Tag: Future Trends

America Needs to Rebuild Industrial Base to Survive

The auto industry bailout and its repercussions are topics of hot debate. It now appears that federal money will come with some long apron strings that will force Detroit to become smarter, leaner and more forward-thinking. That’s never a bad thing for any business and could enable a mighty phoenix to arise from today’s ashes.

Detroit’s problems put a glaring spotlight on America’s loss of the massive industrial base that made us a world superpower. Many of the major industries and manufacturing enterprises that once dominated the American economy have been shipped overseas. To stay competitive with the flood of cheap foreign products that have inundated our markets, American businesses have been moving manufacturing plants overseas where labor and often transportation and natural resources are cheaper. Since 2001, millions of U.S. manufacturing jobs have been lost, contributing to the more than 10 million Americans now unemployed. Politicians are just beginning to understand the high economic price exacted by outsourcing our manufacturing base.

In a recent column posted on the Alliance for American Manufacturing’s blog ManufactureThis, the economic benefits of manufacturing jobs were explained by Peter Navarro, a CNBC contributor and professor at the Paul Merage School of Business at the University of California-Irvine. “Without a robust manufacturing base, the U.S. economy will lack the core strength to sustain any robust longer-term economic growth,” Navarro says. With nearly 3 million American workers relying on the auto industry and its supply chain for their income, America can’t afford to lose an industry that constitutes one-fifth of the 15 million manufacturing jobs left in America.

It’s the “multiplier effect,” the ability to create jobs downstream, that makes manufacturing jobs so valuable to economic stability and growth. Service jobs, which account for the bulk of U.S. jobs today, have a multiplier effect that is less than half that of manufacturing jobs. As Navarro explains, “This means that for every one job created — or saved! — in manufacturing, an additional four to five jobs are created downstream — from cops, firefighters, and teachers to dry cleaners, insurance agents, plumbers, and real estate brokers.”

But the economic effect of manufacturing jobs is even greater because they generally pay more than service sector jobs. This means more money going back into the economy, Navarro points out. Bailing out the auto industry, one of America’s last major manufacturers, is essential to our economic recovery. As Navarro says, “the U.S. economy will still never return to its former levels of long-term growth, glory and prosperity without a full restoration of its manufacturing base.”

Logistics Industry Down But Not Out

Considering the state of the economy, it’s not unexpected that the logistics industry is suffering along with everyone else. According to the recently released Global Contract Logistics 2009 report published by Transport Intelligence, the global contract logistics market grew at a rate of 5% in 2008, half the 10% growth experienced in each of the past few years. Of greatest concern was the noticeable drop in volume during the fourth quarter, generally considered the industry’s peak season.

“This downturn has been felt well into 2009, although there are signs that the fall in volumes may well have bottomed out by the end of the first quarter, the report suggests,” logistics industry analyst Ken Hurst noted in today’s posting on Works Management online.

Increasing, global reach provides the greatest opportunity for future success in the logistics industry, particularly when U.S. markets go stale. Developing markets in Latin America, Central and Eastern Europe and the Asian Pacific region offer the most opportunity for future growth, according to the Ti report. While the China market has cooled recently, Hurst expects it to rebound, saying, “… with GDP growth still in the high single digits, and a $585 billion stimulus package taking effect, underlying economic activity will continue to drive its [China’s] logistics sector.”

The report predicts five more years of volatile swings in the logistics industry worldwide with significant recovery not predicted until 2011. Rebuilding is expected to be agonizingly slow. According to Hurst’s post, “Ti believes that the market will grow at a compound annual rate of 2.4% between 2009 and 2012.” Stabilization of the industry will depend on the speed with which global sales increase. Until consumer confidence returns and drives up demand for goods, manufacturers and retailers will continue to keep supply costs lean. Because of its position at the tail end of the supply chain, the logistics industry may be one of the final economic sectors to achieve recovery. While contractual relationships will protect some logistics companies from the worst market volatility, “logistics providers will have to work hard at increasing their value proposition to clients if they are to avoid the worst excesses of the recession,” John Manners-Bell, Ti CEO told Hurst.

Overseas Jobs Could Be Headed Back to America

The tide could be turning. Following up on a campaign promise to stop the flow of manufacturing jobs overseas, President Obama has proposed closing loop holes in the U.S. tax code and raising corporate taxes on offshore earnings to encourage U.S. manufacturers to keep jobs in America. The President is pressuring Congress to eliminate certain tax breaks that he says encourage U.S. companies to move jobs overseas. At the same time, the President’s recently-released budget initiative proposes to increase corporate taxes on overseas earnings.

