Small manufacturers must be smart to survive in a world of tariffs and counter-tariffs as well as a number of other concerns
The recent clamor over tariffs and counter-tariffs on raw materials, manufactured goods and agricultural products has been splashed across every newspaper and magazine and has been hotly debated on radio, television and other media for weeks now. Giants of industry proclaim the effects — for good or bad — that will beset companies and nations as an era of “trade wars” begins.
In all of this, small manufacturers’ concerns and challenges take a back seat to the big guys. They are caught in a current that they cannot escape. It’s either go with the flow until they can edge their way to a safe shore, or fight an exhaustive battle only to finally be towed under and drown. That’s a bleak outlook, but small manufacturers (and other small businesses and farmers) are used to this playing field and usually find a way to survive, but they must be smart.
It’s not only tariffs that can threaten small manufacturers, but also a multitude of business challenges that they must overcome to survive. Basic business elements exist regardless of size. How they are addressed is a matter of strategy and resource. Here are a few considerations:
Tariff Wars
Small manufacturers may see increased material costs, disruption of their supply chain and tariffs placed on products shipped to global customers. Investments, new hiring and capital expenditures may all be put on hold until tariff impacts are better known. Smaller companies cannot absorb cost increases as easily as larger companies that have more areas to reduce costs. And impacts may be more keenly felt by small businesses.
“Firms that cannot pass the costs on will, at best, have less cash flow to invest and expand in the U.S., or, at worst, will become unprofitable, lay off workers or potentially go out of business,” said Erica York in her paper for the Tax Foundation titled “New Analysis Shows How Input Tariffs Will Impact U.S. Manufacturing Sectors. “These tariffs increase production costs for U.S. manufacturers, placing them at a competitive disadvantage and will, on net, destroy more output, wages and employment in the United States than they create.”
In a speech delivered by Utah Gov. Gary Herbert at the 2018 Economic Summit held April 27, in Salt Lake City, he stated: “I actually don’t doubt for a minute the good intentions of our government officials who are pushing for things like increased tariffs to protect domestic businesses from international competition. I think that they genuinely believe that they are going to help our people. But in my considered opinion, the consequences of such protectionism could in fact be catastrophic.”
In that same speech Herbert quoted Derek Miller, now head of the Salt Lake Chamber of Commerce: “Utah is not known as a gambling state, but we are in the middle of a poker game not of our making and the stakes are high.”
Finances
Every business needs financial resources to survive. Manufacturing needs as much and maybe more than other industries. Raw material stock, machinery, finished goods inventory, facilities, utilities and transportation access are key factors for all manufacturers. Investors and lenders evaluate risk and often see more risk in small manufacturers who lack the standing to receive a loan or an investment. Small manufacturers must demonstrate they have a business strategy and an operational plan to be “credit worthy.”
“The vast majority of business owners started their companies because they loved their industry and believed they could provide a great product or service,” said author and columnist Jeff Stibel. “Passion is important and sexy, but boring financing is equally important. Businesses need working capital to grow and to cover cash flow fluctuations. The problem is most entrepreneurs … hate raising money. It can be frustrating and the consequences of making a wrong choice are severe.”
Employees
As you can see by the accompanying table, most Utah manufacturers are small businesses. How to attract and keep skillful workers is a real challenge.
Competing with salaries, healthcare plans, retirement or 401(k) plans of large manufacturers can be a David-versus-Goliath task. And with an unemployment rate in Utah of 3 percent and a job growth rate of 3.5 percent, the challenge is as tough as it gets.
Small manufacturers can capitalize on enticements such as job diversity and advancement, recognition for work performed, flexibility of the company to match personal needs and often the excitement of being involved in an innovative product or specialized market.
Smart small manufacturers will focus on what they do best to hire and retain employees and learn what they can do to create a work culture that, despite its size, makes it “one of the best places to work in Utah.”
One example is an Employee Assistance Program (EAP). These types of programs benefit employees and their families and are inexpensive for a company to implement.
Regulations
All business owners deal with regulation at the local, state and federal level. Large manufacturers and businesses may have full departmental staffs or outside legal counsel and accountants on retainer to handle aspects of business. For many small manufacturers, it’s the owners and maybe one or two others working in the evening or on weekends to complete reports and forms to stay in compliance. A Manta survey found that 40 percent of small-business owners spend between one and five hours a week dealing with small-business regulations and compliance issues like taxes, healthcare, labor laws and occupational safety and health.
And then there are the non-regulatory requirements from customers — vendor surveys, quality management system audits, conflict mineral declarations and the like. There may be help from sources such as the Small Business Administration, Small Business Development Centers and other state and local programs. Much of it is just a “grin and bear it” approach. Be organized, be timely. Learn and be smart about what’s absolutely time-critical and what can be negotiated.
Marketing
An engineer/entrepreneur once said that if he were to do it all over again, he would start with marketing and then design and build the products. Whether that is sound or not, the point made was that without marketing, products have nowhere to go. Very few small manufacturers start out as great marketers. They start out with a great idea and some knowledge of making the idea into a product, maybe beginning in a garage, a basement or a two-room industrial rental space. Nothing wrong with that — think of Hewlett Packard or Microsoft. But without a flair for marketing or recognizing that there is a missing link to the success of the idea-marketing, the idea barely gets off the ground and then does a death spiral. Smart small manufacturers figure out that no matter how world-changing their product is, it won’t sell itself. It needs some marketing nurturing. Fortunately, there are many state, private and educational programs within reach of small businesses.
One such resource is Utah Business Resource Centers. Begun in 2008, a Business Resource Center is formed in partnership with a college or university throughout the state and is a one-stop shop to help new and growing businesses with many different services.
So, be it tariffs or regulations or scarce resources, small manufacturers learn to evolve and survive. Don’t believe it? Ask one of the 3,000-plus small manufacturers making a difference in Utah.
Paul Olsen has worked in manufacturing for over 30 years. With MEP Utah, he was a liaison with government and higher education. He is currently an advisor to Spring Works Utah.