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GATE Breakfast| Reindustrialization: Driver of Economic Wealth

Maude M. Sévigny No comment

On Friday, June 2, 2017, the GATE Breakfast, organized by the Maison régionale de l’Industrie (MRI), took place, under the theme “Reindustrialization: Driver of Economic Wealth.”

To a full house, business strategist Antoine Audy-Julien, of Deloitte, presented the findings on reindustrialization from the Deloitte report “The Future of Québec’s Manufacturing Industry.” His talk was followed by a personal account by Gilles Gravel, R&D Director at MEGA Brands, who shared his experience of repatriating business to Québec and who also provided an example of the reindustrialization that Mr. Audy-Julien had spoken of. The strategist mentioned that Québec is already in the process of reindustrializing, with a growth of 17% since 2008.

Gilles Gravel, directeur Recherche et Développement, MEGA Brands; Antoine Audy-Julien, Stratège d’affaires, Deloitte Sociétés privées; Éric Grondin, Associé (Sherbrooke), Deloitte; Pierre Bélanger, Président, Maison régionale de l’industrie (MRI); Josée Fortin, directrice générale, Sherbrooke Innopole et Patrick Lacroix, gestionnaire principal, Maison régionale de l’industrie (MRI)

Markets are now global and feature niche products, and businesses must adapt. The sector is evolving quickly in terms of production, management methods, technology…. To contribute to the growing prosperity of Québec’s economy, the reindustrialization of Québec is inescapable. There are several facets of this reindustrialization:

  • The repatriation of production by Québec companies that had relocated abroad, notably in Asia;
  • Local, regional, and provincial sourcing (lowering imports);
  • The relocation of foreign businesses in Quebec.

Import less to export more

As an economic vector, the manufacturing ecosystem can only benefit from optimizing itself. Businesses could work in partnership to a greater extent and prioritize local, regional, or at the very least, provincial sourcing, whenever possible. Encouraging Québec suppliers pushes them to improve their productivity and become more competitive. In the last few years, MEGA Brands has significantly increased its Québec suppliers, investing a total of $42 480 000 in the province in 2015. For example, their boxes used to be made in China at the low cost of 50¢ per unit. For the purposes of recentralizing its purchases in Québec, the multinational approached Cascades Containerboard Packaging (Norampac, at the time) who charged more. After negotiations and agreements, Cascades is now one of MEGA’s suppliers, because it adapted to the toy manufacturer’s request. Did you know that MEGA Brands also has its labels made in Saint-Eustache?

Importing to later export makes no sense. We have to import less to export more!” said Antoine Audy-Julien, business strategist at Deloitte.

“Of course, we can’t cancel 100% of our imports; it’s impossible to excel at everything.  For example, textiles will continue to be imported because the labour and costs are too high. But energy will stay here, this is where the resources are,” explained Mr. Audy-Julien, who remains realistic and encourages companies to convince the resource market who are on the fence between foreign products and Québec products, to support our province: furniture, etc.

Reindustrialization pays off

Reindustrialization is having positive impacts on Québec, explained the presenter from Deloitte, who shared the findings from the firm’s study: record manufacturing output, the neutralization of offshoring, the net creation of jobs, and record levels of foreign direct investment.

Relocation to Québec is financially advantageous for many reasons. When a company does a cost analysis, it must take into consideration the total costs involved in manufacturing the product, commonly known as the total cost of ownership, and not only the savings it can make on labour elsewhere.

Offshoring creates longer market entry timeframes of new products and delays responsiveness to market trends. MEGA Brands experienced a little misadventure when the company was still having its toys manufactured in China…. In January 2009, Walmart and several other clients, who were burned by the previous year’s financial crisis, did not place their holiday orders in the first quarter, as usual. They ordered closer to autumn. A timeframe of less than three months was too short for MEGA Brands! Less than three months, because the toys had to come from China to Québec, requiring remote management, among other things. The company lost a great deal of liquidity, employees were pressed for time, the greater number of orders at the same time required more planning; but it was the drastic hit to quality that was hardest to manage… and to add to the catastrophe, the costs in China had increased. “If we had centralized our factory in Quebec, that wouldn’t have happened!” noted Mr. Gravel.

In the context of a labour shortage, MEGA Brands has succeeded in increasing the number of employees specialized in certain tasks, by providing them with value-added jobs and by automating certain production lines. The jobs change, are reorganized: “Our number of employees isn’t necessarily diminishing, it’s the jobs that change. For example, we’ve gone from 10 to 40 electrical mechanics,” explained Mr. Gravel. MEGA Brands has invested $100 million in the modernization and automation of its plant in Montreal. These investments have been beneficial: the new presses operate 40% faster, use 40% less energy, and make 40% more parts than before!

Economic nationalism

The presenters also spoke about economic nationalism, of being proud to manufacture in Québec, which is not to say that they follow the example of American protectionism… but the major players’ choices clearly influence the market.  For example, Wal-Mart aims to increase its purchases in the United States by $50 billion by 2023, which has led more than 40 companies to repatriate their production to American soil. Why is China investing in and offshoring work to the land of Trump? According to the presenters, the cost advantages are disappearing, transportation costs are increasing, the business climate is more attractive in the United States, there is a local market, and the Americans are focused on innovation and productivity…. And what if in Canada we had enticing government incentives and developed the same kind of attractive economic environment for foreign investors?

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