The Advantages And Opportunity For Business And Financial Entrepreneurs

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The Advantages And Opportunity For Business And Financial Entrepreneurs

  1. 1. Within the next five years, the United States is expected to experience a manufacturing renaissance. The New Frontier For: Business and Financial Advisors to SME’s in the Manufacturing and Technology Sectors. Prepared by: Andice Integrated Funding Inc. 2012 Members of the Andice Group of Companies
  2. 2. The Advantages And Opportunity For Business Advisors and Funding Entrepreneurs.It’s no secret that the Great Recession had a devastating effect on the USmanufacturing base. Between 2008 and 2009 more than one trillion dollars bled out ofUS companies that make everything from food to advanced aerospace and defenseproducts. Lately things have begun to look a little better — the value of USmanufacturer shipments was about $4.9 trillion in 2010 compared to $4.4 trillion in2009. A $500 billion improvement is nothing to sneeze at, but another shot-in-the-armmay be on the way.Recent analysis by the Boston Consulting Group (BCG) suggests a flood of manufacturingactivity may return to the US over the next five years or so. The impact of that activitycould mean as much as $100 billion in increased output, two to three million new jobs,and a reduction in the non-oil trade deficit of between 20 and 35 percent.Fact Finding Overview:Regardless of the potential risks facing the world economy right now, the U.S.manufacturing expansion remains extremely strong. The latest ISM manufacturing datafell slightly, but from an extremely high level and remains strong. The current levelsuggests U.S. 2Q GDP growth of 4-6% according to Calafia Beach Pundit: 1 Andice Integrated Funding (AIF) VP Funding & Administrative Services Phone: 713-260-9636 kirk.evans@andicefunding.comwww.andicefunding.com Members of the Andice Group of Companies. www.andice.com
  3. 3. Within the next five years, the United States is expected to experience a manufacturingrenaissance as the wage gap with China shrinks and certain U.S. states become some ofthe cheapest locations for manufacturing in the developed world, according to a newanalysis by The Boston Consulting Group (BCG). With Chinese wages rising at about 17percent per year and the value of the yuan continuing to increase, the gap between U.S.and Chinese wages is narrowing rapidly. Meanwhile, flexible work rules and a host ofgovernment incentives are making many states—including Mississippi, South Carolina,and Alabama—increasingly competitive as low-cost bases for supplying the U.S. market.As the below charts suggests, based on past relationships between this index and thegrowth of GDP, second quarter GDP growth is likely to be stronger than the 3%registered in the first quarter. Indeed, second quarter growth could be in the range of 46% if the past is any guide.Note that JP Morgans global manufacturing index, the Global PMI, also remains firmlyin expansionary territory: 2 Andice Integrated Funding (AIF) VP Funding & Administrative Services Phone: 713-260-9636 kirk.evans@andicefunding.comwww.andicefunding.com Members of the Andice Group of Companies. www.andice.com
  4. 4. All segments of the Global PMI are comfortably expanding (above 50):Thus, global manufacturing activity, inclusive of the U.S., is still growing healthily. Thepace of growth is slowing, but this was the expected case for 2010, i.e. that growth rateswould be strongest at the beginning of the year, and then decline through the year,resulting in decent full-year global GDP growth of about 4%+.The U.S. itself has only been expected to grow by about 3% for 2010, factoring in a slow-down from the end of last year. With the S&P 500 at a similar price level as in Decemberof 2003, yet with a far larger U.S. economy behind it than existed back then (~$14.3trillion vs. $10.9 trillion back then), even meager U.S. GDP growth isnt too bad from anequity investors perspective. 3 Andice Integrated Funding (AIF) VP Funding & Administrative Services Phone: 713-260-9636 kirk.evans@andicefunding.comwww.andicefunding.com Members of the Andice Group of Companies. www.andice.com
  5. 5. Of course, Europe/China slow-down risk factors exist, but so far the global recovery isstill proceeding. This should be factored into the pessimism were being hit with thesedays.AIF Summary AnalysisAll over China, wages are climbing at 15 to 20 percent a year because of the supply-and-demand imbalance for skilled labor. Our research reveals and we expect net labor costsfor manufacturing in China and the U.S. to converge by around 2015. As a result of thechanging economics, you’re going to see a lot more products ‘Made in the USA’ in thenext five years.” And since wage rates account for 20 to 30 percent of a product’s totalcost, manufacturing in China will be only 10 to 15 percent cheaper than in the U.S.