Manufacturing Survey from RSM-MCGladrey Video

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Manufacturing Survey from RSM-MCGladrey

Manufacturing Survey from RSM-McGladrey Susan Solovic: The majority of the nations manufactures are small and medium sized operations. In fact, the latest research from the national association of manufacturers reveals 96% of US manufactures are small and midsize companies. RSM-McGladrey a leading professional services firm conducts and annual nationwide survey of manufactures and hostile distributors to learn about these businesses and joining us to discuss the 2007 RSM-McGladrey Manufacturing in hostel distribution national survey is Tom Murphy RSM-McGladrey Executive Vice President of manufacturing in hostel contribution. Tell me a little bit about this survey, why did you do it, who participated and what’s its mission? Tom Murphy: Well this is the second year that we’ve done the survey on a national base and two years prior to that, we did it in a greater Chicago area only. The value of the survey having market information and economic information related to a small and midsize manufacturers and distributors was so important to those companies that we decided that it would be great to do it on a national basis. So this year we had nearly a thousand sea level executives from companies across the country respond to a series of questions that we had related the business conditions, strategies cost and tax programs and so it’s been very successful. Susan Solovic: And Tom with their specific segments of the industry that were impacted? Tom Murphy: Well on the positive side, companies that indicated there were thriving and growing at higher rate this year over last year we’re the medical industry. The electronics industry as well as the food industry so those are actually some good news within the numbers all though the negative impact that we see from in particular transportation industry and the building materials industry, more than off set that. If we were to look at those two industries that were down here over year in particular the transportation industry which is directly related to the automotive industry was down and we’re making a fewer vehicles. Now this year than it was projected to them, we were last year and in particular there maybe a swing of geographically too from mid west traditional to the Southeast were a lot of an auto manufacturing is done now. The building material industry I don’t think is the surprise any of a scissor because that industry has been impacted to slow down the residential construction so companies that make things that go into houses are having a more difficult time and they did last year. Susan Solovic: What about rising healthcare cost. Certainly, healthcare costs are impacting most small and midsize companies but did you find anything specific or unique to the manufacturing and distribution segment. Tom Murphy: Well what — and I’m not sure it’s necessarily unique to the industry as much as its unique to the size of companies and what we found was that the smaller the company, the higher their average healthcare cost were going to increase both last year and this year. So we found not to be quite interesting and we ask other questions related to that and what we summarized based on the data is that smaller companies have a much more difficult time adopting techniques and methods to help control their cost which so much easier for the larger companies to do. So for instance to be a self insured company as far as your medical cost is easier for a larger company that has more employees to spread the cost over. So their rates can actually be more effective. The smaller companies more often than that are fully insured and often times those programs are more expensive than the self-insured programs. So there’s a lot of different things that you can do to try offset some of those customers when you’re small and midsize company and those things maybe they make an effort to try the move to be self-insured. You can also try and pass cost on to your employees at a greater rate now, that’s also kind of catch 22 in that smaller company sometimes have a difficult time recalling and retaining their employees anyway. So that when they go and change their benefit programs in placement say we wait to second. I can go and work somewhere else and give better benefit programs. So it’s kind of a tough spot there in and the problems are to the point of where for the fourth year in the row in our studies healthcare costs are the number one concern in small and midsize businesses. Susan Solovic: That’s interesting because so many small businesses are starting to go global in order to grow their businesses but you found with manufactures that are many are reluctant to go global. Tom Murphy: Well, that was another finding this year that we confirmed from last years survey and so we ask some more probing question and what’s really interesting is that the larger the company the more likely there are to have a global strategy. And then at the same time the companies that have a global strategy are more likely to have higher revenue growth and companies that don’t. So what we found by asking additional question in the survey is that the small and midsize companies generally are getting involve on the supply side as far as getting some of their materials from are sure, maybe working with other companies are sure to help provide some of the services they may need. So they’re looking at it on the cost side but what we found once again very surprising is they’re not taking advantage of the opportunity to access new markets by exporting and we thought that to be quite interesting. And so as a result that we kept and we ask more questions and those questions were kind of related to why don’t you want to work globally and it’s all about risk and on one hand is that companies don’t necessarily want to take the risk that comes associated with doing business globally. And as we all know there’s lots of examples of companies that are trying to do business school globally and haven’t been very successful and it costs a lot of money. So we have a tendency to kind of remember the ones that didn’t work versus the ones that do work. Susan Solovic: Right, we certainly have to do your homework when you’re going to go international. Tom Murphy: There are so many different things that you need to be concerned above beside the fact there’s language barriers, cultural differences, we found in the survey some of the other items that were concerning were you know the ability to have managerial experience to deal with the export and import markets and the complexity of those, understanding how to do with it effectively. We also found that sometimes companies were having a more difficult time getting financing to do business globally and we associate that with risk also and you’re more likely to be able to get fund and to do something here domestically then you are internationally because of the risk associated with it. So that makes it difficult for smaller companies. There’s also one of the other problems that companies find us that is they can’t find trustworthy partners in foreign countries and that is problematic because there’s a lot of people out there that won’t do you any good and so what we found and we’ve made several visits over the last couple of years to Washington to talk with the administration about this issues and the department of Commerce itself has international trade administration group which has great resources available. To help small and midsize companies navigate the global environment and are able to export effectively, what happens is companies try to figure out how to do it on their own, and it’s just very complicated. So they need some help and one of the things that I like to tell the companies is you know your taxes have been supporting these programs and you ought to at least talk to them and see if there’s something there that could help you. Susan Solovic: That’s a great point Tom. Now, another finding in the survey was that about half of the respondents have not implemented critical risk management components in their companies. What do you think that is? Tom Murphy: Well you know one thing you always find out when you do a survey is the questions you should have ask. Susan Solovic: There you go. Tom Murphy: But we didn’t specifically asked why companied did or that those risk management components. It’s no components where do you have an audit committee as part of your board. Do you have internal audit function within your company or have you performed the risk assessment of your company to see where the high risk areas are and 54% of the companies indicate that they haven’t done any of those as well as 13% of the companies I did done all three. So what we concluded base on somebody of the other analysis that we’ve done is that companies are somewhat risk averse or they’ve assumed that the risk aren’t there and we think that’s a critical mistake for a small and midsize business to do is do not put some control of them place to try mitigate risk. We’re not talking about extensive programs here but what we’re talking about is that a minimum at least having a risk assessment done so that you can evaluate whether those research significant enough for you to take action to try and mitigate them. Susan Solovic: To often something happens in the notch when they want to go back and take a look at all of those. Tom Murphy: It is true and we always seem to learn by things that happen bad but one of the other things that was interesting in the survey that we thought kind of help us understand this risk aversion. Or just the lack of knowledge about risk is that well over 60% of the companies indicate that information technology was an increasing critical part of their business. At the same time some more around 12% of the companies indicated to have a disaster recovery plan in place and that really is a disconnect in our mind is that you’re relaying more and more upon your computers and your computer systems to help you run your business but nobody stops to think what would happen if they came in tomorrow and none of those computers are system to available or did they have access to him. What would you do? Susan Solovic: Right you know I always try to point out that we thought a lot about this after 911 and also after hurricanes Katrina and Rita but it’s really something that we ought to think about all the time. Tom Murphy: It’s just that something that a company needs to make sure that they have a place for their employees to go the next day, how do you communicate with your employees as to what the next steps are and what information you have in your systems, you know you have that stored somewhere outside in a different location so let’s protect it. Susan Solovic: Tom final question for you. What about tax credits, another government programs. Did you find that manufacturers are taking advantage of these? Tom Murphy: Well it’s interesting and I think I would separate them a little between two different questions but first off there are several tax credits that are available to all companies and including small and midsize manufacturers and distributors. And what surprise does quite a bit was that again and for the second year on the row, a lot of companies don’t appear to be taking advantage of those. So for instance 58% of the manufacturers take advantage of what’s called the RND tax credit. Well that means some people tell me they say Tom that’s pretty good number and I said what about the other 42% and some people will say, well you know we don’t do any RND and which is true. We maybe loosing money so we don’t have anything to use a tax credit again but that still leads a significant number of companies that haven’t taken advantage of it. There’s also a new deduction that is new for 2006 or 2005 and 2006 felt the domestic manufacturers deduction which only around 40% of the companies are taking advantage of that and we really though that’s a real disconnect because that credit is available to this manufactures and even distributors in some case. It’s been interesting that when I’ve gone around the country talking about this programs you ask companies what do they know what the domestic manufacturers deduction is and you kind to get a blank stare so I think they don’t know about it so that’s an opportunity. I think on the government assistant side what we found once again that this year is that not very many companies are utilizing government assistance programs. But this year we did ask, why aren’t you using those programs and the number one response was we don’t know about those programs which I thought was kind of interesting because the government has said. You know we had all these ways to promote them all these things we’re talking about and at the same time, people are saying they don’t know about them. So they also don’t want government involvement at one hand, they don’t know where to get started so there’s several reasons why we’ve heard about this for several years but we really need to try and take advantage of it because they are some very advantageous program for small midsize companies. Susan Solovic: Well Tom I really appreciate you being here the survey is interesting and you certainly highlight a lot of good points. Tom Murphy: Thank you Susan. Susan Solovic: And of course, we’ve been talking to Tom Murphy RSM-McGladrey Executive Vice President of manufacturing and hostel distribution. And we appreciate him joining us as a guest and to learn more details of this study or other research on small and midsize businesses from RSM-McGladrey had to their website and look for other segments from RSM-McGladrey right here on sbtv.com, where small business is our only business.

