January 27, 2012 / 3:08 PM / 6 years ago

Canadian manufacturers seeking niches to prosper

TORONTO (Reuters) - Coat maker Canada Goose found its niche by shunning the make-it-offshore phenomenon, producing its heavy duty down parkas on Canadian soil.

Even as Canada’s clothing industry crumbles, with employment down 60 percent in just over a decade, the 55-year old family-run shop bucked the broader trend of moving production to low-cost locales such as China by keeping manufacturing at home.

“Pretty much everybody at some point touches the jacket,” Paul Riddlestone, vice-president of manufacturing and supply chain at Canada Goose, said amid the hum of sewing machines on the factory floor in an industrial part of Toronto’s west end.

“We are rebuilding a manufacturing infrastructure that disappeared years ago.”

The company is one of a growing number of Canadian manufacturers focusing on specialized, high-value products because it knows it cannot compete on price against goods made in emerging economies with far lower costs. The emphasis is on the craftsmanship and functionality of the gear, which is used in some of the coldest, driest and windiest corners of the globe.

The puffy Canada Goose jacket with its distinctive logo costs from $500 to more than $1,000, compared to $100 and up for a made-in-China down coat. Laurie Skreslet, the first Canadian to climb Mount Everest, has one. So does Lance Mackey, four time Iditarod and Yukon Quest dogsledding champion, along with oil riggers, police officers and Antarctica researchers.

“We have a country that is known globally to be very cold and people see Mounties and polar bears and igloos, and they hear about the Great White North,” added Kevin Spreekmeester, the company’s vice-president of global marketing. “The imagery that they relate to relates back to these jackets.”

QUALITY FIRST

The focus on brand and quality rather than cost is crucial as Canada’s traditional manufacturing sectors decline in the face of growing global competition and a lofty Canadian dollar - which climbed some 50 percent in the last decade and now trades near equal value with its U.S. counterpart.

Between 2000 and 2011, manufacturing jobs shrank by about 22 percent, representing a loss of more than 480,000 positions, data from Statistics Canada shows.

The steepest job losses were in textiles, clothing and transportation, as well as in wood and paper. The only sectors to see job gains were food, beverage, tobacco and machinery manufacturing.

“Manufacturing is a tough industry to be in if you’re a higher cost country with a relatively strong currency. Where you maintain an advantage and still grow you’re going to have to look at specific markets,” said Adrienne Warren, a senior economist at Scotiabank and author of a recent report on Canada’s “maturing” manufacturing sector.

The high Canadian dollar has lifted the price of exports and lowered the costs of imports, while globalization and the removal of trade barriers have boosted international competition, especially from lower cost emerging nations.

But Warren noted some firms have excelled, reporting strong gains in production, employment and exports by targeting high-growth markets both domestically and internationally.

Leading examples include medical devices such as surgical equipment, prosthetics and diagnostic kits, as well as agricultural, construction and mining machinery manufacturing.

‘SMALL IS BEAUTIFUL’

Peter Brown, a partner at financial advisory firm Deloitte with an expertise in private company services, said the trend can be seen across manufacturing, with examples like Woodbridge, Ontario-based Summer Fresh Salads, a supplier of prepared foods such as hummus, and Steam Whistle Brewery, which is based in an old railroad roundhouse just minutes from Toronto’s financial district.

Public companies that have found a niche include Martinrea International (MRE.TO), an auto parts manufacturer specializing in fluid systems and metal forming, and Patheon PTI.TO, which contracts manufacturing of pharmaceutical products.

“We’re seeing a focus on innovation amongst manufacturers almost throughout the entire organization,” said Brown.

“Where do we take out costs? How can we be more green? Where do we apply new markets? How do we change our product to be more relevant? They’re basically questioning everything.”

Experts say Canada could look to Germany as a model where medium-sized firms that are strong exporters have thrived.

“As the world gets smaller, anything that is happening in those modern economies is also happening in Canada,” said Sandra Pupatello, a former minister of economic development in the manufacturing stronghold of Ontario, now a director of business development and global markets at PricewaterhouseCoopers.

LOOKING AT SECTORS

Examining the trend, Statistics Canada last year analyzed business investments in expanding manufacturing sectors such as food, petroleum refining and machinery, as well as in contracting groups like wood, paper, autos and textiles.

Between 2000 and 2008, just before the recession hit, sales for expanding groups climbed 44.8 percent, or an average of 5.6 percent a year. That compares with a 32.8 percent decline, or an average of 4 percent a year, for the contracting segments.

The analysis entitled “Recent trends in Business Investments,” highlighted the potential for growth in various sectors, given investment trends, even as manufacturing in key Canadian sectors shrank

“I don’t know if I would call it a trend as much as a lack of choice,” Ken Wong, a professor at Queen’s University with expertise in business strategy, said of the move toward niches or specialization.

“You’ve got all the economics that say small is better than big for this country, you’ve got a social value system that is saying small is beautiful. You’ve got a political will that says you’ve got to get a lot of people employed.”

Canada Goose, for its part, has grown from a single factory shop to 13 across Canada. It now employs about 600 people and exports to some 40 countries, with many sales through high-end stores like Bloomgindale’s in the United States or Colette in Paris. There are no end-season discounts.

“There was time when the holy grail was price,” said Spreekmeester. “Today, what we’re seeing certainly in some niche markets is that the holy grail is authenticity and quality.”

Additional reporting By Allison Martell; Editing by Janet Guttsman and Jeffrey Hodgson

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