market or operating there poses other difficulties that have to be effectively managed. China will be the most significant factor determining the long-term future of manufacturing in this country. Its emergence as a global industrial power – and as an integral part of global supply chains – will change the nature of economic activity in Canada, across all of North America, and around the world. It is already forcing businesses to reassess what part of their activities – what type of jobs – are likely to remain in Canada in the future. •
Over 40% of the manufacturers participating in CME’s Management Issues Survey indicate that the challenges and opportunities posed by China will fundamentally reshape the nature of their business over the next five years.
•
43% of the survey respondents say that they have lost market share to Chinese competitors within Canada, 42% in the United States, and 26% in other export markets. Some companies report that the surge in low cost Chinese imports has seriously disrupted market conditions in North America.
137
THE CHINA FACTOR
PERCENTAGE OF MANUFACTURERS
50 45 40 35 30 25 20 15 10 5 0 LOSING MARKET LOSING MARKET LOSING MARKET CONCERNS OVER CONCERNS OVER CUSTOMERS ARE PART OF A SHARE IN SHARE IN THE SHARE IN OTHER UNFAIR TRADE INTELLECTUAL RELOCATING TO SUPPLY CHAIN CANADA USA CONTRIES PROPERTY CHINA THAT INCLUDES PROTECTION CHINA
•
22% of companies report that their customers are relocating production facilities to China. Many also state that their customers are forcing them to relocate their own production to China in order to maintain supply contracts.
•
26% of companies say that they are concerned about unfair trade practices on the part of Chinese companies, citing dumping and government subsidies as major problems, as well as the uneven playing field created by lower health, safety, employment, and environmental standards in the Chinese market.
•
18% of manufacturers say that they are concerned or negatively affected by the production of counterfeit or fraudulently marked products in China.
•
China offers significant opportunities as well. Nearly 35% of companies report that they are already part of a supply chain or business network that includes Chinese companies.
•
15% of manufacturers responding to the survey say that they are currently selling into the Chinese market, and 19% see future potential to do so.
•
Many more – 23% of companies – indicate that they are currently sourcing from China, and 29% see opportunities to increase sourcing activities from that country.
•
Just over 10% of manufacturers in the survey report that they have opened operations in China or are actively engaged with Chinese companies in joint ventures or business networks.
138
THE IMPACT OF CHINA (Percent of Manufacturers) Location
Losing Market Share in Canada
Losing Market Share in the USA
Losing Market Share in Other Countries
British Columbia
32
29
14
Alberta
34
33
19
Saskatchewan
23
38
15
Manitoba
41
47
12
Ontario
45
43
28
Quebec
50
50
32
Atlantic Canada
22
67
67
Totals
43
42
26
Losing Market Share in Canada
Losing Market Share in the USA
Losing Market Share in Other Countries
1 to 10
34
26
13
11 to 50
41
40
22
51 to 200
52
47
30
201 to 500
42
49
28
501 to 1,000
55
55
45
Over 1,000
36
57
36
Totals
43
42
26
Employees
Losing Market Share in Canada
Losing Market Share in the USA
Losing Market Share in Other Countries
Canadian privately-owned firm
43
37
21
Canadian publicly owned corporation
45
48
26
Subsidiary of a foreignowned corporation
42
49
37
Other
60
80
20
Totals
43
42
26
Ownership
139
THE IMPACT OF CHINA (Percent of Manufacturers)
Concerns over Intellectual Property Protection
Concerns over Unfair Trade
Customers are Relocating to China
Part of a Supply Chain that Includes China
British Columbia
14
18
7
25
Alberta
14
21
14
21
Saskatchewan
0
15
0
23
Manitoba
6
18
18
18
Ontario
22
28
25
32
Quebec
17
25
23
36
Atlantic Canada
11
22
11
11
Totals
18
26
22
32
Location
Concerns over Intellectual Property Protection
Concerns over Unfair Trade
Customers are Relocating to China
Part of a Supply Chain that Includes China
1 to 10
13
38
18
28
11 to 50
19
32
24
32
51 to 200
15
28
27
36
201 to 500
19
20
24
29
501 to 1,000
36
14
18
36
Over 1,000
18
12
15
29
Totals
18
26
22
32
Employees
Concerns over Intellectual Property Protection
Concerns over Unfair trade
Customers are Relocating to China
Part of a Supply Chain that Includes China
Canadian privately-owned firm
12
33
26
25
Canadian publicly owned corporation
24
22
35
37
Subsidiary of a foreign-owned corporation
36
12
33
Other
20
20
20
60
Totals
18
26
22
32
Ownership
14
140
Infrastructure Canadian businesses will be able to take advantage of global market opportunities only if Canada’s transportation and communications infrastructure is adequate to meet their future requirements. Canadian manufacturers have always placed a heavy emphasis on well-developed infrastructure. Up until the mid-1990s, manufacturers viewed the quality of Canada’s transportation, communication, and utilities infrastructure as a significant competitive advantage for their business. Conditions have changed over the past ten years: •
Roadways feeding into and out of major urban centres are increasingly clogged with cars and trucks, slowing traffic and making it both more expensive and more risky to meet just-in-time delivery schedules;
•
