Inside the Industry

Chart 1 (see feature image)

The ownership structure of Canadian metalworking enterprises is heavily skewed toward entrepreneurial activity, with the majority responding as privately owned. Single person ownership is a low 12.1 percent, reflecting the difficulty in managing and financing a profitable business in this sector. Limited partnerships are similarly few, but most surprising are the small number of publicly traded companies in the sector, the result of corporate concentration at the top of the industry along with foreign firm buyouts of Canadian operations and offshoring.

Annual billings reveal a significant gap in the middle of the industry. Only 13.7 percent of respondents show billing between five and ten million dollars, the traditional "sweet spot " for mid-size manufacturers. This also suggests manufacturing losses to low-wage jurisdictions. Over half bill in the under five million dollar category, reflecting the large number of job shops and specialty service firms in the industry. Over a third are in the over ten million category, reflecting the increasing power of larger companies post-recession that have survived outsourcing. The key fact is the categories are not based on averages, which can skew statistics by bias towards major automakers or Tier One OEM’s ... metalworking in Canada is trending toward larger firms.

Employment is an interesting contrast to the billing profile. Fully a quarter of respondents employ ten or fewer workers, reflecting the job shop core of the Canadian industry but at higher head counts, there’s no clear trend. Operations with more than 250 employees have a slight statistical edge, but the key trend is the discrepancy between the even spread of this chart and the "hole" in the middle of the annual billings stats shown in Chart 2. This suggests a decoupling of the employee count and billings in the middle of the industry, a sign of a surge in automation in firms billing 5 to10 million dollars annually, or a threshold level where job shops are adding manufacturing capability and boosting cash flow. Another factor is the emergence of super-productive highly automated manufacturing operations that generate large billings with job-shop levels of employment.

Chart 4 closely tracks the annual billings stats from Chart 2, with a notable "hole" in the 16 to 50-machine categories. Offshoring is a likely culprit, as medium sized manufacturing has declined considerably, while job shops and larger firms have been better able to survive the low-cost competition as well as recession. 18 percent of respondents use more than 50 machines, reflecting the growing strength of manufacturers with the critical mass to add new technology as needed to control cost and maintain quality. The resurgence of the auto segment is a major factor within a slowly recovering manufacturing sector.

The equipment portion of the survey shows that primary metal cutting and fabricating equipment is well distributed in the industry. Relative weakness in quality control and automated manufacturing equipment is more troubling….both will need to show significant increases over the next decade to maintain both capability and competitiveness.

An Internet presence is a given or modern corporations from convenience stores to multinationals, so its no surprise that Canadian metalworking business have an almost 100 percent presence on the Web. In terms of the sites where Canadian firms are most active, however, the results might surprise. Google is naturally the out front winner at 42 percent of respondents, not surprising for the world’s number one search engine, but take a look at the social media numbers. Facebook is a weak 14 percent and Twitter carries a miniscule 4.2 percent participation rate. YouTube and LinkedIn are also weak, although company blogs are more prominent at 15.4 percent. The suggestion is clear: social media sites are still the playgrounds for youth and after-hours chat, rather than a major tool for positioning Canadian metalworking enterprises. What do the numbers tell us? The Canadian metalworking industry is truly past the painful restructuring of the recession, but far from the kind of health enjoyed in the pre-offshore era. Survivors have invested heavily in automation and the shift away from medium-sized operations points to a future of specialized, knowledge-heavy job shops and large, capital-intensive mass production manufacturers. Add disruptive technologies, mainly from the additive manufacturing segment and the lines between job shop and production facility might blur to insignificance. In the meantime, it’s still about quality, delivery and price.

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