The future of manufacturing in Canada

Some Canadian firms are showing how the sector could drive the economy of the future

Up off the factory floor

Photography by Andrew Tolson

Up off the factory floor
Photography by Andrew Tolson

When the assembly line at Ford’s plant in St. Thomas, Ont., came to a halt on Sept. 15, it wasn’t just one factory that shut down. The closure could bring the death of an entire industrial ecosystem, experts warned. More than 300 suppliers feed into the St. Thomas plant—35 of them in Canada. Job losses are likely to extend far beyond the 1,100 workers directly employed at the southern Ontario plant that had been churning out Ford Crown Victorias, Mercury Grand Marquises and Lincoln Town Cars for the past 44 years.

The story of St. Thomas and its displaced workers follows a script well-known to this and most other rich countries. Between 2004 and 2008, Canada shed nearly 322,000 manufacturing jobs, according to Statistics Canada, and this was before the economic downturn took hold. In the U.S., the hemorrhage, driven, as elsewhere, by cheaper foreign competition and a general shift toward the service sector, amounts to eight million jobs lost since 1979. And workers transitioning to a job outside the factory often have to accept a painful pay cut—in Canada it averages around $10,000 less a year, according to a 2008 report by Toronto-Dominion Bank—driving up the divide between rich and poor. Yet the loss of industrial jobs has simply been assumed to be the price of advanced development.

There are signs, though, that the factory era may not be over in Canada just yet. Some manufacturers in niche markets are flourishing. Others are showing how the production plant, with a high-tech spin on it, could even be the future of the Canadian economy—or at least an integral part of it.

Of course it’s not going to be a return to the old-school resource mill that turns raw commodities into finished goods. Homegrown manufacturing these days is a little more complex: focused on bringing together various components from different supply chains “in a way where they work, and where all of those parts can be choreographed to arrive at a certain time, in order for you to build some sort of finished product,” says Mike Andrade, senior vice-president for diversified markets at Celestica, a provider of electronics manufacturing services headquartered in Toronto.

Celestica, which provides manufacturing and other services for Waterloo, Ont.-based Research in Motion, among other firms, is one of this newer breed of Canadian manufacturer. With industrial plants and design and engineering teams everywhere from Ottawa to Laem Chabang, Thailand, Celestica handles all aspects of production for other companies. Its plants in Asia build phones, but its Toronto facilities can prototype new products such as smartphones to ensure a smooth scale-up of production, and repair them too if they break after sale. Another of the company’s specialties is designing and overseeing supply chains its clients rely on to produce anything from guidance systems for airplanes to medical devices.

Delegating supply chain management to contract manufacturers like Celestica is a long-standing practice in the electronics industry, where competition tends to be fiercest and business models are faster-changing than in virtually every other sector. Today, though, that model has spread everywhere, from the defence industry through to automakers and the green-tech sector. Almost unnoticed by consumers, the world’s leading contract manufacturers—which besides Celestica include China’s Foxconn, the U.S.’s Sanmina-SCI and hundreds of smaller competitors—now account for a significant slice of the global manufacturing market. These companies manufacture anywhere in the world, but they often keep a chunk of the process, and control over it, close to home.

At the same time, some firms—including in the electronics sector—are dusting off their machinery and shifting much of their manufacturing back to their own plants. That’s the case, for example, at Miranda Technologies, a Montreal-based maker of infrastructure and monitoring systems for the broadcast industry. After contracting out the manufacturing process between 2001 and 2007 in order to meet rapidly growing demand, the company decided to turn the switch of its own assembly lines back on in 2008. “It turned out that outsourcing wasn’t giving us a great advantage,” says chief operating officer Luc St-Georges. So Miranda opted for doubling its manufacturing shop from 30,000 to 60,000 sq. feet, and went on to assemble almost everything in-house.

Offshoring isn’t for everyone, says Brian Piccioni, an analyst at Bank of Montreal. Generally, it benefits the bottom line of companies that are in the business of fabricating millions of identical units. Apple, for instance, isn’t about to shift the production of iPods from Asia to California. But that was not the case with Miranda, whose product list encompasses over 900 different hardware devices, but whose yearly sales hover around 160,000 units. For this kind of high-mix, low-volume business, says Piccioni, Canada is a good place to run a factory.

And whatever manufacturing will come to look like, keeping that capability alive is essential, argues Celestica’s Andrade. Without it, he told Maclean’s, “you’re not able to turn ideas into products, and you’re not able to make sure that the products that you have keep working.” Expanding that capability, he maintains, may be just what Canada needs to translate generous public funding of research and development into homegrown multi-million-dollar global corporations, and not just start-ups that are regularly swallowed up by foreign multinationals.