Highways leading to and from Canada’s crucial border crossings with the United States cannot handle current traffic volumes in a time-efficient way;
•
In Ontario, the bridges and tunnels that carry 60% of Canada’s trade with the United States have become bottlenecks to efficient logistics and supply chain management;
•
In northern regions, as well as in western and Atlantic Canada, transportation systems are inadequately developed and freight costs are uncompetitively high;
•
Canadian port facilities are suffering back-ups leading to delivery delays, and cannot guarantee that they can offer adequate or reliable services to meet the requirements of manufacturers dependent on increasing trade volumes;
•
Rail lines connecting Canadian ports with the rest of the country do not have the capacity to handle increasing freight volumes;
•
Airports are being closed and air services curtailed in communities outside major population centres – a problem of particular concern in Atlantic Canada, Manitoba, Saskatchewan, and northern regions of BC, Ontario, and Quebec; and,
•
While communication costs are currently competitive, regulatory restrictions and bandwidth availability are limiting the extent to which manufacturers can take advantage of new communication capabilities.
Canada’s telecommunications infrastructure needs the capacity and connectivity to support the complex, high-speed, integrated, and globally distributed information systems and communications networks that will be required within manufacturing companies and across supply chains. Manufacturers across Canada also identify the need for an integrated logistics strategy for the country to ensure that future shipping requirements are met on a just-in-time basis and at competitive costs. Canada’s transportation infrastructure must develop the capacity to meet the growing volume of goods traded within North America as well as with Asia and Europe. But, many companies see the need for a more aggressive logistics strategy. They believe that governments together with the private sector must put in place the infrastructure and logistics systems that will enable Canada to become the logistics hub of North America – the preferred point of entry and exit for trade between North America and the growing Asian market.
141
Recommendations for Action A Strategy for Global Business Success Canada’s manufacturers, governments, business partners and stakeholder organizations need a strategy for global business success that focuses on supporting all aspects of competitiveness and success for Canadian businesses operating in domestic markets and around the world. In order to succeed in global markets, Canadian manufacturers require: •
A strong competitive base within Canada;
•
Government policies aimed at securing access in markets around the world; and,
•
Effective programs in support of both trade and international investment activity.
Strengthening Competitiveness at Home Manufacturers must: •
Implement new business strategies to compete and grow in global markets. Global competitiveness and international market development must be an integral part of all business strategies. As many manufacturers noted in discussions on the future of their industry in Canada – Everyone needs a China strategy;
•
Give greater emphasis to international market research and customer relationships in order to identify the innovative product and service solutions that will deliver the greatest value to customers and highest returns on their investments;
•
Focus on identifying and meeting customer needs and market opportunities around the world. Their products and services must be designed to meet those needs rather than simply developed for sale in international markets;
•
Focus their business strategies on rapid product and process innovation aimed at meeting customer needs in new, better, faster, and less expensive ways;
•
Focus on new product development, customized and innovative design and engineering, and customer service to stay ahead of the commoditization trap, differentiate their products and services, and continuously create value for customers with different needs around the world;
•
Significantly upgrade their export readiness capabilities. Companies have to invest adequate resources, time, and expertise in identifying and developing new international market opportunities, building partnerships and marketing networks, and providing customer service on an international scale, in order to sustain export growth;
•
Expand international partnerships and collaboration on in order to take advantage of the best the world has to offer in terms of knowledge, technology, skills, design, engineering, production, service, and distribution capabilities; and,
•
Master the management of the global supply chains and business networks in which they are a part.
142
Canada’s schools systems, colleges, universities, and training programs must prepare students with the knowledge, skills, and practical experience required by a modern manufacturing workforce and businesses operating in world markets; Research centres and industrial assistance programs must: •
Measure their success less by how much money is being spent than by how well we transfer new techniques and technologies into the marketplace;
•
Promote the adoption of best practices by manufacturers;
•
Strengthen liaison networks with industry and other centres of research; and,
•
Expand collaborative research initiatives on an international basis.
