economic development strategic plan - choose …...2015/12/17 · chester county, sc strategic plan...

August 2015

Economic Development Strategic Plan

Chester County, SC Strategic Plan

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Table of Contents

Executive Summary 2

2011 Strategic Plan Accomplishments 4

SWOT Analysis 8

Economic and Demographic Trends Analysis Summary 15

Product Assessment Summary 17

Target Industry Analysis Summary 20

Economic Development Strategic Plan 30

Implementation 44

Appendices

A: Business and Citizen Survey Results 46

B: Economic and Demographic Trends Analysis 49

C: Business Survey Results 63

D: Target Industry Profiles 76


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Executive Summary

In 2014, the South Carolina I-77 Alliance was formed to position and market Chester, Fairfield,

Richland, and York Counties as a world-class business location to attract investment, high-

quality jobs, entrepreneurs, and professional talent. One of the first priorities of the new

alliance was to develop a strategic plan. Under the umbrella of the regional strategic planning

process, each county updated its economic development strategic plan.

Chester County has a history of strategic planning, with the first plan developed in 2008 and

updated in 2011. Whereas some communities leave the plan on the shelf, Chester County

Economic Development (CCED) has been recognized by the South Carolina Power Team for fully

implementing its strategic plans.

This planning process included community outreach into Chester, Lowrys, Edgemoor, Richburg,

Fort Lawn, and Great Falls. We solicited input via three business and citizen online surveys and

conducted phone interviews. In all, approximately 130 people had input into the strategic plan.

Industry research was performed as part of the I-77 Alliance strategic planning project and

analyzed for niches suitable for Chester County.

The strategic plans in 2008 and 2011 were designed to raise the level of the economic

development program, each time focusing on core activities including business retention and

expansion, recruitment, and product development. What makes this strategic plan different is

the changing economic landscape in Chester County. The Giti Tire project and other large

developments are sure to bring transformational change. They are providing once-in-a-lifetime

opportunities to be captured.

The strategies and actions are summarized on the following page. We encourage a full read of

the strategic plan for context. The strategies that stand out as top priorities are planning for the

impact of 1,700 new jobs through areas such as land use planning and infrastructure

investments; capturing spin-off development and supporting new business starts; developing a

talent pipeline; and rounding out the economy with tourism, downtown development, and

retiree recruitment.

This strategic plan is the most ambitious to date. For far too long, CCED has been operating on a

reduced staff and status quo budget. In order for it to take on the actions recommended in this

strategic plan it must fill the two years’ vacant position, add a marketing position, and in a few

years, add a position for small business development. Over the course of this strategic plan we

envision CCED becoming a five-person office. This expansion of activity will require a leadership

commitment to additional funding.

We have seen Chester County Economic Development grow into a leader among rural counties

in South Carolina. What we see ahead is the opportunity to grow into a best practice program

for others to emulate.


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Chester County Economic Development Strategic Plan Summary

Transformational Economic Development Projects

•Land use planning

•Design code and ordinance updates

•Infrastructure investment

Marketing

•Define the Chester County story

•Add a marketing position

•Internal marketing

•Website upgrade

•Business recruitment strategies

Product Development

•Product development strategy

•Sustainable funding for product

•Spec building development

•Infill analysis

Business Retention and Expansion

•Fill BRE role with new Assistant Director position

•Increase communications

•Data tracking tool

Organizational Development

•Transform BRE position into an Assistant Director position

•Add a marketing position

•In years 3-5 of strategic plan, add small business development position

•Explore a public-private partnership

•Increase funding for economic development operations

Workforce Development

•Focus on talent pipeline development

•Regional workforce study

Small Business Development

•Staff position for small business development

•Add new business starter kits to the website

Tourism Development

•Create a county tourism department

•Tourism marketing and asset development

Downtown Development

•Each town to name a Downtown Development Coordinator

•Retiree recruitment

•Appearance commissions


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2007 and 2011 Economic Development Strategic Plans

Chester County has a history of strategic planning for economic development. CCED is well-known not only for a consistent planning process, but also for accomplishing the goals set out in its strategic plans. More than 95% of the 2008 strategic plan action steps were completed, and CCED is well on the way to completing the 2011 strategic plan. The 2011 actions steps focused on organizational development, product development, business retention and expansion, and other areas in the economic development program of work. When this strategic planning process was initiated, we revisited the 2011 strategic plan to see what tasks were complete, which were are in process, and which were no longer valid.

2011 Strategic Plan Action Item

C=Complete I=In-process N=No longer valid

Notes

Organizational Development

Expand CCED staff to add a marketing/project manager

I I-77 Alliance recently hired a research manager. The organization is providing marketing and research support to the counties.

Conduct a private sector fundraising assessment

Product Development

Continued from the 2008 strategic plan:

o Raise development standards in some parks through restrictive covenants

I The CTP, CRDP, and Colonel’s Pointe Business Park have restrictive covenants. CCED to review standards.

o Gain firmer control over land through public ownership or public-private partnerships

I We have been contacted by developers that are looking to partner with both speculative buildings and industrial parks.

o Continue to certify sites C We currently have three (3) sites being submitted for the 2014 SC Site Certification Program, and should be certified soon – Oliphant #1, SC Hwy 9 Industrial Complex, and the LC Tract P in silver category. We have re-verified both the CTP and the CRDP.


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o Create a stronger advantage through shell or virtual shell building.

I We have a virtual spec and incubator designed with cost estimates and timelines. Funding plan is part of the local option sales tax; however, the shell building is at the end of the list of projects.

Follow through with developing the airport as an economic development asset

I The Chester Catawba Regional Airport was placed in the Duke Energy Site Readiness Program.

Complete certification of Chester Research & Development Park

C The CRDP was certified in 2011.

Business Retention and Expansion Program

Create a LinkedIn group for existing businesses

Increase the number of face-to-face meetings

Position Chester County for capital improvement investments

I Currently Chester County is placing on the ballot the One Cent Sales Tax Option that will assist us with infrastructure improvements needed to sustain existing industrial clients’ needs as well as to attract future industrial clients. The One Cent Sales Tax has also been slated to assist with build the Virtual Shell building at the CTP.

Utilize webinar technology for existing business information exchange

Workforce Development

The role of CCED in workforce development is to be an idea generator, convener of allies, and motivational partner. Examples:

o Expansion of WorkKeys as an assessment tool

C

o Expand scholarship program at York Technical College

C Technical Scholars Program

o Development of more apprenticeship programs

I Chester County Schools, York Technical College, and the Career Center are developing new apprenticeship programs.


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o Support for the Dream !t Do !t initiative

Regional Alliance

Revive PPEDA C SC I-77 Alliance

House regional alliance at The Gateway C Alliance is located at The Gateway.

Develop a regional marketing plan C Regional strategic plan complete. I-77 is developing the regional marketing plan.

Beautification

Support stronger county ordinance and code enforcement to improve appearance

I

Special Studies

Conduct a cost of services study

Support Initiatives of the Chester Development Association

Gaston Farm Road Interchange

Old Home Deposit

Railroad Switching Location I

Support Economic Development Strategies Outside CCED Scope

Agri-Business, a new focus of the SC DOC, through local programs like Acres of Opportunity

C Funded and participated in the Ag+Art Tour in June 2015. One new county joined.

Small Business Development

o Feasibility of a small business incubator co-located with the new campus

o Business plan competitions

Tourism Development - In order to fully develop tourism assets, a countywide tourism development agency is needed.

Downtown Development, a way for towns to become more involved in economic development

Youth Entrepreneurship

Marketing Plan Update


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Website Updates

Networking with Allies o Leverage the Charlotte Regional

Partnership I CCED is an active partner with CRP.

o Leverage the SC Department of Commerce I Giti subcontractor event in partnership with the State is one example.

o Leverage Allies I o Existing Businesses

PPEDA – develop a regional marketing plan C I-77 plan complete.

Targeted Sales Trips and Appointment Setting

Map Marketing Piece

Target Sector Materials

Social Media

Internal communications

o Update County Council quarterly and the municipal boards twice annually.

I

o Regular press releases on economic development

I Eblasts regularly.

o Regular guest column in local paper

o Incorporate social media

o Regular public speaking to civic organizations

I Regular public speaker at local civic organizations.

o Continuation of the economic development educational seminar started in 2010

I There are plans to host another seminar in 2015 to roll out the new strategic plan.

o Publish an annual economic development report

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SWOT Analysis

To develop a new, comprehensive economic development strategy for Chester County, Creative

EDC began with a thorough SWOT Analysis. A sound SWOT (strengths, weaknesses,

opportunities, and threats) Analysis is the foundational building block for a sustainable

economic development strategy. An asset-based approach to economic development has been

proven to be the most successful.

We gathered SWOT input by facilitating four leadership focus groups; conducting surveys of

businesses, citizens, the Chester Development Association, and the chamber membership;

collecting staff input; and conducting interviews with economic development allies across the

region and the state. In total, more than 125 people provided input into the planning process.

SWOT Summary

Strengths

•Location, Charlotte-Columbia

•Industrial land

•Transportation network

•Utilities

•The Gateway

Weaknesses

•Education, workforce skill level

•Lack of industrial buildings

•Infrastructure

•Perception of rural

•CCED small staff size

Opportunities

•Marketing

•Giti Tire impact

•Education and workforce development

•I-77 Alliance

•Infrastructure

Threats

•Not planning for growth

•Air and water quality

•Tax rate, tax base decline

•Not investing in CCED


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Strengths

I-77 Corridor, SC Hwy 9

Location

Available land for industrial development, large parcels, certified sites

Dual rail along SC Hwy 9 and short rail

Two electric utility suppliers, three hydroelectric plants

Public school system

Workforce

Local government communications

Wastewater capacity in Great Falls, natural gas, telecommunications

The Gateway

Local airport and Charlotte-Douglas International Airport

Historic fabric woven into the community and rural scenery

York Technical College

Chester County Economic Development program and staff

Agri-business

Quality of life, rural scenery, community pride, family-oriented, safe

Recreation, state park, natural resources, Catawba River living, rapids, hunting and

fishing

Desire to grow

Leaders with bold vision

Arts

Festivals

J. Marion Sims Foundation

Weaknesses

Available industrial buildings

Lack of quality business park at the interstate

Time consuming large projects and strain on CCED with small staff size

Public schools are seen as a strength and a weakness. Citizens comments on good

schools; however, statistics show low educational attainment levels.

Workforce, chronic unemployed, perception of tight labor market following Giti Tire

ramp-up

Funding level of CCED

Lack of job opportunities for young people

Housing - affordable housing, abandoned housing, housing options

Water and sewer access and capacity

Communications between towns and county

Declining population


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DOT maintained street repairs needed

Accountability of officials, specifically law enforcement

Perception of rural community

Apathy of citizens, core group of naysayers, lack of internal promotion

Hospitality training

Healthcare options

Youth recreation and entertainment options, lack of quality child care

Dilapidated buildings, mills, and houses

Monopolies

Community appearance

Lack of county tourism department

Opportunities

Community ad campaign - time to define our own story

o Define what is economic development for Chester County

o Each town define its story

Capitalizing on the Giti Tire facility

Tier 1 and 2 suppliers to large industries in the Carolinas/Southeast

Strengthen York Technical College’s presence

New apprentice program

WorkReady Certification underway

Hotel development and gateway restaurants

Infrastructure improvements, extensions

One cent sales tax supporting:

o Quality of life amenities

o Sewer system

o Welcome signage

o Electric substations

o Spec building

o Helipad

o Recreation

Leverage other ally organizations

Land use planning for 2025

Cost of services study

Broader definition of economic development: agriculture, tourism, housing

Transform mill town to tech economy

Downtown development, leverage history, historical buildings, cultural, façade grant for

buildings


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Regional cooperation through the I-77 Alliance

Historic site development

o Heritage tourism

o Historic sites tied to Chester County

o Great Philadelphia Wagon Road

Youth recreation

Industrial sites

Utilize natural resources, rivers

Entrance signage and wayfinding signage

Develop area surrounding the Gateway

Leverage economic development work for cities

Redevelopment of dilapidated buildings

Arts focus in schools

Business incubator

Agri-business, agri-tourism

Relicensing for Catawba impacts recreation, fishing, canoeing, kayaking

o Armory building

Retirement community development

Threats

Infrastructure not ready to meet needs of development in terms of capacity and

distribution

Quality of housing

Tax rate, tax base decline

Lack of alternate revenue sources

Unplanned growth is worse than no growth

NIMBYs (not in my back yard)

Air quality impact from Charlotte

Maintaining quality of Catawba River

Unplanned impacts of Giti Tire facility

Old mills remaining vacant

Destruction of historic properties

Not funding nor adequately staffing CCED to implement the strategic plan

Labor unions

Goals – We asked participants in the focus groups what their goals were for the economic development strategic plan. We also asked the question in online surveys. The top survey responses were local job creation, better paying jobs, increased tax base, and support to


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existing businesses.

Get our 30-second speech ready

J-O-B-S

The strategic plan must be realistic and doable

Financially responsible

Keep people informed, everyone feels like a shareholder

Make Chester County a better place for youth to return

Industries growing

More housing options, residential development

Leverage regional assets

Countywide planning – development standards, utility plans, transportation

planning

Commercial and retail development

Grow while maintaining character

Development of historic assets, redevelopment of former mills

Develop Great Falls as a center for tourism

Key Investments – We like to ask the question “what key investment would you make in Chester County to support long-term, sustainable economic growth?”

Water and sewer infrastructure

Renovate buildings and housing, dilapidated buildings

Develop spec building

Education, new school facilities, arts, summer camps, early childhood programs, district

schools

Redevelopment of former mills

Parks and recreation, especially for youth

Transportation within the county and region

Streetscape, appearance of towns

Housing of all types to handle new employment, including senior housing

Consolidate schools

Entrepreneurial ventures

Urgent care

Great Falls master plan implementation

Mini-mall on the bypass, hotel, theater, bowling alley


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Agriculture – A new area of economic development we explored in this strategic plan was the agriculture sector. We asked in online surveys “what are the opportunities to develop agriculture and agri-business in Chester County?”

Farmers Market, regional farmers market at I-77 and SC Hwy 9

Timber related industries

Community kitchen

On-site farm product sales with tours

Farm and Arts Tour

More media on this industry, publicity, like farmer of the year

Marketing support

Clemson University Extension Service

Weekend agri-themed fair with local farm exhibitions

Farm-to-table restaurant

Organic farming

Agri-tourism

Business Survey Summary

Creative EDC surveyed existing businesses across the I-77 Alliance region to gather information

for the strategic plan. Approximately 12 businesses in Chester County responded to the

regional survey. Respondents were mostly manufacturers (60%); have been in business more

than 10 years (83.33%); and employ 51 - 100 (33.33%) and more than 100 (25%) people. This is

what we learned from their responses:

Most located in Chester County because of its geographic location, low cost of doing business, and building or land availability.

The most helpful forms of business assistance are tax breaks, grants, and incentives, along with workforce training, financing, and new market identification.

Forty-five percent of the respondents said they plan to expand at their current location.

This is a good indicator of business satisfaction. Zero reported planning to move the business outside the region; however 9% reported they plan to downsize at their current location.

Chester County existing businesses are most satisfied with the utilities, location choices,

transportation access, regulatory environment, and business climate. They are least satisfied with local taxes, public school system, workforce skills, and workforce training.

Regarding the labor force, the companies surveyed responded that wage expectation,

ability to retrain, training potential, availability, and overall quality are the positive


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aspects of the workforce. Labor force skill set and work ethic are the negative aspects of the workforce.

Fifty-four percent rate the business climate as a four or five out of a five point scale,

where five is the highest. This was lower than in other counties in the region. The main challenges to growing their business in Chester County was reported as

sales/revenue growth (31.58%), workforce availability (15.79%), workforce development (10.53%), scaling up (10.53%), and transportation access (10.53%).

Fifty-four percent of businesses said the best way for CCED to contact them with

information is an emailed newsletter, followed by educational seminars.


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Economic and Demographic Summary

Appendix A presents the economic and demographic data researched for the strategic plan.

Creative EDC conducted economic research at the regional level for the I-77 Alliance strategic

planning project and pulled the Chester County data into this report. Overall, Chester County is

rebounding from the Great Recession with wages growing and unemployment declining.

Chester County’s population

is declining, 1.7% from 2010

to 2013.

The population is also

aging faster than the region,

with 30% aged 55 and older. This is

a concern for workforce

availability over time.

Seventy-seven percent of

Chester County residents

over the age of 25 have a high

school degree or higher. Most have a high school degree. Only 12.74% have earned a

bachelor or higher college degree. SAT scores in Chester County had been average for

the region until a dip in 2012. In 2013 the score rebounded to 1404.

The labor force has gone up and down since the Great Recession, starting from a high of

16,121 in 2007 to a low of 14,854 in 2012. The unemployment rate is declining

(currently 9%) and wages are growing, over 20% in the ten year period from 2004 -

2013.

The majority of workers are employed in manufacturing (29.3%) followed by trade,

transportation, and utilities (21%), and leisure and hospitality (8.3%).

After a decline during the recession, the number of business establishments are above

pre-recession levels.

Per capita income has grown since 2000 to $17,828 in 2013.

UnemploymentWage Growth

Manufacturing Workforce

Population DeclineWorking Age Demographics

Home Values


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Home values rose from 2000 – 2010 but declined slightly in 2013, when the median

home value was $80,800. The low median home value is a positive on one hand because

it means there is affordable housing in the county. However, the other side of the story

is that Chester County lacks executive, management, and middle-income housing stock.


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Product Summary

Product development has been a primary focus of Chester County Economic Development.

With more than 30 industrial sites listed, it has by far the most sites and acreage available in the

Alliance region. Product development has been the hallmark of the CCED program of work. It

has paid dividends by attracting new investment and expansions.

The 35 sites/parks represent a total of almost 12,000 acres. Two of the parks, Colonel’s Pointe

and Chester Technology Park, are certified sites. Seven are listed as a rail-served sites/parks.

Rail sites are an advantage in the CCED product development inventory.

Sites Listing

Site Name Acreage Price Features

Gwendolyn P. Bostic 17 $25,000 ppa Partially Cleared

L & C Tract E 12 $20,000 ppa

L & C Tract C 37 $30,000 ppa John A. Black (I) 30 $30,000 ppa

William States Lee Park 97 $3,000 ppa

Patel # 1 Industrial Site 88 $30,000 ppa

Patel # 2 Industrial Site 122 $25,000 ppa

Interstate Business Park 115 $75,000-$250,000 ppa

Oliphant #1 Industrial Site 122 $30,000 ppa

Colonel's Pointe Industrial Park

92 $30,000 ppa Completed due diligence 8 out of 8

Oliphant/Leitner #2 Site 59 $30,000 ppa

John A. Black (A) 115 $25,000 ppa

John A. Black (B) 100 $18,000 ppa


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John A. Black (D) 65 $30,000 ppa

John A. Black (H) 147 $30,000 ppa

John A. Black (J) 126 $30,000 ppa

John A. Black (G) 176 $20,000 ppa

Chester Technology Park 119.60 $16,000-$25,000 ppa

Completed due diligence 8

out of 8

John A. Black (F) 200 $25,000 ppa

Floyd/Hendrix Ind. Site 200 $12,000 ppa

Chester County Ind. Site 204 $8,500-$105,000 ppa

L & C Tract L 198 $9,000-$15,000 ppa

SC Hwy 9 Industrial Complex

206 $18,000-$35,000 ppa

John A. Black (C) 185 $25,000 ppa

L & C Tract A 330 $15,000 ppa

L & C Tract I 278 $25,000 ppa

L & C Tract M 408 $22,500 ppa

L & C Tract P Industrial Site 300 $25,000 ppa

John A. Black (E) 275 $30,000 ppa

Chester Research and Development Park

310 $15,000-$25,000 ppa

Richburg Site 270 $35,000 ppa

HWC Industrial Site 293.87 $15,000 ppa

Gaston Industrial Park 370 $30,000-$50,000 ppa

L & C Tract J 299 $18,500 ppa

Montrose West 4,405 $8,500 ppa

Montrose East 1,800 $8,500 ppa Source: SC Department of Commerce


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Chester County has five buildings listed. The list has a wide range of square footage, from

15,000 to 627,241. Two of the buildings have low ceilings, the other three have ceilings that do

range 24’ and up. Higher ceilings support a wider range of advanced manufacturing uses; thus,

are often easier to market to new users.

Buildings List

Building Name Building SF Property

Acreage

Zoning Sale Price Former Use

Oliphant &

Company -

Bldg 1

15,000 SF 5 Acres No Zoning

Present

Lease only n/a

Solo Structures

20,795 SF 5 Acres ID-2 $1.1 M n/a

Oliphant & Company - Bldg 2

41,000 SF 6 Acres No Zoning Present

n/a n/a

Superior Essex 235,000 SF 59 Acres ID-2 $2.35 M Manufacturing

Springs Katherine Plant

627,241 SF 132 Acres ID-1 $6 M Manufacturing

Source: SC Department of Commerce


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Target Industry Analysis

The purpose of the Target Industry Analysis is to review, identify, and validate promising industry sectors for the South Carolina I-77 Alliance, including the counties of Chester, Fairfield, Richland, and York. Creative EDC and Applied Marketing worked jointly on the background research for the target industry analysis. The Target Industry Analysis is based on elements and findings from the entire process, including the SWOT analysis, economic and demographic analysis, product inventory, and industry forecasts. The analysis was performed at the regional level, intending to focus the I-77 Alliance on those sectors that would be a “best fit” for the region’s strengths and assets, and therefore represent the most potential for development. The I-77 Alliance region represents a diverse set of counties and industries. They have proximity and the I-77 corridor in common, but also have many industries in common. The region does share a workforce and therefore works together in targeting and serving industry. We have identified regional targets that represent the best opportunities for the region as a whole. However, each county has their unique niches and strengths that influence the priority of any county targets and activities. Our recommendations include identifying the top priority, immediate targets for the region, as well as longer term targets and niche priority areas for the specific counties. Based on our research and analysis, we recommend targeting the following industries as regional targets:

Advanced Materials

Transportation Equipment

Chemicals

Business/Financial Services

Food Products

Life Sciences

Defense

As we provide greater detail and rationale for each target industry in the following sections, we will also note those that provide immediate opportunities for the region, meaning all the pieces in place to attract the industry and the industry has growth and expansion potential. The mid to longer term targets are those industries where the attractiveness of the region may not be as strong compared to the other industries, or the industry may not hold as much growth and expansion potential. One target that may seem inherently “missing” from an alliance named for an interstate is Distribution and Logistics. We did give it extensive consideration. The I-77 Alliance should remain open and welcoming to distribution and logistics, but we are not recommending it for proactive targeting. We believe the marketing and business development funds would be better spent on other targets. The I-77 Alliance region is currently very attractive to this


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industry and has product available for expanding companies in this sector. We believe investment from distribution and logistics companies will happen at a good pace without proactive marketing and lead development. Additionally, the distribution and logistics industry typically brings fewer jobs and lower wages than the other industries we are recommending. This was the tipping point in our evaluation. We are recommending the Alliance spend their resources on those areas with a larger return for the marketing investment. As we looked at the region, and each county individually, we also identified industries and niches that would be best to target for each county but not necessarily region-wide. Below are our niche target recommendations for Chester County.

Chester County Chemicals

Food Products

Advanced Materials Immediate Regional Opportunity

This industry includes metals, plastics, composites, glass, textiles, and even wood products. The I-77 Alliance region is strong in many of these areas and is supplying materials that support the automotive, aerospace, construction, and medical device industries among others. Supporting factors for targeting and development of the Advanced Materials industry include:

A location quotient on the region shows that the majority of the counties are exporting goods and services in this industry target, indicating that the area is attractive to the industry.

The segments in the industry have experienced growth over the past years, and are forecasted for continued growth.

The region is within close proximity to many major OEMs and suppliers. Advanced Materials will be present in the supply chain of many of the existing industries such as aerospace, aviation, automotive, machinery, and building/construction.

The region, with the history of textiles, is in an excellent position to take advantage of emerging technical and smart textiles.

The extensive transportation network present in the area, with interstate access and proximity to the Port of Charleston and the Charlotte airport, presents an attractive asset to the industry.

UNC Charlotte is home to the Center for Precision Metrology, and the University of South Carolina launched the McNAIR Center for Aerospace Research and Innovation.

Transportation Equipment Immediate Regional Opportunity This industry includes segments participating in the automotive and aerospace industries and can also include other transportation segments such as marine and utility vehicles. The sector


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has a strong and growing presence in the I-77 Alliance region and South Carolina as a whole. Supporting factors for targeting and development of the Transportation Equipment industry include:

All counties, except Richland County, have a large percentage of manufacturing jobs when compared to the United States and to South Carolina.

The region contains and is within close proximity to many major OEMs in the automotive industry, including companies such as BMW, Bosch, Bridgestone, Daimler and Michelin.

The aerospace industry is also prevalent in the state, with companies such as Boeing, Gulfstream, HondaJet, Eclipse Aerospace, Lockheed Martin, and Honeywell, to name a few.

The commercial aircraft, engines, and parts segment has rebounded rapidly from the recession, with demand being driven by increasing global air traffic and fleet replacement. Strong growth in the commercial segment is forecasted for the coming years. The defense segment, on the other hand, was hit hard by declining US defense spending which remains uncertain.

According to a report by CIT, the business jet segment recovery is now underway. As the US economy continues to improve and a delayed replacement cycle in corporate fleets starts moving, new jet deliveries will trend upward. New technology and product development is also driving demand.



Most segments in the industry have experienced growth over the past years and are forecasted for continued growth.

The Southeast, in general, continues to grow as a hub for the transportation equipment industry, both automotive and aerospace.

Chemicals Immediate Regional Opportunity This industry can include chemicals that support the pharmaceutical industry, automotive industry, the energy industry, and other sectors in the area.




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The segments in the industry have experienced healthy growth over the past years, and are forecasted for continued growth through 2019, though at a somewhat slower pace than the past 5 years. Inorganic chemicals, organic chemicals, pesticides, and beauty products are predicted to grow over 3% annually.

The region is within close proximity to many major OEMs and suppliers. Chemicals are used as raw materials in the manufacturing processes for many industries, such as glass, rubber, paint, plastics, and metals.

Business/Financial Services Immediate Regional Opportunity, Priority for York and Richland Counties This industry includes the traditional areas of financial services, insurance, and administrative services, along with some growing segments such as FinTech, the convergence of financial services and information technology, as well as logistics planning and software.

Richland and York County are especially strong in this industry with the percentage of existing Finance and Insurance businesses in those counties being above the state and national averages.

The proximity to the Charlotte metropolitan area can be an advantage in attracting growing Business and Financial Services companies, as well as business management, shared services, and headquarters functions. The development of more office product in the region can strengthen this opportunity.

With the capital city of Columbia in the region, there is opportunity to expand the Business and Financial Services presence.

The region has experienced healthy growth in administrative and support services as well as insurance.

Overall, the industry is forecasting annual growth from 2.2% to 10% depending on the segment. Some of the areas expecting the most growth include Commercial Banking, Financial Planning/Advice, and Internet Publishing/Broadcasting.

There is a wide range with looking at average wages by industry segment. Jobs in the Business and Financial Services can be available for a diverse set of education, experience, and skill levels.

Food Products Mid-term Regional Opportunity, Priority for York and Chester Counties This industry includes food products and processing including fruits, vegetables, meats, breads, and snacks.

Organic food is one very bright segment in food. According to “United States Organic Food Market Forecast & Opportunities, 2018”, the organic food market in United States will grow at the CAGR (Compound Annual Growth Rate) of about 14% during 2014-18. Organic fruits and vegetables will continue to lead the charge, while the demand for organic meat, fish, poultry, etc. is also expected to gain demand in the coming few


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years. Increasing per capita income coupled with the growing domestic production and commercial sector are anticipated to increase the demand of organic food in other regions of the country.

Chester County has a strong history in the agricultural industry including beef, poultry, goats, dairy, cotton, and soybeans.

The strong transportation network and access to the East Coast market would be attractive to the industry.

Other segments predicting the strongest growth annually over the next four to five years include, snack foods (3.4%) and tea production (4.3%).

