Manufacturing 20/20 Prospects for a Competitive North American Economy Jayson Myers Senior Vice-President & Chief Economist, CME

Manufacturing 20/20  Launched January 2004  Cross-country discussion on the Future of Manufacturing in Canada  Discussion about the future of communities and the prosperity of all Canadians  Led by Canadian Manufacturers & Exporters – Canada’s largest industry association

What We Have Accomplished  65 meetings with over 900 senior manufacturing executives  33 community meetings involving more than 2,500 manufacturers and stakeholders  Input from 15 industry associations  Cross-country survey of 834 manufacturers  Manufacturing Summit

Issues Discussed  What are the challenges facing the industry?  How is manufacturing changing?  What will manufacturing look like in Canada in five to ten years time?  What will be Canada’s competitive advantage for manufacturers in the future?  What do we have to do to ensure future business success?

Importance of Manufacturing in Canada  Single largest business sector in Canada  Directly accounts for 18% of Canada’s GDP  Every $1 of manufacturing output generates $3.05 in total economic activity – largest economic multiplier  Over $580 billion in annual shipments (2004)  2.3 million Canadians employed in manufacturing  Wage levels 22% above national average  Accounts for 2/3 of Canada’s goods & services exports = $400 billion (2003)  Accounts for 2/3 of private sector R&D in Canada

Canada: Manufacturing Profile

Canada: Manufacturing Shipments

The Cost Squeeze 1st Qtr 2000 – 4th Qtr 2004  Selling Prices-2.5%  Wage Rates +17.5%  Raw Materials+45.4%  Payroll Taxes & Benefits +26.4%  Electricity+54.2%  Industrial Fuel+138.5%

Breakeven Time

What We Have Heard: Top Ten Challenges  Increasing competition from China – and new opportunities!  Impact of dollar appreciation  More exacting customer & stakeholder expectations  Problems & delays at the border  Skills shortages & aging workforce  Rising business costs – materials, energy, insurance  Global sourcing/investment  Accelerating pace of technological change  Costly, slow, non-competitive tax & regulatory structure  Infrastructure & reliable supply of cost-competitive energy

Competing in World Markets  Global markets – Global competition  Competitors, partners, & customers from around the world  Global sourcing – Global presence  Global value chains – Increasing complexity & competition  Global access to knowledge & new technologies  New and more exacting customer expectations  Accelerating pace of technological change  Rapid pace of product commoditization  Innovation & mastery of global value chains are preconditions for business success

The China Factor

Manufacturing in the 21 st Century  The business of creating & delivering customer value in tangible goods – Global product and market management.  Manufacturing is not just about producing things – It is about capturing the value in the knowledge inherent in customer solutions.  It includes:  Product Research and Development.  Marketing, Design, Engineering.  Value Chain Management.  Production Systems & Maintenance.  Innovation, Continuous Improvement & Quality Control.  Market Development, Distribution, Sales, & Service.  Business & Customer Financing.  A System of Global Business Networks.

Future Competitive Advantage?  Customer Success  Mastering global supply chains  Knowledge management  Specialized products & services  Innovation – Continuous commercialization of new and improved products & processes  New technologies & automation systems  New business models and global value networks  New market opportunities  Agility & Customization  Customer Value – Design, Engineering, Service, Financing  Time – Product Development to Customer Delivery  Lean – Products, Processes, & Enterprise

Critical Success Factors  Leadership  Workforce Capabilities  Innovation  International Business  Business Services & Financing  Infrastructure  Competitive Business Environment

Manufacturing 20/20: