Industrial automation has expanded the frontiers of Canadian manufacturing capability, which has resulted in a bigger and more prosperous sector. As a world leader in natural resources, Canada stands to benefit significantly from increased adoption of lean manufacturing.

Industrial automation companies are capitalizing on growing demand for efficient technologies that can boost productivity and create leaner production operations that are more consistent and of higher quality. In this vein, developers can seize a growing market that extends far beyond the manufacturing sector to include oil and gas, healthcare, construction, defence, transportation, and warehousing.[1]

Canadian developers are typically prosperous firms that generate millions of dollars in annual revenues. In order to maximize business success automation companies require additional policy supports, funding opportunities, and access to international markets to keep pace with players in the competitive global arena. This section provides a summary of the key recommendations posited by industry to strengthen Canada’s lean manufacturing capability.

A major barrier to growth continues to be a stagnant domestic economy. Canada’s economy is operating below capacity, according to several economic indicators including employment, exports, and industrial production. As a result, Canadian automation businesses are finding it more difficult to expand nationally, which may limit their willingness to invest in the short-term.

The Canadian economy expanded 2 percent in 2013, and is expected to grow at a similar rate in 2014, according to the International Monetary Fund. The economy is forecast to pick up only gradually in 2015, a sign spare capacity will persist over the next two years.[2] According to the Bank of Canada, the economy will operate below capacity until the middle of 2016.[3]

The outlook is not all gloom and doom, however. A weaker Canadian dollar combined with a stronger US recovery have boosted Canadian exports, which resulted in faster economic growth in the second quarter of 2014. Canada’s gross domestic product expanded 3.6 percent annually in the second quarter, the biggest gain in nearly three years. The economy maintained a solid growth pace in the third quarter, expanding 2.8 percent year-on-year.[4]

A faster recovery south of the border will help create a bigger market for Canadian exports. A consensus of companies interviewed by ICTC identified the United States as a key export market.

Supportive Trade Policies

Like in other advanced industrialized economies, Canada has witnessed a gradual decline in manufacturing output over the decades, as producers shifted their production lines overseas to take advantage of cost savings. In the process Canada lost much of its manufacturing backbone, which was gradually replaced by a knowledge-based professional services economy. Given that Canada has a relatively small manufacturing sector in absolute size and as a percentage of GDP, Canadian automation companies must succeed internationally in order to remain competitive.

Robotics penetration in China is less than half of the global average at 23 industrial robots per 10,000 manufacturing employees. China and other emerging economies, therefore, should not be considered inhibitors but accelerators of growth. With the right framework, Canadian businesses can tap into this lucrative market.

Given Canada’s growing trade liberalization efforts with several countries, businesses have greater incentive to conduct cross border business with traditional trade partners like the United States and other economic hubs like the European Union, Middle East, and Asia-Pacific. ICTC’s research on industrial automation and robotics clearly indicates that Canadian companies must increase their international reach in order to boost Canada’s presence in the fast paced global digital economy.

Recommended actions:

  • A major hurdle for Canadian developers is accessing the US market. Refining trade agreements to include how cross border interaction between companies are handled should be considered. Policymakers should offer foreign companies incentives to buy Canadian. One way this can be accomplished is by supporting innovations that result in intellectual property that can be supported and protected in Canada. ICTC firmly believes that the adoption of a “patent” box approach that rewards businesses for the commercialization of intellectual property should be considered. This will not only boost the pool of capital available to Canadian companies, it will allow them to sell patented products and licence out patent rights to the international market. Bringing Canadian innovations to the international market is a critical step to increasing national prosperity not just in the industrial automation and robotics sector, but in the rest of the digital economy.
  • Trade Commissioners should consider playing a bigger role in developing programs to attract foreign businesses to Canada through incentives. Other programs that help Canadian companies broker foreign partnering, licensing or reseller agreements may also help boost Canadian visibility abroad.