Canada’s business and financial services sector must: •
Ensure that their services are fast, flexible, easily accessible, highly effective, customized, and competitively priced;
•
Develop integrated solutions to assist their customers improve operating efficiencies, develop innovative products, invest in new technologies, and expand their businesses around the world; and,
•
Provide customized financing solutions for exports, investment, and business expansion, particularly for smaller businesses across the country.
Local governments must: •
Recognize the importance of manufacturing to the prosperity of their local communities;
•
Ensure the availability of high quality, competitively priced land and infrastructure;
•
Ensure that local taxes and user fees are competitive and do not erode the business investment upon which the prosperity of their communities is based;
•
Streamline regulatory approvals; and,
•
Be able to provide the infrastructure and incentives to retain and attract manufacturing investments to their communities.
Provincial governments must: •
Recognize the importance of manufacturing to the economic future of every province and develop a strong understanding of the changes occurring within the industry;
•
Ensure that Canada’s tax system offers the best environment for manufacturing investments in North America by eliminating capital taxes, sales taxes on equipment and manufacturing inputs, accelerating depreciation for manufacturing equipment, and providing tax credits for investments in new technologies;
•
Lower the costs of regulatory compliance by streamlining approvals, reducing red tape, eliminating duplication and inconsistencies in regulations, and harmonizing compliance requirements across Canada, as well as between Canada and the United States;
143
•
Ensure a reliable and cost-competitive supply of energy;
•
Ensure that provincial transportation infrastructures are modern and sufficient to meet the needs of a rapidly-growing economy, and enable public-private partnerships and other financing mechanisms for infrastructure development;
•
Increase their investments in educational and skills training programs that meet the future needs of manufacturing and global businesses;
•
Increase their investments in support of innovation within manufacturing, the transfer of knowledge and technologies from universities and other research centres to industry, and collaborative innovation and training initiatives on the part of manufacturers; and,
•
Compete effectively with the investment incentives offered by American states, and allow municipalities to offer investment incentives in local communities. Provincial and local governments must understand the site selection process being used with respect to potential investment opportunities, provide a competitive investment environment, but avoid encouraging incentive wars.
Canada’s Federal Government must: •
Develop long-term, ambitious, but achievable goals with respect to strengthening the economic prosperity of Canadians, bring to the table each of the partners that will be required to achieve its vision, and demonstrate the political will to succeed;
•
Recognize the importance of manufacturing in achieving its public policy objectives and develop a strong understanding of the changes occurring within the sector;
•
Ensure that the tax treatment of business provides an investment environment second to none in North America by implementing accelerated depreciation allowances for machinery, equipment, and automated processes used in manufacturing and tax credits for investments in new technologies;
•
Lower the costs of regulatory compliance by streamlining approvals, reducing red tape, eliminating duplication and inconsistencies in regulations, and harmonizing compliance requirements across Canada, as well as between Canada and the United States;
•
Develop a strategy for using Canada’s immigration system as a tool to promote Canada’s prosperity, actively recruiting the best and most ambitious people in the world to join us in building a better future;
•
Increase support for investments in new technology, for the innovation activities and continuous improvement efforts of smaller manufacturers, as well as for collaborative efforts to assist manufacturers improve their competitive capabilities;
•
Tie R&D funding more effectively to the commercial needs of industry;
•
Increase investment incentives, and improve the focus, flexibility and accessibility of programs linked to innovation, technology implementation, skills enhancement, and environmental sustainability that are essential for winning large-scale manufacturing investments and product mandates;
•
Effectively enforce trade regulations to prevent the importation of dumped, subsidized, counterfeit, and fraudulently marked products into Canada. Better analysis is required with regard to the market impacts of import surges and unfair trading practices in China and other
144
newly industrializing economies. Canadian Trade Tribunal proceedings must be expedited and access to the tribunal must be made easier and less costly for Canadian companies. Customs inspection procedures must be tightened, especially at Canadian seaports. And, customs rules must be revised to place the onus of proof in developing economies on foreign firms or governments. •
Provide the support and enable the partnerships that will be necessary to make Canada the logistics hub of North America and to ensure a reliable and cost competitive supply of energy to power economic growth; and
•
Partner effectively with other stakeholders and governments to get the job done.
