Interview by Donna Guzik

[mikhael gutman]

Hi guys!

What you think about it:

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Canadian Companies Should Outsource to China

 

Interview by Donna Guzik

 

The recent strength in job creation in both Canada and the United States won't be the trend for the near term. Economic growth will come from productivity, not jobs says Export Development Canada Vice President & Chief Economist Stephen Poloz

 

 

| Summary | Transcript | Click to Listen |

"It will be silly for Canadian and American companies not to take advantage of low-cost producers in China."

 

Transcript

IC: Welcome to InvestorCanada.com. I’m Donna Guzik.

For a look back at the week’s economic numbers, I’m joined now by Stephen Poloz. He is Vice-President and Chief Economist at Export Development Canada.

 

Stephen, first off, employment numbers in both Canada and the United States surpassing expectations. Let’s start with Canada.

 

The job creation in October, over 65,000 jobs, much greater than what economists have predicted. Is this a one-month wonder or are we looking at the beginning of a trend, do you think?

 

Poloz: Well, I don’t expect this to be the trend we’ll see in the near term. I think we’re going to see, especially manufacturers working to reduce their head count or at least contain that. And the GDP growth will come from productivity in Canada rather than in jobs growth.

 

IC: In terms of the manufacturing side, are you expecting to see job improvement at any time soon there?

 

Poloz: Well, it’ll be a mix because obviously, over the next 12 months, we’re going to see stronger growth in the world, more demand for Canadian products; but at the same time, Canadian companies are facing the first regular position for the Canadian dollar in a long time and they’ve got to adjust to that level.

 

And that’ll mean working hard to boost their productivity to remain competitive on international markets.

 

IC: Well, certainly the numbers that came out did help the Canadian dollar. What do you see happening for the value of the Canadian dollar versus the US dollar and how will it affect exports?

 

Poloz: Well, we think that the natural place for the Canadian dollar to be is between 73 and 75 cents. That would be a characteristic normality when the rest of the world is back to normal, which is how we see 2004 shaping up.

 

And so if it goes above 75 cents, as it is barely at this moment, I see it as a bit of an overshoot, a temporary thing that will ease back.

 

As we see the US economy gaining its credibility, people are now beginning to believe that the US is capable of maintaining its expansion.

 

IC: Looking at the job growth in Canada and what seems to be more growth in the United States, what do you see the Bank of Canada doing on December 2nd with regards to interest rate decisions?

 

Poloz: Well, I don’t think there’s any need to be raising interest rates just yet, although you never really know.

 

What we know is interest rates are below normal and the world is getting back to normal. So at some point between now and a year from now, interest rates will be noticeably higher.

 

When is the right time to begin that? It depends on a great deal of issues, particularly in the United States.

 

It looks like Mr. Greenspan is going to take his time. Inflation is very low so there’s no rush for him to move interest rates up. Nevertheless, I think by spring, he’ll be moving.

 

IC: Well, the US job numbers of course were much higher than expected as well in October and September’s numbers were revised higher. Is this finally the job growth that everybody has been waiting for in the United States?

 

Poloz: I expect it is. My interpretation is that most of the job reductions that we’ve seen in the US over the last almost four years now in the manufacturing sector have been caused by the strong US dollar and the fact that it’s come back to more normal levels against most currencies means that a lot of that pressure is off, the manufacturing sector has produced fantastic increases in productivity as a result of their efforts.

 

And now, I think that they can relax a little more and as the economy picks up speed, they will add staff.

 

IC: But regardless if the economy does pick up, has the manufacturing sector changed? Has there been some overall shifts whereby companies are producing without as many workers as they had before and learning that they can do that?

 

Poloz: Essentially, I’d say they’re leaner and meaner. Part of that is because they’ve upgraded their equipment. But another part of it is they’ve gone global.

 

We’ve had a very big increase in off shoring in the US. This is how you get Chinese workers to work for your company for 25 percent of the cost of our workers. That’s by incorporating China in your supply chain.

 

And many American companies have done that. That boosts their productivity and their profitability and it means now they’re positioned for growth even better than they were before.

 

IC: Do you see more of that happening whereby American and perhaps Canadian manufacturers are outsourcing those jobs to not only China but India and that those manufacturing jobs in North America will slowly disappear?

 

Poloz: I do see that as a trend and in fact, I would expect to see more of it from Canada now than we’ve seen in the last couple of years because the Canadian dollar has gone back to its more normal level, and now, if you like, it’ll cost a Canadian company 20 percent less to make an investment in China than it did a year ago. So that’s a good deal for those companies. So we’ll see more of that happening.

 

But you have to bear in mind that that’s how a Canadian company will boost its business and thereby generating more jobs of the other types in its organization.

 

IC: So is there going to be a shift in the kinds of jobs, in the kind of employment we’re going to see in the future?

 

Poloz: I do indeed. That’s exactly right. It will be silly for Canadian and American companies not to take advantage of low-cost producers in China.

 

That’s how they can compete, improve their price point and grow their business.

 

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Regards

[Noel]

I think it's disturbing to say the least.One thing I know for sure is that the quality of the mold components built in Asia that come in to our

shop for repair are some of the worst I have seen.Sooner or later the end users will realize you get what you pay for.

 

 

Noel

[robk]

Noel,

 

+1

You hit it right on the money. The initial savings may be there, but that profit goes out the window when the repairs have to be done, and they will have to be done. Don't forget the great support you'll get from over there also .

 

Rob

[I2B4U]

there is an even greater problem with this that worries me. by having so much produced outside of your own country, you become more and more dependent on others for your own survival, thus weakening your own nation. We also have huge numbers of companys here, which are owned by other countrys. this so they can be eligible for some contracts here. meanwhile the layoffs go on.

[Rick Damiani]

I'd not count on China producing slip-shod work forever. Thier quality will improve with time and practice, and it will still be cheaper to get stuff made there then it will be to get it made here.

 

The one thing that China cannot overcome is lead time. No matter how fast and good they build stuff, it still has to cross the Pacific.