Volume 1, Issue 2 - Fall 2016

Parting thoughts

Editor Derek Lothian sits down with outgoing Canadian Manufacturers & Exporters CEO Jayson Myers for a candid Q&A on the future of the country’s manufacturing sector. 

Derek Lothian denoted by the initials DL; Jayson Myers denoted by the initials JM.

DL: Dr. Myers, thanks for taking the time. Since you started your career with Canadian Manufacturers & Exporters (CME) in 1991, a lot has changed in Prairie manufacturing: Sales have multiplied two-and-a-half times over — more than double the national pace. Employment has increased 38 per cent. And, in the last 15 years alone, average weekly earnings in the sector have swelled by 54 per cent — 16 points ahead of even the highest provincial rate of inflation [in Alberta]. Take us through the major milestones you’ve seen during your tenure.

JM: There’s no doubt there has been a boom in Prairie manufacturing. Over the past 10 years, the centre of Canadian manufacturing activity clearly has shifted westward.

When I joined CME in 1991, Canada and the U.S. had just signed a landmark free trade agreement, and Mexico was being brought into that framework to form NAFTA. At that time, it was clear the future of manufacturing over the next decade-or-so was going to be built on exports to the U.S. Sure enough, and in no small part due to a low Canadian dollar, which hit 62 cents USD in 2002, manufacturing right across Canada boomed. Sales doubled over the 1990s.

But 2002 was a turning point, and the decade that followed was a period of levelling off. The dollar shot up to par, sometimes even higher, and exports tapered off because companies couldn’t keep up with its rapid appreciation. Canada lost a lot of manufacturing capacity between 2002 and 2008 because of the currency. Then, the recession hit and — over a span of only eight months in 2008 and 2009 — an entire third of customer demand evaporated.

That was the story for manufacturing across Canada. Yet, we still saw tremendous growth on the Prairies. Even with a higher dollar and the recession, commodity prices were soaring. Demand for agricultural equipment was strong. Our oil and gas and mining sectors were expanding rapidly. By 2013, Western Canadian oil sands operations were purchasing more than $60 billion annually for capital projects and maintenance, and a great deal of that went to Prairie manufacturers.

In fact, what we saw coming out of the 2008-09 recession was the exact opposite of what happened in the late 80s and early 90s. The first time around, growth was powered by exports; and if you were selling only into the domestic market, you weren’t doing so well. The latest growth cycle, on the other hand, pivoted strongly towards domestic resource development, and manufacturers that were exporting bore the brunt of the downturn. Now, conditions have changed again. The commodity sector is soft, and manufacturers are again looking for export opportunities to grow.

DL: You held the top job at CME for the past nine years. Are Western Canadian manufacturers more or less competitive now than when you assumed the role?

JM: They are much more competitive now, no question. They are more entrepreneurial, more specialized, and more service-oriented. Unfortunately, it’s hard to measure that sort of value. We are held hostage by statistics that, quite frankly, I think are wrong and misleading when it comes to how competitive manufacturers really are. Stats for, say, productivity measure how much product volume is going out the door — not how much value is being generated for customers.

Prairie manufacturers know that if they are going to compete and grow, they need to be more agile and more flexible in order to respond quickly to customers and take advantage of new business opportunities. They need to be efficient; but more than anything else, they need to focus on how to create value for customers. It’s the solution they can provide that counts, not just the volume they produce. It’s an ongoing revolution we see on the Prairies, and one that requires a re-evaluation of business models.

DL: Revolution is a big word in manufacturing. We’ve really only had three in the past, dating back to the Industrial Revolution. Do you think that’s what we are witnessing today?

JM: Absolutely. New materials, as well as digital and advanced technologies, are revolutionizing every aspect of manufacturing, from finished products through design, development, production, logistics, and supply chain systems. That, however, is only one, small dimension of the revolution I see happening in manufacturing.

The really interesting part is how the business of manufacturing is changing. It’s becoming more highly integrated with technology and services. It’s more extended across production and services networks that can be reconfigured to respond to changing business conditions. It’s certainly more global, more intensely competitive, and more innovative than ever before. The real challenge for manufacturers is simply how to make money. All of these changes pose serious challenges to standard ways of doing business. That said, there are opportunities for companies that can figure out how they can create customer value.

DL: Balance that with Canada’s innovation performance, because — by almost every index — we’re falling behind. Is that an accurate portrayal of where we’re at?

JM: We have some of the most innovative manufacturing companies in the world. But, in a general sense, yes, the bad rap is probably deserved. It’s no secret that Canadian manufacturers tend to be more risk averse and slower to adopt new techniques and technologies than in the United States, Western Europe, or Asia. That’s part of it.

On the other hand, Canada’s strength has always been in problem solving. We’re renowned on the world stage for our technology development and engineering capabilities. What we’re terrible at doing is selling and marketing those capabilities, and growing businesses — actually translating our capabilities into value for customers.

DL: So, it’s a sales problem?

JM: One of the best parts of my job has been traveling around the world talking about Canadian manufacturing, and I can say without hesitation that we tend to lose a lot of business by being too humble. We feel if someone is giving us a sales pitch, they’re out to fleece us.

Too often, we tend to think that manufacturing is just about getting product out the door. But today, you’re not just competing on your product — you’re competing on how well you know your customer, and on your ability to offer them a solution they want to buy. That type of a relationship takes time and commitment to develop. It needs to start with a conversation somewhere.

DL: Let’s switch gears and talk about trade. As you know, the premiers announced back in July the framework for a new interprovincial trade agreement. Will that solve our domestic trade woes in this country?

