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December 2003 — Vol. 81, No. 10

SMALL BUSINESS

Smaller manufacturers face tough conditions but expect better times soon

World events, global competitiveness key concerns, CBIA survey shows

 

Small and midsize Connecticut manufacturers responding to a survey earlier this year said they faced tough economic conditions, but they expected the economy and business to improve over the next 12 months.

Manufacturers responding to the survey said their greatest concern was world events. They’re taking steps to improve their operations, bolster their competitiveness and expand their markets, all while dealing with the challenges of a slow economy and doing business in a high-cost state.

Those are some of the responses from manufacturing executives participating in the “2003 CBIA/Blum Shapiro Survey of Small and Midsize Connecticut Businesses,” which polled companies with up to 500 employees. The manufacturing breakdown of the survey is part of a broader CBIA campaign to raise awareness of manufacturing’s importance to the state’s economy and quality of life.

The survey shows manufacturers are optimistic about the coming year, despite last year’s recessionary climate, post-9/11 concerns and the fact that manufacturers have been hurt more than other industries by global changes. Sixty-two percent said current business conditions for their firm were poor or fair. But more than half (57%) envisioned better times within the next 12 months, with 26% of them expecting average business conditions and 31% anticipating above average conditions.

In the post-9/11 era, 34% of the respondents identified the war on terrorism and the conflict in Iraq as the world events causing them the greatest concern. Other worrisome world events were high levels of competition with companies in overseas markets, including China (cited by 28%) and the struggling economy (16%).

Global competition

Connecticut manufacturers are innovative, productive and efficient. Their long-term vitality and prosperity are directly linked to their success in international markets. The survey shows that nearly half of the respondents are currently involved in international trade. Eighty-seven percent of those companies said exports account for between 1% and 25% of their sales. More than 50% of the respondents also import parts or products. Respondents believe both their exports and imports will grow over the next five years.

State manufacturers are finding it increasingly hard to compete in the global marketplace. Seventy-nine percent of the respondents cited cost competition among their greatest concerns. The loss of U.S. jobs and unfair trade practices are also high on the list of concerns regarding overseas competition.

“Trade is of immense importance to state manufacturers and for the continued growth and development of the U.S. economy,” says Kenneth Decko, CBIA president and CEO. “For that reason, it’s critical to encourage the free exchange of products with all countries, especially with emerging economic powerhouses like China.”

Overall in Connecticut, 207,000 manufacturing workers in 5,500 companies annually produce nearly $30 billion of the state’s gross state product. Manufacturing employees annually earn over $11 billion in wages and salaries, and pay about 20% of the state’s personal income taxes. Each new manufacturing job results in the creation of up to three additional jobs in our economy.

Many challenges

But manufacturers said doing business in Connecti-cut presents formidable and complex challenges, especially in regard to taxes, transportation, soaring health care costs, workers’ compensation, reliable energy and an aging workforce.

High business costs are a major threat to the vitality of state manufacturers. Three-quarters (75%) of the survey respondents cited skyrocketing health care costs as a major concern, followed by workers’ compensation (21%), labor costs (17%) and costs associated with the personal income tax (16%).

“It’s critical for state government to help Connecticut manufacturers compete in this global marketplace,” says Decko. “Success requires a team commitment from government, management and employees, and requires research and development and investment capital. State government must help create a climate that will encourage productivity gains and product innovation by holding down business costs and developing a world-class workforce.”

Workplace hurdles

Workforce challenges are another major issue for businesses. While state manufacturers have a highly skilled workforce today, the retirement of the baby boom generation in a few years (see cover story) will lead to a critical shortage of skilled manufacturing workers. According to the survey, 62% of the survey respondents expect to lose between 10% and 49% of their workforce to retirement in the next 10 years.

“The looming shortage of highly skilled employees could undercut manufacturing competitiveness and weaken the state’s economy,” says Decko. “We need to ensure that students, parents and teachers understand that today’s manufacturing is a major source of high-tech innovation, wealth creation and exciting opportunities.”

Energy and infrastructure issues

State manufacturers worry that the state’s current energy infrastructure and consumption could jeopardize Connecticut’s economy. Manufacturers require low-cost, fully available, high-quality power. In light of the regional and national energy problems, more than half of the respondents have been taking steps to reduce their energy use. Twenty-eight percent have installed energy-efficient lighting, 18% have updated their HVAC systems, and 16% have initiated new energy-efficient procedures.

Innovation continues

Connecticut manufacturers continue adapting, improving and growing. Many are taking various approaches to improve their operations, including applying new techniques and creating new products. Fifty-seven percent of respondents said they had developed new products or services in the past 12 months, and 68% said they plan to do so in the coming year.

“Businesses able to create new products or services can better weather changing economic conditions, so it’s a positive sign that Yankee ingenuity continues to enhance the state’s economy,” said Decko.

The Internet has become a way of life for almost all (96%) of the companies responding to the survey. The Internet provides technological advantages that enable manufacturers to operate more efficiently, using the technology for business correspondence, promotion, and the purchasing of goods and services.

“Vibrant manufacturers are vital to the health of our state’s economy,” Decko says. “We need to keep working to provide an overall business climate in which manufacturers choose to invest in their Connecticut companies, expand their operations here, use suppliers from Connecticut and hire our citizens.”

 

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