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Editorial: Pondering productivity

Some troublesome signs are swirling around the Canadian window and door industry now, as documented by our Fit and Finish columnist, Chris Meiorin of Euro Vinyl Windows on page 13. The slump in our dollar, driven by the crash in oil prices, has made the supplies fabricators need very expensive relative to the prices we are able to charge in our domestic markets.

The American construction markets are surging nicely, but few of us are doing enough exporting for that to make up the difference. The traditional recovery in the Ontario and Quebec manufacturing sectors that follows a low dollar and low oil prices has yet to fuel any significant boost in private construction. The fear is that the last recession, which caused an unprecedented flight of manufacturing capital from those regions back to the U.S., has left us in a position where that recovery may not be forthcoming, or at least not for a long time, or with the strength needed to stave off another economic downturn. Residential building permits, as our data sheet on page 9 illustrates, are in a holding pattern that doesn’t suggest strong growth is on the horizon.

Our industry has certainly weathered economic storms before and will again this time. As always, those who have managed their cash carefully will have deep enough pockets to see the bad times through. Those who have boosted their profile in diverse markets will see enough business trickle in to keep the lights on. And those who have invested wisely in staff and equipment will be productive enough to fill their orders without giving away all their profit margin. Those who haven’t done these things will go away, leaving fertile ground for the survivors to till.

Canada has placed well back in the pack of comparable industrialized economies for decades on all measures of productivity. Countries like Ireland and Norway consistently blow us away. Canadian labour productivity is worth about US$42 per hour compared to US$52 in the United States, according to a 2012 Conference Board report. Worse, our growth in productivity has been slower than the Americans’ and continuing to drop. In the Conference Board’s estimation, we would need to quadruple our productivity and maintain that level for 15 years in order to catch U.S. manufacturers at this point. Not gonna happen.

In our circumstances, where supply prices are driven by external forces (the American economy) and market conditions are driven by volatile commodity prices (oil), improvement to productivity is one of the few strategies companies can employ to impact their bottom line. Productivity improvements help both in good times and in bad, maximizing your capacity to meet demand and make money when orders are strong and enabling you to protect margins and keep operating when business slows.

So why aren’t Canadian manufacturers more productive? Aversion to risk is one factor. I remember from my days selling machine tools small American machine shop owners walking on to trade show booths, kicking the tires on a piece of equipment for a few minutes and negotiating a deal for a machine worth hundreds of thousands of dollars right then and there. The equivalent sale to a Canadian shop would take months of analysis and negotiation involving committees of engineers and executives. Less punitive Chapter 11 bankruptcy laws in the U.S. are probably one reason for this cultural difference, as is the more intense competitive environment in most U.S. markets, but the effect was U.S. companies tending to have the latest and greatest in equipment while Canadians struggled along with slower machines and more manpower-intensive processes. From what I’ve seen in the Canadian fenestration industry, the same effects and tendencies apply, in general. Perhaps it’s time for a change in our approach.