POLITICS

Canadian manufacturers optimistic, forecast sales shift to developing countries

10/18/2012 09:45 EDT | Updated 12/18/2012 05:12 EST
Canadian manufacturers are feeling optimistic about their futures as they foresee a sales shift over the next three years towards Europe and developing countries, according to a study released Thursday by their industry's main association.

Sales within their home provinces, to the rest of Canada and to the United States will remain the dominant markets for Canadian goods, but most companies expect to expand their reach to other markets, according to the survey of 649 Canadian companies released by the Canadian Manufacturers and Exporters association.

"Companies expect globalization pressures will propel a shift in where they do business," the analysis conducted in August by a coalition of 52 industry associations found.

Asked where their customer base is located today, 89 per cent of the respondents said it was in their home province. In three years, however, the number is expected to fall 17 points to 72 per cent.

Similarly, 84 per cent of respondents said their supply base was in their home province. In three years, that's expected to drop to 68 per cent.

The United States was identified as the biggest foreign customer and supplier base, although its importance is expected to decline slightly from current levels.

In contrast, the European Union, Eastern Europe including Russia, China, India and Brazil were all expected to be increasingly important customer bases over the next three years.

The study indicates Canadian companies also expect more of their supplier base will be outside Canada, with low-cost China, India and Eastern Europe growing.

"This will begin to transition in the coming years, as the U.S. market is expected to remain weak, and companies ramp up their search for new offshore customers," said the survey released Thursday.

Small companies said developing new markets was key, while those with more than 500 employees identified supply chain management and logistics, cost and availability of raw materials and regulations as larger challenges. Inter-provincial trade barriers was the least common concern.

Despite political promises to facilitate an improvement to cross-border trade, 34 per cent of companies said Canada-U.S. border regulations and security have worsened, compared to eight per cent which claimed an improvement.

Respondents also indicated an optimism for the future, with about three-quarters of the respondents anticipating higher profits by 2015, and 40 per cent forecasting that profits will grow by more than 10 per cent.

A strong majority of the executives said their companies expect production volumes will increase without reducing employment or investment.

The level of optimism expressed by Canadian companies was vastly different from the last survey two years ago, said CME president Jayson Myers.

"The future didn't look nearly as bright two years ago as it does right now," he said from Ottawa.

Contrary to some recent suggestions, Myers said the survey indicates that companies are investing in new products, technologies and markets.

He said the results give the lobby group insight into the challenges and opportunities facing manufacturers as they respond to competitive pressures.

The U.S. remains an important part of the outlook as many Canadian companies use the North American supply chain to export their products to developing countries. For example, he said China's most popular car is assembled in Ontario and shipped overseas through the United States.

More than half of the respondents have operations in Ontario and many have operations in more than one province. Nearly three quarters are manufacturers with metal and machinery companies representing more than one-third of participants.

Respondents in all provinces except Saskatchewan said the most pressing challenge facing Canadian companies is increased competition in their primary markets, followed by the strength of the Canadian dollar, attracting/retaining labour and global economic conditions.

Alberta, Saskatchewan and Manitoba placed a higher emphasis on the availability of skilled labour, than other provinces, including central Canada which has sustained significant job losses due manufacturing closures. Still, Manitoba and Quebec reported the highest levels of immediate shortages of skilled workers.

The three western provinces were also less influenced by government support programs.

But more than 62 per cent of companies endorsed government efforts to support investments in innovation and capital investment. Seven in 10 said they would reduce their R&D activity if capital expenditures were eliminated from Canada's Scientific Research & Experiment Development tax credit program. Another 18 per cent said they would shift their R&D to other jurisdictions.