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RSM McGladrey 2008 Manufacturing & Wholesale Distribution National Survey Finds Companies Underutilizing Globalization Strategies; Challenged by Economic and Inflationary Conditions

Thursday, July 10, 2008 General News J E 4
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MINNEAPOLIS, July 9 According to the third annual RSMMcGladrey Manufacturing and Wholesale Distribution National Survey (MWD)released today, companies reporting their business conditions as "thriving andgrowing" declined by nearly 10 percent in the past year. However, businessremains good for more than a third of survey participants within the followingindustry segments: food and allied products, medical devices, industrialequipment, metal fabrication and electronics.

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More than 960 industry executives -- representing 911 companies --responded to questions on current business conditions, growth strategies,innovation, cost management, technology initiatives, operations andglobalization.

Growth Prospects Sink on Rising Inflation

The survey showed 80 percent of respondents are pessimistic about U.S.economic growth prospects, and the percentage of respondents describing theirbusiness as "declining" has tripled in the past two years. Building materials,transportation equipment, plastics, and printing and publishing are theindustry segments most impacted by the housing crisis, reduction in consumerdiscretionary spending and high energy costs.

Inflationary pressures are largely to blame for dampened expectations,with 80 percent of companies expecting cost increases exceeding six percent inenergy, raw materials, operating labor, freight and benefits. Healthcare costsonce again are projected to increase on an average exceeding 10 percent in2008 -- the third year in a row of double-digit increases in healthcarebenefit expenses.

However, many respondents still remain optimistic about their company'sgrowth prospects. With the exception of transportation equipment and buildingmaterials, more than 60 percent of respondents across all industry segmentsare optimistic about their company growth in 2008.

"Confidence about company growth may indicate belief that the economy isbottoming and will begin to rebound later this year," says Tom Murphy, RSMMcGladrey's executive vice president of manufacturing and wholesaledistribution.

Offshore Activity Good for U.S. Employment and Drives Need for SkilledLabor

Companies with foreign operations are hiring U.S. workers at nearly twicethe rate as their domestic-only counterparts. The RSM McGladrey surveysuggests the possibility that offshore operations can make U.S. companies morerobust -- driving need for more U.S. workers -- than domestic activity alone.This trend, which runs counter to the common perception that foreign activityeliminates U.S. jobs, is especially pronounced among middle-market companies.

While demand for skilled labor among survey respondents has decreased overthe past year, more than 20 percent report a need for skilled workers.

"One in five companies cannot find the skilled workers they need fortoday's advanced technology manufacturing and wholesale distributionenvironments," said Karen Kurek, managing director and business line leader ofRSM McGladrey's manufacturing and wholesale distribution practice in the GreatLakes region. "As baby boomers retire, demand for labor will certainlyincrease -- irrespective of economic conditions. The industry is challengedwith properly training displaced workers and bringing jobs where workers arelocated."

Counterintuitive Strategies, Overlooked Opportunities

The survey also found surprising strategic reactions to declining businessconditions. Seventy-five percent of respondents plan to build their marketshare through new customers. New product line developments were reported bymore than half the responding companies, and 46 percent reported innovationsin their processes.

These strategies require increased investment instead of the retrenchmentmore common in declining business climates. Yet, survey responde
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