Despite a year that has included a series of setbacks and challenges that threaten future growth of a key wealth creator in the province, B.C.’s manufacturing sector remained robust in 2011.
According to Statistics Canada, monthly manufacturing sales in B.C. increased for much of 2011, remaining above $3.1 billion for 11 months during the past year. May was the only exception as sales dipped to $3.07 billion, but that was still above the two-year low point in December 2009 when sales totalled $2.7 billion.
The declines in manufacturing sales last year appeared to correspond with the rising concern over global economic growth and the financial crisis plaguing the Eurozone. The decline in May manufacturing sales coincided with Portugal becoming the third Eurozone country, after Ireland and Greece, to receive a financial bailout package.
Manufacturing sales also edged lower for 2011’s last four months after peaking in August with the need for a second bailout package for Greece, which led to the resignation of Greek Prime Minister George Papandreou.
But local manufacturers remain concerned about the continued uncertainty over the global economy. According to a Business in Vancouver survey of Lower Mainland manufacturers conducted in January, 40% said the direction of the economy either in the U.S. or globally was a key consideration in making their company’s business decisions this year.
Several respondents cited their customers’ economic uncertainty as a leading cause for delayed orders, reduced shipments and inventory and longer sales cycles in the past year.
Those that have relied primarily on U.S. customers are more likely to face these challenges, said Peter Jeffrey, B.C. vice-president of the Canadian Manufacturers and Exporters. That’s required many to find new markets, primarily overseas to Asia.
“Number 1 on the list of hot issues is finding new customers, new markets, because they realize they can’t rely on the U.S. anymore, and Europe, to a lesser extent,” said Jeffrey. “It’s going to take a long time for those economies to recover and generate the same demand they had before.”
But Jeffrey said more support for small and medium-sized manufacturers (SMEs) is needed to help the expansion into the Asian markets that both the provincial and federal governments are encouraging. Part of the solution is providing the insights and the network to learn the basics about exporting abroad for SMEs that may not have considered more distant markets in Asia or South America. This year, the CME in B.C. will be launching a series of seminars fulfilling such a purpose.
But Jeffrey also noted that it’s equally important to help smaller manufacturers become part of the supply chain of larger entities that are directly exporting.
“One of the things I’d complain about the provincial government is that they’re focusing on the bigger companies when it comes to exporting. They don’t look at SMEs that could supply customers who are exporting 85% to 90% of everything. The smaller manufacturer is skipped over on the basis that it’s not exporting, but in fact, they could be plugged into the supply chain. What the CME is trying to do is help these smaller companies, who may not have the resources or the bandwidth to export abroad, to plug them into the supply chains that are.”
Such integration could help avoid the direct sting of continued currency volatility that has become more of a burden for manufacturers than the loonie flirting on either side of par with the U.S. dollar for the past few years.
A BIV analysis last November found that in the past two years, the loonie has fluctuated more than half a cent ounce every three days. (See “Currency spikes hammer exporters” – BIV issue 1150, November 8-14, 2011.) But the unprecedented volatility has continued. In the past five months, the loonie has moved nearly $0.05 against the U.S. greenback: from a high of $1.046 in late November to $0.993 in the first week of March.
“While some companies are still struggling to adapt to a dollar at par, it’s the volatility of the dollar that’s become the issue,” said Jeffrey. “Companies are doing deals at one exchange rate, which moves on them the next day.”
While many manufacturers have continued to increase the size of their businesses, further expansions might become more difficult. In the Lower Mainland, Jeffrey noted the high cost of real estate makes it expensive to expand a manufacturer’s industrial space. Some have chosen to move east into the Fraser Valley; others have expanded to locations that are closer to where their clientele is located, usually outside the province. But the high cost of living in the Lower Mainland is expected to exacerbate the skilled labour shortage for growing manufacturers.
“That’s a great concern for manufacturers here,” Jeffrey said. “Everything may be going well with attracting someone from abroad. The job is good; the pay is good, but then they click on a real estate website and see how much they have to pay to live here, that becomes a huge problem.”
B.C. manufacturers are already facing shortages of skilled labour in everything from qualified technical staff to tradesmen. For manufacturers tapping the more than $200 billion worth of megaprojects in the province, the opportunity to grow is limited only by their ability to tap the skilled labour required.
It may sound like a good problem to have, except that the phenomenon is global, and other countries like Australia are ahead of Canada in allowing more immigration of skilled labour to offset the lack of domestic workers being trained for the job opportunities.
“You look at our unemployment rate and say, ‘What the heck is happening here? There are so many people looking for a job.’ But the problem goes back to the school system. There’s a mismatch with what we’re qualifying people for with the jobs that are going to be needed,” said Jeffrey. “The issue is going to be a growing problem over the next five to 10 years.” •
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