The recent deadly collapse of a clothing factory in Bangladesh highlighted a relentless global search in that industry for the cheapest possible labour. But if wages were the only issue in manufacturing, factories would long since have disappeared from the Canadian landscape.
A new Conference Board of Canada report highlights the importance of adding value rather than simply cutting costs – and of recognizing the distinct needs of the wide range of industries within the manufacturing sector.
Work by the McKinsey Global Institute has identified five key segments in manufacturing: global innovation for local markets, regional processing, energy and resource-intensive commodities, global technology industries and labour-intensive tradables.
Location decisions in each segment are driven by different needs. Apparel and furniture makers tend to seek low-cost labour, while commodity producers make decisions based on the cost of energy and the location of the resources and of their customers.
And in the two most research-intensive segments – global technologies and innovation for local markets – a large part of manufacturing employment (55 and 40 per cent, respectively) consists of service-type activities. These are strongly attracted to pools of highly skilled people.
At a 2012 forum on advanced manufacturing hosted by the Conference Board, McMaster University and ArcelorMittal Dofasco, participants agreed that there is no one-size-fits-all solution to the challenge of attracting more manufacturing investment to Canada.
Dr. Louis Schorsch, president and chief executive officer of Flat Carbon Americas at ArcelorMittal, identified five criteria that his company uses in evaluating decisions about where to locate its investments:
- Size and growth. A new factory must have access to a large and growing number of customers. The North American free-trade agreement (NAFTA) is a key element in Canada’s ability to attract investment.
- Cost competitiveness. If energy and labour costs are high, an economy must be able to demonstrate an offsetting higher value of output per hour.
- Investment environment. This includes factors such as the strength of the banking system, inflation rate, tax rates and political environment.
- Logistics and infrastructure. The cost of getting inputs to the factory and outputs to customers can vary widely.
- Market sophistication. When a market is full of demanding customers, manufacturers face pressure for continuous innovation and look for a supplier base that is capable of moving with them up the value chain.
Industry needs can be quite specific. What is most important for one manufacturing segment may not matter to another.
But the Conference Board report identifies one investment theme that resonates with every part of the manufacturing sector, and that is attitude.
If Canada hopes to attract more high-value-added activity, it has to make clear that investors are wanted. Businesses, governments and academic institutions have to work together much more effectively to make the case that Canada can be the right base for manufacturers seeking to serve North American and global markets.
David Stewart-Patterson is vice-president, public policy, at the Conference Board of Canada.