The Canadian Manufacturers and Exporters (CME) association has updated its influential 2001 report on innovation and is recommending that industry take immediate action to improve productivity and competitiveness rather than wait for governments to launch long-awaited initiatives. The carefully crafted, slogan-filled document concludes that prompt measures are in order to close the so-called “excellence gap” in which Canadian manufacturers and exporters achieve only 50% of best practices among G-7 nations.

Canada’s 50% rating puts it at the bottom of G-7 nations. The top-ranked US achieves an average rating of 75% even though it takes the top spot in just one of the 10 performance benchmarks. Japan scores first in five categories, but comes out second overall with an average score of 71%. France takes bragging rights for the greatest improvement in competitiveness over the past five years, increasing spending on R&D and new technologies while improving operating efficiencies.

Entitled Striving for Excellence, the report notes that Canada’s productivity had been gradually increasing until squashed by recent “market uncertainties”. It’s a trend that will only be exacerbated by the recent increase in the value of the Canadian dollar. Increased global competition is also pushing down profit margins at the same time that the cost of conducting business is increasing.

“Competitiveness, not to mention survival, depends more than ever under these market conditions on cost cutting, efficiency improvements, a continued drive to higher value product and services for customers,” it states. “The challenge facing Canadian manufacturers is to close the productivity gap - before their competitors close them.”

When it comes to specific reasons for Canada’s lagging productivity, the report notes observations made by CME and other in recent years. The smaller scale of manufacturing in Canada compared to other nations robs manufacturers of the advantages of scale that larger countries enjoy.

Labour productivity in key sectors such as machinery and electronics are relatively low, increasing at about half the pace as in the US. Canadian labour productivity in many traditional sectors such as paper, wood products, primary metals and transportation equipment exceeds those in the US.

Canada’s falling dollar between 1995 and 2001 had a negative impact on productivity, as firms relied on the cheap currency to boost export sales rather than enhancing efficiencies.

Foreign owned firms are generally more productive than public Canadian companies, and they in turn are more productive than private held companies.

Perhaps are greatest single constraint on productivity is new product R&D and commercialization. The gap between Canadian and US industry investment in new technologies is growing. The US is far ahead in the exploitation of advanced automation systems.

A copy of the CME report can be found at www.cme-mec.ca.

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