International manufacturers have their eye on the U.S. market, especially as the economy continues to strengthen, but an extensive investment in technology and services could give them a competitive edge.
Economic recovery in the U.S. is enticing international manufacturers to expand here, but their arrival poses a competitive threat to American companies that don’t match their foreign counterparts’ investment in technology, according to the 2015 Manufacturing & Distribution Monitor Report.
The annual report, compiled by the CPA firm McGladrey LLP, paints an improving picture of the economy by noting that three in four global manufacturing and distribution executives expect profits to increase, while the sector projects an average growth rate of 10 percent, over the next 12 months. Globally, executives expect average sales to increase 12 percent over the next 12 months, and they also plan to increase domestic hiring by roughly 8 percent.
But as the climate improves, more than half of the non-U.S. manufacturers that intend to sell products or services outside their home markets in 2015 have their eye on expanding in the U.S. And this influx of middle-market global manufacturing firms will provide fierce competition for U.S. businesses that haven’t invested heavily in technology and infrastructure.
“These findings indicate that economic recovery in the U.S. is gaining significant traction,” says Karen Kurek, a McGladrey partner. “While that’s great for the U.S. economy, it’s not always great for U.S. businesses that want to remain competitive with global firms looking to enter and expand in the domestic market. U.S. manufacturers and distributors should continue to incorporate innovation into their cultures to contend with global firms.”
Non-U.S. companies are investing in technology at a much more rapid rate than U.S. companies, according to the report. Firms outside of the U.S. are about 10 percent more likely to have invested in the implementation of cloud computing, big data solutions, social media platforms, customer relationship management and e-commerce. They know that establishing a presence here means they must “up their game” and are taking the necessary steps, says Kurek. She also says many of the Asian companies planning to set up shop here are young and heavily focused on investing in their business, which gives them an advantage over U.S. competitors that have continuously delayed technological innovation.
“After 2009, which was obviously the big recession and economic downturn, there were a lot of U.S. manufacturers that put off updating and investing in their IT systems,” Kurek says. “They were basically making sure the lights stayed on and they were navigating what was happening in the economy at that time.”
Even now, instead of proactively investing in technology to stay ahead of the competition, many U.S. companies instead “look to invest dollars to fix problems as more of a reaction to things that happen,” Kurek says.
There is never a bad time for manufacturers and distributors to invest in their businesses, says Michael Sprague, director of e-business development, ThomasNet. But he knows company executives often dismiss the opportunity to add services, improve infrastructure or strengthen their bench during an economic upswing by claiming, “Well, we’re too busy to work on these kind of issues.” Conversely, he adds, distributors also use a feeble economy as an excuse by lamenting, “Well, we don’t really have any money or resources to put at this right now because business is slow.” To which Sprague replies, “So what’s a good time then? There’s very rarely a middle ground.”
“I think the realization is coming around, independent of business cycles and everything, that they need to invest in these kind of tools, and I think that’s a good thing,” he says. “It’s a good thing for everybody – consumers, manufacturers, distributors. I think we’re getting to a better place, but, boy, it takes a long time in this industry.”
The McGladrey survey also found that U.S. companies are hesitant to expand internationally, the result of unfavorable currency exchange rates and other factors, including untapped markets at home.
“In terms of having a strategy to think global, non-U.S. companies seem to be more advanced than U.S. companies,” Kurek says. “Part of that relates to the fact that the U.S. market is so broad, so when you look at these middle-market manufacturers and distributors, they have a lot of domestic market space to sell into.”