Canadian Manufacturers Must Focus on Innovation, Product Development

January 13, 2011 Updated: September 29, 2015

[xtypo_dropcap]C[/xtypo_dropcap]anadian manufacturers should find new ways to compete with their global counterparts when faced with the reality of a strong loonie and lower cost jurisdictions, according to a survey released Tuesday.

A focus on cost and risk mitigation are critical to Canadian manufacturers looking to stay competitive, finds the survey from KPMG Canada, an accounting firm with offices across the country.

“Canadian manufacturing executives are still pointing to cost minimization as the key factor in addressing supply chains,” said Jonathan Kallner, National Leader of Industrial Markets at KPMG.

“In addition to cost management, global manufacturers are looking at their entire supply chains to establish partnerships and generate efficiencies. Canadian companies should embrace a multitude of strategies to remain competitive, including an enhanced focus on innovation and product development.”

One way manufacturers are managing costs and finding competitive solutions is through “low-cost country sourcing,” partnering with countries such as India to reduce production spending.

These efforts are an increasing trend away from investment in mature markets such as Canada and the U.S., found the survey, which was conducted among 81 executives in Canadian manufacturing.

Currently, investment in India is only 16 percent among Canadian manufacturers, compared with a global average of 26 percent. This could lead to lost opportunities.

Instead of looking for supply chain solutions abroad, 82 percent of Canadian manufacturers stated that a cost versus risk analysis has led them to adopt a strategy of avoiding high-risk jurisdictions—the same jurisdictions that would provide competitive opportunities.

“Perhaps Canadian manufacturers’ low risk tolerance is again playing a role, this time by keeping them from venturing into partnerships with Indian suppliers, whereas globally, the benefits of this low-cost jurisdiction seem to be attractive enough to outweigh the risks,” the report says.

India may also be an attractive investment alternative to countries like China, which frequently comes under fire for questionable product quality and an atrocious human rights record. Indeed, the report found that only 13 percent of Canadians are comfortable outsourcing to China compared with 29 percent of global manufacturers.

Looking to the future, the survey says Canadian manufacturers expressed a strong desire to improve long-term relationships with suppliers.

“Cost and risk are the standout concerns among Canadian manufacturers. So is a desire to have long-standing, trusting relationships with global suppliers to help maintain quality and greater control over processes.”

The survey also points out that Canadian manufacturers are poised for tremendous opportunities, benefitting from a relatively stable economic environment and a conservative approach to spending. Though not always willing to take big risks, in economic uncertainty this caution has served Canadian businesses well.

“Consistent with our global reputation, Canadian manufacturers are taking a balanced approach between cost and risk which can make Canadian manufacturers more competitive in the long run. However, Canadian manufacturers should increase their focus on innovation,” Kallner said.

But as the market stabilizes, Canadians may have to take greater risks and find more dynamic, creative solutions in order to stay globally competitive.