The Secondary Industry: Manufacturing in Canada

Breaking Down the Economy into Sectors  The economy is generally divided into three sectors: primary, secondary, and tertiary industries.  The first two are focused on the provision of goods, which is why together they are called goods-producing industries.  The third sector involves the provision of services.

The Secondary Industry  Involves processing raw materials from the primary industry into “finished goods”.  The most important secondary industry sector is manufacturing, which is responsible for making the enormous range of products needed by consumers and companies.  The second most important sector in the secondary industry is construction, which is responsible for buildings things.

Stats and Facts  Employs 2 million Canadians, which is 21.6% of the Canadian work force.  There are more employees in manufacturing and construction than in all of the primary industries combined.  In the past 5 years, manufacturing in Canada has declined (especially in Ontario). Companies such as Heinz, Stelco, Kellogg's, and Ford have closed their plants. Thousands of jobs have been cut.

Manufactured Goods   Many goods that were manufactured in Canada in the past are now manufactured elsewhere in the world. This is called outsourcing. This is when a company moves its operation to anther country to take advantage of cheaper labor and/or less strict labour and environmental laws.   Secondary industries also contribute to the Canadian economy by producing goods for export. Exports are things that are sold to people in other countries.   Canada’s greatest exports today are: oil, cars, and lumber.

Major Exports #1. Petroleum Products (Oil and Natural Gas)

Major Exports #2 Passenger Vehicles

Major Exports #3 Lumber

Finished Goods  Wood Furniture  Canned fruit  Packaged meat  Plastic  Jewelry  Cheese  Drywall  Paper  Cars  Pennies  Batteries  Gasoline  Pencil  Bottled water  Table salt  Silver  Diamonds  Stee

Manufacturing in Canada  In Canada, manufacturing primarily takes place in two provinces: ONTARIO AND QUEBEC

Location Factors  Manufacturers in Canada consider several factors in deciding where to locate and open their factories. These are known as location factors. Changes in these factors over the years can help to explain why some factories close. The location factors are below:  Access to customers  Access to raw materials  Access to labour supply  Access to freshwater and/or power  Access to transportation  Political factors  Personal factors

Location Factors Access to customers

 Delivery times are shorter and costs are lower when the customers are nearby. Companies must deliver on time or the customer’s operations could be stalled.  This is very important for customer satisfaction!

Location Factors Access to raw materials

 Raw materials are often heavier and bulkier and more costly to ship so it helps to be close to them. Example: trees are heavier and more expensive to ship than finished lumber or paper. Therefore, it makes sense for sawmills and paper mills to be close to the source of trees.  Some goods such as fruits or vegetables are difficult to transport long distances without damage or spoilage.

Location Factors Access to labour supply

 Canadian manufacturers are now looking more for the skills of their workers rather than numbers and low-cost, because manufacturing has become more of a knowledge- based industry.  The manufacturing jobs today require more training and offer better pay.

Location Factors Access to fresh water and/or power

 All manufacturers need a reliable source of water and power (mostly electricity and natural gas). For most companies, this just means hooking up to the local city’s supply.  Some industries locate near lakes and rivers because they need access to water for cleaning and cooling.

Location Factors Access to transportation

 Manufacturers need to ensure they can send out their goods. Different companies will choose to locate near highways, water, train, or air transport depending on their goods and how quickly they need to be transported.

Location Factors Political Factors

 Governments at all levels are involved because they affect manufacturers in some way.  Sometimes the government will offer grants (money) to manufacturers to encourage them to locate in particular place.  Example: Highway 407

Location Factors Personal Factors

 Often a factory is located where it is because the person who started the company happened to live there.  Many manufacturing companies in Canada were started by immigrants, so it is not surprising that their factories are mostly in Toronto and Montreal.  Example Magna International (1957 Austrian immigrant in Toronto now has auto part plants all over the world).

Manufacturers that have recently closed  2010 Stelco (steel maker), Hamilton, ON  2011 Ford (motor company), St. Thomas, ON  2012 Caterpillar (electro motive plant), London, ON  2013 Kellogg's (cereal) London, ON  2014 Heinz (ketchup, baby food, etc.) Leamington, ON  Recent years have been tough for Canadian manufactures. A lot of job cuts. Manufacturing in Canada is growing weaker. Ontario and Quebec have been most affected.

Lost Manufacturing  Trends in manufacturing closures:  International competition  Outdated technology that is too costly to replace  Outdated facilities that are too costly to modernize  Cannot afford to pay employees traditional wages  Operating costs too expensive

What is causing the Manufacturing Decline?  Economic Cycles  Local, national and global economies go through cycles.  Some experts suggest that the current decline in Canadian manufacturing is just part of one of those cycles.

 Integrated Global Marketplace  Companies can move their production to the country that offers the lowest costs, which enables them to earn the highest profits.  This means generally cheaper prices for consumers.  Comparative Advantage – a situation in which a country is better off focusing its efforts in fields where it is most competitive – for Canada this means producing, processing and exporting our abundant natural resources.

 The Expensive Loonie and Dutch Disease  The value of the Canadian dollar in relation to the US dollar really matters in manufacturing.  When the Canadian dollar has a high value (equal to or greater than the US dollar) Canadian products are hard to sell because they cost too much to manufacture and export.  When the Canadian dollar has a low value (less than the US dollar) Canadian products are easy to sell because they become cheaper for other countries to buy.  Dutch Disease: a situation in which the value of a Country’s currency is driven up by the growth of exports of natural resources such as oil or mining products.

 The Rise of Asia  China is now the world’s factory for all but the most sophisticated products.  A new trend is emerging in Chinese manufacturing – labour costs are dramatically increasing which means that the Chinese can no longer afford to make very cheap products.  Chinese countries are now outsourcing to countries with cheaper labour and focusing on more sophisticated manufacturing – taking a growing share of the North American market.