Analysis Of A Surprising Market
Looking for a surprising market to target as you create business plans for 2013? In this market analysis, Counselor sheds light on the sales opportunities in the manufacturing sector.
The labels and product descriptions seem to tell a discouraging story about the state of American manufacturing. Your kid's Captain America figurine? "Made In China." The football jersey you wear to the pregame tailgate? "Made in Korea." Heck, even the American flag waving in the Fourth-of-July breeze has a "Made in China" tag.
Then there are the line graphs. The ones that detail how many Americans work in manufacturing. The lines tower like Himalayan peaks in the late 1970s before declining into foothills over the ensuing decades.
And there's that year. 2001. A year that will live in infamy for many stateside manufacturers. The year China entered the World Trade Organization. The year that marked the beginning of the mass exodus of production to coastal factories in the so-called People's Republic.
But before you sound "Taps" and fire off three rifle volleys for American manufacturing, there's something you should know. Manufacturing, as a whole, is actually in a much better state than you may think. And, leading analysts and industry experts are bullish that certain segments of the broad sector are poised for a renaissance. If they're correct, billions of dollars and millions of new jobs could, potentially, flood into the country.
That's not just good news for manufacturers and American workers. It's good news for advertising specialty distributors. Manufacturers are already the fourth largest buyer of promotional products. Last year, the sector snapped up $1.4 billion worth of ad specialties – more than 7% of all distributor revenues. If the current trend of manufacturing gains grows as some forecast, then companies in the market could have more to spend on everything from logoed apparel and hats to coffee mugs and logoed all-purpose tool bags. And that means expanded – and more lucrative – opportunities for distributors.
"Manufacturing is a great market to be in right now," says Howard Schwartz, CEO of Pittsburgh-based HDS Marketing (asi/216807).
Winning with Efficiency
If you think Schwartz is off his rocker, consider this: The U.S. is the world's largest manufacturing economy, producing 21% of global manufactured products. Plus, manufacturing has been one of the few bright spots of the sluggish recovery from the Great Recession. Thriving on efficiency that other countries' manufacturers can't match, American manufacturers added value of $1.84 trillion to the U.S. economy in 2011, according to the U.S. Bureau of Economic Analysis. That's in the range of historically high levels and up from 2010's $1.7 trillion, which itself was a 6.6% inflation-adjusted increase over 2009. With the total economy overall growing 2.2% during the 2009-2010 period, manufacturers were ahead of the growth curve.
"U.S. manufacturers have benefited from significant gains in labor productivity over the past few years, and in the process, they have become a lot more competitive globally," says Chad Moutray, chief economist at the National Association of Manufacturers (NAM).
The news on the jobs front is heartening, too. For the first time in two decades, manufacturers are consistently hiring employees, instead of handing them pink slips. "Manufacturers have added over 500,000 workers since the end of the recession, or roughly 13% of all net new nonfarm workers," says Moutray. "This is an outsized role for the sector, given that just 9% of employees work for a manufacturer. This employment growth is being driven by higher output. Even with high productivity gains, I would expect that to continue."
Because of automation, enhanced worker efficiency and foreign competition, manufacturing may never again reach its peak employment level of 1979, when nearly 20 million people worked in the sector. But the recent job gains and value growth could accelerate in the years ahead, spurred by domestic demand, increased exports and the reshoring of manufacturing work that had gone overseas.
Manufacturers who have grown the most since the recession's end have succeeded in ramping up exports, says Moutray, noting NAM is pressuring policy makers to open new markets abroad for American products. Meanwhile, the reshoring of some production, argue analysts such as the Boston Consulting Group, will be driven by the narrowing gap between the cost of manufacturing domestically and related benefits of stateside production – like faster turn times, better quality control, and no cross-ocean shipping and duty fiascos.
As a result, Boston Consulting Group, a leading international global management consulting firm, estimates that over the next eight years 2 to 3 million manufacturing jobs will be created in the United States, reducing unemployment by 1.5% to 2% and lowering the non-oil related merchandise deficit by 20% to 25%. "Given the many changes sweeping the global economy, we believe our estimates are conservative," write the authors of BCG's March 2012 report "U.S. Manufacturing Nears the Tipping Point."
Naturally, not everyone is as upbeat. Despite stories of job creation and manufacturing's increasing contribution to the economy, companies are still sourcing production to foreign shores. Boston Scientific, for example, laid off 1,100 workers when it moved the manufacturing of its medical stents from Miami to Costa Rica. In July, Michel Janssen of The Hackett Group, a global business consulting firm, told Bloomberg Businessweek that the net effect of manufacturing jobs reshored and positions shipped away is essentially zero. "Some of these jobs that are coming back get a lot of press," Janssen said. "There are just as many that get no press coverage still going offshore."
Even the bullish Boston Consulting Group predicts certain types of manufacturing – the kinds that include high-volume production of labor-intensive goods, like apparel – are unlikely to return to the United States. Manufacturers have their concerns too: They worry about finding qualified applicants and tax and regulatory policies from Washington that could erase their competitive edge.
