FREDERICTON – Bruce Simpson, a senior partner at McKinsey & Co. Canada, told a room of around 200 people of New Brunswick’s manufacturers, government representatives and academics on Wednesday that the province has got some things right already, but it needs to scale up.
Simpson was a keynote speaker at the opening dinner of the inaugural JDI Roundtable for Manufacturing Competitiveness in New Brunswick that’s headed by UNB economics professor and Vaughan Chair of Regional Economics Herb Emery.
“Canada is a global leader in productivity in no sector. We live off a soft dollar, a soft exchange rate,” he said. “New Brunswick may have some great plants that are highly productive, but we need to find a way to make those plants great and we need to be more productive.”
Simpson, who founded McKinsey’s manufacturing practice in the late 1980s, noted that Canada is behind other developed countries in productivity and investment in research and development. But New Brunswick is lagging even further behind on those measures.
“Our manufacturing productivity has diverged and we’re now 22 per cent lower than the Canadian average. New Brunswick is second to last among Canadian provinces when it comes to productivity,” he said.
Manufacturers in the province face an aging population and challenges getting skilled labour, he said. Plus, there’s too much red tape – Canada is the worst among OECD countries when it comes to red tape, high business costs, uncertainty due to over-reliance on the U.S. market, and now, technological disruption from the fourth industrial revolution.
“The context is already tough, and this is now coming to get us. We need to get in front of it,” he said.
“Putting all of our eggs in the U.S. basket is just not a good idea. We have to pivot west to Asia, pivot east to Europe, and do a lot more east and west. But we have to be good enough to take on the big guys in the global market place rather than just, perhaps, looking at the other provinces and seeing if we’re better than those guys,” he added.
Simpson said governments in the Maritime provinces need to help provide more certainty to businesses too.
“We need to have the same rules across provinces so we’re not wasting our time … with different rules in different provinces. So please help align things across the provinces in order for the business climate to get more attractive for companies to actually invest,” he said.
But it’s not all glum. New Brunswick’s manufacturing sector has its strengths and academia, the private sector and the government need to focus on these strengths, he said.
If manufacturing is revived in the province, it could add between $800 million and $900 million (2 per cent to 3 per cent addition) to New Brunswick’s GDP. But that requires more people and higher productivity.
“There’s two key pillars to build it here: first, increasing manufacturing exports…as well as attracting [foreign direct investment] in from abroad and other provinces. But both of those require productivity.”
Simpson says New Brunswick’s strengths lie in its deep-rooted family-owned businesses who act as local champions. They include Moosehead Breweries, Cooke Aquaculture, Imperial Group, as well as the Irving and McCain companies.
“Family-owned businesses have a very good record across the world for not being the folks who are only in there to make a buck over two or three years who then leave. They’re there for the long term. They’re integrated into the community, into the supply chain end-to-end, they have longer-term growth perspective, and have a much more family-oriented regional business culture,” he said.
Their success in New Brunswick have trickled to smaller companies like Remsoft, a software firm that partnered with JD Irving, Ltd., that’s now “making waves beyond its original jurisdiction,” he said. He also noted McCain’s partnership with drone company Resson, who is now “making waves” in San Francisco.
He said while New Brunswickers tend to see the largest players in the province as not needing help anymore because of their size, they’re actually still “minnows in the global stage” where they compete with multi-billion dollar firms. He said these larger companies should take their smaller local suppliers global with them.
“If you place yourself into a global marketplace, then even our largest, most successful players are minnows. They need help to take on [major global players] and then they can help smaller companies back home. It’s working to shift our mindset, so to speak, less looking to the next province and the government to support us, and more looking beyond that to a global marketplace, which we can, if we put our act together, compete in,” he said.
“Supporting local champions maybe politically more challenging. We tend to sprinkle our dollars across a more democratic space. But it absolutely makes economic sense,” he added.
New Brunswick also already have “good green shoots,” he said. There are already entrepreneurship programs, co-op programs like FutureReadyNB and scale up programs through universities that are ongoing. But, “how about multiplying that by 10?” he said.
“That’s the key message. You do have some good things going. Local champions, deep water port, you’ve got some good private sector and academic partnerships, you’ve got an immigration pilot [program] and you’ve got some natural strengths like agriculture, tourism, forestry, fishery and of course, energy. And education…you have a really good base of universities here,” he said.
“You have some good things happening. They’re the right things. But they’re just not done at scale. You need to be bigger, enhanced, built on and supported by the government, and also the private sector and academia.”
He said to help the manufacturing sector grow, there needs to be skilled labour, fundamental research, a healthy ecosystem of domestic suppliers, a more competitive business environment, and startups. Simpson also encouraged the province to invest in so called “lighthouses,” a plant or project that’s already good but, if strengthened, can transform into an attraction for foreign investment.
In addition, Simpson provided examples of similarly small jurisdictions around the world that are more productive. Estonia’s government services have been digitized, Iceland’s winning spirit and high collaboration had led to it having one of the best soccer teams in the world and an effective marine cluster, and the East African Community and ASEAN are examples of effective integration, something Canadian provinces can learn from.
“We need to play together. We know the links east to west in Canada, across the provinces, are weaker than north to south to the U.S. We just need to stop that and work more closely together,” he said.
Simpson also gave examples of jurisdictions that have similarly dire demographic challenges like Japan, which has turned to automation to tackle its challenges. While Simpson said immigration needs to happen en masse because it’s a key tool to boost productivity in New Brunswick and Canada, automation also needs to happen alongside it.
The companies taking that path will need to focus on the business case first, engage their employees in the transition process, and work with government and educational institutions on a re-skilling program for jobs of the future, including trades.
“The message to workers may not be about productivity, which might sound to them as making us work harder. That’s not true, but it’s often how it’s heard. It should be more about prosperity. Because they’re higher paid jobs, more skills, and [there’s a] culture on learning for life,” he said.