Executive summary

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The challenges and opportunities facing the Canadian manufacturing sector have evolved substantially over the last two decades. Canadian manufacturing firms adapted to these circumstances in different ways. This study examines the relationship between adaptation and success. It focuses on the extent to which productivity growth differed between those producers that adapted by finding new markets and those that were unable to do so. It finds that:

  1. Entry by Canadian manufacturing firms into two different types of new markets—both international markets and new provincial markets—was associated with increases in productivity growth. In both cases, the productivity performance of Canadian manufacturing plants that entered new markets was superior to the productivity of those that maintained the status quo. Entering new domestic markets is as beneficial as entering international markets. This confirms that the beneficial effects of entry accrue not just to entrants that cross international borders but also to other forms of expansion—in particular, to entrants that expand across provincial borders.
  2. Exiting the export market is not likely to be detrimental to productivity growth when it is followed by entry to new domestic markets. Firms that exit export markets but then explore new domestic markets perform as well as firms that continue exporting and perform better than those that simply retrench to their home markets. Once more, successful experimentation with new markets produces tangible benefits to the overall economy.

The paper also examines the strategic differences between firms that move to new markets and those that do not find themselves able to adapt. It finds that:

  1. Firms that make successful transitions exhibit differences in the strategic emphasis that they give to market innovation. Firms that start with a greater emphasis on being able to penetrate new geographic markets are the ones that successfully do so.
  2. Firms that perceive high levels of market competition tend to become more competitive and successful by experimenting with new markets.
  3. More importantly, internal organizational structure mattered. A flexible and decentralized organizational structure is an important feature that distinguishes plants that enter new markets from those that do not. Plants that find new markets typically have flexible job design, information sharing with employees, problem-solving teams, joint labour-management committees, and self-directed work groups.
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