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Small- To Mid-Sized Manufacturers Are Not Looking Overseas For Growth, According to Survey
Reprinted from July 24 Manufacturing & Technology News
Small- to mid-sized manufacturing companies are not taking advantage of burgeoning growth opportunities that exist in overseas markets, according to RSM McGladrey, the Minneapolis, Minn.-based accounting and tax firm. Only 26 percent of the 1,031 CEOs and CFOs surveyed by the firm said they are relying on exports for growth. That low number “is discouraging,” says Tom Murphy, executive vice president of RSM McGladrey’s manufacturing and wholesale distribution practice. “People have to start thinking outside of the box.”
Most companies (55 percent) are depending upon introducing new products as a means to grow their companies, followed by increasing brand recognition, adding new services and expanding their sales forces.
Small- and medium-sized manufacturers are not enthusiastically responding to globalization, RSM McGladrey found in its survey of CEOs and CFOs. “Most view the global economy as more of a challenge than an opportunity,” says the firm. Adds Murphy: “Given the access to foreign market that free trade provides, it is surprising that survey respondents do not see the urgency of exporting or supplying to the major multinational companies. They are leaving a lot of business on the table.” Exporting would also help shield them from a downturn in their home market.
Half of the survey participants said they don’t expect any revenue growth from exports and only about 25 percent said that globalization helped them lower costs. A little more than 40 percent said globalization forced them to lower the prices of their products.
Companies are also not taking advantage of tax credits and other government programs for manufacturers. Less than 10 percent of those surveyed are participating in any single program, and less than 10 percent use state incentive programs, even though there are many that are available. Only 65 percent of manufacturers use state and local tax credits, and 64 percent take advantage of the domestic manufacturers’ deduction. Another 61 percent use the R&D tax credit, while only 38 percent use international tax incentives. The survey found that 58 percent of small- and medium-sized manufacturers believe their company is “thriving and growing,” while onl7 4 percent say they are “declining.” But there are headwinds.
Health care costs are increasing and 65 percent of the companies are passing these cost increases onto their employees, resulting in less take-home pay and a workforce that is growing more disillusioned, says Murphy. “As competition for employees heats up, employees are changing companies because of [better] health care plans.”
There are as many as one million vacancies in the manufacturing sector, and finding good workers in an economy with a 4.6 percent unemployment rate is becoming more difficult.
Energy costs are also beginning to impact companies, particularly those in the chemicals, metal fabrication and plastics industries. U.S. corporate income taxes remain higher than in 29 other OECD countries; regulations remain burdensome; and litigation costs, which account for almost 3 percent of the U.S. economy, are sapping resources. Mid-sized companies are getting squeezed.
“There are a lot of advocates for small guys and the big guys,” Murphy told MTN. “But nobody is advocating for the companies in the middle. Somebody has got to start speaking up on their behalf.”
Murphy was recently in Washington DC meeting with policy makers to implore them to get serious about policies aimed at improving the environment for U.S. manufacturing. “We’re saying we have the data; now we have to put our heads up, speak out and get the government to take actions to give us relief on structural costs.”
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