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Manufacturing Survey from RSM-McGladrey

Susan Solovic: The majority of the nations manufactures are small and medium sized operations. In fact, the latest research from the national association of manufacturers reveals 96% of US manufactures are small and midsize companies. RSM-McGladrey a leading professional services firm conducts and annual nationwide survey of manufactures and hostile distributors to learn about these businesses and joining us to discuss the 2007 RSM-McGladrey Manufacturing in hostel distribution national survey is Tom Murphy RSM-McGladrey Executive Vice President of manufacturing in hostel contribution. Tell me a little bit about this survey, why did you do it, who participated and what’s its mission?

Tom Murphy: Well this is the second year that we’ve done the survey on a national base and two years prior to that, we did it in a greater Chicago area only. The value of the survey having market information and economic information related to a small and midsize manufacturers and distributors was so important to those companies that we decided that it would be great to do it on a national basis. So this year we had nearly a thousand sea level executives from companies across the country respond to a series of questions that we had related the business conditions, strategies cost and tax programs and so it’s been very successful.

Susan Solovic: And Tom with their specific segments of the industry that were impacted?

Tom Murphy: Well on the positive side, companies that indicated there were thriving and growing at higher rate this year over last year we’re the medical industry. The electronics industry as well as the food industry so those are actually some good news within the numbers all though the negative impact that we see from in particular transportation industry and the building materials industry, more than off set that.

If we were to look at those two industries that were down here over year in particular the transportation industry which is directly related to the automotive industry was down and we’re making a fewer vehicles. Now this year than it was projected to them, we were last year and in particular there maybe a swing of geographically too from mid west traditional to the Southeast were a lot of an auto manufacturing is done now. The building material industry I don’t think is the surprise any of a scissor because that industry has been impacted to slow down the residential construction so companies that make things that go into houses are having a more difficult time and they did last year.

Susan Solovic: What about rising healthcare cost. Certainly, healthcare costs are impacting most small and midsize companies but did you find anything specific or unique to the manufacturing and distribution segment.

