Is your company ready to grow?
Most manufacturing and distribution executives are optimistic about growth this year. According to the 2016 RSM Manufacturing Monitor survey, the vast majority expect increased revenues, profits and employment in the coming year; more than 40 percent describe their companies as “thriving.” But in the face of a volatile global business and political environment, how are these companies planning for growth?
While there are sectors in our economy that are challenged, the United States remains one of the stronger economies in the world. Industry leaders are betting on growth by increasing their investments in information technology, equipment, facilities, training, process improvements, mergers and acquisitions, and research and development.
They are also implementing strategic plans to capitalize on these investments in order to:
- Grow sales domestically, both in existing and new markets
- Grow sales internationally, both in existing and new markets
- Integrate or offer services along with their products
- Introduce new and improved products (Figure 1)
 2016 RSM Monitor survey of 1,174 manufacturing and distribution executives. Unless otherwise footnoted, all data is from the Monitor survey.
These are bold plans, even in the best of times. But even before the Brexit vote, executives worried about the impact of currency fluctuations and global economy on their futures—while at the same time, some saw benefits in various factors affecting their international business as well.
A post-Brexit world could offer significant challenges—but there will be opportunities as well.
Each year new challenges to the world economy and corporate growth arise—and businesses should expect this to continue in the future. Experienced leaders know that while they can’t anticipate external events, they can control internal processes—and develop plans for growth that manage contingencies both good (e.g., an unexpectedly hot product or softness in commodity prices) and complicated (e.g., a declining U.K. pound that presents risks for the U.S. dollar).
These plans require a rigorous review of a company’s current strengths and weaknesses and often benefit from an outsider’s fresh perspective. Companies need to assess their performances and resources. They should also seek out opportunities, such as where to drive growth, how to manage that growth, and which customers and products to target. From this baseline, executives need to answer key questions in order to develop realistic strategies:
- Should you grow? Not every company should grow—or has the resources to do so. Growth may require new leadership, new capabilities, and new resources—possibly via merger, acquisition or strategic alliance. Make sure your company has a well-crafted M&A strategy, including market goals, valuation estimates and detailed plans for post-merger integration. The realization of forecasted synergies can ultimately determine if the acquisition is successful. Trusted advisors—financial, tax, human capital and legal—can both help you to prepare and find buyers or sellers.
- In what markets should you grow? Manufacturing and distribution are capital-intensive industries. Unfortunately, many firms invest first and ask questions later, developing new products for the wrong customers, at the wrong time, with the wrong features—leading to the wrong financial results. A better approach is to leverage existing customer data via research and analytics to identify new opportunities. For example, manufacturers can find ways to leverage existing production processes in new markets or sectors to prevent over-reliance on a single, popular area.
- Where should you grow? It can seem overwhelming to expand internationally—as well it should. Yet moving beyond traditional borders can be lucrative, and doesn’t necessarily require new facilities or staff in new countries. For example, long-term opportunities may be found in emerging markets that have been hit hard over the past few years. An experienced third party can often help firms enter foreign markets—whether via partnership, licensing or joint production facilities—and identify and minimize their risks. Sometimes caution is the best approach.
- Should you make a global move? The 2016 Monitor found that an average of 37 percent of foreign- and domestic-made goods are sold outside of a company’s home country (29 percent for U.S.-based manufacturers and distributors). At the same time, middle-market U.S. companies have a unique domestic opportunity, given the appeal of the U.S. market: Foreign direct investment in the United States totaled $112 billion in 2014 and foreign manufacturers often need new U.S. supply-chain partners. The United States remains a large, stable and attractive market.
- How should you grow? If management has determined that growth depends on increased volumes of existing products, it’s imperative that procurement, production and distribution be as efficient (and profitable) as possible. Make sure your supply chain is ready to keep pace and consider investments in equipment and information technology to increase agility—and to build stronger customer relationships.
If growth is expected from new markets, products or services, how will you reach and manage new sales channels? How will you make customers aware of innovative products or value-adding services? Developing a multi-sector sales approach—while maintaining current levels of customer intimacy and satisfaction—often requires new talent, including sales staff familiar with new sectors, development engineers skilled in emerging areas and suppliers able to meet new sourcing requirements. Staff will need to be found, recruited and/or transferred.
Many executives extol the virtues of growth, but “growth” itself isn’t a strategy. Management must perform comprehensive due diligence in order to understand their company, their competition, and new markets to justify increased investment—in resources, technologies, new products, sales channels, equipment—designed to generate sustainable returns.
Steven A. Menaker is the national consumer and industrial products industry leader for RSM US LLP, a leading provider of audit, tax and consulting services focused on the middle market. He serves as audit partner on numerous engagements for privately held and private equity-owned companies, with a focus on manufacturers. Steve is based in the firm’s office in Charlotte, North Carolina.
 “Foreign Direct Investment in the United States, 2016 Report,” Organization for International Investment.