Why manufacturers need to increase their productivity by 5% per year

[Photo : Shutterstock]

The task is painful, but essential, says Éric Tétrault, president of the Quebec Manufacturers and Exporters (MEQ). To take full advantage of the future free trade agreement with the European Union, Québec companies must increase their productivity by at least 5% per year over the next 10 years.

Back to the folder It's time to export

"It's extremely ambitious, you have to be aware of it. But I ask the question: do we have the choice? "Asks the boss of the MEQ in an interview with Les Affaires.

Why is Éric Tétrault launching this Herculean challenge to Quebec industry now?

Because the free trade agreement with Europe is set to come into effect in 2017, and that will not necessarily mean a rush of business opportunities, despite the abolition of tariffs and non-tariff barriers.

And the reason is very simple, according to the MEQ: European companies are much more productive than their Quebec rivals.

"We have a significant delay in productivity. European companies are reputed to be 20 to 30% more productive than ours today. "

Therefore, Éric Tétrault fears that many of our companies may have difficulty selling their products in Europe, because their French or German competitors will not give them gifts on the European market.

Productivity measures the quantity and value of GDP units of goods or services produced during an hour of work. Productivity is crucial because it is one of the factors that determines the competitiveness of companies.

To increase it, companies must innovate and then invest in technology and manpower training, not to mention management processes.

A real delay

Statistics confirm Quebec's lag behind Europe. In 2014, labor productivity in Quebec was C $ 56.20 per hour, according to the 2015 report of the HEC Montréal Center for Productivity and Prosperity. This is much less than in Germany ($ 79.39), France ($ 79.88), Belgium ($ 84.74) or Norway ($ 106.16).

Worse, European productivity is growing faster than ours.

From 1981 to 2014, Québec's productivity increased on average by 1.02% annually. Meanwhile, that of the Irish jumped an average of 3.43% per year.

Today, an Irish worker produces $ 80.62 per hour worked, 30% more than his fellow Quebecer.

This is why the MEQ believe that we need to have a very ambitious target of 5% per year to hope to catch up with European productivity within 10 years.

"Not only are we late, but this one tends to be accentuated, deplores Éric Tétrault. And even if we make significant efforts, for example up to 3% per year, Europeans will continue to take precedence over us. "

Specialists are skeptical

Joints by Les Affaires, productivity specialists doubt that it is possible for all Quebec companies to increase their productivity by 5% per year for 10 years.

"It's completely unrealistic," said Robert Gagné, director of the HEC Montréal Center for Productivity and Prosperity, who has been following these issues for years.

In a pinch, he even questions the relevance of reaching such a target. "North American free trade has been very profitable for Canada, despite the fact that productivity is lower here than in the United States."

In 2014, US productivity was $ 75.33 per hour, compared with $ 63.96 for Canada as a whole.

Robert Gagné says that we should instead analyze productivity by sector and not for all Quebec companies. The problem is that governments – both federally and provincially – do not have very thorough analysis on this, he says.

Another issue to consider: the production costs of Quebec manufacturers, which are influenced in part by their productivity. According to Robert Gagné, they can enable our businesses to play their game well in Europe, despite lower productivity.

"If the wages in Quebec are lower than in Europe, it is possible that the production costs of Quebec manufacturers are lower. And, at that point, they will be competitive with their European competitors, "he says.

Saibal Ray, vice-dean of the Desautels Faculty of Management at McGill University, is also skeptical about the potential for Quebec industry to increase productivity by 5% per year for 10 years. Still, he does not believe the thing unachievable.

"It's an extremely difficult target to reach, but it's possible," he admits.

According to him, it is better to have a lot of ambition like the MEQ to hope to obtain high results. "With a target of 5%, we may make real gains of 3% per year. However, if we target 3%, we may end up with increases of 1%, "he says.

In fact, only one developed economy has managed to increase its productivity by 5% per year in the long term, namely South Korea. From 1981 to 2014, labor productivity increased on average by 5.61% per year.

Nevertheless, the productivity of South Koreans ($ 38.18) is still much lower today than that of Quebecers ($ 56.20). This shows how weak the productivity of this Asian country was in 1981, and how much South Korea had to catch up.

To increase their productivity, South Korean firms have invested heavily in technology and manpower training. Companies even impose on their employees times in the day when they can only work without any breaks.

For example, in some LG Display factories (a manufacturer of liquid crystal displays), the beginning and the end of the day (8:30 to 10:00 am and 4:00 to 5:30 pm) are reserved exclusively for according to the South Korean daily The Hankyoreh.

Productivity gains of more than 6% at Premier Tech

But no need to go as far as South Korea to find highly productive companies. Quebec is also home to productivity champions like Premier Tech in Rivière-du-Loup, Bas-Saint-Laurent. "For 10 years, the increase in our overall productivity has been around 6% a year," says its president, Jean Bélanger.

The company, specialized in horticulture and agriculture, environmental technologies (water treatment) and industrial packaging equipment, arrived there doing three things in its offices and 38 factories located in 14 countries.

In the short term, Premier Tech makes continuous improvement in its day-to-day operations, with projects lasting less than three months and costing less than $ 50,000.

In the long term, the company deploys a lean manufacturing strategy to improve the manufacturing design of its facilities (including the production line) and the design of its management structure.

Finally, together with its suppliers, it is constantly reviewing how its supply chain works to improve efficiency and reduce delivery times.

Premier Tech invests approximately $ 5 million a year to improve its overall productivity, with annual sales of just over $ 650 million.

A paying strategy, says Jean Bélanger. "Our productivity gains increase our ability to win markets, allowing us, among other things, to offer more competitive prices."

Over the last five years, the company's revenues have increased by 15% per year, of which 10% is attributable to organic growth. And according to the CEO of Premier Tech, half of this internal growth comes from productivity gains.

Éric Tétrault is very ambitious in proposing a target of 5%. But companies like Premier Tech are already more ambitious than the president of the Quebec Manufacturers and Exporters.

Back to the folder It's time to export