Food production, historically, is a stable industry that does not experience wide swings as a whole even though preferences change and trends will emerge. Even in economic downturns, people must buy food. The relative health of the economy will determine the foods in demand and the needed delivery methods. Food production, also, tends to be more localized than some industries making it much less likely that foreign competition will impact the domestic industry.

Life Sciences Long-term Regional Opportunity, Priority for Richland County This industry includes pharmaceuticals, medical devices, biosciences, and medical supplies. The industry is growing nationwide as the aging population requires more medical products and services. Supporting factors for targeting and development of the Life Sciences industry include:

The industry has experienced strong growth over the past several years and most segments will continue to see healthy growth.

A location quotient analysis shows that Richland County is exporting goods and services in this industry.

Medical devices are in a growth life-cycle stage. Technological advances, legislative expansion of healthcare access, and the improving economy have stimulated demand, along with the aging population. Growth in this segment is expected to continue, with revenue increasing an average 6.5% per year through 2020.

Access to the East Coast market and a large population base is important to the industry.

The presence of the University of South Carolina in the region will be an asset to the industry.

Transportation assents of the region, including the airport and interstates, will be attractive to the industry.

Advanced Materials are tied to this industry, especially in the medical devices and supplies segments.

Regional marketing efforts to this industry have produced results below expectations. As this industry builds momentum in the area more resources can be devoted to targeting this industry.


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Defense Long-term Regional Opportunity, Priority for Richland This industry complements the transportation equipment in the aerospace and aviation sectors. This target industry includes a broad definition of defense including software development, security, and instrumentation.

With the presence of the University of South Carolina’s Innovista Research Campus and Fort Jackson, the region has assets that support the defense industry.

Richland County has the strongest location quotient for the industry within the region, however with the industries complement to the aerospace and aviation area it holds opportunity for the region as a whole.

Emerging niches include drones, unmanned systems, and cybersecurity. The uncertainty of this industry and the spending of the Department of Defense makes

this a long-term recommendation. The commercial side of aerospace, aviation and transportation holds more growth opportunity.

Targeting and Marketing Recommendations We recommend a 2-phase, filter and rank process, approach to target marketing within the recommended industry sectors. First for active recruitment activities, filter the available companies to focus on a size likely to indicate a significant expansion or relocation opportunity. For manufacturing, life sciences and other similar industries, that may be a relatively low threshold depending on your goals and budget. In the table below, we are suggesting a minimum of 250 employees, however in your more active recruiting markets, you may want to lower that to 100 employees. When looking at business services, shared services and similar industries, we recommend raising the employment number to focus on those companies that have a great service need and likely multiple locations of significant employment. Once you have your filtered list, we then recommend a process to research and rank the targets based upon company events. Such events that we monitor include:

Sales growth

Employment growth

Net income growth

Increasing research expenditures

Mergers and acquisitions

Restructuring

Past expansion history

New product/technology development

Raising capital/funds

New contract announcements

Current footprint of locations

Connection to the region and existing business in the region


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By focusing on companies that have one or more of the events listed above, the I-77 Alliance can prioritize its marketing efforts to effectively target companies that are most likely to have an active project and fit within the region. The process can lead into an ongoing lead generation and pipeline management program that consistently monitors, evaluates, and ranks the prospects so that you can spend your time with the most active companies. The table below outlines the estimated number of global companies: 1) within the entire universe, regardless of size; 2) within the target universe (HQ with minimum 250 employment unless noted, HQ with a minimum of 500 for Business and Financial Services); and 3) within the target universe experiencing events likely to indicate a company with an expansion, relocation, or consolidation need.

Target Industry Total Universe

Target Universe

Target Universe w/Growth or

Events

Advanced Materials 62,294 5,882 1,764

Transportation Equipment 24,031 5,058 1,517

Life Sciences 27,717 3,750 1,312

Business/Financial Services 59,571 3,007 751

Defense (Richland County) 66,218 5,263 1,315

Chemicals (Chester & Fairfield Counties) 16,196 2,373 593

Food Products 21,240 2,157 431

TOTALS 277,267 27,490 7,683

Business Development Program We estimate that there are approximately 8,000 companies the Alliance should consider for proactive targeting. A business development program may take advantage of several marketing vehicles. We recommend an ongoing lead qualification program, which includes purchasing leads to use in e-marketing and sales trips. We also recommend regular visits with site selectors. The industry profiles in the Appendix contain more specific information regarding targeting each cluster.

Lead Qualification We recommend supporting the lead qualification program that is outlined in the I-77 Alliance strategic plan. Chester County should consider a lead qualification program for the specific target sectors recommended. A lead qualification program begins with purchasing leads, but it takes consistent prospecting activity, good lead tracking, and patience. Making the most of purchased leads will take time to develop into opportunities and projects, a commitment to contacting a certain number of companies each and every month, keeping good notes in the SalesForce system used by YCED, and following up as necessary to nurture leads. Lead Qualification takes a dedicated effort and commitment to the long-term view.


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Do not overlook leads from existing businesses both for expansions and to recruit customers and suppliers. These leads are usually generated by the Business Retention and Expansion Program through regular company visits and surveys. There is one lead generation company, Applied Marketing, who is pioneering using LinkedIn to identify customer/supplier connections.

Site Selectors We recommend visits and regular communications with site selectors, as they may be involved in siting projects. Short, Mid, and Long-Term Target Priorities Applied Marketing broke the target sectors out into short, mid, and long-term targets for marketing outreach. This information will help Chester County focus its marketing resources.

Target Sector NAICS Description Short Term

Mid Term

Long Term

Advanced Materials

32111 Sawmills and Wood Production

32121 Veneer, Plywood, Engineering Wood Products

32613 Laminated Plastics

32615 Urethane Foam

32619 Plastic Products Miscellaneous

32629 Rubber Products

32711 Ceramics

32721 Glass Products

33111 Iron and Steel

33121 Metal Pipe and Tube

33131 Aluminum

33142 Copper Rolling, Drawing, and Extruding

33149 Nonferrous Metal Rolling and Alloying

33151 Ferrous Metal Foundry

33152 Nonferrous Metal Foundry

33211 Metal Stamping and Forging

33231 Structural Metal Products

33281 Metal Plating and Treating


33361a Engines and Turbines

33531 Electrical Equipment

33591 Batteries

33593 Wiring Devices

33599 Power Conversion Equipment


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33611a Cars and Automobiles

33611b SUVs and Light Trucks

33612 Trucks and Buses

33621 Truck, Trailer and Motor Home

33631 Automobile Engines and Parts

33632 Automobile Electronics

33633 Automobile Steering and Suspension

33634 Automobile Brakes

33635 Automobile Transmissions

33636 Automobile Interiors

33637 Automobile Metal Stamping

33639 Auto Parts

33641 Aircraft, Engines and Parts

33661b Boat Building

33699c ATVs, Golf Carts and Snowmobiles

Life Sciences

32541a Brand Name Pharmaceuticals

32541b Generic Pharmaceuticals

32541d Vitamins and Supplements

33451b Medical Devices

33911 Medical Instruments and Supplies

54171 Scientific Research and Development

62151 Medical and Diagnostic Laboratories


51121c Business Analytics and Enterprise Software

51821 Data Processing and Hosting Services

51913a Internet Publishing and Broadcasting

51913b Search Engines

52211 Commercial Banking

52221 Credit Card Issuing

52232 Credit Card Processing and Money Transferring

52311 Investment Banking and Securities Dealing

52312 Securities Brokering

52392 Portfolio Management

52393 Financial Planning and Advice

52411a Life Insurance and Annuities

52411b Health and Medical Insurance

52412 Property, Casualty, and Direct Insurance


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56111 Human Resource and Benefits Administration

56142 Telemarketing and Call Centers

Food Products

31161 Meat, Beef and Poultry Processing

31182 Cookie, Cracker and Pasta Production

31191 Snack Food Production

31192a Coffee Production

31192b Tea Production

31194 Seasoning, Sauce and Condiment Production

31199 Baking Mix and Prepared Food Production

Defense

33422 Communication Equipment

33451a Navigational Instruments

51121f Security Software Publishing

51741 Satellite Telecommunications

51791b Radar & Satellite Operators

54151 IT Consulting

Chemicals

32513 Dyes and Pigments

32518 Inorganic Chemicals

32519 Organic Chemicals

32521 Plastics and Resins

32522 Synthetic Fibers

32532 Pesticides

32551 Paints

32552 Adhesives

32561 Soaps and Cleaning Compounds

32562 Cosmetic and Beauty Products


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Economic Development Strategic Plan

“To improve is to change; to be perfect is to change often.” - Winston Churchill

The first Chester County Economic Development Strategic Plan in 2008 focused on elevating the basic economic development program to a solid, well-rounded program for a small, rural county. The 2011 strategic plan again raised the level of program to match that of much larger, better funded communities by adding depth to the program of work. CCED rose to the challenge each time, accomplishing action steps and reaching goals. The organization is now recognized as a leader among rural communities in South Carolina. The charge in this strategic plan is to leverage recent successes to create a stellar economic development program that establishes best practices for others to follow.

http://www.brainyquote.com/quotes/quotes/w/winstonchu138235.html


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Transformational Economic Development Projects Chester County’s hard work is paying off – big time. After many years of capacity building, 2014 marked a turning point with the announcement of the $560 million, 1,700-job Giti Tire facility. Now, the really hard work begins. It is time for the community to roll up its sleeves and work even harder to make sure it captures all of the opportunities that will grow out of this one significant, transformational economic development project.

Goal: Capture Opportunities from Transformational Economic Development Projects Action Steps

Chester County Planning Department should lead the community through an updated

land use planning process. We expect commercial and retail development to grow as a

result of new jobs. The land use planning process should make sure that the county

grows in a way that maintains its character. We also expect residential development.

The lack of executive and management housing was noted earlier in this report. Ensure

the plan reviews neighborhood planning, as well as transportation routes to get people

from their homes to work, school, and shopping. Economic development can provide

guidance on density and infrastructure requirements.

The 2011 strategic plan commented on the need for stronger ordinances to enhance

appearance. Identify a few communities that you want to look like when you “grow up.”

Take leaders on a field trip. Explore their design codes, ordinances, and financing tools

for making public investments.

Update town and county ordinances to ensure development reflects the way the

community wants to grow. Examples are updating sign ordinances, landscaping

requirements, building materials, and design standards. There was a time when Chester

County was happy with any development. Today, it can afford to ensure that

development meets the aesthetics desired by the community.

Start planning now for needed public investment in schools, roads, and infrastructure.

With new jobs comes new demands on schools, roads, water, sewer, and other public

services. Don’t get behind the growth, get in front of it. Make sure the One-Cent sales

tax capital improvement projects align with future development plans.

CCED should lead the economic development portion of the county’s overall land use

planning process aligning with economic development goals.


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Marketing Chester County’s story is one of determination, investment, and change. Determined leaders created a vision and stuck to it, and that vision attracted investment which is leading to monumental change. That’s how we see Chester County from the outside. Chester County needs to define its story and tell it often until others tell it for you. We heard this in every community meeting and from every leadership engagement. The perception of rural communities added to internal negativity can grow like a tsunami wave, putting out the passion of local leaders. We propose to combat perceptions and negativity with a story carried through a strong internal marketing program.

Goal: Define the Chester County Story Action Steps:

CCED has a good start already. We’ve heard it, and are firm believers in the future of

Chester County. Use a marketing or public relations firm to polish off the story and assist

with getting it out.

Add the marketing position, recommended below, in 2015-2016. Internal marketing is

time intensive, and the current staff of two does not have excess capacity. If the

position is not created soon, turn to contractors to fill the gap. Any successful marketing

initiative is based on sending a consistent message over time. This positon has been

recommended before in strategic plans and remains a significant gap.

Tell the story often.

o Social media is where most people get information today. It is an inexpensive,

although time intensive, media outlet.

Update the Chester County Economic Development Facebook page and

keep it updated. The last post was 2011.

Create a LinkedIn page and Twitter account for CCED.

CCED can use a program like Wordpress to input a post in one spot and

have it pushed to multiple social media outlets.

o At the annual economic development meeting, invite a wider group of citizens

and leaders to hear your story.

o Conduct familiarization tours with newly elected officials and new business

leaders. If they are going to tell your story they need to see it.

o Be aggressive with internal public relations – press releases, guest newspaper

columns, civic club presentations. We note there has been an increase in press


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releases and eblasts from CCED recently. This takes time, thus, the

recommended marketing staff positon.

o If the marketing positon is delayed in hiring, turn to contractors to help short-

term. Internal marketing is a top priority in this strategic plan and should not be

delayed by hiring obstacles.

Back up the story with data. White papers that show the Chester County story through

research and data can be powerful. With a small staff, white papers can seem like a

daunting task. These are perfect projects for interns and university partners. Explore

regularly hosting an intern to work on research projects that produce the data to

support the Chester County story. Examples are changing workforce skills requirements,

trends in wage growth, and return on investment in CCED. The economic development

department is usually the only county department that has a net positive return for the

public investment.

Goal: A Website that Reflects the New Chester County Action Steps:

It is time for an upgrade to the CCED

website. It received many kudos when first

launched, but that was several years ago.

Chester County is a different place today and

is ready for a new front door. New trends in

economic development website structure

date the Choose Chester site. Even though

the content is good and we like the tag line,

a refresh of the layout is recommended.

o An overall note is on narrative versus

graphics. The Choose Chester website

is heavy on narrative. Consider

downsizing the narrative into

callouts, summaries, bullets,

dashboards of figures, and key points.

Most people will not read a full page

worth of narrative but will look at bubbles of numbers and key points.

o One trend we noticed while judging websites for the International Economic

Development Council is navigation layout changes. Websites used to have one

main navigation bar from which everything is accessed, for CCED it is the bar on


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the left. We now see smaller navigation bars at the top with navigation images

as part of the home page graphic. Check out this site from Lynchburg, VA.

http://www.opportunitylynchburg.com/

o We recommend a major upgrade to data. This is one area where the information

is outdated and needs a presentation upgrade.

The site needs more data, sourced, and regularly updated. Check out the

Augusta, GA, website, which integrates data with the GIS function for

sites and buildings: http://www.augustaeda.org/. Since CCED is a small

office, something like the Economic Dashboard from Brand Acceleration

would be great. It is a tool that automatically updates data.

http://www.brandaccel.com/about-us/economic-dashboard/

Some EDO websites include a folder function where you can save data

and email it in PDF form. This is a useful feature for consultants and

companies who need to compile data from your site.

o Enhance the BRE section of the website to include video testimonials

(Dorchester County, SC, has good examples) and list resources such as workforce

training, financing, utilities, etc. The videos should be posted on You Tube as

well.

o Most communities now use a GIS function to present sites and buildings. The

Charlotte Regional Partnership has a good example. This could be a tool

supported by the I-77 Alliance and implemented on each county web page.

o Kudos for posting regular news. Reformat the News section to showcase a few

sentences’ introduction of each article with a “click here” for more. Most of the

posted news briefs are lengthy. In the future, consider shortening the briefs so

they can be reposted via social media.

o The video on the website is well done, but it is not on You Tube or other social

sites.

o Add I-77 Alliance to “Want More Information About Chester?”

Review and update client response materials and brochures/marketing materials. The

Gateway gives you the impression that CCED is a top-notch economic development

organization. So does the technology used for client presentations (Smart Board). The

website recommendations above take CCED from a website reflective of a smaller

county to that of a leading EDO. We recommend the same review of marketing

materials and client response information.

http://www.opportunitylynchburg.com/

http://www.augustaeda.org/

http://www.brandaccel.com/about-us/economic-dashboard/


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Goal: New Business Recruitment Strategies Action Steps:

Leverage the I-77 Alliance and Charlotte Regional Partnership for sales trips, trade

shows, and mission trips. They also coordinate site selection consultant trips. Spend

CCED dollars on niche sector trips and shows. When CCED increases staff, this should

free up some of the director’s time for more recruiting trips.

Develop target sector marketing brochures/flyers for niche sectors (chemicals and food

products) that can be posted on the website and used when meeting with prospects.

The target industry analysis outlines the value proposition for each target sector. This

website does a great job with providing the value proposition for each cluster:

http://www.nceast.org/. I-77 Alliance is recommended to produce target marketing

pieces for regional targets, which should be loaded on local EDO websites.

Use data mining to stay current on industry trends, customer–supplier relationships,

workforce needs of target sectors, and the site location factors for targets. Applied

Marketing, a national lead generation and industry analysis firm, can assist with data

mining techniques to not only become better informed on target sectors, but also serve

as the connection to existing businesses.

Identify suppliers to Giti Tire for recruitment opportunities. South Carolina is a well-

known location for tire manufacturing with significant investments from Continental,

Bridgestone, and Michelin. Chester County is an ideal location to attract ancillary

businesses that serve these manufacturing locations. Additionally, perform an analysis

of existing businesses to see who shares the same supply chain as Giti Tire.

Product Development Businesses said that one of the main reasons they located in Chester County was the availability of a site or building. Product development has been a hallmark of the CCED program, and it has paid big dividends. With recent large project announcements, some economic development organizations would relax. We recommend CCED keep the product development strategy strong and front-and-center.

Goal: Enhance the Value Proposition with Quality Sites, Parks, and Buildings Action Steps:

Through an independent evaluation, create a product development strategy with action

plans for top priority sites. Gaston County, NC, used this model to guide investments in

http://www.nceast.org/


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product development over a ten- year period. The strategic plan could include “finishing

touches” to existing sites, such as signage or infrastructure extension. It should also

include long-range projects such as new parks. Each year, pull out two or three of the

projects from the strategy to complete.

Several South Carolina counties take a percent of each fee-in-lieu and set the money

aside in a product development fund. We like this strategy because it creates a

sustainable funding source for product. We recommend CCED advocate for a dedicated

funding stream for product.

Proceed with a spec building development with or without the one-cent sales tax funds.

The spec building is low on the priority list of capital projects proposed to be funded by

the sales tax. Continue to work on a public-private partnership to build a spec if the tax

revenues do not come through.

Identify an existing site or group of sites near I-77 that can be bundled and marketed as

a park. Most of Chester County’s sites are stand alone or grouped as independent sites.

Companies prefer a business park setting over a stand-alone location. Branding a 400-

acre site as a business park will be more effective in marketing.

Continue to certify or qualify one site/park a year. CCED has had a commitment to site

due diligence. We recommend it be continued.

Complete an infill analysis for each town to identify sites already on infrastructure with

prospects for redevelopment.

o Consider modifying the incentive program to encourage location and expansion

on redevelopment sites by increasing the incentive or lowering thresholds for

eligibility.

o Encourage towns to fund façade grants and more general building revitalization

grants for commercial and service properties. The City of Hickory, NC, has an

award-winning redevelopment grant program.

o Towns and cities are creating redevelopment districts to encourage investment

in strategic locations. The districts often have grant programs for

redevelopment, special incentives, and technical assistance such as engineering

cost reimbursement.


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Business Retention and Expansion The business survey showed that 45% of businesses plan to expand. Nationwide, existing businesses account for 65-75% of new investment and job creation in a community. In rural communities, we believe this figure is even higher. These are good reasons to refocus on the BRE program.

Goal: Enhanced BRE Program Action Steps:

The main resource expended in a BRE program is people power. With only two staff, it is

the one thing on which CCED is short. It takes staff time to make BRE visits, to solve

expansion hurdles, and to collect data for trends analysis. Filling the business retention

and expansion role is recommended below in the organizational development section.

Existing businesses responded in the survey that they want to hear from CCED. They

want information on the local economy, new regulatory changes, and policies that

affect business. They prefer electronic newsletters, seminars, and lunch and learn

programs. We recommend CCED start a regular e-newsletter to existing businesses with

a dashboard of indicators prominently profiled. In the 2011 study, linking businesses via

social media was recommended.

Check out the “help” button on the Catawba County, NC, EDC website.

http://www.catawbaedc.org/Business.htm. It sends a positive statement about the

EDC’s interest in helping existing businesses.

Organize networking forums for business. Some examples are tenants association

meetings for business park tenants and networking meetings for specific industry

clusters.

Use SalesForce, or another customer relationship management program, to track

existing business information in addition to following up on lead generation. A web-

based CRM tool, like SalesForce, allows staff to get up-to-date information anytime.

Organizational Development Chester County Economic Development has come a long way from the cramped office with second-hand computer equipment in downtown Chester. It is now recognized as a leader in South Carolina in terms of program, technology, and staff expertise. CCED has had much success, but just imagine the future success it can have with adequate staffing and increased resources. That’s what our consulting team did – envisioned what CCED can become.

http://www.catawbaedc.org/Business.htm


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Goal: Support Implementation by Adequately Staffing CCED

The 2011 strategic plan update recommended a positon be created for a marketing/project manager to support the Director as well as implement a marketing plan. That recommendation was made when CCED was staffed by three people – it has been down to two staff people for two years. The organization is understaffed at a time when demands on staff are at an all-time high due to Giti Tire and other large projects. It is our recommendation that CCED, over the next five years, become a five person team. Action Steps:

Add an Assistant Director position to carry out the business retention and expansion

program and to assist with project management. Recruitment and BRE are both full-

time jobs in Chester County. The business retention and expansion positon has gone

unfilled for approximately two years. We believe this positon should be repositioned to

include project management under the title of Assistant Director.

Within the next year, add a marketing position. This has been a recommendation from

previous strategic plans never implemented. Now, at this critical time in economic

development, it is so very important for Chester County to tell its story.

In years three to five of implementation of the strategic plan, add a position for small

business and entrepreneur development. We note below that a strategy to capture spin

-off development and commercial and retail and services from Giti Tire is important to

fully realize the potential economic impact.

Goal: Public-Private Partnership in Economic Development With recent success, more agencies and partners are interested in being on the economic development team. Everyone loves a winner! This is an ideal time to capture the excitement and engage old and new partners. The 2011 strategic plan update included a private sector fundraising assessment because at the time, we saw the opportunity to expand both the number of investors and amount of private sector funds raise. Recent success in recruitment only amplifies the opportunity. Action Steps:

Create a task force to investigate merging CCED and the CDA into a countywide public-

private partnership (PPP). The PPP model is a growing trend in economic development

because of the advantages to funding, leadership development, and effectiveness. We

recommend this bold move for Chester County for several reasons:

o Higher collaboration between the public and private sectors.


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o Supports ability to recruit top talent. The county salary structure has been an

obstacle in recruiting positons for CCED.

o Potential for increased funding from both public and private sectors.

o Offers opportunity to include a wider range of leaders from towns and partners.

o Insulation from political changes.

While task force is evaluating the merger, create an umbrella group that brings

together all of Chester County’s partners and allies to bridge divides and share

information. Include town representatives, CDA leaders, agriculture, tourism, health

care, workforce development, and education. We suggest this group meet quarterly to

review the strategic plan. Many of the initiatives laid out here are not the direct

responsibility of CCED; therefore, it will be critical to engage partners in

implementation.

Goal: Increased Funding for Economic Development Action Steps:

Seek increased funding from Chester County and private sector investors. Chester

County will likely never have another moment in the sun like this one. If the

opportunities resulting from 1,700 new jobs in the economy are missed, they may

never come again. Therefore, seek funding for full implementation of this strategic

plan. You may consider a window of significantly more funding, five years, matched

with this strategic plan to parallel growth from Giti Tire.

The first step is a fundraising assessment which verifies funding availability for strategic

plan implementation. The strategic plan can be modified based on funding potential.

After the assessment, the next step is a fundraising campaign to secure funds for the

new economic development program of work.

Raise the private sector investment bar. Review the investment structure and consider

revising the fundraising goal. CCED has been very successful. It can turn that success

into securing new investors and increasing levels of investment.

o If the new PPP is formed, launch a Raise the Bar fundraising campaign. If the PPP

is not implemented, consider a small-scale private sector fundraising campaign.

Formalize an investor relations program now for CDA and then move to encompass the

new investors in the new PPP. The Chester Development Association has been a solid

partner to Chester County Economic Development. As politics wax and wane, the


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private sector has been steadfast in its commitment and support of the economic

development program.

o Create an investor newsletter with a dashboard highlighting a few key metrics

that will let investors know they are getting a return on their investment in CDA.

We suggest the metrics of: new leads, projects, announcements, investments,

and jobs.

Workforce Development Chester County is working hard on workforce development. It was named a bronze-winning Best High School by U.S. News and World Report. Several new programs are noted on the News section of the website, including use of drones and 3-D printing. New apprentice programs (recommended in 2011) will provide readiness certificates to student. However, statistics do not reflect the hard work yet. Chester County has low educational attainment statistics, the lowest of the I-77 Alliance counties, and SAT scores remain in the bottom group in the region. If the best and brightest continue to leave Chester County, educational attainment statistics will always remain low. Attracting them to stay or return is critical.

Goal: Create a Quality Talent Pipeline Action Steps:

Produce a video to raise awareness of local

job opportunities. We love this award-winning

video from Henderson County, NC.

www.youtube.com/watch?v=SYRHwDmpb4Q.

The goal is to change the image of working in

manufacturing by de-bunking myths about

manufacturing. The lighthearted tone of the

video resonates with young people.

The I-77 Alliance strategic plan recommends a regional workforce study. This action step

is very important for Chester County. The Giti Tire project and neighboring large projects

in York County may lead to the perception of lack of labor availability. Chester County

should review the regional study and scope of work and consider whether it may need a

county-specific study. For the next few years, Chester County will answer the question

about whether there will be enough people to work at new and expanded facilities.

http://www.youtube.com/watch?v=SYRHwDmpb4Q


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Explore the Work Ethics Certification Program pioneered in South Carolina by

Greenwood County. Students volunteer to be assessed on work ethics criteria such as

showing up on time, dressing appropriately, team work, follow through, etc. Companies

in Greenwood County recognize the credential in the hiring process, thereby making it

valuable to students.

We are fans of communities that have a commitment to each student graduating with a

high school diploma and something else, whether that something else is a Career

Readiness Certificate, technical college certification, work ethics certification, or other

qualification beyond the diploma. The new apprentice program is making some

headway in this area.

Small Business Development There is a gap in the economic development program in Chester County in services to support

small businesses and entrepreneurs. The gap stands out at a time when there is more

opportunity than ever for people to start new businesses to capture spin-off development from

Giti Tire and the new residents it will attract. CCED added “Tools for Success” to its website as

one way to support small business. With only two staff positions, there are not enough people

resources to devote staff time yet.

Goal: Support Entrepreneurs and Small Business Development

Action Steps:

Over the course of this three- to five-year strategic plan, add a positon for small

business development. This person will act as a small business liaison, connecting

entrepreneurs and small businesses to available resources. As mentioned above, it is an

important time for small business development given the new opportunities to serve

the people and businesses that will follow Giti Tire.

Help fill the gap before staff is hired by adding starter-kits or road maps to starting

businesses to the website. Examples are starter-kits for starting a restaurant, starting a

food truck business, or starting a daycare. The Tools for Success on the website is a

beginning and could be expanded.

Survey small businesses to find the gap in current services. If it is financing, seek grant

funding to seed a revolving loan program. If it is start-up space, explore an incubator. If

the need is management support, start a SCORE (Senior Corps of Retired Executives)

chapter.

Creative Economic Developing Consulting is relaunching the nationally-recognized

Certified Entrepreneurial Community® program in 2015. The program certifies a


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community as entrepreneur ready. Explore this program for Chester County to jump-

start entrepreneurship in time to capture opportunities for new small businesses to

support the growth spurred by Giti Tire.

Tourism Development

Tourism (heritage tourism, agri-tourism, and recreation tourism) is a growing part of the Chester County economy. Creative EDC heard in community meetings that the public is supportive of developing the tourism economy. The success of The Gateway alone is evidence of Chester County’s popularity as a destination. Chester County should decide whether it is adequately served by the Olde English District Tourism Commission, or whether it is time for a county tourism department. Given the many assets that Chester County has that need investment and promotion, we advocate for the latter in collaboration with the regional group. The recommendation of a county tourism development department was recommended in 2011 because we saw the need then.

Goal: Create a Chester County Tourism Development Department Action Steps:

Create a countywide tourism development agency. Staff and resources should be

allocated to developing the tourism economy. Marketing, event planning, tourism asset

development, grant writing, and many other tasks could fall to this department.

