Focus, Banking & Finance, and Manufacturing

Survey highlights manufacturers’ biggest risk factors

Competition tops list, but there are concerns about skilled employees, too.

July 11, 2014
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Michigan’s publicly traded manufacturing companies consider competition and consolidation to be their biggest risks in 2014.

BDO USA conducted its first Michigan-based manufacturing risk factor survey this year based on 10-K filings of publicly traded companies and found that of publicly traded U.S. manufacturers headquartered in Michigan, “100 percent cite risks related to industry competition, consolidation and pressure on pricing.”

In comparison with the rest of the nation, Michigan manufacturers are slightly more concerned with competition and consolidation.

BDO’s national Manufacturing Risk Factor report, now in its second year, found 94 percent of manufacturers counted competition and consolidation as a concern.

“I think there is no question the No. 1 risk factor is competition,” said Fred Rozelle, central assurance regional managing partner at BDO USA, who works out of the firm’s Detroit office. “Competition is always at the top of the list.”

Rozelle said it doesn’t matter what the industry is, competition will always be a top risk factor for businesses. He said competition also is the driving force behind innovation and efficiency.

“I actually think it is healthy because it’s a free market enterprise and the competition really drives pricing and efficiencies across manufacturers,” he said. “The more efficient they are and competitive, the better the pricing (and) the better it is for the end consumer.”

Rozelle said overall Michigan’s risk factors were very consistent with the national survey.

He did note one big surprise from the survey, however.

“Skilled labor always hits the top of the list and it didn’t here, which really surprised me,” he said.

Rozelle said, overall, manufacturing continues to improve in Michigan.

“I think we’ve done a good job under our current political leadership to attract manufacturers,” he said. “Michigan is a leading state in growth of manufacturing jobs throughout the country since the recession. We are on top.”

He said the Right to Work law has improved Michigan’s attraction and retention opportunities, making it more competitive with southern states that previously have been able to pull some manufacturers away from the state.

He noted tax rates on businesses are still high in Michigan compared with other states, however.

“I think Michigan is a tougher environment, though we’ve seen significant improvements.”

BDO also conducts risk factor surveys in the life sciences, natural resources, real estate, retail and technology industries.

Michigan risk factors

Competition and consolidation in manufacturing — 100 percent

General economic conditions — 97 percent

Federal, state & local regulations — 94 percent

U.S. & foreign supplier/vendor concerns and distribution disruptions — 88 percent

Currency/foreign exchange fluctuations — 88 percent

Less demand for products — 85 percent

Threats to international operations — 85 percent

Management of mergers & acquisitions — 85 percent

Legal proceedings — 85 percent

Restrictive international trade policies — 79 percent

Environmental laws, regulations & liability — 76 percent

Commodity/raw material prices — 76 percent

Access to capital — 76 percent

Labor concerns; underfunded pensions — 76 percent

Failure to properly execute business strategy — 76 percent

Intellectual property violations/challenges — 74 percent

Product quality issues/recalls — 74 percent

Health of the major industries they serve — 74 percent

Ability to innovate to meet changing customer needs — 68 percent

Loss of key management/new management — 65 percent

U.S. risk factors

U.S. & foreign supplier/vendor concerns and distribution disruptions — 100 percent

Federal, state and local regulations — 99 percent

Labor concerns/underfunded pensions — 97 percent

General economic conditions — 96 percent

Commodity/raw material prices — 96 percent

Competition & consolidation in manufacturing — 94 percent

Threats to international operations — 91 percent

Management of mergers and acquisitions — 89 percent

Access to capital — 89 percent

Currency/foreign exchange fluctuation — 88 percent

Natural disasters, terrorism and geo-political events — 88 percent

Environmental laws, regulations and liability — 87 percent

Changes to accounting standards and regulations — 87 percent

Less demand for products — 86 percent

Failure to properly execute business strategy — 82 percent

Maintaining IT systems & operational infrastructure — 80 percent

Legal proceedings — 79 percent

Ability to innovate and meet changing customer needs — 78 percent

Privacy concerns related to security breach — 78 percent

Restrictive international trade policies — 77 percent

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