Finding a niche
In his push to grow, Mr. Marikkar has a window of opportunity, because low-cost producers in Asia have yet to figure out how to make what he’s making.
Many other manufacturers who count themselves among those quietly driving the sector’s rebirth have found similar opportunities – and say the key to survival increasingly depends on the design and construction smarts of employees.
Joe Aiello started his electric-motor business much as Mr. Marikkar started Belletile. When Westinghouse closed its Hamilton electric motor manufacturing business in 1994, throwing 280 people out of work, Mr. Aiello and his co-owner Carlo Di Pietro took it over. Today, they employ 38 workers.
Elettra motors propel tunnel boring machines, power pumps at the Bruce nuclear power plant on Lake Huron and drive fans in wind tunnels, such as one in Britain where Mercedes-Benz tests Formula 1 racing cars.
One of the lessons he has learned is that trying to compete with motor makers in China and elsewhere that can mass produce them makes little sense. He urges other Canadian manufacturers to follow his lead and find a niche.
“We make motors that nobody else wants to make,” Mr. Aiello says. “It’s complex, it’s difficult, it’s one-of-a-kind and thereby we’re successful.”
Others have looked to production for a competitive edge. E.H. Price Ltd., a Winnipeg company that makes ventilation equipment, has steadily shifted production to plants in Georgia and Arizona – where wages are cheaper – while keeping its headquarters in Canada; Transformix Engineering, which makes automation equipment for assembly lines, is assembling products in Kingston, Ont., with parts imported from around the world.
And the textiles industry, which was written off years ago as a dying sector, is attempting a renaissance as businesses become smaller and more technology-based. Cambridge, Ont.-based MW Canada, which began life in 1963 by making apparel fabrics, now manufactures materials used in window shades among other specialty products. It is experimenting with nanotechnology to make next-generation blinds that can collect enough solar power to recharge items like cellphones, laptops and iPods.
“There is a lot structural change going on,” says Philip Cross, Statscan’s chief economist and the author of the study that broke manufacturing into expanding and contracting groups.
Mr. Cross’s analysis shows that sales in the expanding group of manufacturers increased 44.8 per cent, or an average of 5.8 per cent a year, between 2000 and 2008 when the recession hit, compared with a 32.8 per cent decline, or an average of 4 per cent a year, for the contracting group.
Sales in the expanding group peaked in July, 2008, at $36.5-billion. In March, sales in the expanding group had recovered to $32.4-billion after growing in each of the previous 12 months. (Sales in the contracting group were $15.1-billion in March, compared with $16.5-billion in February, 2008.)
More important, the companies in the expanding group are plowing money into their businesses. Starting in 1998, investment by the expanding group outpaced that of the contracting group every year through 2011, an important indicator of future growth. Companies in the expanding group said they will spend $12.1-billion this year, which would match the pre-recession peak.
But will that be enough to keep them ahead of the global competition?
The history of industrialization shows that countries start by assembling cheaper products and slowly work their way up. China, India, Brazil and other nations are now moving beyond their industrial beginnings as the assemblers of mass-market commodities to challenge for higher-end products that remain the domain of Canada, the United States, Germany, Japan and other developed economies.
That means Canadian companies will need to continue redefining their role in a world where a manufacturing company might churn out nothing but patents, or may compete for work farmed out by the world’s biggest manufacturers – and awarded to only the most competitive and nimble companies.
“Competition over the next decade is going to go up and our concern is that a lot of Canadians don’t seem to see it coming,” says Jean-René Halde, CEO of the Business Development Bank of Canada. “It is so frustrating because they could be taking steps today to start doing things.”
The BDC, which has lent and invested $33-billion in 60,000 Canadian businesses over the past 15 years, has been pushing companies to set up advisory boards of more experienced entrepreneurs – business owners “who have been there, done that, and have a few scars on their backs and can say ‘Hey, wake up, because unless you make the following three moves, you’re going to get clobbered.’ ”
At Belletile, Mr. Marikkar is far from worried about competition from China. In early 2010, he visited two Chinese carpet tile manufacturers. He found that their supply chains and raw materials do not match those of North American manufacturers.
“They are decades away from catching up and by the time they do it, the technology will likely change in the developed world,” he says.