Develop agri-tourism events and destinations including the Ag + Arts Tour. CCED has

been involved in the very successful Ag + Arts Tours. This type of awareness program is

ideal to be expanded by a Chester County Tourism Development Department.

Start a What’s Up in Chester County website as a community calendar and internal

marketing. We like the example from our home town:

http://www.whatsupinelkinnc.com/.

Until there is a county recreation department, use the tourism department to advocate

for sports development and investments in recreation assets that support attracting

tournaments and visitors.

http://www.whatsupinelkinnc.com/


43

Downtown Development Chester County Economic Development needs strong, growing, inviting towns to be successful in recruiting new business and retaining existing business. We love the story told by CCED Director Karlisa Parker about the routes she uses to drive clients around the county to make sure they see the thriving parts of town. Citizens and leadership want to see their towns grow and thrive. Downtown and overall town development was discussed in every community meeting and was a prominent point made in online surveys.

Goal: Growing, Thriving Chester County Towns Action Steps:

Encourage each town to name a Downtown Development Coordinator. This could be a

role assigned to an existing staff person or a new position for larger towns. The

Downtown Development Coordinator will be responsible for:

o Advising the town on ordinance changes to attract investment and revitalization

to downtown;

o Advising the town on policies to enhance appearance;

o Applying for grants to improve town infrastructure and appearance (sidewalks,

signage, etc.);

o Partnering with other groups to organize downtown events;

o Marketing and promoting downtown;

o Fund façade grants and downtown building revitalization grants.

Several towns are interested in attracting retirees. In fact, retirement development is a

strategy for communities across the county. North Carolina recently developed the

Certified Retirement Community designation. Much like a certified site, a Certified

Retirement Community certifies that a community has specific assets in place to support

retirees. Even though South Carolina does not have a similar program, communities can

follow the guidelines while they lobby the state for a designation program. More

information can be found at:

https://www.nccommerce.com/Portals/2/Documents/RuralDev/North%20Carolina%20

Certified%20Retirement%20Community%20Program%202%20BJL%20Rev.pdf

Encourage the towns to create Appearance Commissions to advise the town boards on

appearance standards and beautification. Appearance used to be of not much concern

to economic developers; however, given the role that quality of place plays in talent

recruitment and therefore business recruitment, we are now keenly interested in

appearance and beautification.

https://www.nccommerce.com/Portals/2/Documents/RuralDev/North%20Carolina%20Certified%20Retirement%20Community%20Program%202%20BJL%20Rev.pdf

https://www.nccommerce.com/Portals/2/Documents/RuralDev/North%20Carolina%20Certified%20Retirement%20Community%20Program%202%20BJL%20Rev.pdf


44

Year

1 Hire assistant director

Land use planning

Design code and ordinance updates

Define the Chester County story

Internal marketing

Increase funding

Regional workforce study

Year

s 2

-3 Website upgrade

New business starter kits on website

Infrastructure investment

Add marketing position

Renewed focus on recruitment

Infill analysis

Data tracking tool

Explore pubic-private partnership

Focus on talent pipeline

Downtown Development coordinators

Year

s 4

-5 Add small business development position

County tourism department

Tourism marketing and asset development

Retiree recruitment

Appearance commissions

Implementation

The Chester County Economic Development Strategic Plan is designed to be implemented over

five years. We recommend in Year 1 filling the vacant position, planning for growth from the

Giti project, and increasing internal marketing. Years 2-3 include the website upgrade, adding a

marketing position, exploring a public-private partnership, and partnering with the town in

downtown development. Years 4-5 focus on tourism, retirement industry development, and

enhancing the appearance of Chester County to attract visitors and retirees.

Metrics

We recommend that Chester County Economic Development track the following information to

gauge progress on the strategic plan. The list is long; however, the plan is meant to be

implemented over a three- to five-year period. One important note: this plan is designed to be

implemented with new staff (Assistant Director, Marketing Director, and eventually a Small

Business Developer). If new staff is not hired, we do not believe many of the actions can be

accomplished with the current two person staff.

Completion of a Chester County Land Use Plan Update

Add marketing position

Create/maintain social media sites

Familiarization tour for newly elected officials


45

Annual economic development meeting

Track internal communications: eblasts, press releases, presentations

Website upgrade

Review and update client response and marketing materials

Track participation in sales trips, trade shows, and missions with Charlotte Regional

Partnership and I-77 Alliance

Develop target sector marketing briefs

Create a product development strategy/plan

Spec building development

Certify or qualify with due diligence one site/park a year

Infill analysis for each town

Fill BRE Position as an Assistant Director

Track communications with existing businesses

Establish a task force to investigate a public-private partnership structure for economic

development

Until PPP is developed, create an umbrella group that brings together all of Chester

County’s partners and allies for economic development

Increase funding for economic development operations by increased public investment

and new private investment

Track education and workforce statistics (graduates, degrees, certifications,

apprenticeships, etc.)

Add small business development position

Add new business starter kits to website

Support the creation of a county tourism development department

Collaborate with newly appointed Downtown Development Coordinators in each town

Annual Updates

All too often, a strategic plan gets attention in year one then momentum fades. This has not

been the case in Chester County. CCED has been diligent in implement of previous plans.

Creative EDC recommends that CCED hold an annual planning workshop to review and update

the strategic plan. The review should include accomplishments, work in progress, changes to

the organization and regional economy, and emerging trends not evident when the plan was

adopted. The update should be a written addendum to the strategic plan to guide the

organization for the coming year. Since strategic plans are written at a point in time, course

corrections are needed as the economy changes.


46

Appendix A: Community and Business Survey Responses

On a scale of 1 to 5, with 5 being highest, how do you rate the current business climate of the area?

5

4

3

2

1

How does the business climate today vary from before the recession?

Significantly better than before therecession

Somewhat better than before therecession

Same as before the recession

Worse than before the recession

Significantly worse than before therecession


47

0

10

20

30

40

50

60

70

80

90

Rate the following as an asset supporting economic development or a weakness hindering economic growth or neither.

Asset

Weakness

Neither


48

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%L

oca

l jo

b c

rea

tio

n

Be

tte

r p

ayin

g jo

bs

Incre

ase

d t

ax b

ase

Eco

no

mic

div

ers

ific

atio

n

Incre

ase

d r

eta

ilsa

les

Incre

ase

d n

ew

bu

sin

ess s

tart

-up

s

Incre

ase

d s

up

po

rtto

exis

tin

gb

usin

esse

s

What should be the top three goals of the Chester County economic development strategic plan? CHOOSE THREE.

What is the most important investment Chester County could make to ensure long-term, sustainable economic growth? CHOOSE ONLY ONE.

Infrastructure

Transportation

Recreation amenities

Business recruitment

Existing business support

Cultural arts amenities

Beautification

Economic diversification

Downtown development


49

Appendix B: Economic and Demographic Trends Analysis The analysis of economic and demographic trends is an important part of the strategic planning process. We wanted to know if and how Chester County is growing and changing and how it compares to other communities and the region. Chester County’s population is declining and aging faster than the region. This is not uncommon among rural communities, but it is concerning and needs to be addressed in the strategic plan. Other statistics of concern are educational attainment and SAT scores, indicators of a lower skilled talent pool. On a positive note, unemployment is declining, wages are growing, and the labor force is rebounding after the Great Recession. The information that follows charts Chester County’s growth and changes over the last ten years. Population

Source: U.S. Census

34,068

33,140

32,578

31,500

32,000

32,500

33,000

33,500

34,000

34,500

2000 2010 2013 Estimate

Chester County

Chester Population


50

Source: U.S. Census

Age Demographics

Source: U.S. Census

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2000 2010 2013 Estimate

Regional Population

I-77 Region Charlotte MSA Columbia MSA

6.25%6.09%

6.83%6.71%

6.18%10.80%

11.95%14.71%

8.15%6.51%

9.47%4.95%

1.41%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00%

Under 5 years 5 to 9 years

10 to 14 years 15 to 19 years 20 to 24 years 25 to 34 years 35 to 44 years 45 to 54 years 55 to 59 years 60 to 64 years 65 to 74 years 75 to 84 years

85 years and over

Chester Age Demographic


51

Labor Force

Source: Bureau of Labor Statistics


14,200

14,400

14,600

14,800

15,000

15,200

15,400

15,600

15,800

16,000

16,200

16,400

2005 2006 2007 2008 2009 2010 2011 2012 2013

Chester Labor Force

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Labor Force 2004-2013

Chester Fairfield Richland York I-77 Region


52

Unemployment Rate



0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Chester Unemployment Rate

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Unemployment Rate 2004-2013

Chester Fairfield Richland York I-77 Region


53

Employment



8,043

6,413

2,813

67

393

2,353

3,600

1,693

146

167

163

566

664

200

- 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000

Total, All Industries

Total, Private

Goods Producing

Natural Resources and Mining

Construction

Manufacturing

Service Providing

Trade Transportation and Utilities

Information

Financial Activities

Professional and Business Services

Education and Health Services

Liesure and Hospitality

Other Services

Unclassified Establishments

Chester Employment by Industry Sector

-24.67%

35.76%

-0.19%

18.12%

3.78%

33.43%

4.76% 3.20%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

Employment Growth All Industries 2004-2013

Chester Fairfield Richland York I-77 Charlotte Columbia South Carolina


54

Wages



$709 $721

$953 $840

$778 $985

$540 $550

$994 $688 $696

$672 $261

$420

$- $200 $400 $600 $800 $1,000 $1,200

Total, All Industries

Goods Producing

Construction

Service Providing

Information

Professional and Business Services

Liesure and Hospitality

Unclassified Establishments

Chester Wages by Industry

22.45%

49.09%

25.81%

20.71%

29.88%

19.11%

24.40% 25.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Percent Change All Industries 2004-2013

Chester Fairfield Richland York I-77 Charlotte Columbia South Carolina


55

Business Establishments


-

2,000

4,000

6,000

8,000

10,000

12,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Business Establishments 2004-2013

Chester County Fairfield County Richland County York County


56

Chester County Major Employers

BOISE CASCADE COMPANY

BORAL STONE PRODUCTS LLC

CHESTER COUNTY

CHESTER COUNTY SCHOOL DISTRICT

CHESTER HMA INC

CHESTER TELEPHONE COMPANY

CITY OF CHESTER

GUARDIAN INDUSTRIES CORPORATION

HADDON HOUSE FOOD PRODUCTS INC

LIPPERT COMPONENTS MANUFACTURING IN

MCDONALDS RESTAURANTS OF SC, INC

MORCON INC

MORRISON TEXTILE MACHINERY COMPANY

OMNOVA SOLUTIONS INC

PPG INDUSTRIES FIBER GLASS PRODUCTS

SC DEPT OF TRANSPORTATION

SCHNEIDER NATIONAL CARRIERS, INC

TDY INDUSTRIES LLC

UNITED INFRASTRUCTURE GROUP, INC

WAL-MART ASSOCIATES, INC

Source: SC Department of Employment and Workforce


57

Education

Source: U.S. Census

Source: U.S. Census

7.26%

15.55%

37.73%

17.57%

9.16%

8.44%

4.30%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00%

Chester Educational Attainment

Graduate or professional degree Bachelor's degree

Associate's degree Some college, no degree

High school graduate (includes equivalency) 9th to 12th grade, no diploma

Less than 9th grade

77.20%

12.70%

78.90%

13.70%

90.10%

35.60%

88.00%

28.50%

88.30%

31.10%

0.00% 10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%90.00%100.00%

Percent high school graduate or higher

Percent bachelor's degree or higher

Higher Educational Attainment 2013

I-77 Region York Richland Fairfield Chester


58

SAT Scores

Source: SC Department of Education

1000

1100

1200

1300

1400

1500

1600

1700

2008 2009 2010 2011 2012 2013

District SAT Scores 2008 - 2013

Chester Fairfield Richlands 1

Richlands 2 York 1 York 2 Clover

York 3 Rock Hill York 4 Fort Mill South Carolina


59

Income

Source: U.S. Census

Source: U.S. Census

$14,709

$17,927 $17,828

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

2000 2010 2013 Estimate

Chester County

Chester Per Capita Income

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

2000 2010 2013 Estimate

Per Capita Income 2000-2013

Chester County Fairfield County Richland County

York County I-77 Alliance


60

Home Values

Source: U.S. Census

Source: U.S. Census

$62,800

$82,700 $80,800

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

2000 2010 2013 Estimate

Chester County

Chester Median Home Value

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

2000 2010 2013 Estimate

2013 Median Home Value

Chester County Fairfield County Richland County

York County I-77 Alliance


61

Construction Note: 2010 data not available.

Source: U.S. Census

Source: U.S. Census

$-

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Chester Construction Cost

-

20

40

60

80

100

120

140

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Chester County Building & Units Constructed


62

Source: U.S. Census

-54.63%

-60.80%

4.95%

-13.03%

-70.00%

-60.00%

-50.00%

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

Change in Residental Construction Cost 2004-2013

Chester Richland York I-77 Region


63

Appendix C: Business Survey Results Creative EDC conducted an online survey of businesses in the I-77 Alliance region. Local

economic development offices sent the survey to business and industry databases. Below are

the results from responses in Chester County.

Q2. What business sector most closely matches your business?

0.0%

0.0%

0.0%

60.0%

0.0%

10.0%

10.0%

0.0%

0.0%

10.0%

0.0%

0.0%

10.0%

0.0%

Retail

Leisure and Hospitality

Business & Professional Services

Manufacturing

Wholesale Trade

Construction

Information

Financial Activities

Education

Health Care

Agriculture

Forestry

Nonprofit

Government

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

What business sector most closely matches your business?


64

Q3. How many years have you been in business?

0.00% 8.33%

8.33%

83.33%

How many years have you been in business?

Less than one year

1 - 5 years

6 - 10 years

More than 10 years


65

Q4. How many employees, full-time equivalents, are employed in your business?

25.00%

16.67%

0.00%33.33%

25.00%

How many employees, full-time equivalents, are employed in your business?

1 - 10

11 - 25

26 - 50

51 - 100

100+


66

Q5. Why did you locate your business in the region? Choose all that apply.

20.69% 20.69%

10.34%

6.90%

10.34% 10.34%

3.45% 3.45%

13.79%

0.00%0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Loca

tion

Co

st o

f d

oin

g b

usi

ness

Wo

rkfo

rce

avai

labi

lity

Wo

rkfo

rce

cost

Tran

spo

rtat

ion

net

wor

k

Acc

ess

to c

usto

mer

s an

dsu

pp

liers

Uti

litie

s av

aila

bili

ty

Uti

litie

s co

st

Bu

ildin

g o

r la

nd

ava

ilab

ility

Trai

nin

g an

d e

du

cati

on

pro

gram

s

Why did you locate your business in the region? Choose all that apply


67

Q6. What business assistance would have been helpful when you started/expanded your

business and would be helpful to a growing business in the region today? Choose all that

apply.

0.00%

10.53%5.26%

15.79%

0.00% 0.00%5.26% 5.26%

10.53%

47.37%

0.00%0.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%45.00%50.00%

Bu

sin

ess

plan

nin

g

Fin

anci

ng

Reg

ulat

ory

assi

stan

ce

Wo

rkfo

rce

trai

nin

g

Bu

sin

ess

men

tori

ng

Man

agin

g o

pera

tio

ns

Incu

bato

r sp

ace

Mar

keti

ng

New

mar

ket

iden

tifi

cati

on

Tax

bre

aks,

gra

nts,

ince

nti

ves N

on

e

What business assistance would have been helpful when you started/expanded your business and would be helpful to a growing business in the region today?

Choose all that apply.


68

Q7. Are you currently planning to... Choose all that apply.

45.45%

0.00%

0.00%

0.00%

0.00%

0.00%

9.09%

0.00%

45.45%

0.00%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Expand at your current location

Expand at a new location

Sell your business

Move your business within the region

Move your business outside the region

Merge or acquire another business

Downsize at your current location

Close your business

None of the above

Other

Are you currently planning to... Choose all that apply


69

Q8. Overall, how satisfied are you with the following in the region?

0

2

4

6

8

10

12

14

Wo

rkfo

rce

avai

labi

lity

Wo

rkfo

rce

skill

set

s

Wo

rkfo

rce

trai

nin

g

Tran

spo

rtat

ion

acce

ss

Uti

litie

s

Loca

tion

ch

oic

es (b

uild

ings

, sit

es)

Loca

l reg

ula

tory

en

viro

nmen

t

Stat

e re

gula

tory

en

viro

nmen

t

Loca

l tax

es

Pub

lic s

choo

l sys

tem

Tech

nica

l Col

lege

Qu

alit

y o

f lif

e am

enit

ies

Bu

sin

ess

clim

ate

Overall, how satisfied are you with the following in the region?

Very unsatisfied

Unsatisfied

Somewhat satisfied

Satisfied

Very satisfied


70

Q10. Labor force is almost always the number one concern of existing businesses. Rate the

following labor related issues as either positive, negative, or neither.

0

2

4

6

8

10

12

Labo

r av

aila

bili

ty

Ove

rall

qu

alit

y o

f lab

or

Labo

r fo

rce

skill

set

Trai

nin

g p

ote

nti

al

Abi

lity

to r

etra

in

Wag

e e

xpec

tati

on

Wo

rk e

thic

Labor force is almost always the number one concern of existing businesses. Rate the following labor related

issues as either positive, negative, or neither.

Neither

Negative

Positive


71

Q11. Rate the current business climate in the region on a scale of 1 to 5 where 5 is the

highest.

18.18%

36.36%

45.45%

0.00%0.00%

Rate the current business climate in the region on a scale of 1 to 5 where 5 is the highest.

5

4

3

2

1


72

Q12. What are three benefits of operating a business in the region?

Geographical location of the Southeast

Workforce availability

Business friendly state

Low crime

Tax incentives

Location to customers

Taxes

Pro-business local government

Right-to-Work state

Work ethic

Proximity to markets

Business to business opportunities

Transportation network

Opportunity

Aggressive economic development team

Transportation access

Community/civic support

Climate

Q13. What types of companies are missing from the region and would be a good fit, such as

companies that complement your business?

Food

Real Estate

More manufacturers of almost any type

Truck carriers

Retail

Textile Manufacturers, Non-wovens

Paper Manufacturers


73

Q14. What are your main challenges to sustaining and growing your business? Choose all

that apply.

5.26%

5.26%

10.53%

15.79%

0.00%

10.53%

10.53%

0.00%

31.58%

5.26%

0.00%

0.00%

5.26%

0.00%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00%

Business planning

Management

Workforce development

Workforce availability

Financing

Scaling up

Transportation and access

Utilities

Sales/revenue

Finding affordable space

Local regulations

State regulations

Federal regulations

Other (please specify)

What are your main challenges to sustaining and growing your business? Choose all that apply


74

Q15. What, if anything, would cause you to consider moving your business outside of the region?

For the pro-business local government to drastically change

Union presence

Tax increases

Environmental restrictions

A change in the footprint of our company

Q16. How would you like to be contacted with information that can help you grow your business in the region? Choose all that apply.

54.55%

9.09%

18.18%

9.09% 9.09%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Email newsletter Networking events Educational seminars Periodic visits fromeconomic

development staff

Direct mail

How would you like to be contacted with information that can help you grow your business in the region?

Choose all that apply.


75

Q17. Please share any current needs for business assistance. If you would like for someone to contact you, please share contact information.

As an organization that also wishes to help businesses succeed in our target counties (York,

Chester, Lancaster, Cherokee, and Union), we would be happy to offer our free consulting

services to any potential existing or start-up businesses you wish to send our way. We are

funded by the SBA and the State of South Carolina, and physically hosted by Winthrop

University. We offer a variety of workshops for business owners, and will be happy to work with

you in any way possible. Call Carol Daly at (803) 323-2283 if you would like to know more, or

visit our website at www.winthropregionalsbdc.org


76

Appendix D: Target Industry Methodology & Profiles

Methodology

Analysis of Existing Businesses: Using U.S. Bureau of Labor Statistics (BLS) data, we evaluated the existing businesses of each county.

Chester County Based on this analysis, the county’s largest sectors include manufacturing, retail trade, and accommodation/food services.

Source: U.S. Bureau of Labor Statistics (BLS); D = Not shown to avoid disclosure of confidential information.


77

Comparison of the Alliance Counties to South Carolina and the US We analyzed the distribution of business by major NAICS sectors to compare and contrast the counties with South Carolina and the U.S. as a whole. Of note, the region has a higher concentration of manufacturing, utilities, and finance/insurance (York and Richland) as compared with both South Carolina and the U.S. average.

Source: U.S. Bureau of Labor Statistics (BLS) D = Not shown to avoid disclosure of confidential information.


78

Industry Analysis We further analyzed existing businesses in the counties by 3-digit NAICS code. We have used a comparison of 2010 data with the most current data set of 2013. Going further into history factors in the recession which overshadows the recent gains. The significant, growing sectors are highlighted.

Chester County

Industry U.S. TOTAL 2010

Chester County

2010

U.S. TOTAL 2013

Chester County 2013

U.S. TOTAL % Change

Chester County

% Change

Base Industry: Total, all industries 106,201,232 6,059 112,958,334 6,413 6.4% 5.8%

NAICS 111 Crop production 528,867 NC 550,459 NC 4.1%

NAICS 112 Animal production and aquaculture 225,138 ND 238,480 ND 5.9%

NAICS 113 Forestry and logging 56,152 ND 56,363 ND 0.4%

NAICS 114 Fishing, hunting and trapping 8,205 NC 7,819 NC -4.7%

NAICS 115 Agriculture and forestry support activities

328,600 NC 357,353 ND 8.8%

NAICS 211 Oil and gas extraction 158,423 NC 196,732 NC 24.2%

NAICS 212 Mining, except oil and gas 203,498 NC 210,511 NC 3.4%

NAICS 213 Support activities for mining 289,709 NC 406,016 NC 40.1%

NAICS 221 Utilities 551,287 ND 547,807 ND -0.6%

NAICS 236 Construction of buildings 1,226,917 23 1,281,387 24 4.4% 4.3%

NAICS 237 Heavy and civil engineering construction

811,123 77 869,624 223 7.2% 189.6%

NAICS 312 Beverage and tobacco product manufacturing

183,414 NC 199,501 NC 8.8%

NAICS 313 Textile mills 119,385 ND 116,811 ND -2.2%

NAICS 314 Textile product mills 119,145 ND 113,868 ND -4.4%

NAICS 315 Apparel manufacturing 157,587 NC 143,535 NC -8.9%

NAICS 316 Leather and allied product manufacturing

28,109 NC 29,482 NC 4.9%

NAICS 321 Wood product manufacturing 339,542 ND 353,610 296 4.1%

NAICS 322 Paper manufacturing 392,853 ND 376,519 ND -4.2%

NAICS 238 Specialty trade contractors 3,451,459 178 3,668,939 147 6.3% -17.4%

NAICS 311 Food manufacturing 1,442,112 ND 1,467,238 ND 1.7%

NAICS 337 Furniture and related product manufacturing

356,094 NC 358,243 NC 0.6%

NAICS 339 Miscellaneous manufacturing 566,479 ND 577,881 ND 2.0%

NAICS 423 Merchant wholesalers, durable goods

2,718,043 43 2,867,522 47 5.5% 9.3%

NAICS 424 Merchant wholesalers, nondurable goods

1,935,875 325 1,980,354 424 2.3% 30.5%


79

NAICS 425 Electronic markets and agents and brokers

812,545 38 891,207 40 9.7% 5.3%

NAICS 441 Motor vehicle and parts dealers 1,630,802 39 1,789,864 60 9.8% 53.8%

NAICS 442 Furniture and home furnishings stores

436,314 35 445,037 32 2.0% -8.6%

NAICS 443 Electronics and appliance stores 502,036 NC 490,045 NC -2.4%

NAICS 444 Building material and garden supply stores

1,141,826 30 1,199,903 29 5.1% -3.3%

NAICS 445 Food and beverage stores 2,813,131 312 2,934,003 219 4.3% -29.8%

NAICS 446 Health and personal care stores 979,729 39 1,011,394 43 3.2% 10.3%

NAICS 323 Printing and related support activities

485,523 ND 452,531 ND -6.8%

NAICS 324 Petroleum and coal products manufacturing

110,972 NC 111,879 ND 0.8%

NAICS 325 Chemical manufacturing 785,283 182 793,240 186 1.0% 2.2%

NAICS 326 Plastics and rubber products manufacturing

623,259 ND 656,736 ND 5.4%

NAICS 327 Nonmetallic mineral product manufacturing

368,097 753 372,376 849 1.2% 12.7%

NAICS 331 Primary metal manufacturing 361,211 ND 395,966 ND 9.6%

NAICS 332 Fabricated metal product manufacturing

1,276,933 255 1,421,941 353 11.4% 38.4%

NAICS 333 Machinery manufacturing 991,039 ND 1,104,248 ND 11.4%

NAICS 334 Computer and electronic product manufacturing

1,097,216 NC 1,061,559 NC -3.2%

NAICS 335 Electrical equipment and appliance mfg.

356,075 NC 373,866 NC 5.0%

NAICS 336 Transportation equipment manufacturing

1,327,169 ND 1,513,893 NC 14.1%

NAICS 533 Lessors of nonfinancial intangible assets

25,307 NC 23,797 NC -6.0%

NAICS 541 Professional and technical services 7,457,913 ND 8,122,350 112 8.9%

NAICS 551 Management of companies and enterprises

1,854,778 ND 2,087,081 NC 12.5%

NAICS 561 Administrative and support services 7,043,417 ND 7,893,439 ND 12.1%

NAICS 562 Waste management and remediation services

355,903 ND 375,294 ND 5.4%

NAICS 611 Educational services 2,460,150 NC 2,629,459 ND 6.9%

NAICS 621 Ambulatory health care services 5,969,545 168 6,462,954 194 8.3% 15.5%

NAICS 622 Hospitals 4,639,079 ND 4,748,092 ND 2.3%

NAICS 623 Nursing and residential care facilities

3,119,452 ND 3,219,398 ND 3.2%

NAICS 624 Social assistance 2,467,934 117 3,144,449 107 27.4% -8.5%

NAICS 447 Gasoline stations 818,057 133 860,533 131 5.2% -1.5%

NAICS 448 Clothing and clothing accessories stores

1,379,749 60 1,388,530 56 0.6% -6.7%

NAICS 451 Sports, hobby, music instrument, book stores

604,441 NC 600,085 NC -0.7%


80

NAICS 452 General merchandise stores 2,988,606 192 3,086,621 256 3.3% 33.3%

NAICS 453 Miscellaneous store retailers 772,389 ND 806,726 17 4.4%

NAICS 454 Nonstore retailers 414,244 ND 460,763 10 11.2%

NAICS 481 Air transportation 448,145 NC 448,618 NC 0.1%

NAICS 482 Rail transportation 584 NC 662 NC 13.4%

NAICS 483 Water transportation 62,401 NC 65,988 NC 5.7%

NAICS 484 Truck transportation 1,249,934 263 1,371,104 263 9.7% 0.0%

NAICS 485 Transit and ground passenger transportation

419,152 NC 443,859 NC 5.9%

NAICS 486 Pipeline transportation 42,265 NC 43,740 NC 3.5%

NAICS 487 Scenic and sightseeing transportation

26,399 NC 29,634 NC 12.3%

NAICS 488 Support activities for transportation 540,988 17 592,501 30 9.5% 76.5%

NAICS 491 Postal service 4,424 NC 5,528 NC 25.0%

NAICS 492 Couriers and messengers 519,434 NC 536,626 ND 3.3%

NAICS 493 Warehousing and storage 629,934 ND 708,067 ND 12.4%

NAICS 511 Publishing industries, except Internet

754,903 20 728,215 ND -3.5%

NAICS 512 Motion picture and sound recording industries

368,885 ND 380,048 ND 3.0%

NAICS 515 Broadcasting, except Internet 293,533 NC 285,202 NC -2.8%

NAICS02 516 Internet publishing and broadcasting

NC NC NC NC

NAICS 517 Telecommunications 902,691 ND 849,782 ND -5.9%

NAICS 518 Data processing, hosting and related services

242,412 NC 265,564 ND 9.6%

NAICS 519 Other information services 141,462 ND 194,440 NC 37.5%

NAICS 521 Monetary authorities - central bank 20,735 NC 17,940 NC -13.5%

NAICS 522 Credit intermediation and related activities

2,536,762 123 2,608,712 97 2.8% -21.1%

NAICS 523 Securities, commodity contracts, investments

800,476 ND 864,943 ND 8.1%

NAICS 524 Insurance carriers and related activities

2,041,869 ND 2,130,569 ND 4.3%

NAICS 525 Funds, trusts, and other financial vehicles

86,399 NC 3,572 NC -95.9%

NAICS 531 Real estate 1,382,794 10 1,449,906 ND 4.9%

NAICS 532 Rental and leasing services 507,470 14 517,482 ND 2.0%

NAICS 711 Performing arts and spectator sports

394,835 ND 426,482 ND 8.0%

NAICS 712 Museums, historical sites, zoos, and parks

127,527 NC 141,242 NC 10.8%

NAICS 713 Amusements, gambling, and recreation

1,381,377 ND 1,461,948 ND 5.8%

NAICS 721 Accommodation 1,747,254 37 1,849,249 34 5.8% -8.1%

NAICS 722 Food services and drinking places 9,355,821 572 10,316,259 583 10.3% 1.9%


81

NAICS 811 Repair and maintenance 1,135,118 40 1,207,796 66 6.4% 65.0%

NAICS 812 Personal and laundry services 1,266,794 75 1,339,327 77 5.7% 2.7%

NAICS 813 Membership associations and organizations

1,313,677 15 1,331,923 13 1.4% -13.3%

NAICS 814 Private households 633,973 45 270,773 44 -57.3% -2.2%

NAICS 999 Unclassified 152,667 NC 165,321 NC 8.3%

Footnotes: (NC) Not Calculable, the data does not exist or it is zero (ND) Not Disclosable Employment calculated from Quarterly Census of Employment and Wages Data


82

Location Quotient In order to better understand the economy within the region, we have included a location quotient analysis for each county. A location quotient (LQ) measures the degree of concentration within certain industries in a particular area as compared with the U.S. average (a quotient of 1). An LQ with a result less than 1 means that a region may not be getting its share of activity. Thus, it may be importing products and services to meet demand. A LQ with a result greater than one indicates that a region has a greater share of activity. As local demand is met, the region is likely exporting products and services. This also indicates that the region may have a competitive advantage for this industry.

