Strong Competition Top List of Risks in Michigan Manufacturing Industry … – Business Wire (press release)

CHICAGO–(BUSINESS WIRE)–Michigan remains one of the largest manufacturing hubs in the U.S. While
this reputation largely grew from the strong presence of major
automotive companies, manufacturers outside of the auto sector also have
an established footprint in the state. The inaugural BDO
USA, LLP analysis of risk factors listed in the most recent 10-K
filings of publicly traded U.S. manufacturers headquartered in Michigan
found that 100 percent cite risks related to industry competition,
consolidation, and pressure on pricing. Pricing pressure may be closely
correlated with customer pricing demands, as some manufacturers
primarily service large, influential customers, who are able to leverage
their position to negotiate lower product and service costs. Competition
is a particularly strong issue for Michigan manufacturers when compared
to the industry overall, as BDO’s
national Manufacturing RiskFactor report found that 94 percent of
manufacturers cite it as a concern.

Additionally, there is a clear focus on rebuilding the U.S.
manufacturing industry. With the creation of a favorable regulatory
environment, especially in strong manufacturing states such as Michigan,
the objective is to entice manufacturers to reshore their operations,
thereby boosting employment rates and U.S. exports as well as providing
additional tax revenues. Yet, according to the BDO Manufacturing
RiskFactor Report for Michigan, concern over federal, state and
local regulations, including tax liabilities, is identified by 94
percent of Michigan manufacturers. This sentiment is likely driven by
the concern over regulations in regards to labor, international trade
and the environment. To that end, 76 percent of Michigan manufacturing
companies cite labor concerns, including those related to pensions,
post-retirement costs, benefit plans, healthcare, unions and immigration
as risks. Similarly, risks related to environmental regulations, laws
and liabilities are also noted by 76 percent of Michigan manufacturers.

“As the manufacturing industry undergoes a renaissance in the U.S.,
Michigan continues to be a state poised to benefit from the growth,”
said Fred Rozelle, Detroit-based regional managing partner and member of
the BDO Manufacturing
& Distribution practice. “But that is not without its
challenges. Manufacturers will contend with strong competition as well
as regulatory and labor challenges.”

The following chart highlights the top 20 risk factors cited by
publicly traded Michigan manufacturing companies:

*t indicates a tie in the risk factor ranking

Supply Chain Challenges Underscore Product Liability Risks –
Eighty-eight percent of Michigan manufacturers cite risks related to
U.S. and foreign suppliers/vendors. While obvious factors such as
natural disasters, geopolitical unrest and backlogs can lead to both
long- and short-term revenue compromising supply chain issues, there are
also other sourcing challenges that add a layer of complexity to the
issue. In many instances, it is the U.S.-based manufacturer
(distributor) who is liable for product failures and recalls, despite
having not produced that particular component part. If the supplier or
vendor is located outside of the U.S., there may be no recourse for the
U.S.-based manufacturer. Additionally, it can be challenging to require
and test that the same quality standards are being enforced by
international suppliers. As a result, product quality and recall risks
are identified by 74 percent of Michigan manufacturers.

Growth Drives M&A Risk – According to a recent White House
release, “A consortium of 13 counties and more than three dozen
municipalities in southeastern Michigan will receive a special
designation that will give it a leg up in competing for $1.3 billion in
federal manufacturing, economic development and research funds.” With an
increased focus on funding manufacturing growth in the state, coupled
with an existing uptick in non-government backed general growth
activity, there is greater potential for M&A opportunity. To that end,
85 percent of Michigan manufacturers note M&A as a risk, including an
inability to manage, complete and integrate current or future M&A deals.
Failed M&A transactions could negatively impact their growth business
strategies and overall operations.

Concerns Over Intellectual Property Risks Are Paramount –
Seventy-four percent of Michigan manufacturers cite concern over
corporate copyright and intellectual property infringement. Intellectual
property and the ability to license, trademark and secure that property
allows for a strong competitive advantage. A violation can lead to
lengthy legal battles. However, more immediate financial repercussions
can be felt if the fraudulent products hit the market. Additionally,
should a patent expire, allowing other companies to freely replicate a
product or process, the manufacturer will be put at a disadvantage and
could be exposed to pricing pressures. Further underscoring this risk
for many manufacturers with international operations is a lack of
regulatory oversight governing intellectual property infringement in
foreign countries.

The BDO Manufacturing RiskFactor Report for Michigan examines
the risk factors in the most recent 10-K filings of publicly traded U.S.
manufacturers headquartered in Michigan. The factors were analyzed and
ranked by order of frequency cited.

About BDO

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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
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