Tom Murphy: Well what — and I’m not sure it’s necessarily unique to the industry as much as its unique to the size of companies and what we found was that the smaller the company, the higher their average healthcare cost were going to increase both last year and this year. So we found not to be quite interesting and we ask other questions related to that and what we summarized based on the data is that smaller companies have a much more difficult time adopting techniques and methods to help control their cost which so much easier for the larger companies to do.

So for instance to be a self insured company as far as your medical cost is easier for a larger company that has more employees to spread the cost over. So their rates can actually be more effective. The smaller companies more often than that are fully insured and often times those programs are more expensive than the self-insured programs. So there’s a lot of different things that you can do to try offset some of those customers when you’re small and midsize company and those things maybe they make an effort to try the move to be self-insured. You can also try and pass cost on to your employees at a greater rate now, that’s also kind of catch 22 in that smaller company sometimes have a difficult time recalling and retaining their employees anyway. So that when they go and change their benefit programs in placement say we wait to second. I can go and work somewhere else and give better benefit programs.

So it’s kind of a tough spot there in and the problems are to the point of where for the fourth year in the row in our studies healthcare costs are the number one concern in small and midsize businesses.

Susan Solovic: That’s interesting because so many small businesses are starting to go global in order to grow their businesses but you found with manufactures that are many are reluctant to go global.

Tom Murphy: Well, that was another finding this year that we confirmed from last years survey and so we ask some more probing question and what’s really interesting is that the larger the company the more likely there are to have a global strategy. And then at the same time the companies that have a global strategy are more likely to have higher revenue growth and companies that don’t.

So what we found by asking additional question in the survey is that the small and midsize companies generally are getting involve on the supply side as far as getting some of their materials from are sure, maybe working with other companies are sure to help provide some of the services they may need. So they’re looking at it on the cost side but what we found once again very surprising is they’re not taking advantage of the opportunity to access new markets by exporting and we thought that to be quite interesting. And so as a result that we kept and we ask more questions and those questions were kind of related to why don’t you want to work globally and it’s all about risk and on one hand is that companies don’t necessarily want to take the risk that comes associated with doing business globally.

And as we all know there’s lots of examples of companies that are trying to do business school globally and haven’t been very successful and it costs a lot of money. So we have a tendency to kind of remember the ones that didn’t work versus the ones that do work.

Susan Solovic: Right, we certainly have to do your homework when you’re going to go international.

Tom Murphy: There are so many different things that you need to be concerned above beside the fact there’s language barriers, cultural differences, we found in the survey some of the other items that were concerning were you know the ability to have managerial experience to deal with the export and import markets and the complexity of those, understanding how to do with it effectively.

We also found that sometimes companies were having a more difficult time getting financing to do business globally and we associate that with risk also and you’re more likely to be able to get fund and to do something here domestically then you are internationally because of the risk associated with it. So that makes it difficult for smaller companies.

There’s also one of the other problems that companies find us that is they can’t find trustworthy partners in foreign countries and that is problematic because there’s a lot of people out there that won’t do you any good and so what we found and we’ve made several visits over the last couple of years to Washington to talk with the administration about this issues and the department of Commerce itself has international trade administration group which has great resources available. To help small and midsize companies navigate the global environment and are able to export effectively, what happens is companies try to figure out how to do it on their own, and it’s just very complicated. So they need some help and one of the things that I like to tell the companies is you know your taxes have been supporting these programs and you ought to at least talk to them and see if there’s something there that could help you.

Susan Solovic: That’s a great point Tom. Now, another finding in the survey was that about half of the respondents have not implemented critical risk management components in their companies. What do you think that is?

Tom Murphy: Well you know one thing you always find out when you do a survey is the questions you should have ask.

Susan Solovic: There you go.