Chester County The table below shows the LQ for Chester County. The industries that have a significant presence in the county include advanced materials, apparel/textiles, chemicals, energy, forest/wood products, glass/ceramics, transportation, primary metal and fabricated metal.

Source: U.S. Bureau of Labor Statistics, Quarterly Census of Employment & Wages (QCEW) and Purdue Center for Regional Development (cluster definitions) - 2012.


83

Industry Profiles

Advanced Materials

Definition 32111 – Sawmills and Wood Production 32121 – Veneer, Plywood, and Engineering Wood Product Manufacturing 32613 – Laminated Plastics Plate, Sheet, and Shape Manufacturing 32615 – Urethane and Other Foam Product Manufacturing 32619 – Plastics Products Manufacturing 32629 – Rubber Product Manufacturing 32711 – Pottery, Ceramics, and Plumbing Fixture Manufacturing 32721 – Glass and Glass Product Manufacturing 33111 – Iron and Steel Manufacturing 33121 – Iron and Steel Pipe and Tube Manufacturing 33122 – Rolling and Drawing of Steel 33131 – Alumina and Aluminum Production and Processing 33142 – Copper Rolling, Drawing, Extruding, and Alloying 33149 – Nonferrous Metal Rolling, Drawing, Extruding and Alloying 33151 – Ferrous Metal Foundries 33152 – Nonferrous Metal Foundries 33211 – Forging and Stamping 33231 – Plate Work and Fabricated Structural Product Manufacturing 33281 – Coating, Engraving, Heat Treating and Allied Activities


84

Niches/Emerging Industries including:

Technical and Smart Textiles

Composites and Nanocomposites 3-D Printing

Industry Vitals

Source: IBISWorld Industry Reports

NAICS Description

Revenue ($bn)

Profit ($bn)

Annual Growth 09-14

(%)

Annual Growth 14-19

(%)

Revenue per

Employee ($'000)

Wages % of

Revenue

Emp. per

Estab.

Average Wage ($)

32111 Sawmills and Wood Production 27.2 1.6 5.6 4.3 353.6 11.6 22.5 41,001.90

32121 Veneer, Plywood, Engineering Wood Products

18.3 0.8 5.5 3.7 268.1 16.7 42.4 44,827.10

32613 Laminated Plastics 3.7 0.2 5.6 2.7 349.5 15.1 46.7 52,650.40

32615 Urethane Foam 9.5 0.7 1.7 2.6 321.8 13.4 44.6 43,054.40

32619 Plastic Products Miscellaneous 93.5 4.3 1.9 1.0 270.2 16.9 51.4 45,698.60

32629 Rubber Products 17.5 1.1 4.5 1.4 328.7 14.5 48.2 47,608.40

32711 Ceramics 2.3 0.1 3.8 1.6 193.3 21.4 18.4 41,406.10

32721 Glass Products 25.2 0.8 2.4 1.2 293.3 17.7 17.6 51,780.70

33111 Iron and Steel 121.3 9.0 3.7 2.5 1,181.5 6.7 189.8 79,498.50

33121 Metal Pipe and Tube 16.6 0.8 18.8 2.1 802.7 8.0 76.2 64,482.20

33131 Aluminum 35.0 1.7 4.7 3.4 730.0 7.6 97.8 55,518.40

33142 Copper Rolling, Drawing, and Extruding 23.2 1.4 8.1 1.8 1,080.3 5.4 86.2 58,696.20

33149 Nonferrous Metal Rolling and Alloying 23.0 3.2 8.7 2.4 802.4 8.0 50.9 64,589.60

33151 Ferrous Metal Foundry 21.0 3.4 6.9 2.7 294.7 17.9 99.3 52,788.10

33152 Nonferrous Metal Foundry 15.0 1.3 8.5 3.5 272.4 17.8 51.1 48,524.00

33211 Metal Stamping and Forging 38.0 2.0 6.0 4.4 347.2 15.6 44.7 54,108.00

33231 Structural Metal Products 43.5 2.6 3.0 3.3 300.8 17.9 29.4 53,813.30

33281 Metal Plating and Treating 31.9 2.9 3.6 3.2 252.3 18.7 21.8 47,175.20


85

U.S. Geographic Concentrations There are 1,275 companies in the Target Universe. The Target Universe is defined as Headquarters companies with at least 250 employees. The following map represents the distribution of leads by state. The darker states with a darker shade represent a higher presence of companies within the industry. The states with the most advanced materials companies (with at least 250 employees) are:

Michigan (121 companies)

Ohio (121 companies)

Illinois (105 companies)

Pennsylvania (88 companies)

California (82 companies)

Wisconsin (64 companies)

Indiana (64 companies)

New York (55 companies)


86

Segment Summaries

Sawmills and Wood Production Operators in the Sawmills and Wood Production industry primarily produce lumber; therefore, industry performance relies heavily on sales to the residential and nonresidential construction markets. As the construction sector faltered during the subprime mortgage crisis and subsequent recession, demand for lumber to frame houses and support other structures dramatically declined. In recent years, the construction sector has started to recover as consumers gain employment, businesses earn more revenue and banks ease lending. In turn, greater construction activity has bolstered demand for lumber and other wood products, raising industry revenue. After dropping 22.8% in 2009, revenue is forecast to increase at an annualized rate of 5.6% over the past five years. Following a growth of 12.2% in 2013, revenue is expected to increase another 2.1% to $27.2 billion in 2014. The collapse of the housing market also decimated profit margins, as decreased demand led companies to undercut competitors' prices to attract customers. After three years of posting losses, the industry earned a meager profit margin of 0.2% of revenue in 2009. In response to strenuous operating conditions, the industry consolidated over the period. Struggling enterprises were either acquired by larger players or were so financially devastated that they were forced out of the industry altogether. As a result, the number of companies participating in the industry is projected to decrease at an annualized rate of 1.4% to 3,025 in 2014. However, as unprofitable competitors dropped out of the industry and demand from the construction sector improved, profit margins rebounded over the period to 5.9% of revenue. In the five years to 2019, revenue is forecast to rise at an annualized rate of 4.3% to $33.5 billion as the construction sector, particularly the housing market, continues to improve. Additionally, remodeling activity will rise as home values and disposable incomes trend upward. The value of nonresidential construction will also increase, and this growth will be particularly important as it represents the industry's largest opportunity for market share expansion, according to the Binational Softwood Lumber Council. Global demand for lumber will also raise industry revenue through exports, which will be driven by growing demand in emerging economies such as China and Mexico. Demand Determinants:

Residential construction and remodeling

Nonresidential construction and remodeling

Furniture manufacturing

Paperless trends

Substitute products


87

Wood Paneling (Veneer, Plywood, Engineered and reconstituted wood products) The Wood Paneling Manufacturing industry manufactures wood panel and products from softwood and hardwood lumber and adhesives such as resin. While the products can serve a variety of purposes, their largest market is in construction, particularly new home construction. Therefore, demand for the industry's products depends largely on the number of housing starts and the value of residential construction. While housing markets are known to exhibit some volatility, the past decade witnessed an unprecedented drop in home construction with the housing bubble and subprime mortgage crisis, which led demand for wood paneling products to contract enormously during the recession. However, in the past five years, the industry experienced a small turnaround as the broader real estate market started its recovery. While the real estate market is well below its pre-recession levels, housing starts have risen each year since 2010. As the market continues to make its slow recovery, the Wood Paneling Manufacturing industry will grow with it, and in 2014, industry revenue is expected to increase 8.5%. In the five years to 2014, the industry is expected to grow an annualized 5.5% to $18.3 billion. Despite these expected gains, profit margins are still slim, though they have increased since 2009. Industry operators have since cut costs by reducing their workforce and selling off production facilities, allowing profit margins to expand. Still, a number of companies were unable to adjust to the drop in demand and left the industry. Consequently, the number of industry operators has fallen in the past five years, declining an annualized 1.2% to 1,299 companies in 2014. During the five years to 2019, IBISWorld anticipates that the residential construction market will build on its recent turnaround, driving demand for wood paneling products. Nevertheless, production numbers of wood paneling products will not reach pre-recession levels. Over the next five years, revenue is forecast to rise at an average annual rate of 3.7% to $21.9 billion. The industry will also face sustained competition from imported wood paneling products during this period unless the government provides further assistance or protection for the industry. China in particular will increasingly move into the production of higher value-added wood panel products, challenging revenue gains for domestic manufacturers and increasing global price competition. Demand Determinants:

Residential construction and remodeling

Nonresidential construction and remodeling Furniture manufacturing


88

Laminated Plastics Laminated plastic manufacturers produce sheets, shapes, plates and rods that are sold to multiple manufacturing sectors that produce everything from modern electronics to interior automobile trim. Because of its dependence on downstream purchases, the Laminated Plastics Manufacturing industry is sensitive to changes in consumer and producer demand for its products. The Laminated Plastics Manufacturing industry steadily expanded in the five years to 2014, with revenue expected to increase at an average annual rate of 5.6% to $3.7 billion, which includes 1.2% growth in 2014. Starting in 2010, rising housing starts and commercial construction led to a boost in demand for high-pressure decorative laminated plastics commonly used in kitchen, bathroom and office furniture. At the same time, increasing consumer confidence and spending caused consumer goods manufacturers, such as electronic and appliance producers, to increase production and orders of laminated plastics. However, industry revenue remains below pre-recession levels, as fluctuations in economic conditions and the rising price of resin, a vital input for laminated plastic manufacturing, have increased industry uncertainty and purchasing costs during this period. In the five years to 2019, the industry is projected to experience higher demand from car manufacturers and construction sectors. Automotive manufacturers account for an estimated 38% of industry revenue. Laminated plastics are used for the plastic console, engine components, and interior trim in automobiles. However, new car sales are expected to increase at a more tepid pace compared to the last few years, indicating modest future revenue growth for laminated plastics manufacturers. A marginal anticipated increase in resin prices will continue to raise purchasing costs, but healthy demand from downstream customers as a result of increased consumer spending should offset future input price increases. As a result, industry revenue is forecast to increase at an annualized rate of 2.7% to total $4.2 billion in the five years to 2019. Demand Determinants:

Automotive manufacturing activity

Residential and nonresidential construction and renovation

Manufacturing activity (from food to semiconductors to textile manufacturing machinery)

Disposable income


89

Urethane Foam The Urethane Foam Manufacturing industry continues to bounce back from the depths of the recession. Industry revenue took off in 2010 as demand from the housing and auto markets for urethane products rebounded. Since then, industry revenue has slowly recovered as demand has strengthened across a number of downstream industries. Revenue is expected to grow at an average annual rate of 1.7% in the five years to 2015, including an increase of 2.4% in 2015 to $9.5 billion. Returning demand has also enticed new companies to enter the industry. The number of establishments have grown steadily over the period. Nevertheless, larger manufacturers have continued to consolidate their holdings in an attempt to maximize efficiencies and improve profit margins. As a result, the number of industry operators has risen at a slightly faster rate than the number of establishments producing urethane products. At the same time, industry operators' profit margins have remained steady over the period. The industry took off in 2010 as the economy rebounded, allowing producers to achieve strong earnings that year. Since then, profit margins have fallen slightly, but are expected to be propelled upward by falling oil prices, which began in late 2014 and are expected to carry on into 2015. The economic recovery, punctuated by robust activity in the motor vehicle manufacturing and construction sectors, will allow foam manufacturers to reach levels of revenue growth that were achieved before the economic downturn. In the five years to 2020, industry revenue is forecast to grow at an annualized rate of 2.6% to $10.8 billion. Nevertheless, industry wages and employment will remain subdued as manufacturers continue to invest carefully in expanding production capabilities. Furthermore, while oil prices fell dramatically at the outset of 2015, prices are likely to remain volatile over the next five years. Given its importance as an input to industry products, uncertain oil prices may leave companies hesitant to expand their operations, limiting the industry's potential to grow. Demand Determinants:


Consumer sentiment and income

Construction, furniture, and furnishings

Competition from substitute products


90

Plastics Products The Plastic Products Miscellaneous Manufacturing industry has experienced five years of steady growth, as demand within the industry's downstream markets improved with the U.S. economy. Revenue is expected to grow at an annualized rate of 1.9% to $93.5 billion in the five years to 2015, despite some volatility causing revenue to fall by 0.2% in 2015. Miscellaneous plastic product demand is projected to increase in the future, as consumer spending climbs; however, this will be counterbalanced by slowing export growth as the US dollar appreciates, making US goods more expensive abroad. Consequently, the industry is expected to experience annualized revenue growth of 1.0% to $98.2 billion over the five years to 2020. Operators rely heavily on several key industries to purchase their products. For example, automotive manufacturers, which account for 30.1% of revenue, use plastic in vehicle interiors and in some engine components. Likewise, the housing market accounts for about 38.4% of industry revenue, with demand for construction and renovations providing revenue from plastic flooring, construction and plumbing fixture sales. Both of these industries posted solid growth over the past five years, recovering business activity that was decimated during the earlier recession. Growth in these downstream markets is slated to continue in 2015, and has been aided by historically low interest rates, which have encouraged big-ticket purchases, such as cars and houses. In addition to slowed downstream demand, overseas competition is constraining revenue growth. Since 2001, the United States has imported more plastic products than it has exported. Import competition has gained momentum due to looser regulations and lower labor costs in these regions relative to domestic manufacturers. As a result, the amount of imports satisfying domestic demand has increased over the five years to 2015 and is expected to continue doing so in the next five-year period. Industry participants have combated rising imports by investing in research and development to provide innovative, high-value solutions for downstream customers. Consequently, exports as a percentage of revenue have increased over the five years to 2015 and will continue to rise in the coming five years. Demand Determinants:

Economic trends


Residential and commercial construction activity

Displaced demand


91

Rubber Products The Rubber Product Manufacturing industry offers a range of goods, including non-tire rubber automotive parts, construction materials and office supplies. Industry growth was depressed during the economic recession, with revenue declining 15.3% in 2009. Weakened demand for rubber product inputs from the automotive and construction industries, which together account for nearly half of industry revenue, was largely the cause of the drop. However, revenue bounced back strongly as demand from key downstream buyers picked up. A revitalized US auto industry and improving construction sector in recent years have bolstered demand for industry rubber products. As a result, over the five years to 2014 industry revenue is expected to increase at an annualized rate of 4.5% to $17.5 billion, including growth of 0.9% in 2014 alone. While modest growth in revenue paints a rosy picture of the industry coming out of the recession, companies face significant long-term challenges in terms of foreign competitors, who benefit from lower operating expenses. With big cuts to employment making their way through the industry, many firms are outsourcing labor to save money and bolster profit margins. As a result, the number of domestic rubber product manufacturers has declined during the past five years and will continue to fall through 2019. Fortunately for the industry, labor and wage cuts and increasing automation have bolstered profit margins, which have risen from 4.7% of revenue in 2009 to 6.5% in 2014. While the industry is expected to grow over the next five years, revenue gains will be limited due to rising raw material costs and increased import competition. In the five years to 2019, revenue is expected to increase at an average annual rate of 1.4% to an estimated $18.7 billion, propped up by a continued uptick in demand from automobile manufacturers and other downstream buyers. Over the next five years, import competition is expected to continue. Lower labor costs and looser regulations from countries such as China will weigh on industry operators. Furthermore, the dollar is expected to strengthen, making imports more attractive for domestic buyers. Consequently, the trade deficit for the industry will widen further. On the bright side, exports will continue to grow as domestic manufacturers supply the foreign market with high-quality products. Demand Determinants:

Manufacturing activity

Construction activity (sealing, flooring, and other applications)

Household demand for durable goods

Demand for substitute goods Levels of trade


92

Ceramics The Ceramics Manufacturing industry has grown as overall economic recovery increases demand for industry products. However, fierce competition from low-cost imports continues to limit growth in industry revenue. From 2009 to 2014, industry operators continued to lose market share as the value of imported products increased from 68.8% to 79.4% of domestic demand. Despite this challenge, industry revenue has grown over the five years to 2014 at an annualized 3.8% due to recovering domestic manufacturing and residential construction activity. Industry revenue is expected to grow 3.0% in 2014 to $2.3 billion. Unlike plumbing fixture manufacturers, advanced ceramics manufacturers have had their revenue rise significantly over the five years to 2014. Advanced ceramic materials are vital components in almost all modern products, including hand-held consumer devices, spacecraft, medical equipment and industrial machinery. Higher production across all sectors of the economy has spurred demand for these components, thereby increasing the segment's revenue. Ceramic pottery manufacturers have long faced intense import competition from countries with lower labor costs. However, demand for pottery stamped with the "Made in USA" label, as well as premium, custom-made pottery items that cannot be made in bulk, have increased this share of the industry's revenue as increased disposable income has spurred demand for their products. Meanwhile, porcelain plumbing fixture manufacturers have faced intense competition from lower priced imports. However, given that most buildings are equipped with porcelain plumbing fixtures, recent recovery in construction activity has increased demand for this segment and revived domestic porcelain manufacturing in some parts of the country. As a result, the plumbing fixtures and accessories segment has seen substantial revenue growth over the five years to 2014. Increased consumer spending, growth in the construction industry and a general improvement in economic conditions will drive growth in the Ceramics Manufacturing industry, although domestic operators will face increasingly stronger competition from imports. Therefore, as the economy moves toward long-term growth rates and spare capacity is filled, this industry's growth is expected to moderate down to a lower annualized rate of 1.6% to $2.5 billion over the next five years. Demand Determinants:

Residential and nonresidential construction

Per capita disposable income

Demand from industrial, technical, and high-tech device manufacturing

Substitutes


93

Glass Products Glass products are used in a variety of applications across the construction, manufacturing, agriculture, automotive, telecommunications, hospitality and household markets. The industry's four main product categories include flat glass, pressed or blown glass, glass containers (e.g. bottles and jars) and glass products made from purchased glass (e.g. mirrors, lighting and kitchenware). In the five years to 2014, industry revenue is expected to increase marginally at an annualized rate of 2.4% to $25.2 billion. However, much of this recent growth reflects a rebound from lows in 2009, when depressed construction activity and consumer spending led to an accelerated drop in demand for glass products. Operators in the Glass Products Manufacturing industry have experienced a decades-long contraction, as less expensive imports have captured a greater share of the domestic market and the substitution of glass container products by alternative packaging materials, such as aluminum cans and extruded plastic bottles, have eroded industry demand. In turn, weak financial performance has led to industry consolidation; the number of industry operators is expected to decrease marginally from 4,569 companies in 2009 to 4,561 in 2014. Operators have used mergers and acquisitions to take advantage of economies of scale in the manufacturing process and to decrease the level of internal competition. In 2014, revenue is expected to increase 2.2% as the industry benefits from the recovery in residential and commercial construction markets and a boost in consumer spending. Likewise, in the five years to 2019, revenue is expected to increase at an annualized rate of 1.2% to $26.7 billion as downstream building markets continue to recover and demand for automotive glass products strengthens. However, revenue growth and average profit margins in the Glass Product Manufacturing industry will still be limited by persistent product substitution and import penetration. Demand Determinants:

Downstream construction market activity


Household spending

Consumption of food and beverages Consumer preference for packaging


94

Iron and Steel The global economic crisis dramatically reduced production of iron and steel, as construction and automobile manufacturing, which are the industry's largest end-use markets, contracted along with access to credit, business investment and consumer spending. After the recession, demand for automobiles, which are primarily composed of steel, began to rebound as the economy improved. Recovering motor vehicle production bolstered demand for steel, leading to double-digit revenue increases over 2010 and 2011. However, revenue began to decline in 2012 as the slow upturn of nonresidential construction, deceleration in emerging markets and continued uncertainty in developed economies impacted demand and price for steel. Despite this slump, revenue is forecast to increase at an annualized rate of 3.2% to total $121.3 billion in 2015. Industry revenue follows fluctuations in the world price of steel, which reflects global supply and demand trends. As downstream manufacturers ramped up production to meet renewed demand after the recession, particularly in China and other emerging economies, the world price of steel soared over 2010 and 2011. Operators benefited from higher sales volumes and higher average selling prices for industry products. However, excess capacity and supply of steel started to surpass demand for steel in 2012, as growth slowed in emerging markets and remained uncertain in debt-ridden economies. Consequently, revenue declined in 2012 and again in 2013 as these issues persisted. Fortunately for the industry, increased output in response to greater manufacturing and construction activity, combined with moderately rising steel prices, is expected to propel revenue up 1.8% in 2015. Over the five years to 2020, import competition will continue to increase, contributing to industry consolidation. As larger producers acquire smaller steel mills to expand operations and benefit from economies of scale, the number of enterprises will fall further, although not as rapidly as the past five years. In addition, volatile but generally increasing steel prices, stronger downstream demand and higher exports will drive industry growth. Revenue is forecast to rise at an annualized rate of 2.5% over the period to reach $137.4 billion in 2020. This increase will be minimal, however, compared with the iron and steel manufacturing industries of competing nations. Demand Determinants:

Downstream needs for finished goods

Construction activity




95

Metal Pipe and Tube The Metal Pipe and Tube Manufacturing industry's performance is tightly correlated with the highly volatile world price of steel. As steel prices plummeted during the recession and subsequently skyrocketed, so too has revenue for industry operators. After contracting to almost half its previous level in 2009, revenue surged over the five years to 2014. Demand for metal pipes and tubes rebounded along with manufacturing activity and steel prices over 2010 and 2011, returning revenue to growth. Moreover, the recovery of the housing market in 2012 helped bolster sales by double-digits over the year. Consequently, industry revenue is anticipated to increase at an annualized rate of 18.8% from 2009 to 2014 to reach $16.6 billion. However, revenue growth is expected to slow to 3.5% in 2014 as competition from imports and substitutes intensifies. Operators are stand-alone producers of metal pipes and tubes, and therefore obtain the steel used in production from outside sources. As the industry's primary input, steel prices have a significant impact on the performance of industry operators. From 2009 to 2014, steel prices are estimated to rise at an annualized rate of 3.9%, however, this modest increase hides extreme fluctuations, including double-digit growth rates in 2010 and 2011 preceding declines in 2012 and 2013. In general, steel prices have been on an upward trend for more than a decade, fueled by rapidly growing demand from emerging economies. Operators have reacted to this trend by passing the additional expenses on to customers. Still, price volatility over the past five years made this a difficult practice. As a result, industry operators were forced to absorb some of the higher input costs, limiting growth in profit. Over the five years to 2019, demand for metal pipes and tubes is expected to increase as rising oil and gas prices cause downstream buyers to boost production, increasing the need for industry products. Additionally, sustained growth in automobile manufacturing will increase demand for metal pipes and tubes. In this climate of rising demand, industry revenue is forecast to grow at an annualized rate of 2.1% to reach $18.4 billion in 2019. However, increasing competition from substitutes and imports and climbing input prices will temper profit margins, despite declining labor intensity. Demand Determinants:

Oil and gas activity levels

Residential and nonresidential construction activity


Demand for substitutes


96

Steel Rolling and Drawing The Steel Rolling and Drawing industry manufactures plates, sheets, strips, rods, bars and wires from purchased steel. The industry does not include integrated steel manufacturers (see IBISWorld report 33111) or metal service centers (see IBISWorld report 42351) that process and distribute steel products. Over the five years to 2014, industry revenue is forecast to rise at an annualized rate of 4.7% to $12.1 billion, primarily due to strong growth in 2010. Coming close to collapse during the recession, the automotive industry, the industry's largest market, bounced back as economic conditions and consumer spending improved in 2010. In addition, steel prices surged in response to accelerating industrial activity in China and other emerging markets. For these reasons, industry revenue rebounded 47.9% over that year. However, the slow recovery of the construction sector has hindered industry growth by depressing demand for steel products and putting downward pressure on steel prices. Persisting debt issues in developed economies, such as those in Europe, and slowing growth in emerging economies, such as China, have lowered demand and prices in the global steel market. As demand for steel weakened, falling steel prices eroded inventory values, forcing operators to lower selling prices for industry products. As a result, industry revenue started to decrease in 2011. While this decline continued through 2013, stronger demand from developed economies is expected to bolster the world price of steel over 2014, propelling industry up 2.0% this year. Nevertheless, to maintain profitability over the period, some companies have closed facilities and cut staff, while others have been absorbed by larger steel manufacturers or forced out of the industry entirely. Over the next five years, continued consolidation will reduce the number of industry participants, benefiting overall profit margins. Larger operators that have more resources to invest in research and development will improve industry products and delivery systems. As companies are able to produce higher quality rolled and drawn steel products at lower costs, they will be better positioned to compete with international operators. Furthermore, rising construction and manufacturing activity worldwide will boost demand for steel. As global economic conditions improve and put upward pressure on steel prices, industry revenue is projected to increase at an annualized rate of 1.8% to $13.2 billion. Demand Determinants:

