Lack of innovation threatens automotive future
Two recent reports reveal that no Canadian company made the top 50 list
Over the last couple of weeks, two bits of news got me concerned about the future of the automotive industry in Canada.
The first was a report released by the Boston Consulting Group (BCG) on the most innovative companies around the world. Not to anyone’s surprise, no Canadian companies made the Top 50.
Along with the U.S., many European and Asian companies made the list.
Several automotive companies — including those with Canadian production presence such as Ford, General Motors and Toyota — made the cut.
But nothing that was truly of Canada. (Even a few years back, BlackBerry used to hold a prominent spot but that’s history now).
The BCG ranking in itself is not a direct indictment of Canadian industrial stodginess. But, when you look at it in the light of some other damning studies, the trend is alarming.
A 2014 report by consulting firm Meredith Page and Associates found that compared to Americans, fewer Canadians found their workplaces conducive to change and innovative thinking. Canada also came in at number 25 this year — a steep 13spot drop from 2010 — in World Economic Forum rankings.
Spending on innovation should be targeted more toward homegrown companies, the kind that are hatched on a daily basis in the corridors of, let’s say, the University of Waterloo
And to pile it on, the Conference Board of Canada has repeatedly given our industries a “D” grade in innovation.
So, how does it all relate to automotive?
Consider this excerpt from a recent interview with Dennis DesRosiers, arguably Canada’s most respected automotive industry watcher. Responding to a question from Canadian Metalworking magazine on the future of automaking in Canada, here’s what DesRosiers had to say:
“We started to see the willowing out of our industry at the turn of the century and it will continue to willow out for the foreseeable future. It wouldn’t surprise me to see the industry disappear almost entirely over coming years but this could be 20 to 30 years and a lot of water could flow under the bridge in that time frame.”
That’s a pretty bleak prediction, and I couldn’t agree more with DesRosiers.
DesRosiers touched upon a variety of factors — wages, changing trade agreements, jurisdictional — incentives that have led to the erosion of automotive here. I have touched on some of these issues in previous columns.
Despite challenges, he also emphasized that Canadian suppliers are likely to remain competitive in value-added — read: more complex and innovative — components and secure their business better for the future.
In other words, innovation is critical to the survival of our auto sector.
We may be hard-pressed to beat many countries at wages or incentives but if we continue to create compelling products, companies will continue to knock on our doors.
My fear is — as echoed by the overall innovation reports — that Canada is not doing enough cutting-edge work in automotive to make that happen.
Before you go “Automotive Innovation Fund,” hear me out.
Government dollars are great and a necessary part of the process. But, as a Canadian Business article points out, most of the now $1billion handout has largely benefited corporations such as Ford and Toyota for factory floor improvements but has not really trickled down to smaller companies where many of the breakthroughs are more likely to happen.
In other words, these funds are merely keeping some of these companies from leaving Canada and are not being spent on pushing boundaries, which ensures more longterm growth and stability. As far as I am concerned, tax breaks, a competitive labour environment and cheap land work better when you want to attract and retain foreign companies. These companies will work on their own R&D anyway to remain competitive globally.
They’d much rather save on operational costs in a given region.
On the other hand, spending on innovation should be targeted more toward homegrown companies, the kind that are hatched on a daily basis in the corridors of, let’s say, the University of Waterloo. Vehicle connectivity, alternative powertrains and lightweight materials could be potential focus areas.
Indeed, if automakers find more local supplier partners in a production region who are more capable of delivering innovative products, they are less likely to import those components from other places and are more likely to continue operations in that region.
Make innovation another hook. Just like low taxes or cheap power.
Otherwise, the Canadian automotive industry could very well go the BlackBerry way in future. Kumar Saha is a Toronto-based automotive analyst with the global research firm Frost & Sullivan.