Being competitive more than cutting costs
Cranes is right. Becoming competitive is not just about cost cutting ....
TheStar.com - Being competitive more than cutting costs
DAVID CRANE
A recent article in The Wall Street Journal describes how Mexican manufacturers are responding to the challenge of China. They are upgrading the skills and capabilities of their operations so they can do the higher value work currently being done by manufacturers in the United States and Canada.
Mexico is reported to have lost 400,000 manufacturing jobs to China, which forced Mexican companies to learn how to make more complex products. The article describes how the manager of the Jabil Circuit Inc. 1-million-square-foot electronics complex in Guadalajara, after losing significant business to Chinese rivals, reorganized the facility to compete as a "North American factory" and not simply as a cheap-labour factory.
It is now busier than ever in higher-value activities, taking business away from a Jabil facility in the United States, forcing the closing of the U.S. plant with the loss of 500 jobs, and taking business away from France and Ireland as well.
Growing competitiveness from Mexico, China, India and other emerging market economies has led to cries of protectionism in the United States. Such actions, however, can only slow down the process of a global reallocation of manufacturing and production activities that is now under way, not halt it.
As Microsoft Corp. chairman Bill Gates recently told a student audience at the University of Illinois, "the tools of technology are changing global competition" which is leading to widespread concern.
"The tools of technology are making it possible for not only manufacturing-type jobs to be done anywhere on the globe but actual service jobs, not just programming, not just call centres, but design, architecture, any kind of work if you have these rich collaborative interfaces that the Internet and the rich software on top of it make possible, that will let people compete for that work anywhere in the world."
In Canada, far too little thought is being given to where and how our manufacturing sector will fit into this radical restructuring of production that is leading to a global production system.
Prime Minister Paul Martin says he wants to build a 21st century economy for Canada, which would have to be an economy based on a culture of innovation and activities at the frontiers of science and technology.
However, the investment attraction strategy being pursued in Canada seems to be based on KPMG surveys that show Canada is a cheaper location for manufacturing than the United States, Germany or Japan. But it ignores cost comparisons with Mexico, China or India, which in many instances would be much more relevant.
At the same time, business groups like the Canadian Chamber of Commerce, and business-funded think-tanks such as the C.D. Howe Institute are also focused on such cost comparisons, arguing that the way to build Canadian competitiveness is to have lower corporate tax rates than the United States.
If we see the competitiveness challenge as being one of simply driving down costs, then we will be in a losing race with Mexico, Brazil, China, India and other emerging market economies.
The Canadian Manufacturers and Exporters association shows signs that it sees the issue as more profound. It plans to spend much of this year engaging Canadians in a dialogue on what's needed to sustain successful future manufacturing, with the goal of producing a strategy paper by October.
Manufacturing employs about 2.4 million workers in Canada and accounts for 18 per cent of Canada's economic output. But its influence is greater than that since many business services depend on a healthy manufacturing sector, while the wages earned by manufacturing workers strengthen housing, retail and other industries. This makes the future of manufacturing a challenge for all Canadians.
As a background paper explains, "Canadian manufacturers are at a critical crossroads. They face a number of challenges — the appreciation of the Canadian dollar, fierce competition from emerging economies like China and India, escalating business costs and more demanding customers sourcing globally to serve global markets, to name a few."
Moreover, Canadian manufacturers "will face even greater challenges over the next five to 10 years as the business of manufacturing itself evolves rapidly in response to the development of new technologies and new competitive pressures."
If Canada is to have a sustainable economy in the years ahead, we have to wake up to the challenge of globalization in a much more profound way than we have so far. The world is changing at an extraordinarily rapid pace and our own standard of living is at stake.
March 11, 2004 at 12:28 AM in World Affairs | Permalink
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