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Canadian manufacturers may be overly optimistic about future, says global study

Toronto, ON -- Despite the strong Canadian dollar and the rising costs of doing business, Canadian mid-sized manufa...


Toronto, ON — Despite the strong Canadian dollar and the rising costs of doing business, Canadian mid-sized manufacturing companies are optimistic about what the future holds, according to a new study released May 24, 2005, by Grant Thornton LLP, a Toronto management consulting firm.

Over 100 Canadian mid-sized manufacturers and 900 mid-sized manufacturers from nine other countries were surveyed to compile Manufacturing Insights 2005: A Global Comparison.

“On the surface, the Canadian results seem surprisingly encouraging, but in the context of the overall report, the findings suggest that Canadian mid-sized manufacturers may have some challenges ahead,” explained Bruce Byford, national manufacturing and distribution sector leader at Grant Thornton. “In order to keep up the momentum of the past few years, Canadian manufacturers must be prepared for these challenges and the related opportunities that will no doubt arise.”

The study identifies that while 81% of Canadian mid-sized manufacturers report being optimistic about the economic outlook, the data from other responding countries suggests that there are warning signs. For example, Mexico (61%), the U.K. (57%) and Russia (37%) reported lower levels of optimism.

Only three in five (63%) of U.S. respondents were found to be ‘slightly optimistic’, and no U.S. respondents reported being ‘very optimistic’.

“With Canadian manufacturers so dependent on the health of the U.S. economy, they can’t afford to ignore the fact that U.S. respondents are indicating that there may be tough times coming,” cautioned Byford.

It is common knowledge that the U.S. is Canada’s largest trading partner, with over 80% of Canadian manufacturing exports going across the border. But China is quickly encroaching on Canada’s position as the United States’ largest partner in trade. In fact, if auto industry exports are not included, China would currently be the U.S.’s largest trading partner.

Interestingly, other mid-sized manufacturers found to be less optimistic about the future are those in Singapore (68%), Hong Kong (65%) and Taiwan (37%), all countries that neighbour China

“China and India seem to be having a significant impact on neighbouring economies,” explained Byford. “Although many perceive China and India as threats, there is also an opportunity for Canadian manufacturers to take advantage of these booming economies. With a combined population of over two billion people in China and India, it is safe to say that this may be the most significant growth opportunity facing Canadian manufacturers in recent times.”

The report also found that 45% of Canadian manufacturers surveyed plan on increasing their workforce in 2005, and just over half (55%) expect to increase investment in plant and machinery.

“Interest rates are low and the Canadian dollar is strong in relation to the U.S. — these conditions make investment in technology, machinery and growth more affordable,” said Byford. “But Canadian manufacturers should also look within their organizations to determine how they can increase productivity without capital investment by improving processes, management systems and management techniques.”

According to Manufacturing Insights 2005, only 33% of Canadian respondents reported feeling stressed, second only to India (31%). Canadian mid-sized manufacturers have performed well over the past few years by remaining flexible and adapting to challenges like SARS, Mad Cow disease and the weakening U.S. dollar.

“Success and low stress levels, in spite of these challenges, is a real testament to the resiliency of Canadian manufacturers,” said Byford. “But Canadian manufacturers need to look ahead to the future and consider, for example, which countries might have the largest economies in the world — five, 10 or 20 years down the road.

“Now is the time to diversify trading partners and consider the redeployment of operations globally to take advantage of these market opportunities.”

For more information, visit www.GrantThornton.ca/manufacturing.