Proponents say the President’s plan would not only keep more jobs in America, it would raise more than $100 billion in much needed revenue over the next decade. Current tax laws allow U.S. firms to defer taxes on overseas profits if they invest those profits in their foreign subsidiaries. Critics say that practice encourages businesses to fund their foreign operations at the expense of those located on U.S. soil. And, of course, there’s considerable debate on both sides about what the amount of the tax rate should be if the rules are changed. Many consider the current 35% rate (which few actually pay) unsustainable, particularly in the current economy. Some industry experts have suggested a more realistic 15% to 20% tax rate. The debate is expected to be energetic. If your company has a global reach, you might want to weigh in with your Congressional representatives.

Any move to keep U.S. jobs on U.S. soil will be a positive one for America’s manufacturing industry, American workers, and the U.S. economy. Hard-hit by the economic recession and the problems of Detroit’s Big Three auto manufacturers, the future of U.S. manufacturing has been painted as bleak by many. But the real story is much more complex and, fortunately, rosier. While U.S. manufacturing jobs have moved overseas, particularly to China, to take advantage of lower labor costs; over the past 15 years, the number of Chinese manufacturing jobs has not increased, leading industry experts to believe we’re on the downslope of the outsourcing peak, at least with regards to China. In fact, according to the Material Handling Industry of America, the percentage of workers employed in manufacturing is higher in the U.S. than it is in China. Good news for U.S. workers.

More on Friday

Manufacturing Faces Another Year of Tough Times

It looks like the start of 2009 will bring more of the same for U.S. manufacturers, but things may ease up as the year progresses. The economic difficulties that started with the mortgage crisis and snowballed with this fall’s stock market crash will take time to correct. While some economic experts are predicting a minimum three-year recovery period before we again see a robust U.S. economy; others see small indications of coming recovery. 

According to the semiannual forecast recently issued by the Institute for Supply Management (ISM), manufacturers anticipate a 1.1% net revenue loss over the coming year. While definitely disappointing, it’s an improvement over the 2.2% decrease reported for 2008. Those industries that have been particularly hard hit this year include: primary metals, nonmetallic mineral products, fabricated metal products, textile mills, computer and electronic products, machinery, paper products, furniture, transportation equipment, plastics and rubber products. Revenue increases in 2009 are predicted to come largely from petroleum and coal products, electrical equipment, appliances and components, printing, food and beverage products, tobacco, apparel and leather goods and chemical products.

“Manufacturing purchasing and supply executives lack their usual optimism about their organizations’ prospects as they consider the first half of 2009,” said Norbert Ore, chair of ISM’s Manufacturing Business Survey Committee; “however, they are somewhat more positive about the second half. While 2008 has been a challenging year overall, we are apparently seeing a rapid halt to the inflationary cycle of the past several years as it relates to manufacturing inputs.”

ISM reports that manufacturers are operating at 75.2% normal capacity, down from 78.6% reported in April 2008. Sixty-five percent of the manufacturers surveyed by ISM expect their 2009 revenues to be the same or smaller than in 2008. To cope with economic woes, manufacturers are expected to decrease capital expenditures, reduce on-hand inventories, layoff more workers to decrease labor and benefit costs, and increase exports.

It looks like another year of belt-tightening for most of us. But all is not doom and gloom. Manufacturers should view this as an opportunity to tighten up their operations and improve efficiency across the board. This is an opportunity to learn to run leaner and meaner than your competition. Tightening up your operations today will better position you to compete in the future.

U.S. Manufacturing Not Dead Yet

Despite dire reports that U.S. manufacturing is dying, the old boy still seems to be alive and kicking.

  • Sure the recession has U.S. manufacturers flailing, and the failure of the Big Three automakers is a definite blow to the country’s manufacturing power; but it’s far from the death knell some have predicted.
  • Sure global recession has decreased domestic and foreign demand, but faith in history tells us that’s a temporary problem. The turnaround may not materialize as quickly as we’d like, but demand will increase; it always does.
  • Sure manufacturing employment figures are declining, but statistics don’t tell the whole store. The decrease is due in part to improved manufacturing efficiency and automation, not merely the effects of decreased supply and demand in a recessionary economy.

The most important clue that there’s still plenty of life left yet in U.S. manufacturing is that increased efficiency.

U.S. manufacturers have been able to harness technology to produce goods more efficiently with fewer workers, making marked gains in productivity in the process. This increased productivity will make it more attractive for manufacturers to bring manufacturing operations and jobs back to U.S. soil (see our May 13 post). It’s a move the Obama administration is poised to encourage by closing tax loopholes that the President believes have exacerbated the outsourcing of American manufacturing jobs overseas.

The climate is right for such a show of faith by manufacturers. Americans are clamoring to have American goods produced on American soil by American workers. Legions of Americans are making a point to Buy American and eschew foreign-made products and the businesses that sell them. For the first time in decades, U.S. workers, pushed by the Detroit reality, are showing a willingness to scale back their demands and work with manufacturers to make American salaries more competitive in the global market. The economy is tightening up competition, weeding out the weak players and giving the strong a more open playing field. Real estate is cheap and opportunities to purchase near turn-key operations abound for savvy shoppers.

