Productivity and the future of advanced manufacturing in Canada : Q&A (part two) with Jayson Myers, CEO of NGen

Jayson Myers (photo at right) has been CEO of Next Generation Manufacturing Canada (NGen), a federally funded, Ontario-based global innovation cluster, since NGen and four other national clusters were announced in November 2018. NGen’s mandate is to fund projects with industry and other partners that support and grow Canada’s advanced manufacturing ecosystem and help strengthen collaboration across the entire ecosystem.

Myers is an award-winning business economist specializing in industrial and technological change. He has more than 25 years of experience building alliances among businesses and academic institutions, as well as community, labour and advocacy organizations. Between 2007 and 2016, he served as president and CEO of Canadian Manufacturers & Exporters, Canada’s largest industry and trade association.

Myers talked with Mark Lowey, Research Money’s managing editor, in an hour-long conversation. This is part two of that conversation, in which Myers talks about: productivity in Canada’s manufacturing sector; his longer-term vision for NGen (including making it self-sustaining financially); NGen’s future under a change in Canada’s federal government; and the potential impact of a second Donald Trump administration in the U.S. on Canada’s manufacturing sector.

In part one of the conversation, published on November 27 (along with NGen’s key performance indicators), Myers discusses: small and medium-sized companies’ participation in NGen- and industry-supported projects and the benefits for SMEs; who NGen works with in the range of activities it supports; achievements and initiatives Myers is most proud of; and the challenges NGen has faced and continues to face.

R$:  NGen’s recent report on productivity in Canada’s manufacturing sector over the past 25 years found that, for the most part, manufacturing productivity growth in Canada has been “middling at best.” What are a couple of main reasons for this (reasons that are within Canada’s ability to control or change), and what are a couple of potential solutions to move the needle on productivity growth in the advanced manufacturing sector?

JM:  I think there are some structural issues. We’re comparing ourselves to the U.S., usually. A part of it, too, is the timelines we’re comparing. If you look at productivity growth from 2000 to where we are right now – productivity in Canada versus the U.S. – Canada had marginal productivity growth from 2000 to 2010, while the U.S. is surging ahead during that time in manufacturing. But it’s not because everybody’s doing so much better [in the U.S.]. It’s because China became part of the World Trade Organization and there’s open trade with China, and North America as a whole loses a tremendous amount of manufacturing during that decade, more so in the U.S. than in Canada as a share of manufacturing. The share of manufacturing as a percentage of GDP goes down in both countries, but more so in the U.S., and Canada hangs on to its workers more. Employment numbers go down, but we don’t lose as many workers, even though during that period of time we lost some major manufacturers. That was the period when Nortel was going out of business and we had a lot of shakeup in the IT sector and all of that was being outsourced around the world. The [Canadian] dollar was going up in value so we lost a lot of marginal manufacturing and a lot of it went to China. It wasn’t just a Canadian issue; it was a North American issue.

That also reflects a structural problem, which is we’ve got a lot more smaller companies in Canada. So companies that didn’t go out of business downsized their production and they couldn’t give up their people. Canada has proportionally more smaller companies than the U.S. does and the U.S. has some very, very large companies including multinationals. The U.S. also has a very large part of the middle-range companies – in Canada, you would say these are large companies. There’s a proportionally larger group of mainly family-owned companies in the U.S. that are much larger in scale than Canadian companies are.

That has a big impact on productivity from two perspectives. One is that the smaller companies aren’t going to give up their employees as production levels fall, and that’s exactly what happened. The other part of it is that the larger companies in the U.S. are highly capitalized. The larger companies are in the business of mass production. We’re far more customized in Canada. So that comes through in productivity numbers where production is based on volume of production.

We’re not taking into consideration the value of the products that we’re producing here. The value of products sold by Canadian manufacturers is probably only about 85 percent of the total income that’s generated by manufacturers and the rest is based on services. But that’s not taken into account in production numbers. Plus we’ve got lots of issues around the growth potential of companies in Canada over that period of time [2000 to 2010]. What people don’t talk about nearly enough in manufacturing is that based on current statistics, from 2010 to 2024 Canadian manufacturing productivity is increasing twice as rapidly as the United States. Why don’t we look at that, rather than the problems? Productivity is coming back and it’s a combination of tech adoption and things like that.

