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Canadian manufacturers have a positive view of their prospects in 2018 although they are concerned by how Trump administration policies and other factors might affect their businesses.
PLANT's Manufacturers' Outlook 2018 survey conducted from July 11 to Sept. 5 shows 44% of senior company executives are optimistic about the coming year, although most (50%) qualify their optimism with caution. Looking at the next three years, the percentage of those who are optimistic declines (38%) as caution increases (57%), along with their view of Canada's growth (22% and 66%). The global view inspires even less confidence (19%) with 65% favouring caution.
Manufacturers are also either very or somewhat concerned about what’s going on in the US. American protectionism is worrying 92% of executives, followed by rising global protectionism (90%), US President Donald Trump's impact on nation-to-nation relationships (88%) and the NAFTA renegotiation (88%).
The survey, conducted by RK Insights for PLANT Magazine in partnership with sponsors Grant Thornton LLP, SYSPRO Canada and Machines Italia with the Italian Trade Commission, is based on 495 replies from senior manufacturing executives (margin of error of +/- 3.6%, 19 times out of 20).
Most of the companies (64%) fall into the small business category (under 100 employees); 34% are medium-sized (under 500); and 12% are large (500 or more).
More than half of the senior executives are expecting orders and sales to increase (averaging 12% and 13%); but costs will also increase by 6%. Pricing will stay the same for 48% but 43% expect increases of 5%. Thirty-nine per cent see profits rising 8%.
Controlling costs tops the list of challenges for 66% of respondents, followed by pressures on prices (53%) and improving productivity (49%), which moved up from sixth spot in the 2017 survey results.
Optimism is evident by their top choices for investment over the next three years: 79% will spend on machinery, equipment and technology, and 68% will invest in training. Average investment will be more than $1.4 million.
Most of companies harvest the bulk of their sales in Canada and the US, followed by Europe. Only 16% will drive growth by entering new markets, while 22% will focus on North America. What's holding them back from increasing their revenues outside North America? Thirty-seven per cent say intense competition, followed by difficulty identifying opportunities (26%).
A growing risk of cyber attacks aimed at industrial targets is only a medium concern for most executives (45%). Less than half are very prepared for a variety of attacks, 25% are most unprepared for targeted external attacks and 21% are prepped for breaches through a third party vendor.
Companies continue to lag in the adoption of advanced measures and technologies that would improve productivity. Only 36% make use of automatic data access, analysis and review to measure and monitor productivity; 46% do it manually; 18% don't measure; and 59% do not plan on a digital production transformation involving Industry 4.0 and the IIoT over the next 12 months.
The top three most used advanced technologies are CAD/CAE/CAM (60%), custom manufacturing (57%) and automation (42%).
In line with last year's survey results, respondents demonstrated limited engagement with the IIoT, which connects and optimizes machines via the internet. Only 9% are applying IIoT capabilities, 33% are not familiar with these capabilities and 29% pronounced them not applicable.
More than half of the executives (54%) see innovation as very important to their business strategies with the most focus on products (66%), processes (65%) and technologies (51%). The average innovation spend for 2018 will be 4.9% of revenue and 55% plan to increase their investment over the next five years while 41% will invest at the current level. Thirty-four per cent intend to take advantage of the SR&ED tax credit, but 43% will not do so and 59% said it had no impact on their investment in innovation.
With increasing focus on regulations targeting the reduction of carbon emissions, 75% indicated they were very or at least somewhat engaged. But government moves to put a price on carbon have not raised the priority level of responses to climate change for 52% of companies and 44% do not include carbon reduction as a part of a formal business strategy.
Following the survey, there has been a deluge of provocative Trump tweets, US trade actions aimed at Canadian interests and some doubt cast over the successful negotiation of a new NAFTA deal. These developments suggest manufacturers should take nothing for granted. Prepare for the possibility of an end to NAFTA agreement and what that will mean to Canada-US trade, while taking steps to enter new global markets.
Joe Terrett, Editor, PLANT
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