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Manufacturers drive Canada’s innovation performance, study confirms

Published by Derek Lothian on October 28, 2011

A report on the state of advanced manufacturing in Canada details how manufacturers are using innovation, investment in advanced manufacturing technologies and adding value in global supply chains in response to the intense competitive pressures being faced.

The State of Advanced Manufacturing: A Canadian Perspective is a collaborative project between Canadian Manufacturers & Exporters (CME), Industry Canada and McMaster University. The report draws from the results of the Survey of Innovation and Business Strategy conducted by Statistics Canada whose sample included 4,394 Canadian manufacturers with a response rate over 70 per cent.

"The report confirms that manufacturing in Canada is a vibrant, highly innovative and technology-driven industry but that it faces intense global competition and a growing level of integration into global markets," says CME President & CEO Jayson Myers. "In fact the report shows that 64 per cent of manufacturers face competition from multinational enterprises in their main market. This highlights the importance of manufacturers increasing investments in productive assets such a new machinery, innovation and workplace skills in order to be more competitive and meet global competition."

"It also explains why manufacturers have been asking governments for targeted measures such as accelerated depreciation allowances, innovation tax credits aligned with their broader conception of innovation, and workplace skills training incentives," he adds. "Manufacturers can only succeed if they have sufficient cash flow to make these investments."

Over the 2007-2009 period examined by the survey, manufacturers were twice as likely to increase production and R&D capabilities in Canada and four times as likely to increase production capabilities in Canada than abroad - however they were also twice as likely to close facilities or reduce production capacity in Canada than they were to do so abroad.

"New investment in manufacturing facilities in Canada is increasingly driven by the need to increase agility, expand mass customization capabilities, optimize new product introductions and serving higher-margin niche markets," says Myers. "At the same time, manufacturers are facing competition not just for market share, but also for product and research mandates, and investment."

Moreover, the report shows that investments in production capacity in Canada drive investments in other, value-added service capabilities - for example 32 per cent of manufacturing growing production in Canada invested in enhancing their logistics capacity, 28 per cent invested in the provision of services, 27 per cent in research and development, and 21 per cent in growing marketing and sales capacity.

The report also notes that while manufacturing outpaces all other sectors of the Canadian economy in terms of its innovation performance, it continues to significantly trail the US in terms of business expenditures on R&D. Canadian manufacturers see innovation as critical to their business success and as a strategy they must pursue at every stage of the value chain. For example, although 48 per cent of manufacturers introduced product innovations (new or significantly improved products), 58 per cent introduced process innovations (new or significantly improved methods of production), 53 per cent introduced organizational innovations (new methods of organizing work responsibilities and decision making) and 39 per cent introduced marketing innovations (new media or promotional techniques).

Process innovation has played an important role in helping manufacturers compete with a higher Canadian dollar and meet the challenge of global competition. This includes the implementation of new methods, techniques, tools or software, as well as changes affecting logistics, procurement or maintenance. Overall, eliminating waste, improving efficiency of operations and reducing costs are the main drivers of process innovation. Also, expanding lean manufacturing concepts beyond fabrication and improving supply chain agility are key areas of process innovation within the manufacturing sector.

"The reports confirms that successful advanced manufacturing strategies are linked to corporate leadership, an innovative culture and a highly skilled workforce at the operational and managerial levels," says Myers. "While Canadian manufacturing is undergoing a transformation and still faces significant competitive challenges, the report confirms it is the sector driving Canada's success as an innovative nation whose firms compete and win on the global stage."

The report can be downloaded at http://www.cme-mec.ca/_uploads/documents/13195128081789.pdf.

CME members can download a Powerpoint presentation summarizing the report’s key findings at: http://www.cme-mec.ca/?action=show&lid=9TQNK-LADU1-UIJSD.

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