Demand for motor vehicles

Consumer confidence and demand for durable goods

Disposable income

Construction activity Environmental sustainability trends


97

Aluminum The Aluminum Manufacturing industry has endured significant volatility over the past five years due to fluctuations in aluminum prices, which reflect global supply and demand trends. While higher prices raise the cost of refining purchased aluminum, cost increases are generally passed on to customers and usually result in higher industry revenue. Aluminum prices surged after the recession in response to rapidly rising demand from manufacturers, especially in emerging economies. Higher prices for aluminum products and rebounding demand from major markets, namely the automotive industry, bolstered revenue over 2010 and 2011. Industry revenue declined in 2012 as persisting debt issues in developed economies and slowing growth in emerging markets delayed large-scale construction projects and limited demand for aluminum. Industry inventory went unsold and overproduction led to an excess supply of aluminum, alleviating upward pressure on prices. For these reasons, aluminum prices dropped in 2012 and continued to trend downward in recent years. However, strengthening demand is expected to offset fluctuations in aluminum prices in 2014, modestly boosting revenue 0.8% to $38.2 billion. Despite recent declines, industry revenue is forecast to grow at an annualized rate of 6.5% over the five years to 2014. Weakened demand from major markets and volatility in aluminum prices contributed to a more competitive environment over the past five years. Many operators exited the industry or were acquired by larger manufacturers. Furthermore, companies continued to expand operations overseas and merge with foreign manufacturers to take advantage of stronger demand and lower labor costs in developing economies. As a result, exports have generated a rising share of revenue, while imports have satisfied a significant portion of domestic demand. The industry is expected to continue to globalize as US and global construction and manufacturing markets gain strength. In particular, rising demand from automakers will be a major driver of industry growth. Since aluminum is a lighter alternative to other metals, car manufacturers are increasingly using it for building motor vehicle bodies and parts to meet growing fuel-efficiency standards. As automakers expand production of lightweight vehicles, this growing market will support higher demand and prices for aluminum. Over the five years to 2019, industry revenue is forecast to increase at an average annual rate of 2.7% to $43.6 billion. Demand Determinants:

Demand for substitute products

Changes in energy prices

Downstream market activity (transportation, consumer electronics, construction, industrial production)


98

Copper Rolling, Drawing and Extruding Operators in the Copper Rolling, Drawing and Extruding industry sell products in varying volumes based on the global price of copper, with industry revenue generally moving in accordance with the ruling market price. Over the five years to 2014, revenue is estimated to rise at an annualized rate of 8.1% to $23.2 billion. This high growth rate reflects the recession's impact, which slashed revenue severely in 2009. Copper prices and industry revenue bounced back strongly in the following two years due to strong demand for copper in emerging economies and an increase in domestic manufacturing activity, particularly automobile manufacturing. However, persisting debt issues in developed economies and decelerating growth in emerging markets, particularly in China, have caused copper prices to deteriorate since 2012. Further decreases in copper prices are expected to limit revenue growth to 1.6% in 2014. Copper is used extensively in the construction sector, which has recovered much slower than manufacturing. After the subprime mortgage crisis, tightened lending standards and a surplus of existing homes, many of which were foreclosed, prevented large-scale investment in new houses. Additionally, uncertain economic conditions and excess office space deterred businesses from constructing new buildings. Construction activity in residential and nonresidential markets began to gain ground in 2012, but continued weakness in the sector coupled with collapsing copper prices, has caused industry revenue to decline in recent years. Nevertheless, higher sales volumes are expected to mitigate downward pressure on selling prices in 2014, enabling revenue to trend upward. Over the five years to 2019, the price of copper is expected to continue fluctuating, albeit less sharply than in previous years, while following a predominantly downward trend. Operators in the industry will be better equipped to handle such ebbs and flows as they move toward niche, high-quality and value-added product offerings. Emerging from the economic downturn, operations will be larger, differentiated and more globalized. Strong demand in developing economies will boost export sales despite an appreciating dollar. Therefore, revenue is forecast to grow at an annualized rate of 1.8% to $25.3 billion over the period. Demand Determinants:

Construction market activity

Downstream industry demand (electronics, electrical products, transportation, industrial machinery, consumer, and general products)

Consumer spending

Substitution and introduction of new technology


99

Nonferrous Metal Rolling and Alloying The Nonferrous Metal Rolling and Alloying industry manufactures products from titanium, nickel, lead, zinc and other nonferrous metals, except aluminum and copper. The purchase of nonferrous metals comprises the largest cost for the industry. During periods of strong demand, industry operators pass on cost increases in the form of higher selling prices and raw material surcharges, generating more revenue for nonferrous metal manufacturers. However, during periods of weak demand, there is greater competition among industry operators to lower selling prices in order to attract customers. Thus, higher prices of nonferrous metals might not translate into higher revenue for industry operators. After falling by double-digits in 2009, nonferrous metal prices have trended upward over the five years to 2014. Similarly, industry revenue is forecast to grow at an annualized rate of 8.7% over the period. The global economic crisis dramatically reduced demand from the industry's major markets, leading revenue to plunge by nearly one-third in 2009. As economic conditions improved, rebounding demand and prices of nonferrous metals led to a relatively strong recovery in 2010 and 2011. However, slowing economic growth in China and continued economic uncertainty in the United States and Europe has weakened prices for nonferrous metals since 2012. Moreover, steel manufacturing, which comprises one of the largest markets for nonferrous metals, has remained well below prerecession levels of production, contributing to lower industry output over the period. After stagnating in 2012 and contracting in 2013, industry revenue is projected to marginally decline 0.1% to $23.0 billion in 2014. Nonferrous metal manufacturers will be better positioned to take advantage of improving economic conditions over the next five years. Exports are forecast to rise as demand from developing economies increases, providing a growing source of revenue for the industry. In addition, rebounding demand from the industry's major markets will bolster sales and selling prices domestically. However, rising domestic demand will also cause import competition to modestly increase, particularly as nonferrous metal production continues to expand in emerging economies. Over the five years to 2019, industry revenue is projected to grow at an annualized rate of 2.3% to $25.8 billion, driven mainly by increasing demand from steel producers as well as domestic and international manufacturing markets. Demand Determinants:

Downstream industry demand (aerospace, steel production, aluminum alloys, oil and gas, automobiles, batteries, electrical and electronic components, and cans)

Manufacturing activity level


100

Ferrous Metal Foundry Products The Ferrous Metal Foundry Products industry produces iron and steel castings for use in machinery, motor vehicles, railroad cars, pipes and construction. Manufacturing activity has rebounded considerably since the recession, driving demand for ferrous foundry products. While construction markets have been slower to recover, previously delayed projects are starting to be set in motion. For these reasons, industry revenue is projected to grow at an annualized rate of 6.9% over the five years to 2014. Despite significant gains following the economic downturn, industry growth has decelerated in recent years. The economic slowdown in emerging markets, such as China, and debt issues in developed countries, such as the United States and Europe, have weakened demand and prices for ferrous metals worldwide. In particular, excess supply and declining demand for iron ore in China has hurt prices for industry products, leading revenue to marginally decline 0.4% to $21 billion in 2014. Ferrous metal prices impact the industry because participants purchase, process and resell iron and steel. Over the five years to 2014, iron and steel prices have fluctuated greatly, although both have trended upward from recession-induced lows. To mitigate risk, foundries often enter into sales contracts that account for price fluctuations in raw material inputs, typically by imposing surcharges. However, there is often a lag between incurring input costs and being able to pass on cost increases by raising selling prices. In contrast, when iron and steel prices decline, companies are under more pressure to pass on cost savings to customers by lowering selling prices. Volatile input costs amid weakened demand have increased price competition between operators in recent years. Due to difficult operating conditions, many foundries have left the industry or were acquired by larger players. Rising industrial production and construction activity will drive revenue growth over the five years to 2019. Foundries will become more integrated into downstream manufacturers' production processes, working with customers to create higher quality, more precise castings. Due to strengthening demand and specialization, companies will be better able to pass on modestly increasing steel prices. Iron prices are projected to remain fairly stable, further improving profitability. In light of these expectations, industry revenue is forecast to grow at an annualized rate of 2.7% to $24.0 billion in 2019. Demand Determinants:

Manufacturing activity levels

Construction market activity Automobile industry demand


101

Nonferrous Metal Foundry Products The Nonferrous Metal Foundry Products Manufacturing industry produces inputs for motor vehicles, aircraft, machinery and other industrial markets. Foundries manufacture castings for these industries by melting nonferrous metals and alloys, pouring the liquid into a mold of a desired shape and removing the casting once the liquid has solidified. Nonferrous metals, such as aluminum and copper, are distinguished from ferrous metals (iron and steel), in that they do not contain iron. Nonferrous metals are usually alloyed with other metals to emphasize the physical or chemical properties of each element, such as strength or corrosion resistance. As lighter alternatives to iron and steel, nonferrous metal castings can replace their ferrous counterparts in applications where weight is important, such as motor vehicle and aircraft manufacturing. In addition to downstream demand, the industry is greatly impacted by changes in nonferrous metal prices because foundries purchase, process and resell these metals. Operators typically pass on changes in input costs to customers through raw material surcharges, and deteriorating prices can dampen revenue as foundries are forced to lower selling prices, particularly during periods of weakened demand. The price of aluminum and other nonferrous metals have been highly volatile over the past five years, surging over 2010 and 2011 and tumbling since 2012. Lower prices in recent years, while hurting revenue growth, have also helped to bolster the competitiveness of nonferrous metals, which are more expensive than steel and plastic substitutes. As a result, industry revenue is forecast to grow at an annualized rate of 8.5% from a low in 2009, rising 7.0% to $15.0 billion in 2014. The industry will continue to globalize and consolidate to meet the mounting needs of its customers in the coming years. Growth in downstream demand will support moderately rising prices for nonferrous metals, benefiting industry revenue. Furthermore, the automotive and aerospace industries are increasingly using lighter nonferrous metals, such as aluminum and magnesium, to reduce motor vehicle and aircraft weight. As a result, industry revenue is forecast to grow at an annualized rate of 3.5% to $17.8 billion over the five years to 2019. Demand Determinants:

Manufacturing activity levels (automotive, aerospace, construction, and industrial)

Automotive supply arrangements Automotive weight reduction / environmental regulations


102

Metal Stamping and Forging This industry manufactures forged, stamped and rollformed metal products, both ferrous (iron-based) and nonferrous. A variety of manufacturing sectors use forged and stamped metal in the production of aerospace systems, defense equipment, agricultural machinery and other machinery. Therefore, the industry's revenue depends in part on the level of activity across these key markets. However, revenue also depends on the price of steel and other metals. Rising metal prices increase raw material purchase costs, but they also raise the value of inventory, boosting overall revenue. Together, rebounding demand from key markets and rising metal prices have spurred industry growth at an estimated 6.0% over the five years to 2014. This includes forecast growth of 3.5% in 2014, bringing industry revenue to $38 billion. Although manufacturing activity plummeted in the aftermath of the recession, it has recovered steadily since 2010, resuming its demand for industry products and propelling revenue growth. The rise in metal prices and its subsequent benefit to operators has been more volatile. While the price of both steel and nonferrous metals increased aggressively through 2011, it then declined through 2013, subduing previous gains in revenue for operators. Profit margins have fluctuated accordingly, with profit increasing as metal prices raise the value of inventory and vice versa. During 2014, profit is expected to improve to 5.3% of industry revenue, as metal prices begin to rise again. Over the next five years, IBISWorld expects the industry to grow at an impressive annualized rate of 4.4%, bringing revenue to $47.3 billion by 2019. Growth will be driven by demand for the manufacturing sector, as well as rising steel, aluminum, nickel and other metal prices. Profitability will be highest among metal stampers and forgers supplying high-technology markets, such as aerospace, since these markets pay premiums for high value-added and custom-made products. As a result, numerous operators, including major players, are projected to shift their product portfolio toward aerospace forgings and other high-value added products through 2019. Demand Determinants:

Downstream manufacturing markets (aerospace, agriculture, defense, and industrial hardware)


103

Structural Metal Products This industry manufactures structural metal products for use in nonresidential building, utilities and infrastructure construction. Industry products include concrete reinforcing bars, railway sections, culverts and casings and may be made of steel or nonferrous metals, such as aluminum. Consequently, industry revenue depends principally on the level of activity in downstream markets. Following a few dismal years at the height of the recession, industry revenue is expected to grow at an average annual rate of 2.9% in the five years to 2015. This includes forecast growth of 2.7% during 2015, largely driven by improving private nonresidential construction, bringing total revenue to $43.5 billion. The industry's performance is also influenced by movements in the price of metals and by the extent of import penetration. Metals, such as steel and aluminum are key inputs in the manufacturing process. Although rising metal prices increase purchase costs, they also boost the value of inventory and raise selling prices. This raises industry revenue while keeping profit margins intact, as costs are passed downstream. Over the past five years, the price of steel has remained volatile, rising and falling intermittently and inducing volatility in revenue and profit margins. Still, steel prices have been rising slowly over the past year, buoying revenue and profit. Profit has been further aided by limited competition from imports in the five years to 2015, although this trend is expected to reverse over the next five years. Through to 2020, IBISWorld expects revenue to grow at 3.3% per year on average to $51.2 billion, helped by accelerating construction markets and slowly rising steel prices. Still, certain challenges are on the horizon. Import penetration will intensify due to the ascendance of China, the largest manufacturer of steel in the world and an increasingly competitive low-cost, low-price producer. Import penetration will be further encouraged by an appreciating U.S. dollar. In the face of such challenges, operators are expected to consolidate production and cut costs through mergers, acquisitions and vertical integration. Demand Determinants:


Trade levels Competitions from substitutes


104

Metal Plating and Treating Over the past five years, the Metal Plating and Treating industry has become more lustrous. In 2011, rising steel prices induced downstream demand from the Metal Stamping and Forging industry (IBISWorld report 33211) and Steel Framing industry (23812). Consequently, industry revenue sharply increased that year by 10%. Since then, revenue has remained steady, as economic growth has picked up and demand has remained consistent. In the five years to 2015, IBISWorld expects revenue to grow an annualized 3.6% to $31.9 billion, including growth of 1.0% in 2015. Industry performance is highly contingent on the performance of downstream industries. Over the five-year period, the industrial production index, which measures the performance of most downstream industries that use metal plating and treating services, has increased an annualized 3.4%, and growth in these downstream industries is expected to continue underpinning industry demand. Additionally, the world price of zinc, a major input for industry operators, is expected to increase over the next five years. Higher zinc prices over the period are expected to bolster industry revenue, as operators pass on cost increases by raising prices. Downstream markets outsource metal-finishing services to the industry because of the high regulatory costs associated with these activities. As a result, there is significant potential for revenue growth as consumer and business confidence increase. As consumers and businesses become more confident in the health of the economy, they are likely to increase demand for products manufactured by key downstream industries. For example, the downstream Metal Stamping and Forging industry, which manufactures forgings for a wide array of consumer products, and the Steel Rolling and Drawing industry (33122), which rolls and draws steel for a variety of construction applications, are anticipated to grow in the next five years. Furthermore, industrial production is forecast to continue expanding, which will stimulate demand for industry services. As a result, industry revenue is projected to increase an annualized 3.2% to $37.4 billion in the five years to 2020. Demand Determinants:


Manufacturing levels

Raw material and input costs

Outsourcing trends



105


Definition 33361 – Engines and Turbines 33531 – Electrical Equipment 33591 – Battery Manufacturing 33593 – Wiring Device Manufacturing 33599 – All Other Electrical Equipment and Components 33611 – Automobile and Light Duty Vehicles 33612 – Heavy Duty Trucks 33621 – Motor Vehicle Body and Trailer 33631 – Motor Vehicle Gasoline Engine and Engine Parts 33632 – Motor Vehicle Electrical and Electronic Equipment 33633 – Motor Vehicle Steering and Suspension Components 33634 – Motor Vehicle Brake Systems 33635 – Motor Vehicle Transmission and Power Train Parts 33636 – Motor Vehicle Seating and Interior Trim 33637 – Motor Vehicle Metal Stamping 33639 – Other Motor Vehicle Parts 33641 – Aerospace Product and Parts 336612 – Boat Building 336999 – Other Transportation Equipment


106

Industry Vitals


NAICS Description Revenue ($bn)

Profit ($bn)

Annual

Growth 09-

14 (%)

Annual

Growth 14-

19 (%)

Revenue per

Employee ($'000)

Wages % of

Revenue

Emp. per

Estab.

Average Wage ($)

33361a Engines and Turbines 53.8 3.1 9.4 2.2 587.2 11.7 83.6 68,506.50

33531 Electrical Equipment 41.2 2.1 0.8 2.8 378.3 15.2 52.4 57,376.00

33591 Batteries 12.9 0.5 5.3 1.8 499.2 11.2 133.7 55,984.30

33593 Wiring Devices 12.5 0.7 2.8 3.7 323.3 17.2 69.3 55,473.10

33599 Power Conversion Equipment

18.4 1.3 12.8 4.2 418.9 15.6 41.4 65,380.20

33611a Cars and Automobiles 107.0 4.5 5.4 2.5 1,609.0 5.0 292.9 80,107.40

33611b SUVs and Light Trucks 149.1 3.7 3.7 1.3 2,427.9 3.5 731.1 84,911.00

33612 Trucks and Buses 24.5 1.2 7.1 2.5 1,012.0 5.8 228.1 58,541.50

33621 Truck, Trailer and Motor Home

31.3 1.7 6.1 3.2 291.8 15.6 51.3 45,557.20

33631 Automobile Engines and Parts

28.2 1.4 9.7 2.4 599.9 10.6 54.4 63,842.00

33632 Automobile Electronics 18.8 1.1 4.8 0.9 376.0 15.7 69.4 59,037.20

33633 Automobile Steering and Suspension

11.6 0.9 5.6 1.0 426.5 12.1 104.7 51,390.70

33634 Automobile Brakes 11.0 0.3 5.8 0.8 515.8 9.4 106.6 48,613.40

33635 Automobile Transmissions 37.1 2.6 8.2 2.1 680.0 10.2 106.2 69,598.10

33636 Automobile Interiors 20.3 1.2 7.5 1.1 441.3 10.4 105.0 46,067.60

33637 Automobile Metal Stamping 30.5 1.6 9.4 1.7 377.9 15.6 99.9 58,910.20

33639 Auto Parts 55.5 3.4 8.8 2.7 465.8 10.3 76.1 48,041.40

33641 Aircraft, Engines and Parts 181.3 13.8 1.9 3.5 547.0 15.3 197.9 83,871.10

33661b Boat Building 7.3 0.3 4.2 2.7 256.6 17.0 33.5 43,518.30

33699c ATVs, Golf Carts and Snowmobiles

7.9 0.5 6.7 2.4 684.7 8.3 27.1 56,769.70


107

U.S. Geographic Concentrations There are 931 companies in the Target Universe. The Target Universe is defined as Headquarters companies with at least 250 employees. The following map represents the distribution of leads by state. The states with a darker shade represent a higher presence of companies within the industry. The states with the most transportation equipment companies (with at least 250 employees) are:

Michigan (175 companies)

Ohio (74 companies)

Indiana (71 companies)



Tennessee (38 companies)

Texas (35 companies) Wisconsin (29 companies)


108

Segment Summaries

Engines and Turbines The Engine and Turbine Manufacturing industry consists of two major segments: engines (other than gasoline powered) for highway and heavy-duty vehicles and power-generation equipment for utility plants. Industry revenue hinges on demand from freight transportation and truck manufacturers that purchase diesel engines. The industry is also dependent on industrial activity, which determines how many turbines and generators are sold. Trade is essential to this industry; consequently, the industry benefited from strong export demand with exports accounting for over half of industry revenue. Although revenue plunged during the global recession, the subsequent recovery offset this tumultuous period. In particular, the industry experienced a 27.2% surge in 2011, as strong investments in industrial machinery translated into more purchases of engines and power equipment. As a result, in the five years to 2015, industry revenue is expected to increase at an annualized rate of 9.4% to $53.8 billion. International trade in diesel engines and utility turbines comprises a significant proportion of industry revenue. Over the past five years, exports increased due to greater demand from emerging economies in Asia and Latin America and a weaker US dollar in 2011, which makes US goods more affordable to buyers overseas. However, export demand is forecast to slow in 2015, as a continued rise in the US dollar will make domestically manufactured products more expensive abroad. At the same time, imports have been undercutting domestic demand for US-produced goods. Foreign manufacturers offer lower prices because they operate with lower wage costs and experience less government oversight. These trade trends will temper industry revenue, which is expected to increase only 2.7% in 2015. Domestically, greater overall truck transportation will drive diesel engine sales. Increased consumer spending will spur demand for freight and on-highway transportation. As one of the industry's largest customers, increased freight trucking leads to more sales of diesel engines. Also, demand from manufacturing will gain traction in light of higher consumer spending. As industry revenue grows, manufacturing operators will be able to invest in industrial equipment and machinery, which includes power generation units, heavy-duty diesel engines and engine components. In the five years to 2020, revenue is forecast to increase at an annualized rate of 2.2% to $59.9 billion. Demand Determinants:

Road freight activity

Industrial production level

Construction activity and machinery needs

Power generation

Energy efficiency and environmental regulations


109

Electrical Equipment Over the five years to 2014, the Electrical Equipment Manufacturing industry was forced to contend with increased competition from abroad and recession-driven declines in demand from downstream customers. Primary consumers of electrical equipment manufacturing products include industries involved in nonresidential construction (IBISWorld reports 23331 to 23332b) and manufacturing facilities. In 2009 and 2010, downturns in these sectors contributed to plunging industry revenue. Nevertheless, revenue has risen since 2011 and is expected to increase at an average annual rate of 0.8% over the five years to 2014. As the economy recovers, demand from downstream industries is expected to continue stimulating industry demand. Revenue is expected to rise 0.3% in 2014, reaching $41.2 billion as industrial production and construction rates continue to increase. Despite improving downstream markets, industry sales have been slow to recover due to a loss of domestic market share to imports. Import penetration has risen due to increased competition from countries with lower wages, which are able to manufacture industry products at lower costs. In response, many U.S.-based companies have offshored production operations to lower-wage countries. Imports are estimated to satisfy 57.4% of domestic demand in 2014, compared with 41.4% in 2009. Increasing import penetration has led to plant closures and consolidations, as some domestic operators have been unable to compete with less expensive imports. Consequently, the number of establishments is expected to decline at an annualized rate of 1.9% to 2,078 in 2014. However, due to consolidations, factory closures and offshoring, overall industry profitability improved over the five-year period. Moving forward, expected upgrades in infrastructure are anticipated to stimulate demand for industry products over the five years to 2019. Additionally, new construction activity and growth in the manufacturing sector will further increase demand for industry products. Over the same period, exports are expected to rise at an annualized rate of 6.0%, further bolstering revenue. Despite these positive trends, industry growth will continue to be constrained by increasing import penetration. In all, industry revenue is forecast to grow at an average annual rate of 2.8% over the next five years to reach $47.3 billion by 2019. Demand Determinants:

Growth in demand for electricity

Rising cost of energy and electricity

Per capital disposable income

The need for secure power

Government regulations and policies


110

Batteries Nearly every U.S. household uses batteries. From the battery that starts (or sometimes even powers) the family car to the one that keeps the laptop running, batteries are an essential item in today's age. Mobile electronics, such as tablets, are becoming increasingly commonplace, thus increasing the demand for batteries. Moreover, growing demand from automobile manufacturers is expected to boost revenue for the Battery Manufacturing industry at an annualized rate of 5.2% over the five years to 2014 to $12.9 billion, growing 2.1% in 2014. The proliferation of rechargeable batteries has siphoned an increasing percentage of demand for primary battery manufacturers. Original equipment manufacturers are opting to use secondary, rechargeable batteries in smartphones, tablets and other electronic devices they produce. This has reduced battery turnover and, therefore, production volumes over the past five years. Moreover, many consumer electronic products are produced overseas and use batteries produced in their respective country, further limiting demand. As a result, industry growth is primarily attributable to growing demand from domestic automobile manufacturers. Despite growing demand, rising input costs have challenged industry operators over the period. Refined lead and similar metals used to manufacture batteries have become increasingly scarce as emerging countries continue to develop their manufacturing sectors. In response to growing demand and scarce supply, nonferrous metal prices are expected to rise at an average annual rate of 8% in the five years to 2014. However, manufacturers were able to offset only part of the rise in metal prices by increasing battery prices, causing average profit to contract from 4.6% of revenue in 2009 to an estimated 4.3% in 2014. Economic recovery over the five years to 2019 will continue to charge the Battery Manufacturing industry. As discretionary income rises, consumer spending will increase the number of battery purchases. Increasing environmental concerns and skyrocketing gasoline prices will also push demand for hybrid electric vehicles that use hybrid batteries, which provide more favorable returns than traditional batteries. However, slowing demand from the automobile industry and rising low-cost imports from countries such as China will hamper growth in the next five years. As a result, industry revenue is forecast to grow over the period at an annualized rate of 1.8% to $14.1 billion in 2019. Demand Determinants:

Disposable income

Downstream demand from automotive, communications, electronics, and material handling markets

Technological advancements


111

Wiring Devices Despite experiencing a significant decline initially, the Wiring Device Manufacturing industry has been recovering alongside the overall economy. When construction activity declined sharply in 2009, industry revenue fell 27.1% as a result. The damage caused by the recession was even felt by the industry's largest companies; for instance, major player TE Connectivity's industry-specific revenue fell 24.3% in 2009. However, the industry turned a corner in 2010, with increases in both housing starts and nonresidential construction activity boosting demand for industry products. As a result, industry revenue has increased each year from 2010 to 2014, including an expected 3.8% increase in 2014. Subsequently, industry revenue is anticipated to increase at an annualized 2.8% to $12.5 billion in the five years to 2014. Over the past five years, industry players have increased average unit selling prices in an attempt to offset higher material and energy costs. Despite the resulting increase in revenue, escalating competition from manufacturers abroad has hampered industry growth. While it is virtually impossible for companies to offshore certain services, such as the installation and development of intricate wiring device systems, many operators have been manufacturing smaller current-carrying components abroad. As industry systems and technology evolve, companies are increasingly able to process complex orders overseas for a lower price. In the next five years, domestic transportation and insurance costs will determine the rate of outsourcing to foreign manufacturers. Accelerated building activity and increased spending on efficient, secure and safe electrical equipment are projected to stimulate growth in domestic demand for wiring devices over the five years to 2019. Furthermore, a projected 4.2% average annual increase in industry exports will bolster wiring device production over the period. As a result of these trends, industry revenue is forecast to rise at an average annual rate of 3.7% to $15.0 billion in the five years to 2019. Profit margins are also expected to widen during this period, expanding from 6.5% of industry revenue in 2014 to an estimated 7.2% in 2019. Demand Determinants:

Level of demand for electrical appliances and electricity

Industrial production activity

Building construction activity

Capital spending by utilities Government policies


112

Power Conversion Equipment The Power Conversion Equipment Manufacturing industry has experienced a great deal of revenue volatility in the past five years. Revenue dipped 27.9% in 2009, but recovered quickly with a 23.8% growth in 2010. More recently, strong demand from residential construction and rising sales of consumer electronics have translated to solid demand for a range of industry products. As the economy recovers, renewed activity throughout downstream client industries have demanded greater volumes of power conversion equipment and electrical systems. As a result, in the five years to 2014, industry revenue is expected to increase at an annualized 12.8% to $18.4 billion. An important contributor to the industry's postrecessionary recovery is the rising rate of industry exports. Exports have increased at an average annual rate of 5.5% in the five years to 2014, as manufacturers have looked to market their products to countries that exhibit high levels of urbanization and construction activity. US goods have gained a larger share of several global markets, due to the reliability and quality of US electric products. The growth in exports is particularly crucial to the industry; in 2014, exports are expected to account for 34.1% of the industry's total revenue. Revenue is expected to grow an additional 6.5% in 2014. Strong demand and revenue growth during the five-year period have allowed for moderate industry expansion. In the five years to 2014, the number of industry enterprises is expected to increase at an annualized 1.5% to 988 operators. IBISWorld projects industry revenue will increase at an average annual rate of 4.1% to $22.5 billion over the five years to 2019. Rebounding downstream demand from construction and healthy export growth will support solid industry performance during this period. Imports will, however, continue to flood the industry, heightening external competition and tempering revenue growth. Import competition is expected to force many domestic locations to close, resulting in an average annual decline of 1.1% to 1,005 establishments in the next five years. Demand Determinants:

Downstream demand for miscellaneous electric goods

Various industry activity levels (steel, metals, semiconductors, fuel cells, thermal management components, and construction)

