07/21/2014 12:56 EDT | Updated 09/20/2014 05:59 EDT

Manufacturing poised to move on-shore, KPMG report says

After cutting costs and introducing efficiencies during the global crisis, Canadian manufacturing is poised to grow again because of some key changes in the way business is being done worldwide, according to a report from KPMG.

In its annual outlook on the Canadian manufacturing sector, the consulting firm says there is a shift coming from making goods in low-cost countries to making them “on-shore” in North America because of rising energy costs and a lack of quality and consistency from China and India.

Shrinking lead times in developing and manufacturing new products will also encourage more on-shore manufacturing, authors Laurent Giguère and Don Matthew say.

Canadian manufacturers will be able to take advantage of these trends because of their proximity to the U.S. and their reputation for making higher quality goods, the report Canadian Manufacturing Outlook 2014 says.

“Canadian companies have the opportunity to respond to the growing demand among their customer base for more and better products delivered faster, and gain competitive advantage by investing in R&D and increasing speed to market,” the report says.

Skilled workforce an advantage

It points to Canada’s highly educated workforce as an advantage because of the need for professionals who understand supply-chain management and workers who can handle robotics. 

The authors urge manufacturers to develop relationships with post-secondary institutions so they can build a workforce with the right skills.

Their findings, based on a survey of 154 manufacturing executives, provides a more optimistic assessment of the future of manufacturing than the Bank of Canada, which is worried about export growth, or the C.D. Howe Institute, which reported last week that Canadian businesses are not investing.

“The manufacturing sector in Canada has undergone a period of survival of the fittest over the past decade. The strongest companies having withstood tough times are well positioned to compete locally and globally. Canadian manufacturers are the busiest they’ve been in many years, and it is essential for these companies to remain focused on future success, thinking ahead rather than simply fighting to survive,” said Giguère, who is national industry leader of industrial markets for KPMG.

Fewer orders from China

The move to sourcing closer to home is new, with the strengthening U.S. economy and lower Canadian dollar playing into the trend, the report said.

In 2014, only 14 per cent of manufacturers planned to source from China, compared with 31 per cent in 2013 and three per cent were looking to India compared to 12 per cent last year

Among survey participants, 81 per cent said they were focusing on revenue growth and  most are concentrating on opportunities in Canada and the U.S.

The report found the main challenges for the industry includ price pressures, the need for innovation and understanding customer needs.