Life Short for Manufacturing Facilities
OTTAWA, CANADAMore than half of all new manufacturing plants go out of business within 6 years of starting up, according to a recently published study of Canada's manufacturing sector.
The study, titled "Death in the Industrial World: Plant Closures and Capital Retirement," is based on data from Canada's "Annual Survey of Manufacturers" from 1960 to 1999. The study found that 14 percent of new plants go out of business within their first year of production, with less than 20 percent of new plants still in operation after 15 years.
The average new plant in Canada operates for only 9 years, with rates varying by industry. Factories involved in paper and metal production posted the highest averages, with life spans of 13 years each. Plants in the machinery and metal fabricating sectors have an average life span of just under 10 years, while those in the electrical and electronics sectors survive on average 9.4 years.
"The high rate of plant death has several ramifications," writes study author John R. Baldwin, director of microeconomic studies and analysis at Statistics Canada. "First, and most immediate, is its impact on labor markets. A job within one production facility is not likely to last a lifetime . When the death of a plant is the result of the death of a firm, the associated dislocation for workers is greatest."
Baldwin notes that plant closures occur for a number of reasons, including the need to modernize. However, he warns that high plant death rates still have implications for policy-makers.
"At the local level, economic development experts must be constantly working towards the replacement of the plants that they succeed in attracting," he writes. "The building of a new plant is not likely to provide benefits for extremely long periods. While examples can be given in the auto industry or in the steel industry of plants that have not exited for very long periods, these are the exceptions to the norm."
For more the study, which is available through Statistics Canada, call 800-263-1136 or e-mail email@example.com.