New technological developments


113

Cars and Automobiles Over the five years to 2015, revenue for the Car and Automobile Manufacturing industry is anticipated to trend higher. As the economy rebounded following 2010, consumer sentiment rose and financing options became more widely available. This led to a release of pent-up consumer demand for new vehicle purchases, which had been delayed during the economic downturn. Additionally, the interest rate set by the central bank fell to historic lows, which reduced the cost to borrow. Low interest rates gave consumers an extra incentive to purchase new automobiles and, consequently, industry revenue shot up 40% in 2010. As a result of this continuing upturn, industry revenue is estimated to increase 1.5% in 2015. Moreover, industry revenue, rising off of a low recessionary base, is expected to grow at an annualized rate of 5.4% to reach $107.0 billion over the five years to 2015. In light of rising demand for new vehicles over the five-year period, industry operators are anticipated to expand. Additionally, reshoring activity is anticipated to become prominent as more flexible labor agreements encourage industry operators to expand their operations domestically. The government's support of the automotive sector, particularly during the downturn, is also expected to play a factor in the recent surge in production capacity. Although the government bailouts for General Motors and Chrysler took place outside of the five-year period, it illustrated government support of the sector as a whole and the importance of domestic operations impact of overall economy. With encouraging prospects ahead, industry profit is expected to trend upward over the next five years, as industry operators benefit from rising vehicle sales and the cost-cutting measures enacted during the downturn. Moving forward, automakers are expected to focus production on smaller, lighter and more fuel-efficient vehicles in order to become more competitive in the wake of rising regulations and volatile fuel prices. Shifting consumer preferences, along with a general recovery in the demand for vehicles, is expected to lift industry revenue at an annualized rate of 2.5% to reach $121 billion over the five years to 2020. Demand Determinants:

Price sensitivity and interest rates

Fuel prices

Environmental impact

Consumer sentiment Population growth


114

SUVs and Light Trucks High gas prices, environmental concerns and deteriorating consumer sentiment adversely affected the SUV and Light Truck Manufacturing industry's revenue during the recession. The sudden decline in demand and the recession's negative effects toppled General Motors and Chrysler in 2009; however, the companies are now better prepared to compete on a global scale. Additionally, automakers responded to consumers' environmental concerns by offering expanded hybrid and crossover-utility vehicle (CUV) lines. As a result, the popularity of hybrids and CUVs supplanted most SUV (sport-utility vehicle) demand; CUVs are expected to account for 45.7% of all revenue in 2015. Over the five years to 2015, the strong postrecession recovery is expected to lift revenue at an annualized rate of 3.7% to $149.1 billion, with an estimated 1% increase in 2015. The government and major industry operators are increasingly taking consumer concerns regarding fuel economy into consideration. For example, major government programs in the past five years have significantly influenced manufacturer operations. In July 2011, the Obama administration updated the government-regulated industry standards for fuel economy. This resulted in a revision of the Corporate Average Fuel Economy (CAFE) regulations, requiring that an average 25 miles per gallon fuel economy for large light trucks and SUVs be met by model year 2020. While manufacturers may incur significantly higher research and development costs to meet these standards in the short term, a trend toward cleaner, more fuel-efficient engines could significantly benefit the industry in the long run. Over the next five years, automakers will focus on producing CUVs and trucks with an emphasis on improved fuel efficiency in order to meet regulatory mandates. To meet these fuel efficiency standards, industry operators are expected to provide additional powertrain options, including clean diesel and hybrids. Moreover, improving fuel economy will make industry vehicles more attractive, which in conjunction with rising disposable income, will propel industry revenue higher. As a result, industry revenue is projected to grow at an annualized rate of 1.3% to $159 billion over the five years to 2020. Demand Determinants:

Vehicle affordability

Disposable income

Fuel prices

Interest rates Consumer sentiment


115

Trucks and Buses Operators in the Truck and Bus Manufacturing industry faced volatile swings over the past five years; however, recent activity in key downstream markets has the industry rolling along smoothly. After suffering through the economic downturn, truck and bus manufacturers have enjoyed heightened demand for their products, as the economy has since rebounded, resulting in higher trade and freight volumes. Additionally, the Environmental Protection Agency (EPA) enacted a final phase of emissions standards in 2010. As a result, truck manufacturers experienced heightened demand for vehicles that are compliant with these new standards. As trucking activity continues to recover, revenue is expected to climb 4.1% in 2014. Moreover, IBISWorld expects revenue to grow at an annualized rate of 7.1% to $24.5 billion over the five years to 2014. The Truck and Bus Manufacturing industry is highly globalized and concentrated. During the early part of the five-year period, a slump in domestic activity enticed many players to expand internationally, with a particular focus on Asian and South American markets. The relative decline of manufacturing and export-focused industries in the United States limited growth prospects for truck manufacturers; as a result, manufacturers moved operations to emerging economies where production costs are lower. Nevertheless, improved domestic economic conditions have spurred a revival in trade activity and, thus, industry performance. As a result, IBISWorld expects the number of industry establishments to increase at an annualized rate of 3.3% to 106 over the five-year period. The next five years are expected to be brighter for the industry. Strengthening global growth will likely lead to higher trade and freight volumes and, in turn, increased demand for trucks to carry goods, creating greater demand for new truck purchases. Furthermore, as a result of previous EPA regulations, truck and bus manufacturers have heavily invested in new technologies. Trucks that make use of fuel-efficient technologies and alternative fuels will be appealing as diesel fuel prices rise over the next five years. IBISWorld expects industry revenue to grow at an average annual rate of 2.5% to $27.6 billion in the five years to 2019. Demand Determinants:

Age of existing fleet

Freight market activity

Vehicle cost

Government regulations


116

Trucks, Trailers and Motor Homes Operators in the Trucks, Trailers and Motor Home Manufacturing industry produce motor vehicle bodies, truck trailers, motor homes and recreational vehicles (RVs). The industry is set to move forward after a catastrophic collapse in demand during the recession. Specifically, industry contraction was a result of decreased demand from truck transportation, fewer domestic trips made by US residents and a declining total trade value during the heart of the economic downturn. However, these trends reversed as economic conditions improved. Consequently, industry revenue is expected to surge at an annualized rate of 6.1% to $31.3 billion over the five-year period. Growth rates over this five-year period are significantly high due to the industry starting at a low base from the effects of the economic downturn. Increased credit access is another factor expected to drive industry revenue growth, particularly RV sales. As consumers had greater access to credit, they were more likely to finance big-ticket purchases, such as trucks, trailers and motor homes. As a result, downstream truck, trailer and motor home dealers renewed demand for shipments from industry operators. Amid stronger demand, many industry operators are expected to expand production capacity. In the five years to 2014, the number of industry operators is expected to grow at an annualized rate of 0.8% to 1,816 enterprises. With the economy continuing to recover, industry revenue is expected to increase as credit access and consumer spending gradually improve. Under these improved conditions, revenue is expected to increase 1.1% in 2014. Demographic trends that support the industry (such as the retirement of baby boomers) and sustained high trade volumes will continue to drive growth through 2019. During the five years to 2019, revenue is forecast to approach pre-recession levels, increasing at an annualized rate of 3.2% to total $36.6 billion. However, the industry will face increased pressure from environmental regulations regarding fuel emissions, though the growing presence of hybrid-electric vehicles will likely soften this threat. Demand Determinants:

Gasoline and diesel prices

Disposable income

Freight activities

Fleet capacity


117

Automobile Engines and Parts Revenue for the Automobile Engine and Parts Manufacturing industry is expected to trend higher over the five years to 2014. Leading up to the recession, high gasoline prices deterred consumers from purchasing new vehicles, and the economic downturn only exacerbated the industry's poor performance. Light-vehicle sales fell to an all-time low in 2009; however, the automotive sector has since recovered from a low recessionary base bolstered by improvements in the economy. As a result, industry revenue rebounded, soaring 36.3% in 2010. Industry revenue is estimated to continue to grow, rising another 4.2% during 2014. Consequently, IBISWorld expects industry revenue to increase at an annualized rate of 9.7% to $28.2 billion over the five years to 2014. Engine efficiency has been a hot topic across the entire automotive sector, fueled by changing consumer preferences and looming legislative standards. Generally, consumers have shifted from light trucks and sport utility vehicles (SUVs) to more compact, fuel-efficient cars. Initially, major automakers suffered from the loss of sales, but most have since made strides in improving the fuel efficiency of their engines. Engine efficiency improvements also come on the heels of updates to Corporate Average Fuel Economy standards. These rules are expected to alter engine production over the next five years toward even stronger fuel economy. Overall, industry performance will be enhanced if developers continue improving gasoline engine efficiency. However, the industry will be threatened by the growing trend toward hybrid and electric engine technologies, which are not included in this industry. A new threat to industry demand was created when the Chevrolet Volt and Nissan Leaf entered the market in 2011. These electric vehicles (EVs) eliminate the need for a gasoline engine by running on an electric motor and a high-powered lithium-ion battery. Despite EV sales expanding dramatically in 2011, they are still minuscule compared with overall vehicle sales. Nonetheless, more rapid EV growth could undermine demand for engine manufacturing in the next five years. In response, the industry's lineup of fuel-efficient gasoline engines is growing, and the continued success of these engines is forecast to support industry revenue growth at an annualized rate of 2.4% to $31.7 billion over the five years to 2019. Demand Determinants:

Demand for new vehicles

Interest rates

Discretionary income

Unemployment rates New fuel-efficient technologies


118

Automobile Electronics The Automobile Electronics Manufacturing industry has grown at a steady rate over the past five years. The industry's success is largely explained by the recovery of the motor vehicle manufacturing sector, the primary downstream market for industry products. As the economy has recovered over the past five years, employment rates and consumer confidence have grown as well. As consumers and businesses have found themselves in a better financial situation, their purchases of durable goods, including motor vehicles, have increased. Consequently, according to data sourced from the Bureau of Transportation Statistics, new car sales are forecast to grow at an annualized 9.1% over the five years to 2014. As new car sales have increased, so have automobile electronics sales, boosting industry revenue. Given that automobile electronics are small and light and thus inexpensive to transport, the Automobile Electronics Manufacturing industry has struggled to compete with low-cost imports. The industry has also been forced to deal with historically high prices for important inputs, such as copper, which has had a negative influence on profit margins. Conversely, however, the restructuring of the domestic automotive sector following the crisis means that many industry operators, previously mostly tied to their parent automobile manufacturing companies, have been able to secure a variety of new supply contracts with a diverse range of automobile manufacturers. Given that many of these automobile manufacturers are located abroad, industry exports have grown over the past five years. Overall, revenue for the Automobile Electronics Manufacturing industry is forecast to grow at an annualized rate of 4.7% over the five years to 2014. In 2014, industry revenue is expected to grow 5.1% to $18.8 billion. The Automobile Electronics Manufacturing industry is anticipated to continue to grow over the five years to 2019. Continued improvement in consumer confidence and growth in new car sales will likely lead to increased demand for industry products, boosting industry revenue. Technological advancements in the production of motor vehicles is anticipated to expand the number of electronics used per vehicle, raising industry revenue per motor vehicle sold. However, import competition will likely continue to rise as the U.S. dollar appreciates. As a result, industry revenue is expected to grow at a slower annualized rate of 0.9% over the five years to 2019 to $19.7 billion. Demand Determinants:

Heavy truck and bus purchases

Passenger vehicle purchases Increase usage of automotive electronics


119

Automobile Steering and Suspension The Automobile Steering and Suspension Manufacturing industry has driven down a bumpy road during the five years to 2014, with fluctuating demand from automakers causing a high level of revenue volatility. Recessionary conditions and changing consumer preferences combined to devastate domestic automobile and light truck manufacturing, one of the largest sources of demand for steering and suspension components. High gasoline prices and environmental concerns pushed drivers away from large, gas-guzzling vehicles that domestic manufacturers typically produce, and toward fuel-efficient imported vehicles. As imports typically use foreign-made steering and suspension components, this shift decreased revenue for domestic producers. Partially alleviating the woes of plummeting automobile production is the automotive parts aftermarket. While only representing an estimated 7.2% of industry sales, the aftermarket provided a beneficial revenue source during the downturn. As consumers held back on new car purchases, the rising stock of aging vehicles created a greater need for repair and replacement services, increasing demand for aftermarket steering and suspension parts. Rising disposable incomes and pent-up demand for new vehicles after the recession also benefited the industry in recent years. As a result of these trends, and a recovery off of a low base in 2009, industry revenue experienced a 5.6% annualized increase to $11.6 billion during the five years to 2014, including 1.7% growth in 2014 alone. Over the five years to 2019, the industry is anticipated to experience steady growth. Automobile production will continue its postrecovery period rise as consumers continue to flock back to the market in light of general improvements in the U.S. economy. As a result, steering and suspension manufacturers will benefit from higher demand from automakers. Still, some threats are expected to hinder performance, including a growing market for imported steering and suspension products and the increased expectation of price reductions from large automakers. Imported goods cut into demand for domestically produced products, while requests for automotive component price reductions throughout the duration of a contract will directly eat into profitability. Nevertheless, revenue is anticipated to increase at an annualized rate of 1.0% to $12.2 billion over the five years to 2019, with profit margins remaining high throughout the period. Demand Determinants:

Trends in motor vehicle production and aftermarket

Vehicle prices

Disposable income

Age of vehicles in operation Trade-weighted index


120

Automobile Brakes The Automobile Brakes Manufacturing industry has been running full-speed ahead over the five years to 2014. As U.S. automobile manufacturers experienced renewed purchases of automobiles, demand for braking systems included in new automobiles similarly improved. Brake manufacturers supply brakes and braking systems to two primary markets: original equipment manufacturing (OEM) industries, which purchase braking systems that are installed into new automobiles during assembly line manufacturing, and aftermarket industries, which retail braking components to individual consumers for scheduled maintenance. Automotive industries and brake manufacturers first experienced recovery in 2010, as household income and consumer confidence gradually recovered from recessionary lows. Coasting on successful years from 2010 to 2013, industry revenue is expected to grow 3.7% in 2014, reaching $11.0 billion. The industry has experienced an impressive recovery, growing at an annualized rate of 5.8% over the past five years. Much of this growth is simply the result of increased demand among consumers for aftermarket brake products; many consumers withheld from purchasing scheduled replacement brakes during the recession, but renewed household incomes and declining unemployment have enabled car owners to resume these purchases. Despite the industry's impressive growth over the past five years, several obstacles will pose a significant threat to the industry's continued success over the five years to 2019. Most importantly, increasing competition from foreign manufacturers threatens to erode industry growth through international trade. Imports of foreign-made braking components have experienced tremendous growth since 2009. Also, the relatively cheap cost of labor in foreign manufacturing nations, such as China and Japan, may cause OEM and aftermarket firms to shift brake purchases from domestic to foreign manufacturers. IBISWorld estimates total imports of braking systems to increase at an annualized rate of 12% to $10.5 billion over the five years to 2019, while exports will increase at a comparatively small rate of 5.5% over the period. This, along with the looming threat of the rising cost of inputs, including steel, copper, plastic resin and other composites, may hinder industry growth. IBISWorld estimates the Automobile Brakes Manufacturing industry to experience slim annualized growth of 0.8% to $11.5 billion in total revenue over the five years to 2019. Demand Determinants:


Vehicle prices

Disposable income

Product quality

Product innovation

Age of vehicles in operation


121

Automobile Transmissions The fortunes of the Automobile Transmission Manufacturing industry are closely linked to the performance of motor vehicle manufacturers. Over the five years to 2014, domestic car and light truck production in the United States is anticipated to soar higher as rising discretionary income, in conjunction with the expanding of financing opportunities, drive consumers to purchase new vehicles, creating higher demand for transmissions as automakers ramped up production. Over the five years to 2014, industry revenue is expected to soar at an annualized rate of 8.2% to $37.1 billion. Additionally, sustained demand from consumers for new cars is keeping production active, facilitating higher demand for transmissions and ushering in expected revenue growth of 1.2% in 2014. Although industry revenue is expected to trend higher over the five-year period, it is important to note that figures are slightly inflated due to coming off a low recessionary base. According to Ward's Auto, a leading automotive news and analysis publication, consumer preferences have shifted toward fuel-efficient vehicles, benefiting demand for transmission manufacturing. Over the next five years, transmission manufacturers are expected to develop products to complement these new, fuel-efficient engines with enhanced vehicle performance. For example, industry player ZF Friedrichshafen developed the world's first nine-speed automatic transmission, which is intended to increase fuel economy by roughly 16.0%. Over the next five years, more manufacturers will invest in similar technology to accommodate changing trends in automobile production. In the five years to 2019, revenue for the Automobile Transmission Manufacturing industry is anticipated to continue to rise. Automakers are increasing demand for transmission parts and will continue to do so as consumer sentiment rises and vehicle sales increase. Additionally, most major players in this industry have significantly trimmed pension liabilities and long-term debt, vastly stabilizing their operating costs and improving profitability. Although the industry is anticipated to benefit from these positive trends, several factors are anticipated to pose a threat to the industry's growth prospects, such as falling oil prices. Nevertheless, rising downstream demand is expected to lift revenue at an annualized rate of 2.1% to $41.2 billion over the five years to 2019. Demand Determinants:


Vehicle prices Disposable income


122

Automobile Interiors Historically, automakers have been the main drivers of demand for the Automobile Interior Manufacturing industry, a relationship that became this industry's downfall during the recession. As demand for automobiles fell and the Car and Automobile Manufacturing industry (IBISWorld report 33611a) was in disarray, demand for interior parts crashed. However, the industry was able to make a quick turnaround when the economy started to recover in 2010 and 2011, facilitating growth in vehicle production. Over the five years to 2014, revenue is expected to increase at an annualized rate of 7.5% to $20.3 billion, supported by an estimated increase of 0.6% in 2014. The industry is expected to grow significantly over the five-year period, which is primarily due to the relatively low starting base from the effects of the recession. Industry profit fluctuated drastically over the past five years. Even as demand and revenue from downstream manufacturers fell, firms initially failed to combat rising costs, yielding lower profit margins. After margins sunk to a historic low in 2009, operators enacted cost-cutting strategies to mitigate financial pressure from the recession and regain profit. In 2014, profit margins are expected to account for 5.7% of revenue, up from 0.3% in 2009. Still, the increased costs of expansion and downward price pressures from downstream automobile manufacturers will likely calm profit margins down to historical norms by 2019. Over the five years to 2019, the automotive sector is expected to further globalize as industry operators expand in emerging economies to take advantage of more affordable labor costs. Furthermore, growth in worldwide manufacturing activity and ongoing appreciation of the US dollar will fuel sales from foreign markets. Nevertheless, as the domestic economy continues recovering from the economic downturn, demand for big-ticket purchases, such as new vehicles, is expected to trend higher, bolstering industry revenue. As a result, revenue is anticipated to rise at an annualized rate of 1.1% to $21.4 billion in 2014. Demand Determinants:

Automobile demand levels, both passenger vehicles and heavy trucks

Interest rates

Unemployment rates

Discretionary income Aircraft manufacturing level


123

Automobile Metal Stamping Revenue for the Automobile Metal Stamping industry is expected to increase at an annualized rate of 9.4% to $30.5 billion over the five years to 2014. This rate, however, is inflated because it is measured from a recessionary base year. Because automakers are the industry's largest market, demand for this industry's products closely follows demand for finished vehicles, which faltered during the economic downturn. In 2009, demand for domestic automakers' most popular products, light trucks and sport-utility vehicles (SUVs), fell due to high gas prices and deteriorating economic conditions. Consequently, industry revenue fell 27.3% in 2009 as economic conditions worsened. Though the recession had a damaging effect on the industry's performance, economic improvements since 2010 have benefited the industry. With more consumers returning to work, income levels have grown and financing availability has expanded, spurring many consumers to unleash pent-up demand for new car purchases they had delayed during the downturn. In response, automakers have ramped up production, a trend that has been a boon to automobile metal stampers. According to Ward's Auto, a leading automotive analysis publication, new car sales soared 11.3% during 2010, prompting automakers to increase production. Higher car production facilitated a 38.7% boost in industry revenue the same year. Lifted by strong demand from car and automobile manufacturing, IBISWorld expects industry revenue to grow 1.9% in 2014. Over the next five years, industry revenue is poised to trend higher, backed by strong car sales and more efficient production from automakers. However, potential speed bumps are expected to hamper industry revenue growth. Instead of SUVs, automakers are producing smaller, more fuel-efficient cars and crossover-utility vehicles to meet changing preferences. The potential threat from this trend is that smaller vehicles require less steel. Moreover, regulations regarding fuel efficiency encourage automakers to save weight at every point of the supply chain, including by using less metal. These trends may ultimately subdue the potential for higher revenue growth and profitability within the industry. Nevertheless, the industry is forecast to grow at an annualized rate of 1.7% to $33.1 billion over the five years to 2019. Demand Determinants:

Automobile demand levels, both passenger vehicles and heavy trucks

Gasoline prices

Unemployment rates

Credit availability


124

Auto Parts Auto parts manufacturers experienced tumultuous conditions during the economic downturn as automakers, the industry's largest customers, suffered declining sales. During the recession, cash-strapped consumers delayed purchasing big-ticket items, such as cars. As a result, demand for auto parts from automakers plummeted. As demand for vehicles rebounded in 2010 in response to rising consumer sentiment, auto parts manufacturing plants ramped up production. As this trend continues during the five years to 2014, industry revenue is expected to exponentially increase at an annualized rate of 8.8% to $55.5 billion. Automakers' troubles, especially those of General Motors and Chrysler, resulted from preexisting structural issues within these companies, including high labor costs, excess production capacity and weak product offerings. These inherent problems, coupled with declining demand for automobiles during the recession, exacerbated industry participants' troubles. For example, two of the largest auto parts manufacturers, Delphi and Visteon, struggled significantly during the five-year period due to these conditions: Visteon sought Chapter 11 bankruptcy in May 2009, just months before Delphi exited the industry after five years in bankruptcy. Rather than having entirely stalled the automotive sector, the downturn is expected to yield long-term benefits. The recession forced automakers to cut costs, including labor, causing them to become more profitable moving forward. Furthermore, industry revenue is expected to grow 1.6% in 2014 as consumer sentiment rises and consumers purchase more big-ticket items. As demand for vehicles rises, demand for industry products will increase as well. As a result, industry revenue is projected to climb an annualized 2.7% to $63.3 billion over the five years to 2019. During the next five years, recovery of the auto production sector will drive industry growth. IBISWorld expects new car sales to increase at an annualized rate of 0.8% to 17.1 million vehicles over the five-year period as consumer sentiment rises. Additionally, scheduled increases in fuel economy regulations will encourage auto parts manufacturers to develop lightweight, more-efficient vehicle systems. Moreover, possible regulation of carbon dioxide emissions from vehicles would require expanded exhaust system capabilities. As a result, auto parts manufacturers involved in developing these types of vehicle components have a smoother road ahead. Demand Determinants:


Vehicle prices

Interest rates

Disposable income

Product quality and innovation

Regulatory activities


125

Aircraft, Engines, and Parts The Aircraft, Engine and Parts Manufacturing industry has had its ups and downs over the five years to 2014. During the recession, industry revenue fell as collapsing demand for air travel led to fewer purchases of industry products from airliners. However, persistent demand for military-related products helped reduce the depth of this decline. Once the worst of the recession passed, demand for air travel began to grow and subsequently, revenue climbed. Nonetheless, by 2011, falling federal funding for defense pushed revenue in the defense segment down, tempering overall revenue growth. As a result, IBISWorld expects industry revenue to rise at an annualized 1.9% to $181.3 billion over the five years to 2014, including a 2.9% jump in 2014, due to strong global and domestic demand for commercial aircraft. The recession caused domestic and global consumer discretionary spending to fall, throwing demand for air travel into free fall. Consequently, the air transportation sector's revenue dropped 17.1% in 2009, with carriers delaying or cancelling aircraft purchases. However, the following year, demand for air travel began to recover and airlines began to resume purchases of aircraft and parts. Foreign demand was particularly strong as growing emerging markets underwent a boom in air travel. Because more than half of the industry's revenue is generated through exports, global demand enabled industry revenue to recover from its recessionary lows. However, the defense segment, which initially benefited from strong demand from the military, experienced revenue contraction as federal spending on defense began to drop in 2011. Budget cuts and the end of combat operations in Iraq reduced the amount of money the government allocated toward purchases of military aircraft and related parts. Slow demand during the recession, declining defense spending and the need to reduce supply chain complexity led to consolidation, with the number of industry operators declining an estimated 0.2% to 1,311 businesses in the five years to 2014. In the five years to 2019, industry revenue is forecast to rise an annualized 3.5% to $215.2 billion. Strong global and domestic demand for commercial aircraft will drive growth, while continued cuts in federal defense spending will offset some of these increases. Consolidation will also continue, especially in the supply chain, as increased demand encourages a larger formation of suppliers that have the necessary capacity to handle demand. Demand Determinants:

Passenger numbers

Income levels

Age of fleet

Military needs


126

Boat Building Volatile demand conditions have significantly altered the Boat Building industry over the past decade. As a highly discretionary purchase, reduced consumer confidence and disposable income during the recession encouraged many consumers to hold off on major purchases, such as boats, shrinking the industry to less than half its size. In response to poor demand conditions, several operators were forced to sell inventory at steep discounts or exit the industry. Facilities consolidated and several brands were discontinued. Genmar Holdings, formerly the largest boat manufacturer in the world, was forced to file for bankruptcy and folded all its assets in 2010. Following a slight decline in 2010, however, the industry as a whole has rebounded thanks to the improving economy, bolstering revenue at an average annual rate of 4.2% in the five years to 2014, and rising 3% in 2014 alone, bringing total revenue to $7.3 billion. Despite improved demand conditions, revenue is well below prerecessionary highs, and many operators have struggled to remain profitable. Exasperated by rising steel prices, manufacturers are still actively consolidating operations to reduce costs. For example, Brunswick Corporation completed the consolidation of its Knoxville, TN, plant with its manufacturing locations in Vonore, TN, and Palm Coast, FL, during the first half of 2013. However, the majority of boat builders only own one location, limiting their ability to lower fixed costs. Manufacturers unable to sufficiently reduce production and operating costs have been forced to exit the industry. Over the five years to 2014, consolidation and company contraction are expected to reduce the number of industry establishments at an average annual rate of 2.5% to 853 locations. IBISWorld anticipates that continued gradual improvements in the general economy, including returning disposable income and growing consumer confidence, will strengthen revenue at an average annual rate of 2.7% through 2019, to reach $8.4 billion. Several companies are not currently operating their facilities at full capacity and many players will successfully increase production to meet growing demand without the added cost of expansion or the addition of new facilities. Profit is therefore expected to improve over the next five years despite steel price hikes. As the growing green movement encourages consumers to reduce their carbon footprint, demand for fuel-efficient boats will drive boat sales. Demand Determinants:

Consumer confidence

Interest rates

Weather

Fuel prices Consumer preferences


127

ATVs, Golf Carts and Snowmobiles Fluctuations in consumer disposable income directly influence the financial performance of the ATV, Golf Cart and Snowmobile Manufacturing industry. The industry is strongest when consumer disposable income and confidence is high. Therefore, manufacturers struggled during the recession when both plummeted. Time-strapped, frugal consumers deferred leisure and recreational activities, stifling sales of all industry products. However, the industry has significantly improved since the end of the economic downturn, bolstered by rising disposable income. IBISWorld expects industry revenue to increase at an annualized rate of 6.7% to $7.9 billion over the five years to 2014, lifted by an estimated 2.6% increase in 2014. Although positive economic conditions are anticipated to stimulate industry demand, the industry's high growth rate can be attributed to revenue starting from a low recessionary base. Over the five years to 2014, fluctuating input prices worked against the industry. For example, steel prices have been particularly volatile during the past five years, plummeting 25.1% in 2009 and rising 16% in 2010. This made it difficult for industry participants to plan their budgets. Despite volatile input prices, manufacturers have benefited from steady demand from farming and other labor-intensive agricultural industries. Products such as side-by-side ATVs, snowmobiles and vehicles with extensive utility features (e.g. towing capabilities, storage racks and all-wheel drive) sold well in this sector. This industry is expected to grow over the five years to 2019. Downstream demand is expected to increase as the economy continues to recover and consumers have more disposable income to spend. The industry's ultimate success will depend on how well manufacturers capitalize on increased consumer spending. Successful manufacturers will adapt to consumer needs by releasing revamped, innovative products, such as ATVs powered by biodiesel. IBISWorld expects industry revenue to grow at an annualized rate of 2.4% to $8.8 billion over the five years to 2019. Demand Determinants:

Consumer confidence

Disposable income

Population and age distribution

Consumer preference Weather conditions



128

Life Sciences

Definition 32541 – Pharmaceutical and Medicine Manufacturing 334510 – Electromedical and Electrotherapeutic Apparatus Manufacturing 334516 – Analytical Laboratory Instrument Manufacturing 33911 – Medical Equipment and Supplies 54171 – Research and Development in Physical, Engineering and Life Sciences 62151 – Medical and Diagnostic Laboratories

Industry Vitals



Profit ($bn)

Annual Growth 09-14

(%)

Annual Growth 14-19

(%)

Revenue per

Employee ($'000)

Wages % of

Revenue

Emp. per

Estab.

