United States

Q3 2018 Business Products and Services Industry Spotlight



Middle market manufacturers are increasingly turning to technology to help navigate today’s market. According to a recent RSM survey, however, many manufacturers see barriers to achieving full digital transformation. A third of respondents cite a lack of technology experience as their biggest concerns, while another 31 percent say their existing teams lack requisite analytical skills. Manufacturers can alleviate those concerns by investing in workforce training or by outsourcing certain services through a digital services provider or by co-sourcing with local community colleges. Other concerns include lagging behind competitors in digital technology. Only 2 percent of respondents have institutionalized digital technology into their companies, only 27 percent are currently using big data tools and 43 percent fear they don’t understand their customers’ needs. Surveys and dialog programs can help identify customer needs, and broader implementation of big data tools can provide significant insights and analytics into your customers, as well. Co-sourcing options and third parties can help minimize costs while taking advantage of today’s state-of-the-art technology.

Big picture

Some large manufacturers report that tariffs present a significant challenge to global sourcing. Establishing global supply chains can take several years, and today’s manufacturers are facing less-than-ideal options in reaction to recent trade policies. Some companies are left with no choice but to bear the brunt of increased costs for now, and they may reassess this approach if no changes to the tariffs are made in the coming months. Others are seeing rising costs from their global suppliers and can only source their finished products, raw materials or components from China. Several manufacturers are considering moving goods from China through Europe, Canada and other locations where logistics might be more difficult, but tariffs are lower. With no path toward resolution currently in sight, the tariffs will likely affect middle market manufacturers for the foreseeable future. Determining the best solution will depend on the unique circumstances surrounding each company’s supply chain going forward.

Looking ahead

Investors and strategics alike continue to deal with uncertainty in the B2B space. Trade policy, discussed earlier, is one of many headwinds. Beyond tariffs and trade spats, would-be buyers are also facing steadily increasing interest rates; debt packages will inevitably become more expensive for private equity buyers as a result. Moreover, dry powder levels and competition remain as high as they were, putting pressure on investors to put capital to work in an expensive environment. Uncertainty around trade policies and other macro concerns heightens the need to find the right platforms and maintain discipline when bidding for them. Should the public markets begin to sell off, investors and strategics may shift their attention to the private markets, potentially increasing competition in an already crowded space.

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