Canadian Manufacturers concerned over US protectionism

Outlook 2019 study shows they’re expecting business to be good, but confidence has tumbled since last year

Canadian manufacturers are optimistic about their prospects in 2019, but significantly less confident than last year as concern mounts that Trump administration policies and other disruptive factors will affect their businesses, according to a new survey of senior manufacturing executives.

PLANT Magazine’s Manufacturers’ Outlook 2019 study shows 39 per cent of senior company executives are very optimistic about the coming year, compared to 44 per cent last year. The survey took into account 501 replies from senior manufacturing executives.

They’re either very or somewhat concerned about what’s going on in America. US protectionism is very worrying to 65 per cent of executives compared to 54 per cent last year, followed by US protectionism (65%), US President Donald Trump’s impact on nation-to-nation relationships (61%) and changes resulting from the NAFTA renegotiation (56%).

“Canadian manufacturing has been booming, but there are storm clouds on the horizon and that’s eroding Canadian CEOs confidence in 2019,” said Jeff Brownlee, publisher of PLANT Magazine, which commissioned the survey.

How are companies staying ahead of the risks? Two-thirds (66%) are conducting assessments, 29 per cent regularly and 37 per cent sometimes. Regulatory change leads the list of concerns for 41 per cent of those surveyed.

“It is true the world is changing fast, and in today’s exciting but uncertain times, PLANT Magazine’s annual Manufacturers’ Outlook survey has never been more significant,” noted Rob Riecken, National Leader, Manufacturing & Distribution for Grant Thornton LLP, which partnered in the survey. “Manufacturers’ Outlook 2019 provides Canada’s manufacturing businesses with material that will help them to brave uncharted waters. We firmly believe these businesses have the ability to adapt to this new era, and in new innovative ways.”

The survey found that, despite their concerns, manufacturers are demonstrating their confidence with plans to make significant investments in their businesses. Top choices for investment over the next three years are machinery, equipment and technology (75% of respondents) and training (63%). Average investment is expected to be more than $1.7 million.

More than half of the senior executives (55%) expect sales to increase (an average 12%); 60 per cent predict orders will increase (13%) but costs will also increase (9%). Of those surveyed, expectations are that pricing will rise for 54 per cent, — averaging 8 per cent increase — while 35 per cent also see profits rising (11%).

Controlling costs tops the list of challenges for 65 per cent of respondents, followed by pressures on prices (61%) and filling skills needs/management talent (46%).

The 2019 survey also added questions about corporate culture – the values, beliefs and attitudes that characterize a company and guide its practices – as part of a formal business strategy. Most companies (28%) include a formal program and/or policies, 24 per cent have an informal program in place and 23 per cent are working on it, while 26 per cent aren’t doing anything.

Other highlights from the survey:

  • Sixty-seven per cent of companies report most revenue comes from Canada, the US (23%), Europe (2.9%), Mexico (1.9%) and China (1.3%).
  • Companies entering new markets over the next three years are favouring the US (29%), Canada (26%) and Mexico (13%).
  • 48 per cent of executives cite a growing risk of cyber attacks aimed at industrial targets as a medium concern. More than half (57%) haven’t experienced an intrusion but 21 per cent were attacked within the last year. Sixty-two per cent cite phishing as the most common breach.
  • Fifty-seven per cent of respondents are focusing products, processes (56%) and technologies (47%).
  • The average innovation spend for 2019 will be 3.6 per cent of revenue but 49 per cent do not intend to take advantage of the SR&ED federal tax credit for investment in research.
  • Most of the surveyed companies (66%) fall into the small business category (under 100 employees); 23 per cent are medium-sized (under 500); and 11 per cent are large (500 or more).