Productivity is about real GDP and it’s supposed to be a reflection of production. I think we have real problems in figuring out what real GDP means and what is inflationary versus what is an increase in value, in product or in service. The other thing is it’s GDP divided by production per unit of labour-hour worked. So mathematically you could achieve infinite productivity the day a manufacturing company closed and the [bankruptcy] receiver sold off the remaining inventory. You would have sales and nobody working. But that’s not a good economic measure. I think the focus should not be on productivity. The real focus should be on business growth and economic growth.

This is where NGen comes back into play, because what we’re all about is trying to develop and hold on to and commercialize IP and grow businesses in Canada. A large part of that depends on how good we are at capturing the value of technology and IP in Canadian industry. That’s our focus and that’s where we will eventually go in our reports about productivity. Our focus for so long [in Canada] has been on R&D and tech push, and Canadian companies don’t invest as much as they should probably in R&D. But what they do invest, very little of it goes in to university research or college research or NRC (National Research Council) research. They’re not buying a lot of IP from the research institutions. Eighty-eight percent of the IP that’s developed by tech companies in Canada is sold outside of Canada. It’s not commercialized within Canada.

So when it comes to our productivity performance, a large part of it is about how we are not only investing in technology to improve operations in Canada – whether that’s government or finance or manufacturing or industry – it’s about how we’re using the technology to leverage value. What I always say is that R&D is transforming money into knowledge. And innovation is all about transforming that knowledge into economic value, which is all about either monetary savings or goods and services that people actually buy. We’re not very good [in Canada] at being able to transform the knowledge we have into value. That really comes across in a lot of the productivity numbers. Where we really need to focus a lot more attention is the adoption of IP and knowledge and acquisition of IP and the adoption of technology in Canadian companies and Canadian manufacturing. Finance [the financial services sector] does a really good job of that. With manufacturing, there’s a long way to go and other sectors are lagging far behind.

R$:  NGen’s 2023 annual report notes that NGen’s strategic plan now has an explicit focus on turning NGen from a funding mechanism to a business that will be financially self-sustaining by 2028. So what’s your longer-term vision for NGen? Where would you like to see the global innovation cluster in 10 years?

JM:  We’ve established ourselves as a really effective way to leverage up funding to achieve outstanding financial results and economic impacts, by leveraging that funding through collaborative projects. I think that is a really good model for going forward. We’ve always seen global innovation cluster funding as seed capital, and we wanted to show what we could do with it, which I think we have. It’s one of the reasons we were allocated more money in the Homebuilding Challenge from the federal government and from other sources of funding.

What I’d like to do is be able to put NGen on a self-financing basis just to cover our operating expenses. Then we can play a really good role in putting together innovation solutions bringing together good projects and working with other public funders or private sector investors in finding money for those projects. That’s a little more along the model of a Eureka Cluster where they basically put good projects together and then go out and find public and private sector money to support them.

That’s where my vision is over the next 10 years: to position NGen as a facilitator of funding for really leading-edge advanced manufacturing solutions that continue to be based on this collaborative approach between technology and research on the one hand and industry on the other because I think that strategy has fully proven itself. To do that, we have to be self-sustaining operationally. Some of that comes from how we can help project partners and our members virtualize very strategic solutions for a broader audience. We’ve developed some software solutions of our own. We’ve got now a network of approximately 12,000 organizations and there’s a huge amount of data in there. Within that pool of 12,000 organizations we can easily identify who has what capabilities in terms of innovation or technology or manufacturing or supplier certifications or whatever you want to find out. I think there are other services as well that we are able to offer on a fee-for-service basis that will give us a little bit more of an ongoing revenue stream that can help sustain our operations and then transform ourselves [while] still trying to find funding that’s available as well as industrial investments and connect them with good projects.

R$:  The polls are telling us that we’re likely to see a change in the federal government next year. If that happens, do you think the work started by NGen will continue, even if there’s no further federal funding for NGen and the other global innovation clusters?

JM:  I think our success speaks for itself, regardless of the government [in power]. I think any government that comes in is still going to be faced with some major issues around how to improve productivity and Canada’s innovation performance. We’re not going to see major funding programs disappear although we’ll continue to see emerging, as usual, different types of funding programs. But there are still priorities for a Canadian economy and I imagine they are priorities for any government that comes in. If we can show that we are very effective in leveraging federal funding and do things that the federal government cannot do, like achieve good results in many cases, that’s going to be attractive to whatever government comes in to power.