—even before inventory and shipping costs are considered. After those costs are factoredin, the total cost advantage will drop to single digits or be erased entirely.Of course, goods many industrial products, labor-intensive and those produced in highvolumes, such as textiles, apparel, and TVs, will likely continue to be made overseas.Products that require less labor and are churned out in modest volumes, across almostevery industry, from transportation, medical equipment, office automation,telecommunications and energy production and conservation production.As an example of the ever expanding universe of technology manufacturing companieswould include: “smart” appliances, robotic technologies, computer hardware or medicalequipment. Yes, with just a little imagination the lists of existing and emergingcompanies that may be in need of working capital appears endless, but let us not forget,for each of the possible thousands of products produced, there are also complimentaryparts producers. In short, all this technology manufacturing is forecast and most likelyto shift to U.S. production over the coming years.Just A Few Basic Market Drivers: I. U.S. has highly skilled workers in many of our lower-cost states. By contrast, in the lower-cost regions in Asian countries it’s actually very hard to find the skilled workers. II. U.S. workers and unions are more willing to accept concessions to bring jobs back to the U.S 4 Andice Integrated Funding (AIF) VP Funding & Administrative Services Phone: 713-260-9636 kirk.evans@andicefunding.comwww.andicefunding.com Members of the Andice Group of Companies. www.andice.com
  6. 6. III. Support from U.S. State and local governments can tip the balance with tax incentives IV. SME’s and their global counter-parts are now reexamining alternative funding model and the supply chain and labor costsThe following are excerpt from a recent survey by Ernest and Young:“Cash on the chip US technology companies andworking capital management 2011.”http://www.ey.com/Publication/vwLUAssets/Cash_on_the_chip_-_US_technology_companies_and_working_capital_management_2011/$FILE/1104-1246882_Cash%20on%20the%20chip_A4_FINAL.pdfTechnology companies need to take a look at their operations to determine the valuebeing lost to inefficient working capital management. Leaders, especially those in theupper quartiles, need to remain vigilant to prevent performance entropy. Others,especially those in the lower quartiles, should begin a systematic program to recoverlost ground.Size in the wayCertain segments of the technology industry feature a few dominant players, allserviced by numerous far smaller and somewhat obsequious suppliers. While this iscommon in many industries, it is important that companies both large and small areaware of how this relationship can get in the way of effective working capital strategies.Consider forecasting. Today, when a large company says it needs X delivered by Y,suppliers scramble — no questions asked. Because the large company always gets whatit wants whenever it wants, it often fails to notice any flaws in the system.But in reality, the larger entity is paying for its failure to provide clearer insight intodemand. Smaller suppliers, feeling the need to be ready at all times, will carry largerthan necessary inventories. And, when orders suddenly spike, suppliers are forced toproduce, often in less-than-optimized production runs. The result is higher costs withinthe system.Similarly, look at commercial terms. When the downturn of 2008 arrived, the mostdominant companies in the value chain began extending their own payment terms, inmany cases significantly. In the short term, working capital, at least for the dominant 5 Andice Integrated Funding (AIF) VP Funding & Administrative Services Phone: 713-260-9636 kirk.evans@andicefunding.comwww.andicefunding.com Members of the Andice Group of Companies. www.andice.com
  7. 7. companies, is preserved. However, for others in the supply chain, such pain can quicklytranslate into financial distress. The resulting cost cutting and loss of focus can lead tolapses in quality or even failure to deliver.This is not to point fingers. Rather, the goal is to remind all that closer collaborationacross a value chain can lead to greater optimization, lower costs and less workingcapital tied up unnecessarily in safety stocks or inefficient production runs.Smaller, less dominant companies, needing clearer windows into downstream demand,should speak up. Larger, more dominant companies should listen and where possible,respond. And all should seek opportunities for eliminating systemic inefficiencies andother drains on working capital.The battle over working capital is fought dailyCompanies tend to focus more closely on working capital in the lean times. But, whenmatters improve, focus is diffused and inefficiency returns. Given the quick turnaroundfor the technology industries, that risk is particularly strong today.Today, technology executives’ focus is on ramping up production and replenishinginventories to serve growing sales. In addition, cash is plenty, accounting for about 30%of the total assets and sales of our industry sample.There is now a danger that corporate attention will once again move away from balancesheet and working management in particular, shifting instead toward driving revenuesand the bottom line, pursuing acquisitions and returning cash to shareholders.However, companies that allow their focus to shift in this way not only risk damagingtheir business performance, but they could also undermine the close businessrelationships and trust that they have spent many years building with customers andsuppliers. 6 Andice Integrated Funding (AIF) VP Funding & Administrative Services Phone: 713-260-9636 kirk.evans@andicefunding.comwww.andicefunding.com Members of the Andice Group of Companies. www.andice.com
