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Mumbai, INDIA: Unseen Vice President (Asia Pacific) with designing firm Research In Motion (RIM) Norm Lo, displays the Qwerty Blackberry smartphone at a product launch in Mumbai 22 June 2007. The BlackBerry Curve smartphone incorporates all multimedia functions, a spell checker and enhanced voice communication. The Blackberry curve is set to be available from Airtel and Hutch by next week in India. AFP PHOTO/Pal PILLAI (Photo credit should read PAL PILLAI/AFP/Getty Images) (AFP/AFP/Getty Images)
Mumbai, INDIA: Unseen Vice President (Asia Pacific) with designing firm Research In Motion (RIM) Norm Lo, displays the Qwerty Blackberry smartphone at a product launch in Mumbai 22 June 2007. The BlackBerry Curve smartphone incorporates all multimedia functions, a spell checker and enhanced voice communication. The Blackberry curve is set to be available from Airtel and Hutch by next week in India. AFP PHOTO/Pal PILLAI (Photo credit should read PAL PILLAI/AFP/Getty Images) (AFP/AFP/Getty Images)

Rethinking a sector

Manufacturing: Make or break? Add to ...

When the chief lobbyist for Canada's manufacturers needed a prop for a speech last fall to illustrate his industry's prowess, he didn't wheel in an Impala or show a slide of a Dash 8. He whipped out a BlackBerry.

"The BlackBerry is synonymous with innovation," Canadian Manufacturers & Exporters (CME) president Jayson Myers boasted in the speech. "And, yes, it is also synonymous with manufacturing - Canadian manufacturing." If BlackBerry creator Research In Motion Ltd. doesn't immediately conjure up the image of the windowless factory or smokestack commonly associated with the goods-producing sector, it nonetheless meets the definition of a manufacturer: It makes things.

In the wake of a recession brought on by the service sector - the purveyor of the intangible credit default swaps and mortgage-backed securities that brought the world economy to its knees last fall - developed countries are paying renewed attention to their manufacturers.

They are expressing their new-found appreciation with more than just simple auto bailouts or protectionism. Many policy makers believe future growth once again lies in making things.

From Ontario and the United States to Germany and Japan, governments have rushed to stress the importance of a vital manufacturing industry to future economic growth. U.S. President Barack Obama's new "Middle Class Task Force" sees the reinvigoration of the "flagging" U.S. manufacturing sector as critical if average Americans - whose after-inflation incomes have stagnated for years - are to achieve real wage gains in coming years.

More than three decades of so-called "deindustrialization" in the developed world - which only a few years ago was being called a sign of progress by leading economists - is now up for reconsideration.

Part of the rethink stems from a new appreciation for the critical link between research and development and manufacturing. RIM's rapidly expanding family of smart phones, for instance, is the fruit of billions of dollars in research spending in Canada over many years. In fact, according to CME, manufacturers account for three-quarters of all business expenditures on R&D in Canada. A 2006 Organization for Economic Co-operation and Development study places the figure somewhat lower - at about 60 per cent. But either way, manufacturing provides more high-paying jobs for scientists, engineers and industrial designers than any other sector of the Canadian economy.

And though the service sector now accounts for 78 per cent of jobs in Canada, its economic fortunes are intimately tied to manufacturers. Where, for instance, would companies that peddle wireless communications services or software be without the devices manufacturers produce?

But while RIM maintains modern manufacturing facilities near its home base of Waterloo, Ont., the company's fantastical growth in recent years means that only a fraction - less than 15 per cent - of all BlackBerrys are still produced in Canada. Most are currently assembled in the U.S., Mexico and Europe. And RIM recently disclosed plans to begin outsourcing BlackBerry manufacturing to China, leading to analyst speculation that it would funnel contract work to outsourcing behemoth Hon Hai Precision Industry, also known as Foxconn.

It's not just the manufacturing of BlackBerrys that has gone global; so have the research activities behind the creation of RIM's smart phones. The company now has R&D operations in China, Germany, Britain and the U.S., in addition to its main research hub in Waterloo.

RIM's global reach should be a source of Canadian pride, not anxiety. Yet, if the findings of two Harvard Business School professors are correct, it is not without its risks - not for RIM, which is doing what any smart company should - but for the Canadian economy.

Gary Pisano and Willy Shih recently documented a string of high-technology sectors - from consumer electronics to hybrid cars - in which the U.S. has lost its ability to create the products of tomorrow precisely because years of outsourcing have seen research, engineering and design jobs follow production offshore.

No one appears more sensitive to their argument than Mr. Obama, who has made the renewal of his country's manufacturing sector a key plank of his economy policy. Of course, instead of smokestacks, Mr. Obama imagines the U.S. factories of tomorrow producing high-tech electric cars, silicon chips and solar panels. Nevertheless, reindustrialization is in and the postindustrial economy is out.

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