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Lauren Mansene
Bliss Integrated Communication
312.577.7983
Lauren@blissintegrated.com

Monday, May 20, 2013
NEW BDO USA ANALYSIS IDENTIFIES TOP RISKS FOR U.S. MANUFACTURERS
REGULATORY & LABOR RISKS SUGGEST HEIGHTENED CONCERN OVER COST OF DOING BUSINESS IN U.S.

CHICAGO – Top manufacturers are reeling over a heated regulatory environment and the mounting cost of doing business in the United States. A new BDO USA, LLP analysis of risk factors listed in the most recent 10-K filings of the largest 100 public U.S. manufacturers found that 96 percent cite federal, state and local regulations as a risk. Amid increasing business costs from healthcare reform and potential changes to U.S. corporate tax structures, U.S. manufacturers may face a competitive disadvantage to those abroad - a challenge as they look to grow and remain at the forefront of their industry. In addition, environmental regulation risks are a concern for 86 percent of manufacturers as they contend with often complex and costly EPA compliance.

Regulatory risks are second only to concerns around the still uncertain domestic and global economy, according to the 2013 BDO Manufacturing RiskFactor Report. While the manufacturing industry has been viewed as an important driver of economic and job growth, labor remains a key challenge. Three in four manufacturers cite labor concerns and underfunded pension and retirement benefits as a risk.Despite the 7.5 percent unemployment rate, the manufacturing industry is still contending with a skilled labor shortage, particularly as many skilled workers are reaching retirement age. In addition to a diminishing talent pool, manufacturers note that rising costs associated with underfunded benefit plans, increased scrutiny from compliance organizations such as OSHA, and revenue shortfalls due to work stoppages and labor strikes could also impact results.

“While many manufacturers want to expand or even bring back U.S. operations, there are still significant challenges,” said Howard Sosoff, manufacturing and distribution practice leader at BDO USA, LLP. “Manufacturers are looking long and hard at their cost containment practices to offset the rising price of conducting business in the U.S., while also exploring opportunities to expand abroad –likely in locations with attractive corporate incentives.”

The following chart highlights the top 20 risk factors cited by the 100 largest U.S. manufacturing companies:

2013 Rank

 

 

1.

General Economic Conditions  

98%

2.

Federal, State and/or Local Regulations

96%

3.

Competition & Consolidation in Manufacturing  

92%

4.

Less Demand for Products

91%

5.

Threats to International Operations

87%

6.

Environmental Laws, Regulations & Liability

86%

6t.

Commodity/Raw Material Prices

86%

8.

U.S. and Foreign Supplier/Vendor Concerns and Distribution Disruptions

83%

9.

Management of Mergers & Acquisitions

80%

10.

Access to Capital   

78%

11.

Labor Concerns; Underfunded Pensions

75%

11t.

Maintaining IT Systems & Operational Infrastructure

75%

13.

Failure to Properly Execute Business Strategy

74%

14.

Currency/Foreign Exchange Fluctuation

73%

15.

Ability to Innovate to Meet Changing Customer Needs

69%

16.

Natural Disasters, Terrorism and Geo-Political Events

68%

17.

Changes to Accounting Standards and Regulations

66%

17t.

Restrictive International Trade Policies

66%

19.

Privacy Concerns Related to Security Breach

64%

20.

Loss of Key Management/New Management

62%

*t indicates a tie in the risk factor ranking

Further findings in the 2013 BDO Manufacturing RiskFactor Report:

International Operations & Supply Chain Risks are Top of Mind. As companies look to expand their business abroad, 87 percent of manufacturers note vulnerabilities from international operations as a concern. More specifically, companies said their international operations further expose them to a myriad of potential issues including geo-political and terrorism conflicts (68 percent), volatile foreign markets and currency exchange rates (73 percent), and overall disruptions to the supply chain (83 percent).

When it comes to the supply chain, manufacturers are laser focused on improving efficiencies and managing the cost and access to raw materials (86 percent). In addition, many manufacturers specifically addressed concerns over the impact of the Dodd-Frank Act and the new requirement to disclose the use of conflict minerals mined from the Democratic Republic of Congo and adjoining countries. The cost of compliance with this social regulation could place a financial burden on operations.

Competition, Consolidation and Copycats Pose Risks to Demand. Amid mixed news in manufacturing activity in March and April (according to the ISM), companies are watching orders closely. As a result, it’s no surprise that 91 percent of manufacturers cite declining or slowed demand as a risk to their business. Nearly all (92 percent) also note competition and consolidation within the industry as a risk that could potentially affect profit margins and the company’s ability to acquire and maintain customers. Many manufacturers point to “copycat” designers in locations like China that pose a significant risk to brand reputation and their ability to stay relevant to current and future customers.

The 2013 BDO Manufacturing RiskFactor Report examines the risk factors in the most recent 10-K filings of the largest 100 publicly traded U.S. manufacturers across five sectors including fabricated metal, food processing, machinery, plastics and rubbers, and transportation equipment. The factors were analyzed and ranked by order of frequency cited.

About BDO

BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals.  The firm serves clients through 45 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 1,204 offices in 138 countries. 

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com.