Challenges for Industrial America on the cusp of a new decade

An Industrial Exchange perspective

Uncertainty marks the landscape for Industrial America as it enters the 2020s. Will the next ten years be a roaring decade like its century-ago counterpart or a tough slog?

The mood of the moment leans toward the latter. Never before have owners and managers of industrial companies faced such a wide array of diverse, yet interrelated challenges against an economic backdrop that appears to be turning negative. In preparation for its IndEx 2020 event in Miami Beach in April, Industrial Exchange has assessed the current environment and notes the following areas of challenge as the new decade dawns.

A shift to politics from economics as the driver of business decision-making

The backdrop of increasingly unfettered international trade that was a hallmark of the post-World War II era of Pax Americana seems to be coming to an end. The global rise of populism in a variety of forms — due largely to broad segments of local populations who feel disenfranchised and who have not broadly benefitted from the economic gains produced by globalization — has weakened support for free trade and international cooperation. Internationally, manifestations of this change include the rise of populist, nationalist governments in Eastern Europe and the UK’s vote for Brexit. In the case of Hong Kong, populism is taking the form of demonstrations against what many there perceive to be China’s desire to replace the liberal traditions of the former British colony with its authoritarian model.

The key global political issue, of course, is the ongoing US-China trade dispute. China’s emergence as an economic powerhouse with decidedly illiberal policies concerning intellectual property and foreign ownership certainly were building pressure for policy change. But the execution of that change through tariffs, not broader international agreements, has raised trade costs and created confusion. Add China’s drive to become a global hegemon and it’s clear why the global post-Cold War world order is in a state of flux.

The US is not immune from the populism sweeping the developed world. Here, it is taking a more nationalistic form among Republicans, and a “progressive” approach among an increasingly leftist Democratic Party. The possibility that an ardently anti-business candidate could be the next occupant of the White House both astounds and worries industrial company owners, especially private equity firms which have been particular targets of criticism, and who — like so many others — tended to underestimate the appeal and political risk posed by unorthodox candidates.

Finally, politics is even unsettling long-standing US and European legal/regulatory structures, which are becoming increasingly arbitrary and unpredictable. Antitrust law is being weaponized for political purposes, and dispute settlement processes like the World Trade Organization is being rendered impotent.

For industrial companies, therefore, the greater role of politics in business decision making has created an environment requiring new insights and perspectives when engaging in planning, investing and supply chain management.

The workforce as a question mark

For the past several years, labor shortages marked much of the US industrial landscape. Will the recent slowdown change that? Will underlying demographic trends, especially the aging of the workforce, continue to encourage greater automation along with the advent of newer, more productive tech tools?

Regardless of the challenges imposed by an uncertain economy, companies are encountering greater complexity in finding, training and retaining the right workforce — and determining its size. More than ever, industrial managers and owners need input to help find solutions for worker training, engagement strategies, diversity and inclusion efforts, safety concerns, and compensation.

A world in which ESG investing principles become the default

What started as a fringe moment has become the norm. The environmental, societal and governance investment guidelines now followed by more and more of the institutional investor community are rapidly becoming the de facto standards for all public investors in equities and fixed income securities. With boards and constituents of public pension funds, endowments and other pools of capital increasingly demanding higher standards for the companies in which they invest, industrial company managers and their owners have no choice but to comply.

The power of shifting public opinion, as well as the ubiquity of social media, has made the move to ESG permanent. Consider giant Wal-Mart bowing to pressure to curb gun sales; beverage giants Coca-Cola and Pepisco rapidly disengaging from sales of sugary sodas; and fossil-fuel based giants welcoming efforts to hasten the conversion to renewable energy.

Small – and mid-sized industrial companies, which at one time may have perceived that their size and public invisibility immunized them from the pressures of environmentalists or social activists, now realize that there is no longer cover — everyone plays in a world where broad ESG concerns prevail. Addressing these concerns has become a top management priority.

Technology is becoming a god with feet of clay

Indispensable as it is to modern manufacturing and to innovation, technology and especially the giant companies that dominate technological innovation are increasingly being seen less as supermen (forget superwomen; there are too few women in tech’s firmament) and more as flawed mortals.

In an increasing number of “Emperor’s New Clothes” moments, a surprising number of technology’s new-concept companies are being revealed for what they are — overhyped gimmicks that are great at generating hype but not very good at creating economic value. Many are as poorly managed as a mom-and-pop deli, but with far greater opportunities to squander investor wealth.

The social media component of technology, which has upended the economics of traditional media and transformed marketing, also has produced disturbing consequences. Our collective ability to distinguish fact from fiction is rapidly eroding and as the 2016 election pointed out, the integrity of our very democracy may be at stake.

Finally, the incredible advantages and opportunities afforded by the Internet also come with weaknesses that make all our systems, equipment and companies vulnerable to cyberattack and new forms of criminality.

For industrial companies, a more gimlet-eyed and skeptical approach to technology is warranted. In addition to looking past sales hype, industrial buyers of technology products and services must determine whether what they are buying truly can perform as promised, and what downsides the technology carries with it.  

Value-creation in tough times

Finally, if the above challenges weren’t enough, Industrial America faces a new worry as the next decade begins. Is the US economy entering a recession?

A slowing economy confronts industrial managers and owners with problems and unpleasant choices that often involve loss, shrinkage and belt-tightening. Sales are harder to come by and costs must me managed mercilessly. Still, business must go on, and tough times can bring their own unusual and idiosyncratic opportunities. 

Today, there are many creative ways to create value. Big data and analytics, for example, can help make revenue-generation and expense reduction more efficient. E-commerce techniques also are transforming industrial sales efforts to make them more productive.

About IndEx 2020

As noted, the themes outlined above have helped shape the content and direction of IndEx 2020, which will be held April 1-2, 2020 at the Miami Beach Convention Center in Miami Beach, Fla. The conference and exhibit will bring together Industrial America’s most important participants — private equity, institutional and individual owners; C-suite senior-level operators from all major industrial subsectors; leading and up-and-coming technology and business services vendors; and investment bankers and consultants — to network, share ideas and hear from recognized experts on issues shaping the future of Industrial America.