Moving from Manufacturing to Services/IT (Views: 4819)

Tue, 24 Sep 2019


Over the past few years, the “deindustrialization” of the Western world has become a talking point for economic alarmists. Those with an understanding of the industrial age and the leaps and bounds made during its approximate 80 year span have been startled to find that employment in this powerful sector--once the lifeblood of the American economy--has been on the decline for over two decades. And yet, though a plummeting graph would at first glance seem like cause for alarm, it’s not quite time to ring the doomsday bells; because where manufacturing has declined, the IT and services sector has risen. 

Why the Shift?

Manufacturing, once a shining symbol of Western productivity, was knocked off its pedestal by “[a] few recessions, the rise of off-shoring and imports from China and the rest of the world, and the explosion of the health-care industry” (Wilson) as well as the automation of jobs that were once done by human hands--hands that required salaries, health coverage, and other costs (Statistics Canada). Put differently, though the volume of goods produced by manufacturers has remained steady over the past few decades, the cost required to produce these goods--and, by extension, their total value--has fallen, reducing their impact on global GDP. 

Should We Be Worried?

Put simply, it depends. The transition from manufacturing to services is, in many respects, a natural progression; as they get wealthier, consumers in developing companies tend to spend less on goods and more on services--such as holidays and fitness training--augmenting demand (Open Learn). But some would argue that this natural progression is actually a vicious cycle, contributing to rising wage inequality. Their reasoning? Manufacturing provided many working-class people with relatively high-paying, union-protected jobs following World War II (Open Learn). The service industry, on the other hand, has been and is still marked by “a lower average wage and a higher dispersion” (Open Learn). Add to this consideration the notorious employment practices of Uber, Foodora, AirBnb, and the many other companies “disrupting” the service industry, and we can see why income equality might be a concern. That said, in a 2017 analysis of Canada’s bifurcated economy, Maclean’s made a point of noting that “the average hourly wage in the health care and social assistance sector—last year’s biggest jobs winner—was higher than in manufacturing.” What’s more, increasing income inequality could be allayed, as the International Monetary Fund suggests, by policies that reinforce the reskilling of displaced workers and reduce the costs of their reallocation. If international barriers to trade in services were reduced in tandem, the scale could be balanced even further (International Monetary Fund). 

How does this apply to Canada?

As is true of many things, Canada’s economy is largely at the mercy of the United States’. To quote Statistics Canada, “As a general rule, when manufacturing in the United States performs relatively well, manufacturing in Canada does well and vice versa.” Unsurprisingly, therefore, manufacturing output, as it pertains to Canada’s GDP, has been declining since 1944 (Statistics Canada). In the early 1950s, it directly contributed to about 30% of Canadian GDP. In 2017, it accounted for about 10%. By contrast, over 50% of money spent by consumers is on services, which is a 10% increase from the 1960s (RBC). 

In terms of the actual number of SMEs in Canada, 0.81M reside in manufacturing, while 1.96M reside in wholesale & retail and another (1.01M) reside in accommodation & food services. 

In spite of this distribution, the Government of Canada hopes to increase both manufacturing sales and exports by 50% by 2030, namely through the adoption of tech. Rather than disappearing, therefore, some would say that manufacturing is simply evolving, moving from traditional to more innovative methods (The Startup), methods that involve big data, autonomous robots, simulation, the Cloud, and much more (BCG). One name for this trend is Industry 4.0. Identifying this term is important because it illuminates a way forward for manufacturing SMEs. CEFRIO, Investissement Quebec, and The Ministère de l’Économie, de la Science et de l’Innovation, for instance, all have resources dedicated to teaching SMEs about how to adapt to Industry 4.0. What’s more, there are many grants and challenges aimed at encouraging innovation more generally. 

Regardless of whether you subscribe to the arrival of Industry 4.0, and regardless of whether you view the above trend as a transfer of resources from one industry to another or as a more symbiotic, evolutionary process, there is no question that change is afoot. Fortunately, no matter your industry, Fundica has the resources to help you find funding.

Make a profile today to view funding relevant for your SME. 

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