MISSISSAUGA, Ont. — Canadian manufacturers must invest in innovation if they are to remain competitive in a global market, but a strong dollar and slim profit margins could severely hamper their efforts, according to experts.
Dr. Jayson Myers, senior vice-president and chief economist
of the Canadian Manufacturers and Exporters’ (CME) assocation, told the half-day Manufacturers Executive Forum at Microsoft Canada’s headquarters Wednesday there has been a paradigm shift in the sector. This has been sparked in large part by the 1989 birth of the North American Free Trade Agreement and issues such the ability to innovate and the nation’s productivity gap with the United States. Seventy-five per cent of what Canadian firms manufacture is exported and two-thirds of that goes south of the border.
“No company is competing in a domestic market,” said Myers. “We’re already competing on a North American basis, (and) we’re competing with a number of low-cost knowledge centres.”
“There is an international competition for capital and talent,” said John Crispo, professor of political economy in the Rotman School of Management at the University of Toronto.
All of this competition is forcing selling prices down, said Myers, while the costs of doing business, such as energy, have grown substantially.
Manufacturers are reducing overhead and adopting lean manufacturing to stay afloat. But, he said, “Anyone can cut costs. There’s a fine line between becoming lean and becoming anemic.”
In addition, technology and equipment is acquired from the U.S. but depreciates in Canadian dollars.
While the federal government has done a good job of encouraging research and development in the manufacturing sector, said Myers, “innovation is all about taking these ideas and making money from them. (It’s) about providing value to customers.”
Frank Clegg, president of Microsoft Canada, said the software company realizes manufacturers and small and medium-sized enterprises are wary of making huge investments in technology and want to maximize use of what they have already implemented.
“It’s a tough sell,” he said, but at the same time, the software and processes in Canadian manufacturing are as sophisticated as any other industry. “Competition can be a great innovator.”
Perrin Beatty, president and CEO of the CME, said manufacturers have already picked the low-hanging fruit, but there are still opportunities to innovate and improve processes through use of technology. “We are under-utilizing the capital investments we have made in equipment.”
Mike Rowbottom, vice-president of operations at Burlington, Ont.-based Summo Steel Corp.’s manufacturing division, said having an entrepreneur at the helm has meant the company has seen the value of investing in technology. Summo, for example, bought Navision products two year ago because there were few products available for small but growing manufacturers, said Summo controller John DiMarco.
“There were a lot of canned packages,” added Rowbottom, who said he already had scars from his experiences implementing SAP at another organization.
DiMarco said Summo was pleased when Navision was acquired by Microsoft Business Solutions last year because it means there is a long life span ahead for the technology.
Summo is also able to take the modules it wants, said Rowbottom, and doesn’t have to pay for functionality it doesn’t need or want.
While Summo wanted technology that could be adapted to its business, said Rowbottom, that doesn’t mean it’s not looking to change how the company does business. The first and foremost benefit of using technology for the manufacturer is getting more accurate and timely information. “The business itself changes whenever you get information from the system,” he said. “That forces change.”
In order to truly understand the return on investment of any technology, said Rowbottom, you have to be able track the R&D costs and track productivity gains.
“You can innovate to death,” he said, but, “if you can’t track those things, you’re just going to be another ‘me too’ company.”
According to Striving for Excellence, an update on Canada’s innovation and productivity challenge prepared by the CME, Canadian manufacturers and exporters perform on average about half was well as the best of the G7, making the country’s excellence gap 50 per cent of G7 best practice, said Myer.
“Middle of the pack doesn’t cut it any more,” he said. “You have to be extraordinary.”