Nonetheless, given the shifting global economic landscape, American manufacturers could be poised for significant growth. BCG, for example, argues that increased domestic competiveness will result in production of 10% to 30% of goods that the U.S. now imports from China in seven major industry groups returning to the states by the end of the decade. That could lead to a $20 billion to $55 billion shot in the arm for domestic output by the end of the decade.
"By 2015 – when higher U.S. worker productivity, supply chain and logistical advantages, and other factors are taken fully into account – it may start to be more economical to manufacture many goods in the U.S.," according to BCG.
Accounting for nearly $2 trillion in annual U.S. consumption, the manufacturing industries that stand to see the strongest resurgence include computers and electronics; appliances and electrical equipment; machinery; furniture; fabricated metals; plastics and rubbers; and transportation goods.
The predicted renaissance is already underway at a number of American manufacturers in these fields. While iconic automaker Ford and Coleman, the outdoors product giant, are increasing American-based production, it's not just household names contributing to a domestic manufacturing renewal.
AmFor Electronics, a maker of cable and wire harnesses, was this year named one of Oregon's fastest-growing companies by the Portland Business Journal. By focusing on new market segments and implementing lean manufacturing practices that make the Portland company's operation hyper-efficient, AmFor has powered revenue gains of nearly 60% and increased employee count from 40 to 55 over the last three years.
Macroeconomic factors like rising transportation costs and increasing labor wages abroad have influenced new companies to join AmFor's client roster and compelled existing customers to spend more with the harness maker, says Jesse Oliver, vice president of sales. Still, notes Oliver, improvements in quality assurance and responsiveness that overseas competitors can't match have been the main catalysts for growth.
Those factors "allow us to overcome dirt-cheap labor to give our customers an equal or better product at a lower total landed cost," says Jerry Koopman, AmFor CEO.
Down south, Farouk Systems has brought back 600 manufacturing jobs from Asia to Houston. Owner Farouk Shami says plans are in the works to add another 600 positions to the Texas production facility. Why did Shami reshore some of the production of his hair irons and dryers? Patriotism, for one thing. But from a practical perspective, domestic manufacturing leads to better product quality and quicker turnaround times. It also allows Shami to minimize inventory, improving cash flow.
"We're moving jobs here," he says, "because we want to be good citizens and because it helps us be successful."
'A Great Market to Target'
What does a strengthening domestic manufacturing market mean for distributors? More sales opportunities – now and in the years to come. Not only is there the chance to court new clients in the sector, but savvy promo product sellers can also position themselves to capture more spend from current clients, which are forecast to increase their budgets as times improve.
"We're seeing a nice rebound from our manufacturing clients," says Mark Ziskind, chief operating officer at Top 40 distributor Caliendo Savio Enterprises (asi/155807). "The growth we're seeing with manufacturing clients is consistent with our overall sales growth, and we haven't been able to say that for a while."
CSE isn't the only distributorship capitalizing on manufacturing's potential. About 15% to 20% of HDS' clients fall in the manufacturing category, and business has been good. Schwartz tells how HDS recently fufilled an order for about 500 jackets for a client that builds heavy equipment. For years, HDS has delivered on a similar order for the customer, which distributes the jackets as awards to employees who follow safety protocols.
The key to scoring sales success with manufacturers? Understand what they do and what their goals are, build a personal relationship with them, and then do everything within reason to provide them with products and/or apparel that help them achieve their objectives, says Schwartz.
"There's a lot of opportunity there," says Schwartz, "but you have to win them over with service."
Nicole Knasel sure does know that. The owner of Proforma N & M Communications (asi/491578) in Bellevue, KY, recently landed a major deal with a custom manufacturer of windows, doors and patio rooms. Things got rolling when Knasel, in for a routine visit with the marketing director, asked about the company's upcoming marketing initiatives.
The timing was right. The client was looking for a way to energize its sales force as part of a national advertising campaign that included television commercials. Knasel was convinced the right ad specialties could help create the desired motivation. "I knew we could come up with something cool for them," she says.
Putting on her creative cap, Knasel reviewed storyboards for three of the commercials, and then developed unique product ideas that were tied thematically to the TV spots. One of the commercials showed a woman, clad in hat and gloves, sitting by her window, unable to drink her cup of frozen coffee. This, the commerical conveyed, is what life is like without a window from Knasel's client. However, when next to the client's window, the commercial shows the woman in a T-shirt, warm and comfortable with a steaming cup of joe. Knasel tapped into the commercial's message by coming through with branded USBs outfitted with a hotplate for warming coffee.
Another commercial featured a type of shell game (three cups – guess which one the ball is under). To transmit the idea that her client makes, installs and sells its own product – whereas other companies may just do one of those things – Knasel came up with a custom product based on the shell game concept. It featured three small cups – labelled "installer," "dealer" and "manufacturer" – and then one big cup imprinted with the client's logo. By covering all the little cups with the big cup, the client's sales associates could visually demonstrate to prospects and customers that their company is a dealer, installer and manufacturer all in one.
The care and creativity Knasel put in paid off. Her client spent about $300,000 on the shell game products, coffee warmers and lenticular mouse pads, the last of which connected to the third commercial.
"The spend from my manufacturing clients has increased significantly in the last 12 months," says Knasel. "If you understand them and who their audience is, manufacturers can be a great market to target." – E-Mail: firstname.lastname@example.org;