Manufacturers are up against coalescing forces of technological disruption, economic uncertainty, globalization and trade upheaval — all of which will shape the manufacturing industry of tomorrow. Today, that means a wide array of business risks to identify, evaluate and build into business strategy.
But there’s also ample reason for optimism. New orders, employment and inventories reflect stability, and with the installation of a new administration vocally committed to boosting U.S. manufacturing competitiveness, momentum seems to be building.
Smart Business spoke with Tina Salminen, assurance partner at BDO USA, LLP, about the 2017 BDO Manufacturing RiskFactor Report, which examines risk factors in the most recent 10-K filings of the largest 100 publicly traded U.S. manufacturers.
How much are politics playing into companies’ risk profiles?
Even with the Trump administration’s stated focus on regulatory reprieve, the feasibility and speed of potential reform is still murky. There’s hope in the industry that a solid level of balance will be reinstated between the greater good some regulations seek and the high costs of compliance.
One in five manufacturers mentioned the 2016 U.S. general election and its associated changes in their filings. As businesses wait to see how campaign rhetoric will play out in enacted policies, manufacturers seem to be feeling uncertainty around economic priorities and spending.
One key promise was repealing the Dodd-Frank Wall Street Reform and Consumer Protection Act. In early May, the House Financial Services Committee voted to send the Financial CHOICE Act, which would rollback significant pieces of Dodd-Frank, to the House floor, where the bill passed in early June. Its fate in the Senate, however, remains unclear.
More than a third of the respondents say the effects of climate change are a threat to their business, but regulatory standards aimed at addressing those concerns bring their share of challenges. At the same time, nearly all reported that environmental regulations are a risk.
What about international politics, like Brexit?
The United Kingdom’s Brexit vote in June spurred global shockwaves, and 30 percent of filers mentioned this vote in their filings. Almost all (94 percent) of manufacturers say their international operations and sales face threats this year, with the combined forces of protectionist trade and immigration measures, rising commodity costs and sharpening international currency risks.
Where do manufacturers stand on the next wave of manufacturing, connectivity?
Many are unsure of how to staff the industrial revolution that’s underway — and speeding up. With connectivity comes technology risk, too. Cybersecurity broke into manufacturers’ top five risks this year, with 96 percent citing potential security breaches in their filings. That’s a 50 percent jump from just four years ago.
Another critical question is how to fund the unprecedented innovation and change in the industry. The National Association of Manufacturers reports that 93 percent of manufacturers are positive about their own company’s outlook, up from 57 percent last year, and marking an all-time high for their survey. Hurdles remain, however, as capital availability is uncertain and the Federal Reserve will likely raise rates sooner rather than later. This spurred a 31 percent jump in mentions of interest rates in recent manufacturers’ filings.
What’s your advice for local companies in light of these findings?
Local manufacturing companies should remain cautiously optimistic, despite international volatility, market disruptions and uncertainty of potential reform under the new administration. Manufacturers should thoughtfully embrace the opportunities to enhance technology and refine products and processes through the development of sound business plans under an administration that remains focused on revitalizing manufacturing in the U.S.
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