Global growth a compelling option for manufacturing

McGladrey partner Karen Kurek looks at the potential for growth—and the potential for growth to slow down


Karen Kurek, McGladrey’s national manufacturing and distribution practice leader, talks with Plant Engineering about how American manufacturing growth is poised in early 2013: 

PE: With some of the federal issues resolved for the moment, how would you evaluate the growth potential for the U.S. manufacturing sector? 

Kurek: According to participants in our recent McGladrey Monitor Update survey, conducted at the end of 2012, Capitol Hill’s efforts to avoid the so-called fiscal cliff significantly dampened optimism among business leaders heading into 2013 — and may yet damage corporate performance through the first half of the year.

While most executives expect some upward movement in key metrics such as net revenue and domestic sales, the percentage of executives expecting increases – and the size of their projected increases – across all key performance indicators tracked by the survey are down significantly.

For example, while in the spring of 2012, 67% of respondents reported that they expected to add employees, that figure dropped to 41% by the end of the year. Correspondingly, the percentage of those expecting a decrease in workforce rose significantly, from 11% in the spring to 21% at the end of the year. The drop in expected workforce increases is particularly concerning as the manufacturing sector has been a key contributor to the increase in employment across the U.S. over the past 18 months. This anticipated decrease in employment may have a pervasive negative impact on the overall economy in the coming months.

After respondents predicted an average increase in net income of 13.1% in the spring, the end-of-year projection dropped to an average of +1.3%. And the average projected change in U.S. sales fell from +8% in the spring 2012 to +2.5% at the end of the year.

Needless to say, middle-market manufacturers and distributors are approaching 2013 cautiously after a rough end to 2012. These companies remain vulnerable to the volatility and uncertainty that have come to define the post-recession marketplace. While it is still possible that last year’s impasse will have a negative impact through the beginning of the year, the American Taxpayer Relief Act of 2012 enacted in early January — specifically the R&D tax credit renewal — may help restore confidence and spur investment in innovation. 

PE: How much of that growth is determined in the U.S., and how much is a matter of global manufacturing and economic issues? How would you assess the global health of manufacturing? 

Kurek: The argument for going global remains compelling: Even in 2009, during the deepest point of the recession, our survey data indicated that internationally active companies tended to be less affected by the recession than domestic-only companies, showing fewer revenue declines and higher margins.

That said, non-U.S. sales are not expected to grow nearly as well as U.S. sales in the coming year. According to our year-end survey, the average projected change in non-U.S. sales also fell from +7.2% in the spring to +5.7% at year’s end. Some industry sectors — such as automotive and transportation, or industrial and commercial machinery — are expecting a slowdown in international sales growth, due at least in part to the economic situation in Europe.

But in any economic environment, executives at thriving businesses keep an eye on their own businesses. For these companies, targeting new business acquisitions and new markets are factors in their continued success. This means working on an international level. In our survey, the percentage of revenues attributable to products and services sold to customers outside the United States is small — representing a median of only 5% of the revenues of companies we surveyed. This means there could be a significant number of opportunities that are not being leveraged. 

PE: What factors outside of government will continue to affect manufacturing in 2013? 

Kurek: Not all executives blame the fiscal cliff for their woes. Many identify more conventional business factors restricting their organizations: limited capital to develop new products and grow revenues; challenges in finding qualified employees; excessive government regulations; emerging foreign competition; and volatile material and component prices.

Interestingly, executives at thriving companies are less likely to blame government or political factors for their performances, focusing instead managing for change and improvement regardless of external factors.

These executives note that their successes were achieved through a variety of initiatives, including investing in continuous improvement efforts; implementing new information technology applications and systems; diversifying product lines; opening up fresh markets and distribution channels; making new acquisitions; and securing inventory with the help of increased credit lines.

No comments
The Top Plant program honors outstanding manufacturing facilities in North America. View the 2013 Top Plant.
The Product of the Year program recognizes products newly released in the manufacturing industries.
The Engineering Leaders Under 40 program identifies and gives recognition to young engineers who...
A cool solution: Collaboration, chemistry leads to foundry coat product development; See the 2015 Product of the Year Finalists
Raising the standard: What's new with NFPA 70E; A global view of manufacturing; Maintenance data; Fit bearings properly
Sister act: Building on their father's legacy, a new generation moves Bales Metal Surface Solutions forward; Meet the 2015 Engineering Leaders Under 40
Cyber security cost-efficient for industrial control systems; Extracting full value from operational data; Managing cyber security risks
Drilling for Big Data: Managing the flow of information; Big data drilldown series: Challenge and opportunity; OT to IT: Creating a circle of improvement; Industry loses best workers, again
Pipeline vulnerabilities? Securing hydrocarbon transit; Predictive analytics hit the mainstream; Dirty pipelines decrease flow, production—pig your line; Ensuring pipeline physical and cyber security
Upgrading secondary control systems; Keeping enclosures conditioned; Diagnostics increase equipment uptime; Mechatronics simplifies machine design
Designing positive-energy buildings; Ensuring power quality; Complying with NFPA 110; Minimizing arc flash hazards
Building high availability into industrial computers; Of key metrics and myth busting; The truth about five common VFD myths

Annual Salary Survey

After almost a decade of uncertainty, the confidence of plant floor managers is soaring. Even with a number of challenges and while implementing new technologies, there is a renewed sense of optimism among plant managers about their business and their future.

The respondents to the 2014 Plant Engineering Salary Survey come from throughout the U.S. and serve a variety of industries, but they are uniform in their optimism about manufacturing. This year’s survey found 79% consider manufacturing a secure career. That’s up from 75% in 2013 and significantly higher than the 63% figure when Plant Engineering first started asking that question a decade ago.

Read more: 2014 Salary Survey: Confidence rises amid the challenges

Maintenance and reliability tips and best practices from the maintenance and reliability coaches at Allied Reliability Group.
The One Voice for Manufacturing blog reports on federal public policy issues impacting the manufacturing sector. One Voice is a joint effort by the National Tooling and Machining...
The Society for Maintenance and Reliability Professionals an organization devoted...
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.
Maintenance is not optional in manufacturing. It’s a profit center, driving productivity and uptime while reducing overall repair costs.
The Lachance on CMMS blog is about current maintenance topics. Blogger Paul Lachance is president and chief technology officer for Smartware Group.