  8. 8. The chief driver of the potential resurgence in US manufacturing is shiftingsocioeconomic factors inside China. Wages in China have been on the rise in recentyears and some estimates peg wage increases in coastal Chinese cities at more than1,000 percent in just the last year or so. Rising wages and an increase in the ranks of themiddle class have eroded China’s powerhouse status as the global center for cheapmanufacturing. Increased transportation costs and the complicated nature ofgeographically far-flung supply chains could lead many US companies to reassess thewisdom of offshore manufacturing in China.The BCG study contributes to the larger notion of “nearshoring” — the idea that it’sbetter to make a given item nearer to where it is intended to be consumed. Informationtechnology and automation have dramatically improved the efficiency and productivityof US manufacturing over the last two decades. US productivity in the manufacturingsector, as measured by output-per-hour, increased 105 percent between 1990 and2010. Concerns about labor costs just aren’t the same as they were when offshoringmanufacturing operations emerged as a cheap way to lower the cost of doing business.Make More Money.Join the Andice Integrated Funding Network of Professional Advisors. 7 Andice Integrated Funding (AIF) VP Funding & Administrative Services Phone: 713-260-9636 kirk.evans@andicefunding.comwww.andicefunding.com Members of the Andice Group of Companies. www.andice.com
  9. 9. Press ReleaseDecember 12, 2011 - USMTO News Release for October Manufacturing TechnologyOrdersManufacturing technology orders up 80.5% from 2010October U.S. manufacturing technology orders totaled $463.32 million according toAMT-The Association for Manufacturing Technology and AMTDA, the American MachineTool Distributors’ Association. This total, as reported by companies participating in theUSMTO program, was down 22.4% from September but up 20.3% when compared withthe total of $385.21 million reported for October 2010. With a year-to-date total of$4,529.11 million, 2011 is up 80.5% compared with 2010.These numbers and all data in this report are based on the totals of actual data reportedby companies participating in the USMTO program.“Manufacturing technology orders through October have already surpassed the totalvalue accumulated in 2007,” said AMT President Douglas Woods. “The beginning of2012 will be a little slow as tax incentives pulled some orders back into 2011, which willlikely make 2012 growth softer.”The United States Manufacturing Technology Orders (USMTO) report, jointly compiledby the two trade associations representing the production and distribution ofmanufacturing technology, provides regional and national U.S. orders data of domesticand imported machine tools and related equipment. Analysis of manufacturingtechnology orders provides a reliable leading economic indicator as manufacturingindustries invest in capital metalworking equipment to increase capacity and improveproductivity.U.S. manufacturing technology orders are also reported on a regional basis for fivegeographic breakdowns of the United States.Northeast Region 8 Andice Integrated Funding (AIF) VP Funding & Administrative Services Phone: 713-260-9636 kirk.evans@andicefunding.comwww.andicefunding.com Members of the Andice Group of Companies. www.andice.com
  10. 10. At $64.11 million, October manufacturing technology orders in the Northeast Regionwere down 43.0% when compared with the $112.41 million total for September anddown 34.1% when compared with October a year ago. The year-to-date total of $677.09million is 44.5% more than the comparable figure for 2010.Southern RegionOctober manufacturing technology orders in the Southern Region totaled $55.87million, 28.4% less than September’s $78.04 million but 40.6% more than the October2010 total. With a year-to-date total of $568.93 million, 2011 is up 60.7% whencompared with 2010 at the same time.Midwest RegionMidwest Region manufacturing technology orders in October stood at $149.95 million,13.0% less than the September total of $172.26 million but up 30.5% when comparedwith last October. At $1,523.76 million, the 2011 year-to-date total is 105.4% more thanthe comparable figure for 2010.Central RegionManufacturing technology orders in the Central Region in October totaled $138.74million, down 16.4% from September’s $165.98 million but up 49.3% when comparedwith the October 2010 figure. The $1,232.28 million year-to-date total is 85.3% higherthan the total for the same period in 2010.Western RegionWestern Region manufacturing technology orders totaled $54.65 million in October,19.9% less than the $68.25 million total for September but 35.3% higher than the tallyfor October 2010. At $527.05 million, 2011 year-to-date is up 88.8% when comparedwith last year at the same time. 9 Andice Integrated Funding (AIF) VP Funding & Administrative Services Phone: 713-260-9636 kirk.evans@andicefunding.comwww.andicefunding.com Members of the Andice Group of Companies. www.andice.com
  11. 11. 10 Andice Integrated Funding (AIF) VP Funding & Administrative Services Phone: 713-260-9636 kirk.evans@andicefunding.comwww.andicefunding.com Members of the Andice Group of Companies. www.andice.com

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