In an economy generally perceived to be favorable, according to the May Consumer Confidence Index, small and midsized manufacturers and distributors are optimistic about their companies and industries. In fact, 58% believe their company is “thriving and growing” and only 4% believe it is “declining,” according to the RSM McGladrey 2006 Manufacturing and Wholesale Distribution National Survey.
The 2006 Manufacturing and Wholesale Distribution National Survey indicates business is “very good” for midsized businesses across the United States. Overall, business leaders are optimistic about their companies and industries, with plans for increased capacity and new product innovation. In order for these organizations to meet their future growth objectives, however, several strategies should be considered, including: gaining an understanding of foreign markets, increasing exports, using available resources to find skilled workers, taking advantage of government programs, and optimizing tax planning.
The RSM McGladrey survey offers insight into what CEOs, CFOs and other senior executives are thinking and planning in order to grow their companies and compete in the overall global economy.
However, despite the favorable outlook, there are indications that organizations could be doing more to improve their operations. While most midsized companies are seeking to increase operating capacity, developing new products and are optimistic about the future, the survey also reveals that many organizations are missing key opportunities to grow and prosper.
“The strength of small and midsized companies is their ability to innovate, but many of these organizations are overlooking important ways to ensure their businesses continue to thrive in the future,” says Tom Murphy, executive vice president of RSM McGladrey’s manufacturing and wholesale distribution practice. “Critical resources – both locally and globally, including labor, trade, and government assistance – are not being utilized in the most effective ways to capitalize on available resources in labor and equipment.”
The survey found that 43% of respondents seek their main source of skilled labor in the general marketplace rather than mining technical, community and vocational schools for employees. Some survey participants are buying equipment to replace the skilled labor they can’t find.
Survey respondents are not enthusiastically responding to globalization. In fact, many appear to view the global economy as more of a challenge than an opportunity. “Given the access to foreign markets that free trade provides, it is surprising that survey respondents do not see the urgency of exporting or supplying to the major multi-national companies,” says Murphy.
In fact, half of survey participants expect no revenue growth in this area. Only about 25% of respondents said globalization helped them lower costs, while a little more than 40% said it forced them to lower selling prices.
In addition, relatively few companies are utilizing available government assistance programs. No more than 10% of survey respondents participate in any single program, and just under 10% use state incentive programs.
In the area of tax planning, results vary significantly between manufacturers and distributors. Manufacturing companies are more likely to use research and development credits and international sales incentives. However, not all manufacturers use the tax credits and deductions available to them. Only 65% use state and local tax credits, 64% take advantage of the domestic manufacturers’ deduction (DMD), 61% use R&D tax credits, and 38% use international tax incentives.
Among distribution companies, few use R&D tax credits (9%), the DMD (6%) or international sales incentives (9%).
“Resources to help small and midsized companies to grow and prosper are numerous,” says Murphy. “With sound, objective guidance and expertise, companies will be able to capitalize on opportunities that best meet their immediate business needs as well as their long-term goals.”