ERP Manufacturing Insights

Where to Manufacture United States versus Canada

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Where to manufacture united states versus canada

In the past few decades, computers and MRP and ERP software innovations in manufacturing have helped maintain economic growth in the United States and Canada. However, some of the economic growth was also caused by the North American Free Trade Agreement (NAFTA), the groundbreaking economic policy that went into effect in 1994.

Because of NAFTA, the United States and Canada could compete fairly instead of trying to shut each other out of their respective markets. Both countries became relatively equal in terms of manufacturing pros and cons. Though the new United States-Mexico-Canada Agreement (USMCA) will have some impact on manufacturing in the United States and Canada, many of the existing strengths and weaknesses will remain the same.

Canada’s Overall Manufacturing

The vast Canadian tundra has plenty of oil, and oil costs in this country remain consistently low. Though the country is sprawling, it has over half of its manufacturing facilities concentrated in Alberta. Manufacturing in Canada as a whole has traditionally been home to everything from lumber production to aerospace manufacturing.

Unfortunately, the manufacturing labor pool in Canada is currently facing a shortage. While the Canadian government is taking steps to address this shortage, the short-term capabilities of Canadian manufacturing facilities have been undermined. Manufacturers may have to offer higher-than-usual wages to attract qualified workers.

U.S. Strengths and Weaknesses

The U.S. has decent numbers of skilled laborers, as well as access to oil and other key materials. It’s also home to major manufacturing hubs like Detroit, and while American manufacturing has suffered some in recent decades, it’s starting to rebound. It’s also seeing new hubs emerge, especially in areas where the tech boom is driving demand for new manufacturing.

However, there are significant downsides to manufacturing in the United States as well. Labor costs are high, especially in areas of the country near tech industry hubs. Recent low unemployment rates and a high number of college graduates have been great for the economy overall but have also made the manufacturing labor pool slightly smaller. Still, the manufacturing industry here does not currently face the same labor shortage as in Canada.

Tax Comparison

In Canada, the corporate tax rate is just 15 percent, making it one of the lowest in the world. While there is an income tax that is charged on companies that have Canadian operations but are based outside of Canada, there are a few exceptions to that tax. Hiring an independent contractor to handle Canadian operations is one way for businesses to avoid the income tax rule.

The United States has a slightly higher tax rate at 21 percent, and taxes set by individual states can drain businesses as well. Since the current Presidential administration is very interested in bringing manufacturing jobs back to the U.S., there may be other tax incentives and other ideas in the works.

Manufacture canada or usa erp
Tax rates for manufacturing companies can be advantageous in Canada

Corruption and Red Tape

Though the United States doesn’t have the same amount of public corruption as some parts of the world, it does sometimes have kickback and bribery scandals. Large manufacturers also routinely hire lobbyists to persuade politicians to pass legislation that is friendly to their business. Naturally, this sometimes comes at a cost to other, competing businesses. While Canada has some corruption and lobbying, it does not seem to happen as often.

Some American cities also have large amounts of red tape with regards to zoning laws and permits. Strong local unions can also cause trouble, especially at large non-union manufacturing facilities that could threaten unionized businesses. Canada has the same issues with unions but tends to have less red tape at the hands of local governments.

Economic Stability and Infrastructure

The U.S. was hit hard by the global recession in 2008, and its auto industry is still recovering. Canada, on the other hand, did not see its economy contract nearly as much. Of course, this varied depending on the type of manufacturing and the larger industries served, but Canada overall weathered the storm well.

Both countries’ governments also do a fair job of maintaining transportation infrastructure, like bridges and railways. However, the United States’ reliance on local tax dollars means that government agencies often run short on cash during economic downturns. This, in turn, can result in shortcomings in maintenance and even critical repairs to infrastructure. The resulting catastrophes and delays can be a significantheadache for U.S.-based manufacturers, especially when hurricanes and tornadoes wreak havoc on an area.

Manufacturing erp in canada
ERP technology innovations are comparable in both countries

Technological Innovations

Technology is easily exportable, which means that the U.S. and Canada are fairly comparable in this category. High-quality facilities can be built almost anywhere, and manufacturing ERP software and other key programs are typically available in both countries.

However, some types of technical knowledge, including the skills necessary to adapt technology to suit a particular facility, are not as easily exported. In the case of highly specialized manufacturing facilities, the U.S. has a slight advantage. The sheer size of the programming and technology labor pools in the U.S. means that most manufacturers can easily get the specialists they need.

Immigration Policies

In recent years, Canada has made headlines for its willingness to allow new immigrants. In many cases, the country will even admit young workers without a job offer in hand. This flexibility hasn’t made it a magnet for skilled labor just yet, but if global conditions change much, college-educated workers could start heading to Canada in droves.

The United States, on the other hand, has consistently put in significant obstacles to new immigrants. While it has always shown some favor to skilled laborers, it still turns away thousands of qualified people every year. Its high healthcare costs are also causing its popularity to decline among would-be immigrants from developed countries. In other words, Canada could easily end up beating the U.S. in the long-term with regards to its talent pool.

A Bright Future for Both

The United States and Canada offer similar environments for manufacturers, thanks to legislation allowing the two countries to compete freely with each other. There may be key differences in industries with a high need for certain types of specialized labor, though. Canada could also have an edge if the U.S. does not develop better business incentives to counteract its slightly higher corporate tax rate.

The long-term outlook for Canadian manufacturers may be slightly brighter due to the country’s more generous immigration policies. However, this may be a non-issue for companies that plan on using a highly automated assembly line. Manufacturers that mostly rely on robotics may prefer to base their company in the U.S., especially in California, where the growing tech industry has fostered a labor pool of technical specialists. 

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