Outlook for ManufacturingChallenges & Opportunities : Outlook for Manufacturing Challenges & Opportunities Jean-Michel Laurin Vice President - Global Business Policy Canadian Manufacturers & Exporters February 2008


The Importance of Manufacturing & Exporting: The Importance of Manufacturing & Exporting Single largest business sectors in Canada Manufacturing directly accounts for 16% of Canada’s GDP – Exporting for 21% of GDP. Every $1 of manufacturing output generates $3.05 in total economic activity – largest economic multiplier $600 billion in annual manufacturing shipments $460 billion in annual export sales Canadian manufacturers: Employ 2 million Canadians with wage levels 25% above national average Account for two-thirds of Canada’s goods & services exports Account for 75% of private sector R&D Have reduced GHG emissions by 9.3% between 1990 and 2005.


Jobs Depend on Manufacturing: Jobs Depend on Manufacturing


Canada: Manufacturing Shipments: Canada: Manufacturing Shipments


The Perfect Storm: The Perfect Storm Dollar appreciation 66% since January 2002 Acts like a price cut on export sales Higher energy & commodity costs One reason for the strength of the Canadian dollar Recession in key US markets Housing, automotive, consumer, equipment Overcapacity → consolidation → closures Currency & credit market problems Increasing inflationary pressure Tighter credit conditions – in the US & Canada Higher long-term interest rates Further US dollar depreciation


Slide6: The Impact of Dollar Appreciation


Shipments Performance By Province (Dec 2006 - Dec 2007): Shipments Performance By Province (Dec 2006 - Dec 2007)


Shipments Performance By Sector (Dec 2006 – Dec 2007): Shipments Performance By Sector (Dec 2006 – Dec 2007)


Shipments Performance By Sector (Dec 2006 – Dec 2007): Shipments Performance By Sector (Dec 2006 – Dec 2007)


The Dollar & Employment: The Dollar & Employment


Destination for Canadian Exports 2007: Destination for Canadian Exports 2007


Export Performance 2007: Export Performance 2007


Export Performance 2007: Export Performance 2007


Manufacturers’ Cost Squeeze(1st Qtr 2002 – 3rd Qtr 2007): Manufacturers’ Cost Squeeze (1st Qtr 2002 – 3rd Qtr 2007)


Breakeven Time: Breakeven Time


Outlook for 2008: Outlook for 2008 The Good News Strong growth outside North America Strong infrastructure investment in Western Canada The Bad News High dollar – Prepare to compete over par! High commodity & energy costs Looming US recession Continuing competitive pressures in global markets


Saskatchewan Strength: Saskatchewan Strength Continued strength in agricultural markets Wheat prices at a high Strong demand for agricultural equipment Potash prices will remain high Continued strength in energy markets Oil prices will remain high Increasing demand for uranium


Slide18: Most Pressing Challenges


Responding to the Dollar: Responding to the Dollar Finance Hedging Pricing Contracting Operations Lean – for efficiency & cash flow Lean Supply Chain & Logistics Investment in new, more productive technologies New product & service development Outsource to build value Strategic Focus on customer solutions Value = Innovation, Specialization, Customization New market development


Slide20: Responding to Dollar Appreciation


Top Strategic Challenges: Top Strategic Challenges


The Globalization of Business: The Globalization of Business Global markets – Global competition Competitors, partners, & customers from around the world Global sourcing – Global presence Global value chains & business networks Supply chains compete – Extensive restructuring Global competition for investment & product mandates Global access to knowledge & new technologies Accelerating pace of technological change Need to escape the commoditization trap Value = Capitalize on knowledge


Business Strategies Have to Change: Business Strategies Have to Change “It’s never easy to climb into the crow’s nest in the midst of a storm…” Focus on Customer & Supplier Success Focus on Solutions not Products Focus on new Global Opportunities Focus on Internal Excellence Process Perfection Elimination of Waste Everywhere Bottom Line Results Focus on Supply Chain Competitiveness Focus on Achieving Results through People


Future Competitive Advantage: Future Competitive Advantage Focus on Customer & Supplier Success Mastering global supply chains Knowledge management Specialized products & services Innovation – Continuous commercialization of new and improved products & processes New technologies & automation systems New business models and global value networks New market opportunities Agility & Customization Customer Value – Design, Engineering, Service, Financing Time – Product Development to Customer Response Lean – Products, Processes, Enterprise, Business Networks Total Delivered Cost


Critical Success Factors: Critical Success Factors Leadership & Image of Manufacturing Workforce Capabilities Innovation & Continuous Improvement International Business Opportunities Competitive Business Environment Competitive Business Services & Financing Reliable & Cost Competitive Energy Competitive Logistics Secure & Efficient Borders


A Better Business Environment: A Better Business Environment Tax policies should focus on cash flow and encourage investments in: Productive assets Extend the window for two-year depreciation of investments in manufacturing and processing equipment beyond the end of 2008 to at least five years. Extend tax loss carry-backs for 7 years. Provinces should harmonize sales taxes with the GST and immediately eliminate capital taxes. Innovation Make SR&ED tax credits refundable. Extend SR&ED tax credits to pre-commercial activities like prototyping, scale-up, process improvements. Skills Training Provide an Employers’ Training Tax Credit creditable against EI premiums.


Policy Recommendations: Policy Recommendations No business can afford to be inefficient with a dollar above par, no government can either: Ensure regulatory certainty and competitive regulations. Speed up regulatory approvals. Simplify and lower regulatory compliance costs. Improve the efficiency of transportation and border infrastructure. Ensure government services deliver value at competitive costs to manufacturers & exporters. Ensure open access to international markets. Ensure effective enforcement of trade rules.