We’re also looking at other opportunities as well, such as industrial investment funds available where we can work with investors to leverage up their investments as well. Our preference is to work with the federal government and provincial governments, but there are opportunities for us to position ourselves so that we can raise money from a number of public and private sources to invest in good innovation solutions.

We’ve spoken to MPs from all parties and one of the biggest challenges we have is just making sure everybody knows what we’re doing and some of the good stuff that we’re doing. There are a lot of self-serving people who say that they’re speaking on behalf of the innovation community who really have no experience in actually delivering good innovation outcomes. I think [our] experience will speak a lot for itself.

R$:  Do you have any thoughts about how Canada’s advanced manufacturing sector should prepare for a second Donald Trump administration in the U.S., especially if the president-elect follows through on his intention to impose 10 percent to 20 percent tariffs on imports to the U.S.?

JM:  As we did with COVID, the success of the U.S. industry is only going to be based on their supply chain, and you’re not going to see a major exodus back to the United States because the U.S. can’t handle it. They don’t have the capacity for manufacturing. They don’t have the skills, they don’t have the people. So they’re not going to shut down major supply chains. In terms of a 10-percent tariff, I think there’s probably more of a focus on China and Mexico because of the Chinese content in Mexico. Probably [Canada’s] finished goods sector is a little bit more exposed, the automotive sector, the aerospace sector, certainly the metals sector and the lumber sector – those are more exposed. But we’ve got a lot of assets when it comes to critical minerals and oil and natural gas that the U.S. needs. If it’s a 10-percent tariff on most of Canada’s exports, it will only increase the cost of manufacturing in the United States. So it might actually be good for us because it will attract more investment here.

They’re not going to put tariffs on critical minerals and batteries from Canada because it’s the only supply of batteries [the U.S.] has got, outside of China. In the U.S. and Canada, there’s election rhetoric and then there’s the question of what do you do when you’re in government.

For those companies that are focusing on the product as a data platform and transitioning from just manufacturers into service providers based on the use of a product, 10- to 20-percent tariffs are aimed at protecting the manufacturing sector in the U.S. that probably existed 20 or 30 years ago. Such tariffs are not going to be effective today. The other thing is that what [tariffs will do] is put more cost on the U.S. consumer. So from Donald Trump’s point of view, he’s coming in to fight inflation and then [he’s] going to [increase] the cost of goods that are being imported into the United States. And 10- to 20-percent tariffs, from China’s point of view, are meaningless. They can undercut those costs easily and they can undercut the 100-percent tariff on electric vehicle costs easily. And all you’re doing is hurting American companies in China or American companies outside of China – you’re putting additional costs on them. We’ll see their prices go up. At the end of the day, [with tariffs] you’re slowing down all of the innovation that needs to occur to make you competitive.

R$:  Have you enjoyed the six-year ride so far at NGen?

JM:  I love it. It’s so much fun. As we got underway, we were learning stuff all the time. We kept saying we wish people across Canada knew what was going on here. But we were learning things all the time. Our unofficial motto was: Who knew? I’m still learning great stuff all the time.

I was out in Saskatoon with a group of Indigenous fashion designers and textile manufacturers. I had no idea we were supporting them and I had no idea that some of these companies are doing business around the world, selling Indigenous-designed textiles and sustainable products.

I always say all the sectors in manufacturing have similar issues. Usually companies will say they’re either too busy and therefore don’t have the time to invest, or business is down so they don’t have the money to invest in new technology. Rather than thinking that investment in new technology might actually give them a greater capacity to do business when business picks up. I think that’s a real challenge, today especially because technology is moving so quickly ahead. We’ve got a lot of businesses that are doing really, really well. They’re very profitable in sectors that, with the advances in technology we’re seeing, are probably going to go out of business in 10 years. But they think they’re doing really well right now and don’t think that they need to take a look at what is happening internationally. And maybe that’s the nature of business – you go out of business. But it would be really neat if we could actually keep them in business and grow a business where they’re using technologies to go into different lines of business.

R$