Making some things at home and helping to design and prototype devices also ensures the country continues to have a good understanding of the technology its citizens have come to rely on, which ultimately is, Andrade insists, in our best interest.

Without that understanding, “you’re relying upon the goodwill of someone that you’ve never met and who may or may not ultimately have the same point of view as you do, and you’re relying on them now for something you’ve based your standard of living on. It’s a heck of a bargain to make.”

There’s more than circuit boards to the future of “made in Canada,” too. Though some of the modest growth in manufacturing that’s helped propel Canada’s post-recession rebound may be short-lived, in some sectors there’s potential for long-term expansion, says Michael Burt, an associate director in the industrial economic trends group at the Conference Board of Canada. Take aerospace, he says, where governments in Asia and the Middle East are turning to the likes of aircraft maker Bombardier to build up their transportation infrastructure.

Canada has also quietly become a world leader in a sector few associate with factories and conveyor belts: food manufacturing. With a rich agricultural endowment and a strong domestic demand, food processing grew right through the economic downturn to eclipse even the auto industry as Canada’s largest employer in manufacturing, says Burt. There are now around 230,000 Canadians whose job is, for example, to turn grains into packaged whole grain bread. And while global markets are rife with agricultural trade barriers, in a world where China and India are net food importers, there are plenty of opportunities for growth abroad, adds Burt.

Even sectors once deemed extinct in the age of globalization are proving there’s room for a made-in-Canada option. Dayton Boots, the Vancouver, B.C.-based maker of leather footwear for loggers, motorcyclists and construction workers, continues to make all of its goods at one manufacturing plant in East Vancouver. The company went into receivership in 2004, before its current CEO Stephen Encarnacao took over in 2005 and turned it around by playing up precisely the manufacturer’s Canadianness. One of the survivors in the Canadian textile and apparel industry, whose overall production has shrunk by 60 per cent in the last decade, the company calls itself “stubbornly Canadian.” The marketing strategy works particularly well with today’s quality-conscious consumers, says Encarnacao. A focus on quality and durability has kept others afloat in the textile industry, such as manufacturers of seat belts and firefighter uniforms, says Burt. After years of shrinkage due to competition from abroad, there are signs that things have stabilized. In 2010, the textile sector saw its first year of growth in more than a decade.

Some experts suggest there may be signs here of a broader change in the global supply system. Research tied to an upcoming survey of domestic manufacturers by accounting and advisory firm KPMG found that Canadian companies are planning to source more of their product components from home and the U.S. in the next couple of years. It’s a U-turn from last year, when most said they would buy more from China. Logistical headaches are leading managers around the world to revise global supply chains looking for ways to save, says Jonathan Kallner, KPMG’s national industry leader, industrial markets. It’s not just because higher oil prices are bumping up transportation costs and eroding the price advantage of sourcing components in faraway, low-cost jurisdictions. Another problem, notes Kallner, is that there are few trains and cargo planes left linking parts suppliers to the companies that own the end products. In part, explains Kallner, it’s because “we see significant amounts of natural resources being moved out of North America into developing countries, and so a good amount of our capacity is being used to move those resources.”

The rebirth of manufacturing is not without big challenges. It’s not clear, for instance, whether the factory of the future is going to be the reliable supplier of steady, middle-salaried jobs it used to be. Some in the U.S., like Susan Hockfield, the president of the Massachusetts Institute of Technology, believe that assembly lines can still provide work for millions. Several scholars at MIT are calling for industrial policies to spur the birth of new manufacturing industries around advanced technologies such as lithium batteries and biotech. But others are skeptical. Columbia University economist Jagdish Bhagwati, for example, calls North America’s recent fascination with manufacturing a “fetish.” High-tech manufacturing, he argues, will create few and relatively high-skilled jobs—just like the service sector. Small-scale cottage industries appealing to niche markets also have little room to become sources of jobs for the masses.

Some question whether Canada really shares America’s new-found enthusiasm for the factory. Canadians appeared exceedingly comfortable with the demise, only two years ago, of the nation’s telecommunications behemoth, Nortel, says Celestica’s Andrade. When the company filed for bankruptcy protection in 2009, there was hardly any talk of a government bailout. “I would challenge you to think that people even care [about the future of manufacturing in this country],” he says. In part, he speculates this lack of interest may be due to that fact that because Canada, unlike the U.S., has never been one of the world’s manufacturing powerhouses, seeing jobs and factories move to low-cost jurisdictions in the past three decades was somewhat less traumatic. Canadians may be too busy selling natural resources and patting themselves on the back for faring so well through the downturn to wonder about the fate of “made in Canada,” he says.

A second dip into recession, of course, could wipe out that attitude, and help focus minds back on the future of manufacturing.