Rising Overseas Costs Fueling Canadian Reshoring

Rising Overseas Costs Fueling Canadian Reshoring

Dec 22, 2016, 8:36:23 PM Business

After decades of offshoring manufacturing jobs to places like Asia where costs were lower, it looks like North American companies are starting to bring some of them back in a process called reshoring.” Increasing shipping costs and higher wages in China have led to a reorganization of the global supply chain, and North America is beginning to look more appealing as a manufacturing center to international corporations.

A North American Homecoming

In the United States, many global manufacturers have relocated production from Asia back to American cities like Milwaukee, WI; Wichita, KA; and Athens, GA. Since 2010, the United States has welcomed over 300,000 factory jobs to its shores. In 2012 alone, the state of Georgia announced deals with nine companies for a total of just under 4,500 new manufacturing jobs, with companies like Toyota and Caterpillar moving production from Japan and others such as Starbucks, Baxter (the pharmaceutical company), and Erdrich Umformtechnik (a producer of car parts) promising more factories in the future.

It remains to be seen whether Canada will share in America’s success at bringing the jobs back home. It remains an expensive place to manufacture products. In order to draw companies back to Canada, governments will likely have to implement policies and offer incentives to compensate for the country’s higher labour costs and distance from important European, Latin American, and Asian markets.

However, things still look good for the future of manufacturing in Canada. Ontario has competitive tax rates and a highly skilled labour force, bolstered by relatively low post secondary education fees and online technology courses. Also, recent research has indicated that the future may be brighter for the Canadian economy and manufacturing sector.

According to a 2014 report by the consulting firm KPMG, many of the factors that worked against the Canadian economy in the 2009 recession are starting to become less of an issue. For example, they found that Canadian companies are starting to prioritize growth over cost-saving measures like outsourcing production to China. In the report, which is based on a survey of 154 senior-level executives, it was found that while 31 percent planned on outsourcing labour to China in 2013, only 14 percent intended to do so the following year. And while 12 percent planned on outsourcing labour to India in 2013, only 3 percent intended to do so in 2014.

The report claims that “rising energy and transportation costs, along with added pressure on lead times and increased inflation in China have made Canada and the (United States) more competitive as sourcing nations. Reasonable energy costs and the quality and consistency of products offered here at home have also driven Canadian manufacturers to look onshore for their sourcing strategies.”

These results, which suggest that the appeal of cheap overseas labour is starting to decrease, are very appealing for the Canadian job market and economy.

Valeant: A Canadian Success Story

A great example of Canadian reshoring can be seen in the story of Valeant Canada, a multinational pharmaceutical company, which in June committed to investing $27.5 million in expanding its Canadian manufacturing operations. Eight million dollars of that will be used to transfer two new pharmaceutical technologies to its Steinbach, Manitoba manufacturing facility, $7 million will be used to upgrade the security of its product manufacturing supply chain, and $12.5 million will be used to boost exports by upgrading the manufacturing systems at its Laval, Quebec headquarters facility.

Of the news, President and General Manager Jacques Dessurealt of Valeant Canada had the following to say: “These recent announcements demonstrate Valeant’s strong intention of growing its manufacturing base in Canada and using it to export important health products. We are proud to be a Canadian-headquartered company. Our Steinbach and Laval facilities play a critical role in advancing healthcare technology both in Canada, and around the globe.”

Because of their $27.5 million investment in domestic manufacturing, Valeant Canada is expected to reap $1.4 billion in added value to the company, according to the Canadian Manufacturers and Exporters’ return on investment formula.

It just goes to show that there is a lot to be gained from international companies investing in domestic production. By reshoring these manufacturing jobs, not only do the Canadian people benefit, but the companies do as well.


Published by Steffen Ploeger

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