Securing Access in World Markets Canadian businesses must develop the capacity to operate on a global scale. In order to achieve this goal, there must be a more integrated market framework between Canada and the United States, and within the NAFTA as whole. The Canadian government must develop a strategy for a renewed North American partnership. Border delays must be eliminated, and trade disputes rapidly resolved. But, the strategy must go beyond lowering existing barriers to trade. Canada needs to secure our position as the most important trading partner of the United States and leverage our relationship to greater advantage both commercially and diplomatically. The Canadian government must make it a strategic priority to maintain and improve access for Canadian businesses in the U.S. market. At the heart of its North American strategy, the Canadian government needs to adopt a “preventative maintenance” approach to potential trade disputes. Border delays must be eliminated, making the Canada-U.S. border seamless for commerce between the two countries. Border infrastructure must be upgraded on an urgent basis. Perimeter-based security and inspection systems must be rapidly deployed. Preclearance systems must be expanded and made more cost efficient. The Canada-U.S. 30-point Border Action Plan must be implemented rapidly and effectively. Canada and the U.S. must work together to update the rules of origin requirements of the NAFTA, eliminate local procurement preferences, and ensure that dispute resolution procedures are maintained and effectively observed. There must be greater harmonization of regulatory compliance requirements between the two countries. Canada must coordinate its approach to enforcing multilateral trade rules more effectively with its NAFTA partners. The Canadian government must improve its tax treaties with the United States and Mexico by negotiating the reciprocal elimination of withholding taxes on interest, dividends, and royalties. Beyond our economic relationships within the NAFTA, Canada needs a China strategy – a coordinated and integrated approach to respond to the economic challenges and take advantage of the business opportunities posed by China and other rapidly emerging economies like those of India, Russia, and Brazil. We must ensure that multilateral trade rules are effectively enforced, and that health, safety, environmental, and labour standards are improved and enforced in emerging industrial economies. The Canadian government must develop a strategy that promotes the diversification of Canada’s trading and investment relationships, by opening markets for, and supporting the activities of, manufacturers and other businesses that are operating on a global scale. Our trade agreements must ensure that Canadian industrial and services companies can enjoy more secure and open access into major global markets. Greater emphasis must be placed on bilateral, regional, and multilateral trade agreements with respect to investment, services, regulatory harmonization, intellectual property protection, competition and procurement policies, as well as industrial tariff issues.
145
In addition, there must be greater coordination and alignment across all government departments in matters affecting international competitiveness and international business development – including foreign, trade, and international development assistance policies, as well as policies related to the environment, innovation, agriculture, health, natural resource management, immigration, business and consumer law, tax, and regulation. More integration is needed as well between policy development and government financing and support programs aimed at enabling international trade, investment, intellectual property protection, and business partnerships. More generally, business strategies and public policies in Canada must move beyond a model in which Canadian companies are simply exporting to, importing from, or investing in other countries. They must focus instead on the requirements of the global enterprise – on businesses, supply chains, or business networks in which all aspects of commercial activity take place concurrently in a number of countries around the world – and on what is necessary to capture the highest economic benefits of that activity for Canadians.
Trade & Investment Promotion Canadian manufacturers and exporters recognize the importance of trade and investment promotion services offered by Canadian government agencies, provincial governments, financial and business services companies, and business associations. They especially note the important role played at the federal level by the Trade Commissioner Service, Export Development Canada, the Canadian Commercial Corporation, the export assistance programs offered by regional development agencies, and Team Canada trade missions. They also make a number of recommendations to improve those services: •
International trade and investment promotion agencies must continually consult and build stronger relations with Canadian businesses in order to understand their requirements in international markets;
•
Trade and investment assistance should be more targeted to those sectors and markets in which Canadian exporters have the greatest interest and show the greatest potential for taking advantage of commercial opportunities;
•
Resources for the Trade Commissioner Service, EDC, and CCC should be expanded to allow for more local presence in priority markets for exports, sourcing, and investment;
•
Much more coordination and integration is needed among all agencies involved in trade and investment assistance activities at the federal level – as well as with provinces, local economic development agencies, and business associations – to provide the integrated solutions that Canadian businesses require;
•
All agencies must continuously improve their services and maintain their ability to respond rapidly to business requirements;
•
Trade commissioners, CCC, EDC, and other government agencies working abroad should focus more on identifying commercial opportunities for Canadian businesses – commercial applications for products and technologies, as well as reliable sourcing and business partners – and then coordinating with business and other agencies to ensure that adequate financing, technical support, training, and management assistance is provided to enable companies to capitalize on those opportunities;
•
Trade commissioners should work more closely with EDC, CCC, and the National Research Council’s IRAP program to assess the commercial potential of international business opportunities and the capabilities of Canadian exporters. IRAP and the Trade Commissioner
146
Service must strengthen their collaborative efforts to identify international market opportunities for Canadian manufacturers and work with companies to develop the technological, engineering, design, business, and financing capabilities that manufacturers need to take advantage of those opportunities; •
Innovative financing mechanisms must be developed to respond to the international financing requirements of Canadian business. EDC should be prepared to take on more risk and offer financing in developing markets. Legislative frameworks must be continuously updated to allow financing institutions to meet the requirements of Canadian businesses operating in international markets;
•
Industry Canada and the National Research Council must work with more closely with other trade and innovation support programs in order to increase Canadian participation in international R&D collaborative initiatives;
•
Financing and government support programs for innovation (including the federal SR&ED Tax Credit Program) should be extended to cover international market research and R&D investments made by companies based in Canada;
•
Support for international market development activities must be made available across Canada – a particular concern for companies that cannot access programs provided by regional development agencies;
•
Government agencies must collaborate more with business associations and other private sector organizations in their trade and investment promotion activities abroad, in supporting business consortia aimed at expanding international business, and in building mentorship programs for companies entering new markets; and,
•
Increased support should be provided to incoming as well as outgoing private sector trade and investment missions.