Tom Murphy: But we didn’t specifically asked why companied did or that those risk management components. It’s no components where do you have an audit committee as part of your board. Do you have internal audit function within your company or have you performed the risk assessment of your company to see where the high risk areas are and 54% of the companies indicate that they haven’t done any of those as well as 13% of the companies I did done all three.

So what we concluded base on somebody of the other analysis that we’ve done is that companies are somewhat risk averse or they’ve assumed that the risk aren’t there and we think that’s a critical mistake for a small and midsize business to do is do not put some control of them place to try mitigate risk. We’re not talking about extensive programs here but what we’re talking about is that a minimum at least having a risk assessment done so that you can evaluate whether those research significant enough for you to take action to try and mitigate them.

Susan Solovic: To often something happens in the notch when they want to go back and take a look at all of those.

Tom Murphy: It is true and we always seem to learn by things that happen bad but one of the other things that was interesting in the survey that we thought kind of help us understand this risk aversion. Or just the lack of knowledge about risk is that well over 60% of the companies indicate that information technology was an increasing critical part of their business. At the same time some more around 12% of the companies indicated to have a disaster recovery plan in place and that really is a disconnect in our mind is that you’re relaying more and more upon your computers and your computer systems to help you run your business but nobody stops to think what would happen if they came in tomorrow and none of those computers are system to available or did they have access to him. What would you do?

Susan Solovic: Right you know I always try to point out that we thought a lot about this after 911 and also after hurricanes Katrina and Rita but it’s really something that we ought to think about all the time.

Tom Murphy: It’s just that something that a company needs to make sure that they have a place for their employees to go the next day, how do you communicate with your employees as to what the next steps are and what information you have in your systems, you know you have that stored somewhere outside in a different location so let’s protect it.

Susan Solovic: Tom final question for you. What about tax credits, another government programs. Did you find that manufacturers are taking advantage of these?

Tom Murphy: Well it’s interesting and I think I would separate them a little between two different questions but first off there are several tax credits that are available to all companies and including small and midsize manufacturers and distributors. And what surprise does quite a bit was that again and for the second year on the row, a lot of companies don’t appear to be taking advantage of those. So for instance 58% of the manufacturers take advantage of what’s called the RND tax credit. Well that means some people tell me they say Tom that’s pretty good number and I said what about the other 42% and some people will say, well you know we don’t do any RND and which is true. We maybe loosing money so we don’t have anything to use a tax credit again but that still leads a significant number of companies that haven’t taken advantage of it.

There’s also a new deduction that is new for 2006 or 2005 and 2006 felt the domestic manufacturers deduction which only around 40% of the companies are taking advantage of that and we really though that’s a real disconnect because that credit is available to this manufactures and even distributors in some case. It’s been interesting that when I’ve gone around the country talking about this programs you ask companies what do they know what the domestic manufacturers deduction is and you kind to get a blank stare so I think they don’t know about it so that’s an opportunity.

I think on the government assistant side what we found once again that this year is that not very many companies are utilizing government assistance programs. But this year we did ask, why aren’t you using those programs and the number one response was we don’t know about those programs which I thought was kind of interesting because the government has said. You know we had all these ways to promote them all these things we’re talking about and at the same time, people are saying they don’t know about them. So they also don’t want government involvement at one hand, they don’t know where to get started so there’s several reasons why we’ve heard about this for several years but we really need to try and take advantage of it because they are some very advantageous program for small midsize companies.

Susan Solovic: Well Tom I really appreciate you being here the survey is interesting and you certainly highlight a lot of good points.

Tom Murphy: Thank you Susan.

Susan Solovic: And of course, we’ve been talking to Tom Murphy RSM-McGladrey Executive Vice President of manufacturing and hostel distribution. And we appreciate him joining us as a guest and to learn more details of this study or other research on small and midsize businesses from RSM-McGladrey had to their website and look for other segments from RSM-McGladrey right here on sbtv.com, where small business is our only business.

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