Taken together, the time is ripe to bring U.S. manufacturing — and jobs — back home. U.S. companies that are able to take advantage of the current climate and move jobs back to the U.S. stand to reap untoward benefits in public relations and worker and customer loyalty.

Gloomy Manufacturing Outlook to Brighten in 2009

For just about all of us, 2008 has turned out to be a tough year. According to statistics posted on Manufacturing & Technology eJournal, three straight months of no growth have plummeted the manufacturing index to 26-year lows; and it hasn’t reached bottom yet. 

“It appears that manufacturing is experiencing significant demand destruction as a result of recent events, with members indicating challenges associated with the financial crisis, interruptions from the gulf hurricane, and the lagging impact from higher oil prices,” Norbert Ore, chair of the Institute for Supply Management’s Business Survey Committee, told eJournal.

Adding insult to injury, contractions in the global economy have caused export orders to decrease after 70 consecutive months of growth. Manufacturers who were running at 78.6% capacity last April were operating at just 75.2% capacity by December.

While tough times are expected to continue into the first half of 2009, all is not doom and gloom. The sun should start to peek out within a few months. Manufacturers are already realizing a small boon from decreased commodity prices and lower fuel prices. They are guardedly optimistic that the manufacturing climate will begin to ease during the second half of 2009, particularly as credit improves. As the dollar strengthens, export orders are expected to return to normal strength. Adding another item to the plus column, Ore noted, “While 2008 has been a challenging year overall, we are apparently seeing a rapid halt to the inflationary cycle of the past several years as it relates to manufacturing inputs.”

ISM predicts a 1.1% net decrease in manufacturing revenue for 2009 which would actually be an improvement over the 2.2% decrease reported in 2008. While little to no growth is expected in most manufacturing sectors over the next year, most will stop losing ground. ISM actually expects small gains in some areas, including petroleum and coal products, electrical equipment, appliances and components, printing and related activities, food and beverage products, tobacco products, apparel and leather products and chemicals.

Manufacturers and other businesses are expected to hold their ground by decreasing capital expenditures, reducing inventories and downsizing workforces to decrease labor and benefit costs.

Next time: What it will take to succeed in 2009.

Changes Coming to U.S. Workforce

If the current economic downturn has revealed any truths, it’s that the basic premise upon which employer-employee relations has been based in America is changing and must continue to evolve. Business owners can no longer afford to assume the role of in loco parentis. The cost of comprehensive health care and lifelong pensions has simply become too great for employers to be expected to take care of their employees the way they did 50 or even 20 or 10 years ago.

Gone are the gold watch days when people could expect to find a job fresh out of high school or college and stay with the company until retirement 30 years later. Employees no longer feel that kind of loyalty toward their employers any more. And technology is changing so rapidly that business owners can’t guarantee that today’s job will be needed five years from now. Naturally, these aren’t new ideas. Like all things, the business world is always evolving; technological advances seeming to speed change with each coming year. What’s new is that long-standing employee groups like the United Auto Workers are finally realizing that the employer-employee patterns that worked for their grandparents simply aren’t viable in today’s workplace.

With unemployment at a 25-year high, jobs may be scarce now; but work will return. But when it does, jobs are likely to be different. Both employers and employees should prepare themselves to face a workplace that may be vastly different from the one we enjoyed before the economy fell apart. In its May 25, 2009 issue, Time magazine addressed these issues, predicting a workplace that is “more flexible, more freelance, more collaborative and far less secure.” According to Time, the next generation of business owners and managers will bring new values to a business world where women will control an increasingly bigger slice of the pie. With the demise of the steel industry and potentially terminal illness of the auto industry, Time also sees jobs leaving the Midwest in droves and moving to Texas and the Southwestern states or Georgia and Florida.

Job expectations, business education, career paths, benefits, retirement, work-life balance, environmental savviness, management style, office spaces and manufacturing are all in for some major upheaval. Next time we’ll explore coming changes in the business world.

Prepare for Red Tape; Regulation Is Back in Vogue

As President-elect Obama prepares to take office, there’s a lot of talk about “accountability,” particularly in the face of the large handouts to the banking and now auto industries. It looks like Detroit’s auto makers are going to pay the price for the rather arrogant behavior of the nation’s financial institutions that were quick to take Uncle Sam’s money (actually your money and my money) but haven’t been so quick to tell us what they’ve done with it. Further handouts are coming burdened with rules, regulations and (this being the government) mountains of paperwork to ensure that the government’s money is being used the way they want it to be.

