Tom Andel

On a sinking ship? Value's the life preserver.
August 29, 2008

Whether there’s a Democrat or a Republican in the White House in January probably won’t have much of an economic impact on business—at least for the short term. That was the conclusion of a panel of economic experts who participated in a webcast  Modern produced and I moderated last week.

“I think it’s irrelevant [which candidate is elected] until the early part of next year,” said Jim Haughey, Chief Economist at Reed Business Information, Modern’s parent company. “The usual pattern is that a Democratic victory, especially with a liberal Democrat like Sen. Obama, will mean some additional spending up front. This will be a boost to the economy, at least in a small way in the latter part of 2009-2010, but if it’s not spent wisely we’ll pay for it with more inflation a few years later.”

“Several corporations have talked about selling small companies to avoid tax implications, and I fear what will happen as we get closer to the election and the end of the year,” added Norbert Ore, chair of the Institute for Supply Management’s Manufacturing Business Survey Committee. He produces the ISM Report on Business, a monthly report on the manufacturing sector and the overall economy. 

Our panelists agreed, however, that businesses would do themselves a favor if they spent less time worrying about politics and more time focusing on meeting customer needs. Mr. Ore told our webcast audience that the best way to weather a tough economy is to be smart about the markets they serve.

“Quite often companies know who their customers are, but they don’t know who their customers’ customers are,” he said. “In a downturn like this, what will determine success more than anything is knowing what’s happening to your customer’s customers. If they’re all tied to the automotive industry chances are things won’t be as good as if they’re in the petroleum industry. Another big opportunity lies in services. On a grand scale, if you look at GE and IBM as examples, it’s extending beyond product into the services category.”

Michael Howell, head of C.W. Downer & Co's Material Handling & Logistics Practice, analyzed some of the key mergers and acquisitions in this segment. He said that in our current economic climate, deals tend to be more high-tech focused.

“With the backdrop of an economic slowdown, folks that are in commodity industries are affected by the cycle to a greater extent and will be hesitant to take on additional manufacturing capacity or running the risk of having idle capacity in a downturn,” he explained. “In segments like automatic guided vehicles [AGVs], where there are still relatively high growth rates projected, there’s consolidation potential.”

Indeed, Norbert Ore sees growth potential for technologies offering large paybacks, but not for marginal ones.

“I see signs of businesses budgeting for a bad year in 2009,” he said. “So I don’t think there will be a lot of marginal projects funded. I think only the really good ones will get the money.”

Jim Haughey concluded that software will fare better than longer payback items, because there’s less risk in shorter term loans.

“There’s a reason to buy these new systems,” he said. “They make your production facility more efficient or let you do things you couldn’t before, over and above whether you need additional capacity. The sales of technological products are driven by the technology, not by the economy.”

Click here to view Modern’s “Mid-Year Economic Outlook” webcast in it's entirety.

Posted by Tom Andel on August 29, 2008 | Comments (0)