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December 2005 — Vol. 83, No. 10

Connecticut survey

Manufacturers taking steps to succeed but need government cost-relief

 

Manufacturers continue to innovate and adapt to meet ever-increasing competitive demands. But they need legislative and regulatory help to control costs such as taxes and health care expenses. Without that assistance, manufacturers say job growth in Connecticut will remain slow, primarily due to the high cost of health benefits and the shortage of skilled workers.

Those are some of the key findings in the manufacturing component of the 2005 Survey of Connecticut Businesses, released by CBIA and Blum Shapiro, the largest regional accounting firm in the state, based in West Hartford.

What Connecticut can do

Manufacturers in Connecticut continue to innovate. Sixty-three percent of the respondents said they had implemented new products, processes or services within the past 12 months.

But manufacturing executives said they also need state government to do more to help them remain competitive in today’s global marketplace. Steps they believe the state should take include —

  • lowering the cost of doing business here (cited by 57%),
  • cutting state spending to hold down tax increases (18%),
  • making business loans and other incentives available to help manufacturers remain in the state (7%), and
  • easing the regulatory burden of doing business in the state (7%).

“The survey confirms that manufacturers are doing their part to be competitive in the global marketplace, but they need relief,” says Ken Decko, CBIA president and CEO. “It’s now imperative for the state to do what it can to allow manufacturers to succeed in Connecticut and to help lower business costs here, which are the fifth-highest in the country, according to two recent national studies.”

The survey respondents said high business costs affect the viability as well as the expansion and relocation efforts of manufacturers in the state. They said the state could improve their companies’ costs by —

  • reducing taxes and offering tax credits (39%),
  • lowering the overall cost of doing business (19%),
  • encouraging business investments (14%),
  • simplifying and repealing state laws (7%), and
  • lowering health care costs (6%).

Biggest cost concerns

For the second straight year, the affordability of employee health care benefits was manufacturers’ greatest cost concern, and they believe these costs will worsen. Their most significant cost concerns are —

  • health care costs (according to 66%),
  • workers’ compensation costs (12%),
  • labor costs (9%), and
  • payroll costs (6%).

Seventeen percent of the executives expect their health benefit costs to increase more than 20% over the next 12 months, 59% believe they will rise by 10% to 20%, and 27% think they will increase by less than 10%. Only 1% believe health benefit costs will go down.

“Manufacturers are using numerous strategies to offset rising health care costs, and continue to innovate and implement new products, processes and services necessary to remain competitive,” says John M. Kirschner, partner and director of Blum Shapiro’s manufacturing group.

Connecticut’s pros and cons

Respondents noted several advantages of doing business in Connecticut, including the state’s —

  • high personal income (22%),
  • skilled workforce (17%),
  • location (9%),
  • quality of life (9%), and
  • education system (6%).

Only 8% of the manufacturers said there is little or no benefit from operating in Connecticut, down from 16% in 2004.

But Connecticut’s advantages are not enough to result in job growth. Twenty-nine percent of the respondents said they have current job openings for which they are unable to hire full-time employees. Executives said workforce growth is being held back by —

  • the lack of qualified workers (11%),
  • the rising cost of health benefits (11%),
  • a decrease in business (8%), and
  • the use of temporary employees (8%).

The manufacturing executives said the hardest-to-fill positions include skilled machinists (47%), engineers (17%), managers (11%), sales people (10%), and entry-level workers (7%).

Growing global trade

Global trade is becoming a major part of manufacturers’ business as they move to strengthen and grow their companies. Sixty percent said they participate in the global market, up from 55% last year. Manufacturers expect to increase their involvement in the global economy. Firms exporting more than 25% of their sales now expect their exports to grow an additional 17% to 29% over the next five years.

“Despite the tough challenges and ferocious cost competition of the global marketplace, the survey shows that Connecticut manufacturers are running their businesses better than ever,” says Peter Gioia, CBIA economist. “But, if we desire a strong and growing manufacturing presence in Connecticut, the state must mitigate government-influenced costs and encourage a strong business climate that is globally competitive.”

 

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