Not every firm wants to send work to China

Canadian manufacturers can succeed on the world stage without setting up factories in cheap-labour jurisdictions, says Cyril McKelvie, the president and chief executive officer of Marport Deep Sea Technologies Inc. of St. John’s. The key is that materials, rather than labour, must make up a large portion of their costs, Mr. McKelvie says.

They also should invest in technologies that improve productivity, he recommends.

Cyril McKelvie, president and chief executive
officer of Marport Deep Sea Technologies Inc.

Marport did not start out as a Canadian company. It was an Icelandic firm specializing in sonar for deep-sea fishing trawlers. Karl Kenny of St. John’s purchased it and, after acquiring a prominent Canadian-based defence manufacturer, C-Tech Ltd. of Cornwall, Ont., Marport became a global success story for Canada.

Marport’s sonar surveillance technology helps fishing boats find fish in deep water and the defence industry locate mines and other threats. The company has 90 to 100 employees and annual revenue of $15-million to $20-million. It does design work in Ottawa, St. John’s and France, builds its hardware in Cornwall, has sales offices in St. John’s, Washington state, Iceland, France and Spain, and sells its products in North and South America, Africa and Europe.

McKelvie, 55, is originally from Halifax and graduated from Dalhousie University’s chemical engineering program in 1979. He has worked in the electronics industry for more than 25 years. He believes this country has many strengths on which to found a strong high-tech manufacturing sector.

What makes your model work?

These are bulky systems, so the idea of building in China or Taiwan and putting them on a boat somewhere, and tying up my working capital for 30 or 40 days, can become pretty expensive. The money you’re going to save on the labour is going to disappear pretty quickly.

The supply chain for these kinds of products is over-weighted to North America. If I’m dealing with a transducer supplier in North America and having those parts shipped to China, those labour savings are going to disappear. We have the manufacturing expertise. The technology is complex, so you need knowledgeable engineering resources. The barrier to entry is quite high. The skill set is quite high. That skill set exists in C-Tech. It has been there for 30 years.

How difficult is it to find the engineering talent you need in this country?

Cornwall has substantial design and manufacturing engineering capability. At one point, C-Tech revenues were probably north of $100-million. The other piece for us was in St. John’s – you have Memorial University, you have the National Research Council Institute for Ocean Technology. We have a very close relationship with Memorial. We have some of our design resources located on the NRC/Memorial campus. We use their facilities for testing our equipment. Ottawa has a significant amount of hardware and software development capability, so finding resources is not an issue.

What opportunities are we missing as a country?

There are vertical markets and technologies where labour costs are not the number-one driver.

So you see people who are overly drawn to the East?

Yes, by cost typically. And lots of times they don’t completely understand the cost. It’s great to be building phone sets in China, but if I’m going to start building an optical switch that’s 90 per cent material cost and now I’m tying up that material cost for 30 to 38 days [in shipping], and it’s my working capital, and the product lands part way across the ocean and there’s an engineering change order, and I’ve got to take all those assemblies apart – until someone adds up all those costs, they don’t realize that they’re not saving what they thought they were saving. You better make sure you understand the true cost.

What should Canada do to develop more of a high-level manufacturing sector?

Manufacturing is important to me. It creates jobs that are different than at a call centre or in a restaurant. I don’t think Canada has done very well in increasing productivity in the last three to five years. To a large extent it’s because manufacturers have not invested in lean technologies, tools to increase productivity. People take the easy way out: rather than increasing productivity: ‘I’m going to move it to Mexico.’ We also have to be selective about the technology we develop. We have to invest in manufacturing technology. We lived for too long on a low Canadian dollar and we’re not even competitive with our closest market, U.S. manufacturers. We didn’t invest. We sat on our laurels. We lost ground.

What is the key in dealing beyond borders?

Make sure your value proposition is compelling. The next thing is, what is your channel to market? How do you get the message in front of customers? There are direct sales, which is a big cash investment by any company, and there are defined partnerships. Those relationships have to be chosen carefully. Make sure you’re dealing with somebody who can get the message in front of your customer; also be prepared to deliver that message yourself. Often, when the sales process is starting, somebody from Marport is going to find their way down to Chile or Nigeria, with the partner, to make sure the value proposition is being articulated properly.

This article has been edited for length and clarity.