After years of deregulation, which economists say is partly to blame for our current predicament, the pendulum is starting to swing in the other direction. For at least the next decade or so, economic experts expect the U.S. to embrace increased government regulation. In fact, angry citizens, many of whom feel they’re being robbed to support bad business decisions and executive excess, are demanding greater regulation and more stringent government oversight.

Once his team settles in, industry experts expect to see the government sticking an ore in wherever and whenever the President thinks the economy or a particular industry needs a shove. And because of the government’s tremendous investment in the country’s banks and businesses, the President will consider it his right, perhaps even his duty, explained economic analyst Chris Kuehl in a recent Fabricators & Manufacturers Association, International newsletter. “The Fed is already more engaged in the U.S. banking system than ever before, and that involvement will likely expand,” warns Kuehl. “The Treasury Department is already a part owner of most of the major banks in the country, a leading insurance company, and perhaps, in time, the Big Three auto companies. That gives the U.S. government a major stake in the performance of its largest companies, which will mean direction and advice.”

So sharpen your pencils, add an extra box or two of paper to your office supply order this month and prepare to add a chair in the boardroom for Uncle Sam. It looks like the red tape is going to be flowing again!

Peering Into Business’ Future

If America’s future workforce is going to be “more flexible, more freelance, more collaborative and far less secure,” as Time magazine prophesizes in its May 13, 2009 issue, it indicates that the American business paradigm as we know it is going to go through some major upheavals in the coming decade or two. Time suggests that American business is teetering on the cusp of major change. Powerful social forces have pushed us toward this edge, and the current economic disaster appears ready to tip us over and send us careening in new directions.

What’s driving the coming changes?

  • The Baby Boomer generation has been an unstoppable force since its inception. Sheer numbers have changed the focus of society each time Boomers have entered a new life phase. Now poised to enter retirement, America’s most populous demographic will again shift the country’s emphasis, this time to health care and aging issues. By 2030, one-fifth of American citizens will be over the age of 65, with the greatest growth in the over 85 demographic. As they have from the beginning, Boomers will drive the country’s business, social and political agendas. Expect growth in health care, pharmaceuticals, medical aids and equipment, security and alert services, home care, transportation and mobility, shop-at-home opportunities and travel. But don’t count Boomers down and out yet. The last of the Boomers won’t retire for another 20 years and many plan to and will be able to work into their 80s. With far fewer workers moving up to replace them, American business owners need to prepare for a grayer workforce.
  • The new generation of managers entering the business world seems to have been plugged in since birth. Quick to embrace new technology, they’re more comfortable in front of a computer checking their email and Facebook accounts or texting and twittering than they are communicating face-to-face. Expect business communication and social interaction to change to reflect the fast-paced, multi-tasking, solitary preferences of the tech-savvy earbud generation. This is the generation that will take integrated technology to new levels not yet even imagined. Business has already begun to lose its brick and mortar walls as more people work remotely. Expect the next generation to blow them away. The days of the cubicle are numbered!

More on Monday

Material Handling Industry Must Seek Growth in World Markets

Navigating the U.S. economy has been a bumpy ride of late for industry and consumers alike. There is hope for a smoother future, particularly in material handling, but the road to success may lead outside America’s borders.

World market demand for material handling equipment and systems is expected to increase 5% per year through 2012, according to a new study, World Material Handling Products, by The Freedonia Group, Inc. The Cleveland-based industry research firm expects major market gains to come from growth in fast-developing countries in the Asia/Pacific region, Eastern Europe, Africa/Mideast region and Latin America. Growth in these markets is expected to eventually outstrip sales in the U.S., Western Europe and Japan. However, in the near term, the study predicts “renewed strength” in the Japanese material handling market and “acceleration” in the U.S. market driven primarily by automated products such as robots and automatic guided vehicle systems (AGV). 

The Fredonia Group report analyzed the $93.8 billion world material handling industry in 37 major national markets worldwide, predicting global industry growth to $133.5 billion, including price increases, by 2015. Rapid economic growth, increased manufacturing output, greater fixed investment activity and rising motor vehicle production in China, India, Turkey, Mexico and Russia, particularly, will lead demand and sales gains. China, a major producer and exporter to Asian markets, is predicted to account for 30% of total material handling sales growth.

The material handling products demanded by these developing markets will come primarily from U.S., Europe and Japan which are home to the largest and most advanced material handling equipment and systems producers. High-value products, technical expertise, advanced production systems, capital availability and trained labor will give western material handling firms a pronounced sales edge in developing markets. However, that edge may be short-lived. China, with its vast low-cost labor pool, has become a major producer and supplier to Asian markets. While quality and safety issues haunt Chinese-produced products, the country has shown amazing adaptability in other product markets and could become a major world material handling competitor within the next decade.

Next time: Which material handling products will see the greatest growth?