Taking the Lead Manufacturing 20/20 has been the most wide-ranging exercise of its kind in Canadian history. Thousands of stakeholders from across Canada have taken part in developing an ambitious but achievable vision for the future of manufacturing in Canada. However, the most important part of the work lies ahead. We now need to transform the vision presented by manufacturers and communities across Canada into reality. Building on the success of Manufacturing 20/20, Canadian Manufacturers & Exporters will: •
Establish Manufacturing Advisory Councils to work with provincial and federal governments to identify priority issues and continue to define the future requirements of the industry;
•
Provide annual updates on progress made with respect to the benchmarks of success identified in this report;
•
Continue to listen to and speak on behalf of Canadian manufacturers and other businesses operating in global markets;
•
Work with all levels of government to ensure that manufacturing and international business priorities are effectively addressed;
147
•
Promote and provide tools to make Canadian manufacturers and exporters more competitive, including the development of consortia enabling companies to share best practice and pool resources to strengthen their innovation and export capabilities;
•
Collaborate with its network of associations throughout the world to remove impediments to trade and investment, share best practices, and identify new business opportunities for Canadian companies;
•
Assist and encourage Canadian businesses to develop new international markets and suppliers;
•
Continue to lead the effort to ensure that the Canada-US border plan is implemented efficiently and effectively;
•
Continue to lead industry efforts to ensure that regulatory reforms are implemented that require Canadian regulators to meet internationally competitive service standards, streamline regulatory procedures, and reduce regulatory compliance costs;
•
Partner with Canada’s leading business and financial services companies to offer manufacturers and businesses expanding around the world the customized services they require to take advantage of new growth opportunities in international markets;
•
Take the lead in developing a national logistics strategy, including preparation of a feasibility study to increase the capacity of Canada’s west coast ports and associated transportation systems;
•
Work with stakeholders to identify the future telecommunications requirements of Canadian manufacturing;
•
Launch a concerted initiative to improve the tax treatment of Canadian manufacturers;
•
Work with federal and provincial governments, trade financing organizations, and export support services to ensure that the requirements of manufacturers and other businesses operating on a global basis are effectively met; and,
•
Provide its members with a range of new services that will enable them to compete and grow in global markets.
148
APPENDIX Location of 20/20 Meetings with Manufacturers British Columbia
Ontario
Kelowna (2) Vancouver (2) Victoria Terrace
Barrie Brockville Cambridge Clinton Fort Erie Hamilton (2) Kitchener London Markham Mississauga (3) Northern Ontario Oakville Orangeville Ottawa Owen Sound Peterborough Seaforth Toronto (4) Windsor Whitby
Alberta Calgary Edmonton Lethbridge Red Deer Saskatchewan Regina Saskatoon Manitoba Brandon Gimli Winnipeg (4) Winkler New Brunswick Fredericton Miramichi Prince Edward Island Charlottetown
Québec Alma Chicoutimi Drummondville Laurier-Station Montréal (2) Québec Rouyn Sherbrooke Trois-Rivières Victoriaville
Nova Scotia Newfoundland & Labrador Amherst Halifax Yarmouth
Cornerbrook St. John’s
149
Location of 20/20 Community Roundtables British Columbia
Ontario
Kelowna Vancouver Victoria
Manitoba
Barrie Brampton Hamilton Kingston Kitchener London Markham Oakville Oshawa Ottawa Peterborough St. Catharines Sudbury Toronto Windsor
Winnipeg
Québec
New Brunswick
Alma Chicoutimi Drummondville Laurier-Station Montréal Québec Rouyn Sherbrooke Trois-Rivières Victoriaville
Alberta Calgary Edmonton Saskatchewan Regina Saskatoon
Fredericton Nova Scotia Halifax Newfoundland & Labrador St. John’s
150
Thank you to our national partners
The future of manufacturing in Canada