Increasing funding opportunities

The majority of industrial automation businesses in Canada are small- and medium-sized enterprises (SMEs) that are looking for increased funding opportunities to innovate and expand production. In a sector that relies heavily on innovation and fast R&D cycles, greater funding opportunities can help bring to market competitive products and services needed to compete in the global arena.

Companies interviewed by ICTC agreed almost unanimously that more funding opportunities are needed to help Canadian businesses compete internationally. Current funding programs (public and private) need to be expanded to help companies deal with longer sales cycles.

Recommended actions:

  • Building off the “patent” box, policymakers should consider expanding direct funding opportunities to innovative technology companies that may lack marketing expertise. Such a program would not be limited to a certain technologies, but would be open all sub-sectors that could have a positive impact on the end-user market.
  • Policymakers should consider providing businesses with a larger investment fund (e.g. equity financing, investment from angel groups, direct funding) to commercialize their intellectual property with favourable lending terms on the basis their commercial product would yield large returns in the market (for example, AVAC Ltd., Alberta).

Boosting adoption in Canadian industry

Canada has a strong adoption rate of industrial automation when compared to the global average and given that manufacturing accounts for only 11 percent of national GDP. Like with virtually every emerging technology, there is a considerable gap between early adopters and the rest of the market. Typically businesses are reluctant to invest in technology they do not understand. ICTC believes that it is up to the industry to communicate the economic benefits of automation in non-traditional sectors outside manufacturing.

According to the International Federation of Robotics, the potential growth of industrial automation and robotics “is based on huge potentials of further penetration of the industrial segments like electronics or food and on the ongoing industrialization of the emerging countries.”[5]

Recommended actions:

  • Greater industry advocacy for automation and robotics is strongly needed in Canada. Canada’s automation industry lacks a collective voice that can spearhead adoption in potential high growth sectors such as construction, mining, electronics, and oil and gas. In turn, user industries do not have the required knowledge to make informed decisions about whether to adopt automation technologies.

 

Maximizing SR&ED

The Scientific Research and Experimental Development (SR&ED) tax incentive program is heavily relied upon by domestic developers. SR&ED incentivizes and supports research and development (R&D), which is critical for the prosperity of the automation and robotics sector.

SR&ED has been leveraged with varying success in Canada’s automation and robotics sector. While most businesses agree that SR&ED is an excellent program for research and development, they require greater commercialization support to ensure their products succeed in the marketplace. An accompanying program that helps businesses commercialize their innovation is strongly desired. According to our Advisory Committee, SR&ED does an excellent job in the innovation process; what is needed after the initial development is a commercialization program that can boost business growth.

Recommended actions:

  • Policymakers should consider developing an accompanying program that provides assistance in the commercialization process. This program can help ensure that SR&ED recipients receive the business support they need to succeed in the marketplace. This will also help streamline the SR&ED program toward business growth, as companies will be required to demonstrate how their research will be linked to business growth and commercialization goals. Such a program would help companies compete internationally and ensure that businesses capitalize on their SR&ED-based research.
[1] The Canadian Chamber of Commerce (2013). March of the Robots: Policy Brief – October 2013. The Canadian Chamber of Commerce. http://www.chamber.ca/media/blog/131031-the-march-of-the-robots/
[2] International Monetary Fund (October 2014). World Economic Outlook. International Monetary Fund. http://www.imf.org/external/pubs/ft/survey/so/2014/NEW100714A.htm
[3] Julian Beltrame (16 July 2014). “Bank of Canada downgrades Canadian economy.” MacLean’s. http://www.macleans.ca/economy/bank-of-canada-downgrades-canadian-economy/
[4] John Clinkard (12 December 2014). “Heading into 2015, U.S. and Canadian economic indicators are pointing up.” Journal of Commerce. http://www.journalofcommerce.com/Economic/News/2014/12/Heading-into-2015-US-and-Canadian-economic-indicators-are-pointing-up-1004633W/
[5] International Federation of Robotics (18 September 2013). “The robotics industry is looking into a bright future.” IFR Press Release. http://www.ifr.org/news/ifr-press-release/the-robotics-industry-is-looking-into-a-bright-future-551/