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Efficiency and productivity measurement of the Canadian manufacturing sector : 1994-2002 Vahid, Saba

Abstract

Performance assessment has been gaining increasing attention in different sectors, including the manufacturing industries. The need for assessing the performance of firms has increased as a result of growing competition and globalization. Information technology advances along with changes in political and economic conditions have promoted industrial globalization. While a global marketplace means more customers, at the same time, companies face intense competition when they produce and sell their products globally. Companies need to learn about foreign societies and understand foreign customers; they also need to have long term plans on how to remain competitive. Evaluating and monitoring the performance and increasing productivity and efficiency are important issues for competitive companies and their investors. The Canadian manufacturing industries, which are important building blocks of our economy, face similar challenges since they are mainly export oriented. New countries, such as China or other South East Asian countries are currently exporting their manufactured products globally. These emerging exporters have greatly increased their market share in recent years, mainly because they have access to cheap resources and can offer their products with lower prices compared to other industrialized countries. This has created a major challenge for Canadian manufacturers. In Canada, forest industries contribute greatly to the economy by contributing to the country's trade surplus and by creating jobs in rural areas. Wood products manufacturing is the second largest forest sector in Canada and is also classified under the manufacturing sector. The same issues faced by other manufacturing industries apply to wood industry as well. Considering the importance of manufacturing sector and the wood industry in particular, it would be useful to study their performance over time. Therefore, the intent of this research was to evaluate the performance of the manufacturing sector in Canada and in the United States, Canada's major trading partner. Productivity growth of the industries was studied separately for each country, using a non-parametric productivity measure, Malmquist Productivity Index. The results showed that both countries had an overall growth in Total Factor Productivity (TFP) during the study period. However, their growth was mainly due to the technological progress (frontier shift) rather than the efficiency improvements. In both countries, TFP of the wood products manufacturing was below the average for the sector and technical efficiency decreased over the study period. In order to obtain a complete understanding of the wood products manufacturing sector's performance, the efficiency changes of its sub-sectors were studied. These subsectors were sawmilling and wood preservation, veneer, plywood, and engineered wood products, and other wood products manufacturing. Data Envelopment Analysis, a nonparametric efficiency measurement method, was utilized for the analysis. Sawmilling and wood preservation showed the highest efficiency, on average, during the study period, while other wood products manufacturing was identified with the lowest efficiency. The results of the study suggest that wood products manufacturing needs to direct its strategies mainly towards improving the technical efficiency of the whole industry as well as its sub-sectors. This includes better managerial knowledge, labour training, and investment in machinery and equipment among other things. The wood industry can follow examples of the best practices in the manufacturing sector and identify improvement possibilities for its performance.

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