Survey: Respondents Outside of Bldg Materials/Transportation Optimistic

Companies reporting their business conditions as thriving and growing"declined by nearly 10% in the past year, according to the third annual RSM McGladrey Manufacturing and Wholesale Distribution National Survey. However, business remains good for more than a third of survey participants within the following industry segments: food and allied products, medical devices, industrial equipment, metal fabrication and electronics.

More than 960 industry executives -representing 911 companies -responded to questions on current business conditions, growth strategies, innovation, cost management, technology initiatives, operations and globalization.

Growth Prospects
The survey showed 80% of respondents are pessimistic about U.S. economic growth prospects, and the percentage of respondents describing their business as "declining"has tripled in the past two years. Building materials, transportation equipment, plastics, and printing and publishing are the industry segments most impacted by the housing crisis, reduction in consumer discretionary spending and high energy costs.

Inflationary pressures are largely to blame for dampened expectations, with 80% of companies expecting cost increases exceeding 6% in energy, raw materials, operating labor, freight and benefits. Healthcare costs once again are projected to increase on an average exceeding 10% in 2008 -the third year in a row of double-digit increases in healthcare benefit expenses.

However, many respondents still remain optimistic about their company's growth prospects. With the exception of transportation equipment and building materials, more than 60% of respondents across all industry segments are optimistic about their company growth in 2008.

"Confidence about company growth may indicate belief that the economy is bottoming and will begin to rebound later this year,"says Tom Murphy, RSM McGladrey's executive vice president of manufacturing and wholesale distribution.

Demand for Labor
While demand for skilled labor among survey respondents has decreased over the past year, more than 20% report a need for skilled workers.

"One in five companies cannot find the skilled workers they need for today's advanced technology manufacturing and wholesale distribution environments,"said Karen Kurek, managing director and business line leader of RSM McGladrey's manufacturing and wholesale distribution practice in the Great Lakes region. "As baby boomers retire, demand for labor will certainly increase -irrespective of economic conditions."

Downturn Strategies
The survey also found surprising strategic reactions to declining business conditions. Three-fourths of respondents plan to build their market share through new customers. New product line developments were reported by more than half the responding companies, and 46% reported innovations in their processes.

These strategies require increased investment instead of the retrenchment more common in declining business climates.

Globalization Strategies
While cost advantages of globalization are shrinking -respondents moving production or services offshore since 2007 has declined 20% -opportunities to benefit from participating in the global economy remain underutilized. U.S. manufactured goods are in demand globally due to the weak dollar, timely delivery and innovative products. Becoming internationally active in order to serve markets abroad is a sound strategy for companies seeking to increase revenues.

Companies that indicated they are pursuing a global strategy -which remained flat in 2008 at only 45% overall -report a 4% higher gross margin than those with no global strategy. Also, 12% of respondents report

expecting "considerable"growth internationally compared to the 8% expecting growth domestically. 

"This is a clear indication companies should capture every potential advantage and take advantage of export opportunities due to the weak U.S. dollar,"says Murphy.

Green
This year's survey asked what manufacturers and distributors are doing in terms of green initiatives. According to the survey, 46% of businesses have adopted at least one green initiative. About half of these businesses say the green initiative is a response to customer requests; it is likely that customers and end users -along with industry early adopters like construction and real estate -will drive demand for more environmentally friendly products and processes

Murphy says that manufacturers'and wholesale distributors'green gains are tied directly to lean manufacturing. "Lean manufacturing is focused on eliminating waste -including wasted energy and commodities. As companies implement lean to control costs, green improvements are inevitable. Not only is it about the environment; it's also a great way to improve the bottom line."