In total, respondents are predicting little growth in hiring next year. Projections range from a 15 percent increase to 10 percent decrease. One company plans to work overtime rather than hire more employees, citing high fixed costs per employee and economic uncertainty as reasons to put off adding full time hires.
A number of companies reported a significant increase in reshoring; moving production back to the U.S. primarily from China, where labor costs are rapidly rising, freight spreads are widening and longer lead times make it less competitive. They expect these opportunities to grow in 2013. On another positive note, the Port of Vancouver reports it is 99.6 percent occupied with nearly 20 percent of its tenants requesting significantly more space to expand production.
While most companies are not actively considering a merger or acquisition transaction in 2013, two companies plan to use it as a growth engine for their business. Product extensions and new service offerings were frequently mentioned as new revenue generators. To a lesser extent, new product development and product launches are being used to boost 2013 sales.
Most companies plan to spend less on plant and equipment than they did in 2012. Some are budgeting zero capital spending for the year. The average capital spending budget is 3 percent of gross fixed assets. This is not enough to effectively recapitalize our manufacturing infrastructure and highlights the cautious approach business owners and managers are taking to 2013. Capital expenditures are primarily earmarked for operational improvement projects. 80 percent of respondents to a recent KRM survey are budgeting resources for cost containment and operational efficiency projects in 2013. A handful of companies have “unbudgeted” capital projects they are prepared to work on if the murky cloud of uncertainty clears up in the coming months.
Companies plan to use the principles of lean manufacturing, Six Sigma and other techniques to enhance their bottom line by improving plant efficiencies. Some are foregoing or decreasing large capital investment to focus on training their employees to deliver business improvements. Three companies surveyed are working on business intelligence systems to give them an advantage in their markets.
In summary, companies are being cautious with their 2013 projections. Uncertainty along many fronts is giving rise to a hunker down mentality that emphasizes operational improvements over unbridled expansion; overtime rather than more hiring; product extensions rather than new product lines; and productivity advancements through employee training rather than large capital investments. Even within this conservative scenario, I sense if companies have a solid first quarter and observe momentum toward solving our current fiscal and economic issues, local companies are poised to spend and hire in a way we have not seen over the past five years. Businesses are preparing for the worst but are ready to take advantage of positive changes.
Steve Rosvold operates KRM Business Solutions, a provider of financial intelligence, business education and interim CFO services to agricultural and manufacturing businesses. Learn more at www.krmbusinesssolutions.com.