JM: The very first issue I ever worked on at CME was interprovincial trade, and I can tell you that things were much worse 25 years ago. But, we still have major restrictions when it comes to moving goods and people across Canada. It’s ridiculous when you think that U.S. and, potentially, European companies have better access to provincial markets than a domestic manufacturer wanting to do business across provincial boundaries. More personally, it’s ridiculous I can’t buy beer and wine, fruit or cheese, from anywhere I want in Canada. I don’t think this new agreement will do a lot to improve the situation. There are too many regulatory issues at stake. In my opinion, the only thing that will open interprovincial trade is if Ottawa actually exercises the power it has in the constitution to ensure free market access across Canada.

Regulatory management, though, is a huge problem and it goes well beyond interprovincial trade. I’d love to write a book on the stupidities of Canada’s regulatory system. There are thousands of out-of-date or needless compliance requirements that are on the books simply on the whim of regulators. We need a lean approach to regulation in this country. We need to focus on outcomes and eliminate unnecessary compliance requirements. And we need to build a system that incentivizes regulators to help companies comply rather than endlessly inspect and enforce — usually because it’s just easier to do their job that way.

DL: How about international trade more broadly? It wasn’t long ago it seemed as if we were signing a new trade agreement every week. Have things really taken that dramatic of a turn, and what should Prairie manufacturers be looking for?

JM: I think we’re in a very risky time for the Canadian economy and for trade. We are so exposed to international markets and financial markets — the U.S. in particular — and that makes us very dependent on access to those markets. The truth is that our trading partners may not be as equally committed to keeping their markets open as we are. Just look at what’s going on in the U.S. election. During the recession, everyone was heralding how we can’t go back to the 1930s and put up trade barriers, but that’s exactly what we’ve started to do with Buy America and procurement. The big risk is that it gets even worse.

The only certainty right now is uncertainty. You have the Brexit throwing the European Union into question, Greek and Italian banks destabilizing the integrity of the euro, and two presidential candidates south of the 49th saying they are firmly against the Trans-Pacific Partnership — one challenging the future of NAFTA. None of the BRIC countries have met our expectations and liberalized into low-corruption, free market economies, and the assumption that globalization would continue unscathed is now cast with a huge shadow of doubt. All of this affects export and investment opportunities, and the entire supply chain.

DL: Is that the biggest risk right now for manufacturers — the uncertainty of global trade?

JM: The single biggest risk right now is the instability of financial markets. Countries have pumped a lot of money into their economies as of late — money that is just sloshing around asset markets, and that is what creates credit crunches and asset bubbles that distort the realities of supply and demand. Instead of trade determining capital flows in and out of a country, today, those financial flows are determining prices and trade. Stock market performance is disconnected from real earnings expectations. It’s a crapshoot that is causing a huge amount of volatility and risk in currency, commodity, and credit markets. So, how companies manage those challenges will be difficult; and their decisions will ultimately influence their cost structure, revenue streams, and everything in between.

DL: You mentioned Brexit a few moments ago. There has been a great deal of debate around its impact on financial markets. What’s your take?

JM: Wild swings in financial markets impact banks and bank stocks, and impact the banks’ ability to offer up credit. That’s my biggest concern with what’s going on in Europe. Its banking system wasn’t necessarily healthy in the first place, so Brexit could tighten credit markets, which manufacturers and their customers need in Europe and other countries — like Canada — too.

DL: Canadian firms have been enjoying relatively decent access to credit and capital. Is there a concern that the tightening of markets abroad finds its way home?

JM: Beyond the global volatility, Canadian banks are in pretty good shape. I do, however, think we need to recalibrate our attitudes in this country around how we make capital more accessible for smaller companies — particularly, small manufacturers. We have a tech sector that thinks growth means going out, getting venture capital, and exiting with a huge payback as soon as possible. It’s a system that rewards quick wins — forget profitability altogether. You need more patient capital in manufacturing that isn’t always as easily accessible as we’d like to think. We need to encourage businesses to grow if we want to see our economy grow.

DL: Before we wrap up, I want to ask you two more questions. You are widely viewed by government and industry alike as the voice and chief advocate for manufacturing in this country. Heading into the next chapter of your career, what has been your most important achievement on behalf of the sector?

JM: That’s a good question. For every one thing we’ve done, there are three things we’ve stopped the government from doing — preventing a new regulation, a bad decision on a trade negotiation, or something like that.

But our biggest win was working with the government to implement accelerated write-offs for capital investments in machinery and equipment. That’s been in place since 2007, and — assuming it’s not changed before it lapses in 2025 — will have saved manufacturers $25 billion.

DL: Last question, and it’s one you hear every now and then these days in the media. Some people say manufacturing in Canada is dying. Are they wrong?

JM: They are wrong. Manufacturing has simply become more of an anchor in the economy. The footprint around the sector — all the technology and services companies that depend on manufacturing — is growing rapidly, even if the direct share of manufacturing in the economy has declined.

You don’t have to drive far on the Prairies to see just how important manufacturing is and will remain. Some of my best memories and profound takeaways will be visiting places like Winkler, or Frontier, or Lethbridge — this is the land of open skies and tremendous opportunity. Manufacturers here are extremely entrepreneurial, and have a sense of community that is unrivalled anywhere else I’ve visited. So, yes, manufacturing is changing and will continue to change. But if you can grow your business here on the Prairies, it’s clear to me that you can compete anywhere.

DL: I lied. One more, and it’s a question I know a lot of people are interested in: What’s next for Jayson Myers?

JM: I’m incredibly proud of what we’ve been able to accomplish at CME over the past nine years. We’ve made a big difference for Canadian manufacturers and exporters, and I think for Canadians as a whole. I’ve always enjoyed bringing business leaders together, working with them to understand how the world of manufacturing and exporting is changing, and then trying to make a difference, whether in terms of public policy or in building initiatives that will help them compete and grow. I want to continue to do that while pursuing some exciting new business opportunities. So all I can say is stay tuned!