May 1, 2012
A new study from Statistics Canada shows that Canadian manufacturing firms that adapted to economic pressures during the past two decades by finding new markets—either international or domestic—became more productive than those that maintained the status quo.
This study used plant-level data for the Canadian manufacturing sector from the Annual Survey of Manufacturers between 1990 and 2006, as well as data from the Workplace and Employee Survey.
It found that during the 1990s, reductions in tariffs resulting from free trade agreements led to an expansion of trade betweenCanada and the U.S. and to an increase in the export intensity of manufacturing plants. In contrast, the worldwide resource boom post-2000 led to higher prices for Canadian commodity exports, an appreciation of the Canada–U.S. exchange rate, and a decline in the competitiveness of Canada's manufacturing sector in U.S. markets. However, these factors also led to new opportunities in the domestic resource sector.
Canadian manufacturing firms adapted to these pressures in different ways. Those that adapted by finding new markets became more productive. However, the firms that claim success in these areas were more likely to have organizational structures that enabled them to adapt better.
While previous studies have shown that productivity tended to increase for firms that developed new international markets, this most recent study indicates that entry into new domestic markets had a similar effect.
In both cases, productivity growth of Canadian manufacturing plants that entered new markets was superior to the productivity of those that maintained the status quo. And, entering new domestic markets was just as beneficial as entering international markets. The beneficial effects of entry accrued not just to entrants that crossed international borders, but also to other forms of expansion, in particular to entrants that expanded across provincial borders.
According to the survey, exiting the export market was not likely to be detrimental to productivity growth for a firm when it was followed by entering new domestic markets either. Companies that curtailed exports to international markets, but then explored new domestic markets, performed as well as firms that continued exporting. They also performed better than those that simply retrenched to their existing home markets.
In other words, experimenting with new markets produced tangible benefits to the overall economy.
The study found significant differences in the strategic capabilities of firms that moved to new markets and those that did not find themselves able to adapt. Firms that entered new markets started with a greater strategic emphasis on market innovation and perceived higher levels of competition.
In addition, they typically had a flexible and decentralized organizational structure (flexible job design, information sharing with employees, problem-solving teams, joint labor-management committees, and self-directed work groups).
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