Average Wage ($)

32541a Brand Name Pharmaceuticals 163.5 33.4 -1.8 2.0 839.6 13.8 117.7 115,691.00

32541b Generic Pharmaceuticals 42.7 6.3 6.8 4.8 888.2 13.4 26.3 118,708.20

32541d Vitamins and Supplements 17.6 1.9 7.4 5.5 1,135.5 10.3 24.2 116,979.20

33451b Medical Devices 40.1 3.5 3.5 6.5 464.1 19.1 104.5 88,562.50

33911 Medical Instruments and Supplies 96.4 10.1 2.5 3.6 363.3 17.2 15.1 62,448.20

54171 Scientific Research and Development 130.7 8.8 2.4 2.4 188.7 53.6 13.6 101,239.70

62151 Medical and Diagnostic Laboratories 54.5 6.6 2.7 2.9 214.9 29.0 7.9 62,378.30


129

U.S. Geographic Concentrations There are 648 companies in the Target Universe. The Target Universe is defined as Headquarters companies with at least 100 employees. The following map represents the distribution of leads by state. The states with a darker shade represent a higher presence of companies within the industry. The states with the most life sciences companies (with at least 100 employees) are:


New Jersey (61 companies)

Massachusetts (44 companies)



Texas (33 companies)

Florida (29 companies) North Carolina (29 companies)


130

Segment Summaries

Brand Name Pharmaceuticals Brand-name pharmaceutical manufacturers have grappled with one of the largest waves of drug patent expirations in history. As the patent cliff occurred from 2010 to 2012, many blockbuster drugs lost patent exclusivity, which allowed low-price generic drugs to inundate the market. Due to this trend, many brand-name pharmaceutical manufacturers have dealt with intensifying competition from generic manufacturers, which has cut into revenue growth. In response, many industry operators have consolidated and entered into agreements with generic drug manufacturers, such as licensing the right for generic drug manufacturers to sell generics that are identical to brand-name drugs that have lost their patent. Furthermore, many brand-name manufacturers have moved toward including biotechnology, particularly biologic drugs, in their product portfolio. While some companies have struck deals with generic drug providers, government and health insurance providers have attempted to stimulate generic drug use by setting favorable reimbursement rates for generic drugs because of mounting healthcare costs, threatening overall industry growth. For example, generic drugs make up 64% of Medicaid prescriptions, yet account for 18% of Medicaid drug spending, according to U.S. Pharmacist, hampering industry revenue growth. In the five years to 2014, industry revenue is expected to decline at an annualized rate of 1.8% to $163.5 billion, including 0.9% growth in 2014. Profit is expected to rise from 17.0% of industry revenue in 2009 to 20.4% in 2014, as pharmaceutical manufacturers have focused on high-margin biologic drugs, which have a 12-year patent exclusivity period. Also, consolidation and merger and acquisition activity have boosted profitability, as more manufacturers had the financial resources to invest in research and development (R&D) and share development risk. In the five years to 2019, industry revenue is forecast to grow at an annualized rate of 2% to $180.7 billion. Many pharmaceutical manufacturers will likely derive sales volumes from biological drugs, while also contending with the entrance of biosimilar, or generic biological drugs, into the market. Investing in R&D that will generate a high return on investment will occur as many pharmaceutical manufacturers strengthen their drug pipeline with orphan drugs, which typically have a smaller disease population, and a lower requirement for the number of patients needed during clinical trials. Demand Determinants:

Disease and chronic illness rates

Market availability of generic drugs

Government healthcare policies

Insurance providers and patient coverage

Population demographics


131

Generic Pharmaceuticals The $42.7 billion Generic Pharmaceutical Manufacturing industry is expanding rapidly, with annualized revenue growth of 6.8% expected in the five years to 2014, and projected growth of 4.8% in the next five years, to reach $53.9 billion by 2019. An aging population with more chronic illnesses is driving demand for industry products, while regulatory provisions of the Patient Protection and Affordable Care Act expand consumer access to prescription insurance and provide increased opportunities for product development. Industry revenue is expected to grow 4.8% in 2014 alone. In the past five years, industry revenue growth has outpaced revenue growth for the Brand Name Pharmaceutical Manufacturing industry (see IBISWorld report 32541a). Many brand-name manufacturers lost patent protection for such blockbuster drugs as Lipitor and Plavix beginning in 2010, and demand for generics subsequently grew, as consumers demanded affordable versions of these high-profile products. Moreover, average industry profit margins are high, representing 14.7% of revenue in 2014. This high profitability, coupled with steady demand growth and increased opportunities for new product development, has enticed companies to enter the industry in the past five years, with industry enterprises rising at an annualized rate of 2.1%. Some of this growth represents brand-name pharmaceutical firms entering the generic industry in an attempt to stay profitable and competitive as their marquee products lose patent protection. These trends will likely continue in the next five years, and IBISWorld expects the total number of industry operators to increase 1.9% per year on average during the five years to 2019. However, while patent expirations have benefited industry revenue, they have also induced brand-name manufacturers to cut costs, including research and development (R&D) spending. Lower R&D spending by brand-name manufacturers decreases the total number of new pharmaceutical products, which threatens the long-term viability of generics. In response, generic manufacturers are both exploring new product lines (such as biosimilars, drugs developed from living things such as antibodies) and expanding into new markets (such as emerging markets, where consumers can only afford generics). Healthcare reform will further benefit the industry, through expanded insurance coverage for prescription drugs, an improved generic drug approval process and an established approval pathway for biosimilars. Demand Determinants:

Disease and chronic illness rates

Pharmaceutical prices

Government healthcare policies

Insurance providers and patient coverage

Population demographics

Doctor prescribing patterns and patient prescription utilization rates Patent expiration for brand name drugs


132

Vitamins and Supplements The Vitamin and Supplement Manufacturing industry has experienced impressive growth figures in the past five years as Americans became more health-conscious and disposable income levels recovered from the recession. As the number of adults aged 65 and over increased, demand for age-related vitamins and supplements, such as anti-aging products and vitamins for macular degeneration, expanded. In addition to an aging population, the media's coverage of health and wellness, as well as the growing prevalence of diet-related illnesses, have caused consumers of all ages to become more interested in dietary supplements. Consumers in general also turned to dietary supplements to maintain their health and help prevent the onset of potential illnesses and poor health in the future. Consequently, industry revenue is anticipated to grow an annualized 7.4% to $17.6 billion over the five years to 2014, including a forecast increase of 6.5% in 2014. In addition to healthy domestic growth, industry operators also benefited from growing demand for vitamins and supplements in foreign markets. Along with improving disposable income levels in countries such as China and Mexico, a weak dollar in 2010 and 2011 supported export growth and placed downward pressure on demand for imports. As the leading vitamin and supplement manufacturers experienced significant growth, leading multinational consumer goods and pharmaceutical companies such as NBTY, Pfizer and Glanbia acquired supplement production companies to capture a share of a growing market. As these large, multinational companies entered the industry, industry profitability rose because larger manufacturers benefit from both economies of scale and scope. Over the next five years, the industry is anticipated to benefit from the same trends that have supported its growth in the past, including increasing health expenditure and growing interest in wellness and nutrition among mainstream consumers. As discretionary income continues to strengthen, more consumers will trade up to premium, all-natural and organic products, helping lift industry revenue. Additionally, newer formats such as powdered drink supplements, sublingual dissolvables and gummy vitamins will appeal to customers who do not like the traditional pill and capsule formats. Overall, IBISWorld projects industry revenue to continue growing at an annualized 5.5% to $22.9 billion in the five years to 2019. Demand Determinants:

Access to primary care

Aging population

Health and wellness trends

Price levels Product recalls


133

Medical Devices Medical devices are essential healthcare products, which generally protect their producers from significant revenue volatility. However, these products also come with high price tags, which makes the industry vulnerable to economic downturns. Revenue fell 1.4% in 2011, as hospitals struggled to raise capital for large assets and delayed the purchase of the industry's larger, pricier devices. However, technological advances, the legislative expansion of healthcare access and the improving economy have stimulated demand for medical devices in the years since, and the aging US population has further contributed to revenue growth, due to the high incidence of health issues requiring medical devices within the elderly population. IBISWorld expects industry revenue to grow an annualized 3.5% in the five years to 2015, including 3.8% growth in 2015 alone, to total $40.1 billion. In the five years to 2020, industry growth is expected to continue, with revenue increasing an average of 6.5% per year to $55.0 billion. The aging baby boomer population and technological developments will continue to bolster industry growth, but the changing regulatory environment will likely hamper profitability. The Patient Protection and Affordable Care Act's 2.3% excise tax on the sale of medical devices will continue to drag down average industry profit margins, from 8.8% of revenue in 2015 to 8.4% in 2020. Planned reform of the approval process for new devices will likely further hinder innovation and encourage more companies to shift some operations overseas. The total value of industry exports is estimated to rise an annualized 3.2% in the five years to 2015, and this trend is expected to continue into the next five years. Continued globalization will also affect the composition of the industry in the next five years, as companies increasingly outsource manufacturing, research, development and other operations, reducing the total number of industry operators. At the same time, profit-squeezed industry operators looking to gain market share will seek to procure new technologies by acquiring small, innovative companies instead of investing in their own in-house research and development. IBISWorld expects these outsourcing and acquisition trends to have an overall consolidating effect on the industry, with the total number of industry players declining at an annualized rate of 5.1% to 425 companies in the five years to 2020. Demand Determinants:

Demographic factors such as age and health of the population

Level of capital expenditure in healthcare sector

Government funding

Regulatory framework

Currency fluctuations

Technological changes


134

Scientific Research and Development Firms in the Scientific Research and Development industry undertake physical, engineering or life sciences research and development. The primary purpose of all industry firms is research and development. Companies that undertake research and development to support primary operations, such as pharmaceutical firms, are not included. Over the past five years, the industry has performed well despite challenging conditions presented by the recession, which have caused many industries to decline. The onset of the recession caused the US federal government to increase spending to limit the effects of plunging private investment. As a result, the industry posted strong growth in 2009 and 2010. However, more recently, the industry has begun to struggle due to shrinking federal funding. Budget sequestration came into effect in 2013 as a result of the U.S. government being unable to reach a new budget agreement. Consequently, as the federal government accounts for more than half of total industry revenue, operators experienced a drop in demand. This decline was exacerbated by continued budget cuts to defense programs as the federal government brought troops home that were stationed overseas, thereby reducing demand for new technologies required for military occupation. Government funding for environmentally friendly technologies and stronger private investment brought on by increasing corporate profit margins have prevented the industry from declining over the past two years. In the five years to 2014, industry revenue is projected to grow at an average annual rate of 2.4% to $130.7 billion. However, conditions are expected to be difficult in 2014, as reduced federal spending causes the industry to contract an estimated 1.6%. Industry growth is expected to be limited in the next two years, before strengthening in the second half of the next five-year period. Falling federal funding for defense and weak government investment will mitigate industry growth; however, improving private investment from major industries, such as oil and health, will help long-term growth. Additionally, investment in new technologies, such as nanotechnology, will benefit industry firms. As a result, the industry is projected to continue to grow at an average annual rate of 2.4% to $147.3 billion over the five years to 2019. Demand Determinants:

Cost of conducting research

Advent of new technology

Available labor skills, materials, and processes

Changes in international political climate


135

Diagnostic and Medical Laboratories Diagnostic and medical laboratories are an integral part of patients' medical evaluation and treatment. Laboratories are vital to the healthcare sector due to industry operators providing healthcare practitioners with information concerning the onset, severity and cause of patients' ailments and illnesses. Furthermore, the aging population and the movement toward preventive care have stimulated demand for industry services. For example, as more elderly patients receive preventive screening tests, many required laboratory services to address irregular screening results. In the five years to 2015, industry revenue is anticipated to grow at an annualized rate of 2.7% to $54.5 billion, including 0.4% revenue growth in 2015. Medicare and Medicaid, which includes coverage for most clinical diagnostic laboratory services, will bolster growth. Profit is expected to rise from 10.3% of industry revenue in 2010 to 12.2% in 2015 due to rising patient demand for high-margin genetic testing and esoteric tests. Additionally, industry consolidation has boosted industry profitability due to larger operations enabling laboratories to share their research and development expenditures and secure large-scale contracts with hospitals that lack in-house laboratory testing. While the aging population has prompted demand for laboratory services, it has also posed as a challenge for the industry. For example, laboratories are facing a shortage of skilled labor as baby boomers, which constitute a significant portion of the industry workforce, retire and fewer individuals pursue healthcare professions. According to the US Bureau of Labor Statistics, there is currently a shortage of 8,000 laboratory professionals per year. To mitigate the shortage, many operators have increased salaries as a method to entice workers into the field, while also retaining their current employees. Nevertheless, in the five years to 2020, industry revenue is forecast to grow at an annualized rate of 2.9% to $62.8 billion. The industry will benefit from scientific advances that yield new and improved service capabilities, coupled with the aging U.S. population requiring more laboratory testing and diagnostic imaging services. As healthcare reform mandates that all individuals have healthcare insurance, out-of-pocket costs for laboratory services are expected to decline, spurring demand for industry services. Demand Determinants:

Scientific advancements and technological improvements

Aging population

The practice of preventative medicine/care

Cost of services Healthcare expenditures



136


Definition 51121 – Software Publishing 51821 – Data Processing, Hosting and Related Services 51913 – Internet Publishing, Broadcasting, and Web Search Portals 52211 – Commercial Banking 52221 – Credit Card Issuing 52232 – Financial Transactions Processing, Reserve, and Clearinghouse Activities 52311 – Investment Banking and Securities Dealing 52312 – Securities Brokerage 52392 – Portfolio Management 52393 – Investment Advice 52411 – Direct Life, Health, and Medical Insurance Carriers 52412 – Direct Property and Casualty Insurance Carriers 56111 – Office Administration Services 56142 – Telephone Call Centers Niches/Emerging Industries including:

FinTech

Logistics Planning


137

Industry Vitals



Profit ($bn)

Annual Growth 09-14

(%)

Annual Growth 14-19

(%)

Revenue per

Employee ($'000)

Wages % of

Revenue

Emp. per

Estab.

Average Wage ($)

51121c Business Analytics and Enterprise Software 28.2 10.4 3.3 3.4 768.5 16.3 45.7 125,237.70

51821 Data Processing and Hosting Services 118.1 15.7 6.6 4.8 210.8 43.0 8.3 90,636.90

51913a Internet Publishing and Broadcasting 33.5 5.4 8.9 7.1 165.9 61.9 3.0 102,693.80

51913b Search Engines 22.4 3.4 7.3 7.3 1,509.2 16.8 14.7 253,551.40

52211 Commercial Banking 426.3 76.7 1.6 10.0 329.7 21.1 15.2 69,820.70

52221 Credit Card Issuing 87.9 30.0 -3.5 2.5 1,690.4 6.9 104.2 116,692.60

52232 Credit Card Processing and Money Transferring 54.3 7.1 4.0 2.9 417.0 18.5 27.4 76,981.20

52311 Investment Banking and Securities Dealing 148.0 32.7 -4.4 4.7 1,316,9 25.7 9.1 337,851.20

52312 Securities Brokering 137.3 19.6 1.1 2.2 398,8 40.2 5.4 160,329.30

52392 Portfolio Management 225.8 44.7 5.9 2.9 886.3 28.2 12.2 249,968.00

52393 Financial Planning and Advice 33.7 8.7 5.2 7.2 192.6 39.6 1.9 76,188.90

52411a Life Insurance and Annuities 811.4 57.6 1.2 2.8 2,344.0 4.2 35.3 99,374.90

52411b Health and Medical Insurance 731.4 36.6 2.9 3.1 1,551.8 5.6 98.0 87,128.70

52412 Property, Casualty, and Direct Insurance 447.5 48.2 1.1 2.9 748.9 10.4 31.7 78,047.50

56111 Human Resource and Benefits Administration 61.6 7.6 4.3 3.3 78.6 59.9 3.0 47,131.90

56142 Telemarketing and Call Centers 19.8 1.4 3.1 2.3 40.5 57.7 19.2 23,387.20


138

U.S. Geographic Concentrations There are 2,337 companies in the Target Universe. The Target Universe is defined as Headquarters companies with at least 500 employees. The following map represents the distribution of leads by state. The states with a darker shade represent a higher presence of companies within the industry. The states with the most business and financial services companies (with at least 500 employees) are:





Florida (114 companies)

Ohio (111 companies)




139

Segment Summaries

Business Analytics and Enterprise Software Publishing Revenue for the Business Analytics and Enterprise Software Publishing industry grew steadily over the past five years and is expected to continue growing due to favorable demand conditions caused by high business profit. In 2014, industry revenue is expected to rise 5.0% to $28.2 billion as businesses invest in industry products to take advantage of high corporate profit and low interest rates. During the five years to 2014, industry revenue increased an average of 3.3% annually, driven by businesses' increased technological complexity and eagerness to adopt efficiency-enhancing software. Many industry products, such as customer relationship management (CRM) and enterprise resource planning (ERP) software systems, are basic tools in the management of Fortune 500 companies. The world's largest software companies have spent the past five years acquiring high-performing enterprise software vendors and cloud computing businesses. Some examples of this aggressive acquisition trend include Oracle's purchases of Hyperion Solutions, PeopleSoft, Siebel Systems, Taleo and Nimbula; IBM's acquisition of Cognos, SPSS, Varicent and SoftLayer; and SAP's procurement of Business Objects and Crystal Decisions, SuccessFactors and Hybris AG. These acquisitions allow large software vendors to pursue a portfolio approach and leverage existing clients by offering software suites, catering to their needs. Major companies are selective in their acquisitions, embracing the move from product offerings to Software as a Service and adopting the low-cost cloud model, hoping to retain corporate customers. The new web-based pay-as-you-go service will allow business applications, previously confined within the walls of company firewalls and personal computers, to be accessed by any secure internet connection, even from mobile phones. The industry is just beginning to tap into its growth potential, and during the next five years, increasingly powerful predictive analytics tools will unlock business insights, driving revenue at an average annual rate of 3.4% to $33.3 billion in 2019. These tools can automatically forecast trends in business statistics (e.g. per-store revenue) and consumer behavior when combined with existing data-mining technologies. As businesses in a wide variety of industries, including small and midsize companies, increasingly use IT infrastructure to record and store business data, the potential for these technologies will only continue to expand. Demand Determinants:

Business reliance on information technology

Availability of resources to invest in information technology

Availability of rich data


140

Data Processing and Hosting Services The Data Processing and Hosting Services industry provides infrastructure used for a variety of information technology (IT)-related activities, ranging from web hosting to automated data entry services. During the five years to 2015, businesses have increasingly outsourced their IT infrastructure needs, directly benefiting industry operators. The advent and popularization of cloud computing, one of the industry's fastest-growing product offerings, has similarly led to greater demand. As a result, the industry has fared well during the five-year period, with revenue expected to grow at an annualized rate of 6.6% to $118.1 billion, including an 8.2% increase during 2015. A primary driver of growth has been investment in outsourcing application hosting to specialized companies as an alternative to local hosting of enterprise software. Because data processing and hosting require the use of complicated equipment and sophisticated technical skills, many companies have moved away from internal IT management, opting to outsource work to reduce costs without limiting performance. Investment in internet companies, driven by the continued shift of media to online platforms, has additionally benefited industry growth. The continued movement of businesses toward online services has driven funding toward resellers and content purveyors that lease resources from industry data hosts. During the five years to 2020, industry revenue is expected to grow at an annualized rate of 4.8% to $149.2 billion. As the technology required to process and host data becomes more complex, the level of expertise needed to effectively manage large data centers will increase. Companies will increasingly capture more data, requiring the outside expertise of industry operators to manage their data needs. In addition, supply disruptions in the hardware space may push companies that manage their IT infrastructure needs in-house to opt for third-party providers. To meet these demands, the industry landscape will continue to move toward large companies and independent contractors. Consolidation among the industry's largest companies will accelerate as operators merge to meet the data demands of the industry's largest clients, while the number of nonemployers will rise as companies with limited IT budgets outsource work to freelancers. Demand Determinants:

Business sentiment and corporate profit

Price of services Cost of technology


141

Internet Publishing and Broadcasting The Internet Publishing and Broadcasting industry has posted incredible growth over the five years to 2014, as industry operators have provided an increasingly popular medium for advertisements. The industry is characterized by intense competition amid a rapidly changing technological landscape. Smartphones and tablet computers have expanded the industry's market reach, and the increasing availability of users' personal information and browsing history has hastened the transition from mass media marketing to targeted advertising. IBISWorld estimates that industry revenue will grow at an annualized rate of 8.9% over the five-year period, totaling $33.5 billion in 2014. This rate includes an anticipated 6.3% jump in 2014, as increased spending on internet advertising funnels money into the industry. Because most online content is available for free, revenue is typically generated through the sale of advertising space. Although advertising expenditures plunged during the recession, the industry remained relatively unscathed due to the flexibility and efficiency of online advertising. Businesses were able to determine the impact of any given ad on sales and scale back their online marketing campaigns as needed. Simultaneously, the growing number of mobile internet connections has expanded the amount of content and advertising that individuals are exposed to. Alternatively, the market for paid content has been volatile. While Apple's iTunes Store has earned healthy returns selling music and video over the internet, negotiations with content owners and consumers' unwillingness to pay for intangible goods like digital content have impeded other operators. Younger generations have increasingly found ways to pirate internet content, damaging future growth prospects for the paid content segment of the industry. Over the next five years, revenue is set to accelerate further as businesses continue to transition brand-building campaigns from traditional media to the internet. As a result, industry revenue is expected to grow at an annualized rate of 7.1% over the five years to 2019, reaching $47.2 billion in 2019. The Internet's growing share of advertising expenditure is expected to account for the majority of this growth. While major players like Facebook and Google are expected to capture a large portion of this revenue, smaller players will be able to take advantage of large advertising networks, like Google's AdSense, to generate revenue with minimal investment. Demand Determinants:

Internet preferences

Advertising activity

Connection speeds


142

Search Engines The Search Engines industry has cemented itself as one of the most innovative industries in the United States. Over the five years to 2014, industry revenue is expected to grow at an annualized rate of 7.3% to $22.4 billion. While most search engines are entirely dependent on advertising revenue, the industry emerged from the recession relatively unscathed. With consumer spending rebounding and advertising expenditure increasing as well, advertisers that had scaled back their search engine marketing campaigns have reinvested. In 2014, industry revenue is expected to increase an additional 4% as search engines continue to pull revenue away from other advertising media due to the lower costs and quantifiable efficacy achieved through search engine marketing. Over the five-year period, the market dominance of industry giant Google has prompted cooperative agreements among its largest rivals, Yahoo and Microsoft. In 2009, the companies signed a 10-year agreement that replaced Yahoo's search and ad-serving technologies with Microsoft's. In exchange, Yahoo will receive 88% of the resulting ad revenue through 2015. The agreement has largely tied Yahoo's success to that of Microsoft's search engine, Bing. Additionally, it vastly expanded the amount of data that Microsoft has available to analyze and use to improve the technology behind its search engine. Microsoft's market share has been buoyed by this transaction over the five-year period, while Yahoo's market share has plummeted. As a result, competition in the industry is quickly evolving into a battle between technology giants Google and Microsoft. Over the five years to 2019, industry revenue is expected to grow at an annualized rate of 7.3% to $31.9 billion. Advertisers are expected to increasingly turn to search engine marketing because of its cost effectiveness and efficiency advantages over traditional media. With proper analytics software installed, marketers can track which terms, advertisements and websites are the most effective, allowing for incremental improvements in advertising campaigns. Furthermore, as mobile devices with internet access continue to proliferate throughout the United States, the scope of the industry is rapidly expanding. Although Google currently dominates the mobile search engine market, innovation from Microsoft and other firms has the potential to take away market share from Google in the future. Demand Determinants:

Number of internet users

Advertising activity levels General economic conditions


143

Commercial Banking The Commercial Banking industry is composed of banks regulated by the Office of the Comptroller of the Currency, the Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC). Banks generate the majority of their revenue by accepting customer deposits and then lending these deposits out to individuals and businesses at a certain interest rate, which is, in turn, influenced by different factors, including the Federal Funds Rate, the prime rate and the debtor's credit worthiness. In the five years to 2014, industry revenue is expected to increase at an annual average rate of 1.6% to $426.3 billion, including growth of 9.8% in 2014 alone. Modest growth over the five-year period is the result of huge losses on home loan defaults in 2008 at the height of the financial crisis, which cut industry revenue and profit. Consequently, throughout the majority of the five years to 2014, loan and lease losses soared. However, this trend is expected to reverse as the housing market improves. According to the FDIC, commercial banks are beginning to return to prerecessionary profit levels. Therefore, despite industry revenue declines over the five-year period, tremendous growth occurred in 2013, which is expected to influence upward revenue movement during the remainder of the period. As a result of deposit growth and rebounding corporate profit, commercial and retail loan demand increased toward the end of 2012 and is expected to continue rising in 2014. Over the next five years, the number of commercial banks is expected to fall at an annualized rate of 2.3% to 5,643. This decline reflects how the subprime mortgage crisis and recession caused the four largest commercial banks' market share to increase, thus bolstering overall industry concentration. In the five years to 2019, government regulation and technology-driven competition are forecast to dramatically change the business model that commercial banks use. During this period, industry revenue will be less volatile than in the previous five years. In addition, too-big-to-fail banks will grow deposits at a faster rate than smaller savings institutions, whose reputations were severely damaged because of the significant number of bank failures that occurred between 2008 and 2012. As a result, revenue is expected to increase at an annualized rate of 10.0% to $686.3 billion during the five years to 2019. Demand Determinants:

Real after-tax return on deposits relative to alternative investments

Consumer confidence Real after-tax cost of debt relative to the cost or equity


144

Credit Card Issuing In the five years to 2015, Credit Card Issuing industry revenue is expected to reach record levels as consumers increasingly use credit cards as their primary payment method. In recent years, credit card balances have continued to rise as increased employment and disposable income have expanded the volume and value of credit card purchases in the United States. Online transactions, many of which are made using a credit card, have also increased in volume in the past five years as more consumers have become comfortable with shopping online, and as more vendors have offered their inventory through websites. Additionally, mobile technology has boosted the convenience and availability of online shopping for consumers with smartphones and tablets. Total industry revenue is anticipated to rise at an average annual rate of 2.4% to $117.7 billion over the five years to 2015, including a 2.9% increase in 2015 alone. Operators in this industry provide credit services to consumers and businesses by issuing cards with available credit lines that must be repaid in full to the issuer, often in installments. Industry operators generate revenue from cardholders primarily through fees, interest and other charges agreed upon through contract. Issuers have increasingly adopted risk-based pricing models based on the consumer's borrowing habits and ability to pay their balances. Industry operators compete by offering customers lower rates, flexible payment options and rewards based on spending. Growth of the industry over the next five years is expected to remain steady, as credit cards continue to be a necessity for most consumers and businesses. Competition is expected to increase, however, as more financial institutions enter the industry due to its recent success. The rising popularity of contactless payment methods through consumers' mobile devices, such as Apple Pay, will support the industry because these methods utilize consumers' existing credit cards. In the five years to 2020, industry revenue is expected to rise at an average annual rate of 2.1% to $130.4 billion. Demand Determinants:

Transition away from cash and checks to credit card and electronic payments

Household disposable income Development of new products


145

Credit Card Processing and Money Transferring In the five years to 2015, the Credit Card Processing and Money Transferring industry is expected to experience consistent growth as processors continue to enjoy large-scale implementation of electronic payment technology. The industry generates the majority of its revenue through data processing and transactions fees from credit and debit card purchases. The volume and value of transactions made using credit and debit cards determines the fees that operators collect from the merchants they service, establishing a positive relationship between consumer spending and industry revenue. The ratio of electronic payments to cash and check payments has increased over the past five years, driving up transaction volume for processors in the industry. As a result, total industry revenue is expected to rise at an annualized rate of 4.0% to $54.3 billion over the five years to 2015. In 2013, an estimated 80% of consumer spending in the United States did not use cash, according to a study by MasterCard advisors. A rise in consumer spending and disposable income has increased transaction volumes in recent years, effectively stimulating demand for industry operators. The industry has also had to contend with intensifying competition as some financial institutions have chosen to process transactions in-house rather than utilize industry participants, and consolidation in the banking sector has decreased the pool of available clients. The industry has also grappled with more stringent regulation as a result of the Dodd Frank Act, capping transaction fees placed on merchants and enabling merchants to establish a credit card minimum, slightly curbing transaction volumes and revenue for industry operators. Despite this, industry revenue is forecast to grow 3.8% in 2015 alone as a result of a supportive consumer economy and strong performance from the industry's top players. Over the five years to 2020, consumer confidence is expected to continue rising, thus expanding the amount consumers spend and increasing transaction volumes. More merchants are also expected to accept electronic methods of payment as they become standard among consumers. Consequently, industry revenue is expected to steadily climb over the next five years, growing at an annualized rate of 2.9% to $62.6 billion. In addition to revenue growth, profit margins are set to improve as operators benefit from technological advancements that improve processing systems, lowering the costs per transaction. Demand Determinants:

Economic activity

Consumer spending

Population growth

Increasing demand for electronic payment systems Industry regulation


146

Investment Banking and Securities Dealing The past five years were difficult for the Investment Banking and Securities Dealing industry, as it struggled to recover from a financial crisis that brought its business model into question. From 2009 to 2014, revenue for the industry is expected to decline at an annualized rate of 4.4% to reach $148 billion, well below prerecessionary revenue levels of $230.2 billion in 2007. Entering 2007, the top five investment banks generated substantial portions of their revenue from the securitization of subprime mortgage loans and the leveraged principal and proprietary trading of these securities with other major financial institutions. In turn, this practice significantly magnified their risk. Falling housing prices caused this model to lose some relevance. Higher defaults on subprime mortgage loans triggered unprecedented losses that quickly spread throughout the entire financial system and sent the US economy into recession. By the end of 2008, all five of the top independent investment banks had either failed, been acquired by larger commercial banks or rechartered as bank holding companies. Ultimately, government intervention and stimulus funds prevented the collapse of the financial sector and slowly restarted economic growth by restoring access to capital and credit. In response to adverse conditions, the industry consolidated and aggressively cut wage costs over the five-year period. Five institutions now dominate the industry: JPMorgan Chase, Bank of America, Morgan Stanley, Citigroup and Goldman Sachs. Industry revenue increased by 6.6% in 2013 and is anticipated to rise 0.9% in 2014. A sharp rebound in the industry's traditional investment banking services largely explains this improvement. However, recent regulatory changes and stable interest rates have severely damaged the industry's trading revenue. Over the five years to 2019, industry revenue is anticipated to grow at an annualized rate of 4.7%, reaching $186.2 billion. The industry will be tasked with costly regulations that require investment banks to deleverage, hold higher capital reserves and refrain from certain trading practices. Moreover, profit from trading fixed income, currencies and commodities has the potential to remain structurally lower. However, rebounding corporate profit and general improvements in the US economy are anticipated to spur a recovery from 2015 onward by increasing revenue from equity underwriting and merger and acquisition advisory fees. Demand Determinants:

Global macroeconomic and financial market conditions

Interest rates

Business earnings

Investor confidence

Market and regulatory changes

Level of capital raising and business investment


147

Securities Brokering The Securities Brokering industry buys, sells and issues securities ranging from traditional assets such as stocks and bonds to alternative assets such as mortgage-backed securities. Brokerage firms match a client's buy order with a third party's sell order, or fulfill the client's order with their own investment products. The industry generates revenue from trading commissions as well as from transaction and asset-based fees. With the rise of electronic trading and discount brokering, many firms have started to offer more value-added services, such as investment advice for clients. As a result, the industry has become increasingly indistinguishable from the Financial Planning and Advice industry (IBISWorld report 52393). After surging in 2009, industry revenue has since trended upward at an annualized rate of 1.1% to an estimated $137.3 billion in 2014. However, industry revenue still remains well below prerecession levels, and this overall growth rate masks the industry's volatile year-to-year performance. Industry revenue rebounded 64.7% in 2009 due to bank bailouts and acquisitions as the financial sector stood on the brink of collapse. A slow economic and financial market recovery, coupled with contracting securities trading volumes, caused revenue to decline in 2010 and again in 2012 before slowly starting to recover. The average industry profit margin has also been constrained due to intense competition from online trading platforms that eliminate the need for financial intermediaries. Operators have responded to this trend by increasing their financial services offerings and transitioning to an asset-based fee structure characteristic of the financial advisory industry. Consequently, securities brokering remains lucrative, with profit comprising an estimated 14.3% of revenue. Furthermore, rising household income and corporate profit will continue raising trading volumes, boosting industry revenue 3.7% in 2014. Over the five years to 2019, industry revenue is forecast to grow at an annualized rate of 2.2% to $153.2 billion. Recent merger and acquisition (M&A) activity will enable financial firms to capitalize on operational synergies, larger client bases and new financial advisory business segments. The future profitability of securities brokerage firms will vary widely based on operators' mix of financial services, their ability to adapt to technological change and the success of M&A activity. Demand Determinants:

Willingness to invest into capital markets

Real GDP growth

Level of employment

Disposable income

Corporate earnings

Perceived and actualized returns on securities relative to alternative investments


148

Portfolio Management Despite global capital market volatility and an investor push toward passively managed funds, the performance of the Portfolio Management industry has improved sharply over the past five years and recovered from recessionary lows. Industry operators generate revenue from fees, which are largely calculated as a specific share of total assets under management (AUM). The unprecedented severity of the financial crisis and subsequent recession has contrasted the industry's recovery since. This was particularly true in 2013, which caused industry revenue and AUM to fluctuate significantly over the period. Meanwhile, industry profit has failed to exceed prerecessionary highs, due to increased competition placing downward pressure on fees. Over the five years to 2015, industry revenue is expected to increase at an annualized rate of 5.3% to reach $240.1 billion, largely due to the low base that 2010 provides and historic highs in equity markets. Yet, this moderate annualized increase masks substantial volatility that has occurred in recent years. Revenue declined significantly during the recession as the subprime mortgage crisis sent asset prices on a downward spiral, which caused industry AUM to decrease sharply. Revenue growth has accelerated since, including 10.9%, 8.5% and 3.1% increases in 2013, 2014 and 2015, respectively, due to growing demand for professional investment services and improving capital markets. Alternatively, profit has remained relatively stable, rising slightly from 18.2% of revenue in 2010 to an estimated 21.6% in 2015. Competition from passively managed exchange-traded funds has put pressure on portfolio managers to lower fees. Over the five years to 2020, industry revenue is forecast to increase at an annualized rate of 2.4% to reach $270.6 billion. Improving market conditions will push up stock returns and bond yields, causing AUM to grow at a forecast annualized rate of 3.5% over the five-year period. Demographic trends are also expected to boost demand for industry services. As baby boomers switch from capital accumulation to preservation in retirement, they will likely seek industry services to manage their nest eggs. Yet, while assets and revenue will strengthen in the years to come, they are not anticipated to do so at prerecessionary rates. Additionally, financial system regulations are anticipated to tighten in response to the global financial crisis, which will lead to higher compliance costs and streamlined revenue. Demand Determinants:

Level and growth of economic activity

Aging population

Historical performance of portfolio managers

Performance of alternative, non-financial investment vehicles such as real estate.


149

Financial Planning and Advice Growth in the Financial Planning and Advice industry is compounding swiftly, following a brief decline as a result of the financial crisis. Consequently, revenue is expected to increase at an average annual rate of 5.2% over the five years to 2014, reaching $33.7 billion. The industry is composed of advisors and planners who provide financial advice in conjunction with other activities, such as portfolio management, protection planning and brokerage services. Economic drivers like capital market fluctuations, unemployment, disposable income and savings rates all greatly affect the industry. IBISWorld estimates that revenue will increase 2.5% in 2014. Advisors generate revenue in a variety of ways, including financial planning fees, investment commissions, insurance commissions and other fees. The recession, which was highlighted by increased unemployment and falling disposable income, hurt new and recurring advice fees. Since consumers had less available income, they opted to save money or pay off debts instead of capitalizing on investments. Eventually, a return to economic growth and employment reversed this trend. The Standard & Poor's 500 index (S&P 500), which contracted by 22.0% in 2009, experienced double-digit annual growth for three out of the past five years, increasing the value of many investments in the equity markets. Increases in the value of assets under management (AUM) have led to a rise in revenue generated from advisory fees, which are based on the proportion of total AUM. Rising employment and disposable income also bolstered financial planning fees related to insurance policies as consumers once again had the discretionary income to purchase these policies. Looking ahead, the five years to 2019 appear promising for the industry. Revenue is projected to continue to increase as financial markets improve. IBISWorld forecasts that a growing number of affluent households, and rising equity markets will help increase total AUM for the industry, and raise revenue generated from fees charged on the value of assets under management. Additionally, the aging U.S. population will increase demand for financial planning services as more Americans nearing retirement age will seek professional financial advice. Consequently, over the five years to 2019, industry revenue is projected to grow at an average annual rate of 7.2% to $47.6 billion. Demand Determinants:

Employment levels

Asset appreciation

Disposable income

Economic and financial market growth Demographic trends


150

Life Insurance and Annuities According to the Federal Reserve and the American Council of Life Insurers, the Life Insurance and Annuities industry is one of the largest sources of investment capital in the United States. Holding over 18% of all US corporate bonds, industry operators are the largest source of bond financing for domestic businesses. As a result, a myriad of companies rely on life insurers to expand operations or finance transactions. However, the primary obligation of life insurers is to their policyholders; life insurance policies and annuities products are used by consumers for wealth preservation, estate planning and retirement savings. The magnitude of the industry's invested assets highlights its exposure to the financial sector. While an estimated 71.2% of the industry's revenue represents annuity considerations and life insurance premiums, the remaining revenue is predominantly generated by investment income. Consequently, the subprime mortgage crisis and financial market collapse decimated revenue for the industry. With general improvements in equity markets and downstream demand since 2010, revenue for the industry is anticipated to increase at an annualized rate of 1.2% over the five years to 2015 to $811.4 billion; this growth includes a 2.1% increase anticipated in 2015. Yet, not all trends have been positive over the five-year period. More specifically, declining group annuity sales caused the industry's revenue to fall in 2013, as industry operators opted to reduce or eliminate variable annuity offerings. For example, MetLife and Prudential reduced sales of these contracts, with Prudential indicating that reinsurance deals have not been as compelling as other strategies for managing risks from guarantees. Simultaneously, industry operators are facing increased regulatory focus concerning their “shadow reinsurance” practices, or the repackaging and shift of policies to reinsurers owned by the same group. Over the five years to 2020, industry revenue is forecast to grow at an annualized rate of 2.8% to $931 billion. Increasing household affluence, an aging population and households taking on a greater role in retirement planning will support premium growth. Stronger financial markets and higher interest rates over the second half of the five-year period are anticipated to boost investment income. In addition, industry operators are expected to continue to consolidate in order to operate more efficiently and boost profit margins. Demand Determinants:

Industry premiums

General economic conditions

Demographic trends

Regulatory policies Tax rates


151

Health and Medical Insurance The Health and Medical Insurance industry was characterized by slow growth in the beginning of the past five years as a result of reduced employer coverage and continued consumer deleveraging. However, consistent increases in healthcare expenditure and medical cost inflation, and a sharp decline in the uninsured rate, have driven industry growth recently. Industry revenue is correlated with total health expenditure, as operators increase premiums to maintain profitability. Despite this revenue growth, medical cost increases and new legislation mandating minimum medical loss ratios have put pressure on industry profit. As a result of these trends, revenue is anticipated to increase at an annualized rate of 2.9% to $731.4 billion over the five years to 2015, while profit margins are expected to decline slightly. Recently, significant healthcare reforms have been introduced that aim to increase access to healthcare, slow medical cost inflation and improve healthcare quality in the United States. The legislation has already begun to shape the industry, as most of the reforms are anticipated to take effect throughout 2014 and 2015. During this time, the government will rely on insurance exchanges to provide individuals with tools to compare health insurance plans. Additionally, more individuals will qualify for government subsidies, thereby increasing demand for insurance. Despite reforms intended to moderate medical costs, rising health expenditures are expected to remain a primary driver of growth for the industry. In 2015, revenue is projected to increase 5.3%, primarily due to growing health expenditures and the impact of reforms on demand. Over the five years to 2020, revenue is forecast to rise at an annualized rate of 3.1% to $852.0 billion. This growth includes a 3% increase in 2016, as the uninsured rate continues to decline. Other key sources of growth include medical cost inflation and increased demand from the aging US population. As the baby boomer generation ages, more people will need medical coverage; the retirement of baby boomers will particularly increase Medicare expenditure. The private sector insurance market will also benefit from the needs of the aging population, specifically from individuals who supplement government coverage with private insurance. However, enterprise figures will slowly decline over the period as major players, determined to boost profitability despite increasing legislation, continue to consolidate. Demand Determinants:

Coverage costs

Employment levels

Disposable income

Government and regulatory changes


152

Property, Casualty and Direct Insurance Over the five years to 2014, revenue growth for the Property, Casualty and Direct Insurance industry was stifled due to a soft pricing cycle, historically low interest rates and volatile equity markets. Industry operators support many US consumers and businesses by providing protection against damage caused by a variety of events, such as car accidents and medical malpractice. General insurers can provide these services at a fraction of the potential loss by pooling premiums from policyholders to pay for losses that some individuals incur. As a result, the industry is an indispensable part of risk management in the domestic economy. General insurers derive income from insurance premiums and by investing premiums in bonds, stocks and other assets. Most property and casualty (P&C) premiums are obtained through the renewal of policies that relate to existing risks. Changes in risk exposure and pricing conditions impact remaining premiums for operators. Policy pricing fluctuates between cycles of price cutting (softening) and price increasing (hardening). Revenue for the industry is expected to increase at an annualized rate of 1.1% to reach $447.5 billion over the five years to 2014. Spurred by muted demand, the soft-pricing cycle that began in 2006 continued to hinder growth during the five-year period. The subprime mortgage crisis and subsequent recession compounded this already-soft pricing cycle and limited growth by destroying investment returns. Normally, catastrophic losses and poor investment returns push the industry into a hard-pricing cycle because firms look to recoup losses and rebuild balance sheets; however, this was not the case in 2009 and 2010. Instead, the industry remained in a soft cycle, with the weak economy forcing firms to compete for price-conscious consumers and businesses. Nevertheless, since 2011, this trend has slowly reversed as insurers began hardening prices. This change largely explains the 1.1% increase in revenue anticipated in 2014. Industry revenue is forecast to increase at an annualized rate of 2.9% to $515.9 billion over the five years to 2019. Technological changes, including the increased use of cloud computing and mounting data levels, will allow industry operators to decrease operational expenses and more effectively manage risk. In addition, rising premiums and higher interest rates expected during the second half of the five-year period will significantly improve the industry's revenue prospects Demand Determinants:

Employment levels

Housing sector and mortgage markets

Demographic trends

Pricing


153

Human Resources and Benefits Administration The Human Resources and Benefits Administration industry provides a wide range of everyday office administrative services to businesses in the United States. Industry operators offer assistance with financial planning, billing and record keeping, personnel, physical distribution and logistics. In addition, the industry provides general and specialized management services on a day-to-day or contracted basis. Over the past five years, the Human Resources and Benefits Administration industry has performed well despite poor conditions created by the global financial crisis. Increased outsourcing from businesses prevented industry revenue from falling, even as the number of businesses in the United States decreased and corporate profit plunged. The industry then experienced strong growth as the number of U.S. businesses increased and corporate profit margins recovered. Companies have continued to outsource human resources and benefits administration work over the five-year period to focus on their most lucrative core operations. Consequently, the industry has grown by an average annual rate of 4.3% during the five years to 2014 to reach $61.6 billion. Revenue growth is expected to continue in 2014, though it will be mitigated due to the labor market's slow recovery; as a result, industry revenue is expected to grow by 2.7% in 2014. The number of industry enterprises has also been on the rise. Low barriers to entry and stronger demand for industry services have both precipitated the entry of several new players, particularly small, nonemploying operators. Some consolidation has occurred during the beginning of the five-year period while industry profitability remained subdued and wealthier companies seized the opportunity to purchase smaller players. The industry is expected to continue to perform well over the next five years. The number of businesses in the United States is expected to grow at an annualized 1.7% during the five years to 2019. These businesses are expected to have higher corporate profit margins, which will allow them to outsource more administrative tasks, thereby driving industry growth. Accordingly, industry revenue is expected to grow at an average annual rate of 3.3% to $72.4 billion during the five years to 2019. The industry is also expected to expand as increasing and changing regulation, such as the rules governing healthcare reform, enhances the complexity of benefits administration. Demand Determinants:

Relative cost to downstream demand

Employment and small business growth Changes in legislative policy


154

Telemarketing and Call Centers Companies in the Telemarketing and Call Centers industry answer calls, relay messages and promote products and services on behalf of clients. The industry has experienced fluctuations over the past five years, as demand for industry services remained weak in the wake of the recession. Additionally, the domestic industry has largely been outsourcing operations to low-wage countries, which has resulted in limited growth. In August 2011, however, the Federal Communications Commission (FCC), in conjunction with Jobs4America, announced plans to expand the number of call center jobs in the United States by 100,000 through 2013. Renewed economic activity, in conjunction with this initiative, is expected to cause industry revenue to increase at an average annual rate of 3.1% to $19.8 billion in the five years to 2014. Rising corporate profit from key downstream industries is anticipated to boost revenue 2.4% in 2014 alone. The industry faced a number of setbacks throughout the past decade. In addition to navigating the recession, telemarketers were adversely affected by the implementation of the national Do Not Call Registry, which was signed into law in 2003 and became more stringent over the past five years. These limitations have led to the number of companies operating in the industry to grow at a muted annualized rate of 1.3% to 23,058 during the five years to 2014. Adapting to this new environment, industry operators have increasingly ramped up marketing efforts to generate revenue and profit. Call centers have consequently used technological advancements, including cloud-based systems, social media, voice recognition software and other broadband-enabled technology, to become more efficient. In the five years to 2019, IBISWorld anticipates that industry revenue will increase at an average annual rate of 2.3% to $22.2 billion. Over this period, the industry will likely benefit from rising corporate profit, which will enable clients to increase their use of the telemarketing industry to attract new business and handle customer relations. However, an increase in spending on new technologies will hinder profit margins from widening substantially in the short term. In the long term, these new technologies will reduce labor costs. As a result, IBISWorld estimates that industry profit will rise slightly from an estimated 6.9% of revenue in 2014. Demand Determinants:

Level of business outsourcing

Offshoring

Downstream demand from telecommunications, finance, insurance, and retail industries

Consumer spending



155

Defense

Definition 33422 – Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing 334511 – Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing 51121 – Software Publishers 51741 – Satellite Communications 517919 – Other Telecommunications 54151 – Computer Systems Design and Related Services Niches/Emerging Industries including:

Drones

Industry Vitals


NAICS Description Revenue

($bn)

Profit

($bn)

Annual

Growth 09-

14 (%)

Annual

Growth 14-

19 (%)

Revenue per

Employee

($'000)

Wages % of

Revenue

Emp. per Estab.

Average Wage ($)

33422 Communication Equipment 34.5 2.1 -0.2 1.7 485.8 20.0 83.6 97,121.90

33451a Navigational Instruments 118.8 9.0 3.0 3.3 412.7 21.1 69.9 87,258.00

51121f Security Software Publishing 10.0 1.5 3.7 2.0 448.1 29.0 42.4 129,935.20

51741 Satellite Telecommunications 6.7 1.2 3.2 3.8 748.6 13.4 14.1 100,596.60

51791b Radar & Satellite Operators 2.1 0.1 0.4 2.6 278.4 26.3 21.5 73,147.10

54151 IT Consulting 354.2 26.9 3.6 4.0 191.4 43.2 4.0 82,585.60


156

U.S. Geographic Concentrations There are 1,301 companies in the Target Universe. The Target Universe is defined as Headquarters companies with at least 250 employees. The following map represents the distribution of leads by state. The states with a darker shade represent a higher presence of companies within the industry. The states with the most defense companies (with at least 250 employees) are:


Virginia (149 companies)





Illinois (61 companies) Georgia (53 companies)


157

Segment Summaries

Communication Equipment The Communication Equipment Manufacturing industry produces radio and TV broadcasting equipment, antennas, cable television equipment, GPS equipment, pagers, mobile communications equipment and cellular phones. In 2009 and 2010, industry revenue plunged as consumer spending plummeted and economic uncertainty caused downstream corporations to delay upgrades to wireless and broadcast infrastructure. Consequently, revenue declined at an estimated average annual rate of 0.2% in the five years to 2014. However, revenue began to recover in 2011, and is expected to increase 1.5% in 2014 to reach $34.5 billion. Over the past five years, product innovations have been key drivers of rising consumer demand for new merchandise. While domestic companies are often at the forefront of progress in this industry, many have offshored less profitable and lower-skilled manufacturing activities to countries with lower wages, such as Mexico and China, thereby boosting industry profit. However, offshoring has also weakened revenue growth as the persistent rise of imports, which are expected to account for 68.3% of domestic demand in 2014, has threatened domestic manufacturers. In the five years to 2019, industry revenue is expected to recover at an average annual rate of 1.7% to $37.6 billion. Domestic demand for industry products is expected to grow; however, increasing demand from importers may offset this growth. U.S. operators will shift their focus to their services, high-end sectors and R&D departments, while simultaneously outsourcing production abroad and offshoring manufacturing facilities. Meanwhile, some industry products are expected to threaten each other or face external threats from industries hoping to render them superfluous. The highly-sophisticated, multi-purpose internet-enable smartphone is expected to deal a fatal blow to GPS equipment over the five years to 2014. Meanwhile, manufacturers selling cable television equipment will face consumers who have cut their cable cord in favor of online streaming services. The industry is expected to increase its research and development expenditures in order to create new product segments, offer a broader range of products or target a more niche market. Demand Determinants:

Capital investments from network operators

New product innovations, new technologies

Prices

Consumer spending

Number of mobile subscribers and network usage


158

Navigational Instruments The Navigational Instrument Manufacturing industry produces a wide range of devices, including search, detection and navigational instruments and electricity measuring and testing tools. The industry thus has a diverse clientele, including industries in air-traffic control, shipbuilding, construction, healthcare and research industries. Because of the industry's diverse revenue base, it has experienced low volatility in the past five years, even when the recession decreased demand for industry products. In the five years to 2014, industry revenue is expected to increase an annualized 2.9% to $118.4 billion, including a 1.8% increase in 2014. As the economy improved, rising corporate profit has allowed private research and development (R&D) budgets to expand during this period, providing the investments needed for industry product innovation. New products have allowed the industry to remain competitive in the face of rising foreign competition and changing demand in downstream markets, thus contributing to revenue growth. Additionally, growth in customer industries such as aircraft manufacturing, lab services and construction have provided stable demand for various instruments and devices. More robust revenue growth in the five years to 2014 has been limited by an appreciating dollar, which threatens the industry's trade performance. The trade-weighted index, a measure of the dollar's strength relative to other major currencies, has been increasing since 2012, and is expected to increase an additional 1.5% in 2014. A stronger dollar has led to a decrease in industry exports in 2013 and 2014, as industry products become more expensive on the world market. The appreciation has also increased the purchasing power of American consumers, leading to a significant rise in import volumes in the past five years. In the five years to 2019, industry revenue is forecast to increase at an annualized rate of 3.0% to $137.4 billion. An increase in R&D funding will continue to drive product advancement during this period, which will strengthen the already solid demand from downstream industries. Product innovation will also allow the industry to tap into new customer segments, such as renewable energy and biotechnology. However, the industry's export segment will continue to decline due to an appreciating dollar and greater international competition. Imports are also expected to rise during this period and, by 2019, will satisfy 31.4% of domestic demand. Demand Determinants:

Capital spending on equipment by public and private institutions

Lifespan of capital equipment

Technological change and innovation

Changes in domestic and international regulations


159

Security Software Publishing The Security Software Publishing industry has experienced steady growth in the five years to 2014, with revenue estimated to expand at an average 3.7% annually, including an increase of 1.1% in 2014 alone, to reach $10 billion. The explosion of data, a rise in internet enabled solutions and cloud services, and an increase in services conducted online, encouraging consumers to share personal information, are expected to stimulate the industry's expansion. Additionally, as sophisticated criminals in search of a new source of profit dominate the virus creation field, viruses have become more widespread and aggressive. High-profile cyber-attacks targeting retailers, financial institutions and healthcare providers are expected to further stimulate demand for industry products. Computer, tablet and smartphone users increasingly view security software as a necessary purchase, and companies invest in security products to avoid heavy financial losses and a damaged reputation. Several major trends are changing the security software landscape. The first is the migration from hardware to the software as a service (SaaS) business model. In the SaaS model, customers pay for the right to use software installed on a remote server, a form of cloud computing, rather than paying for a physical copy of the software. Companies increasingly release regular and automatic updates to their existing software, rather than compiling updates to a new version that must be purchased again. Additionally, as more employees access company and personal information through mobile devices, IBISWorld expects demand for mobile security software to increase, boosting industry revenue. In the five years to 2019, revenue is forecast to grow an average of 2.0% annually to $11.0 billion, as traditional and start-up companies focus their efforts on creating software that spot and clean up viruses on portable computing devices. The development of predictive analytics models, which extract information from existing data sets in order to determine patterns and predict future outcomes, is expected to propel market growth by making the industry more proactive than reactive, creating products capable of recognizing unusual behavior and cleaning up breached systems. Finally, security software publishers are expected to race to protect an increasing number of web-enabled devices that communicate with each other from progressively creative and sophisticated criminals. Demand Determinants:

Increased use of smart phones and computers

Increased use of data in the business world

Technology changes and trends information technology


160

Satellite Telecommunications The Satellite Telecommunications Providers industry provides telecommunications connections via satellite for broadcasters and other telecommunications providers. This industry includes establishments that own and operate satellites, as well as operations that resell transmission capacity. Due to the technological and capital-intensive nature of building, launching and operating a satellite, this industry is one of the smallest industries in the U.S. telecommunications sector. Since network expansion is also very time intensive, industry growth tends to move in fits and starts. For example, revenue growth may rapidly increase with the launch of a new satellite and gradually stabilize as the satellite reaches capacity. Since 2009, the industry has become a more important part of providing telecommunications services; development of the direct-to-home TV market, expansion of broadband internet services and advances in digital technology have driven demand. Also, wireless backhaul services (i.e. wirelessly transferring data from a provider's edge network to its core network) have created an additional revenue stream for satellite operators. The industry's touted advantages of satellite technology over cable have enabled it to increase penetration in a number of lucrative markets, such as maritime, mining, oil and gas, media and government. These advantages include universal coverage, point-to-multipoint transmission capabilities (transmitting from a satellite to multiple terrestrial locations) and independence from terrestrial infrastructures (i.e. cables and wires). As a result of these trends, industry revenue is expected to grow at an average annual rate of 3.2% to $6.7 billion over the five years to 2014. This includes anticipated growth of 3.8% in 2014. Revenue is anticipated to continue growing in the five years to 2019, as demand for telecommunications remains high. New high throughput satellites are expected to boost satellite operators' bandwidth capacity, increasing coverage offerings and lowering product prices to compete with other forms of telecommunication. Increased demand for ubiquitous communication services, from consumers and businesses alike, will only continue as connectivity and broadband access become essential elements of societal infrastructure. Due to these advances, industry revenue is forecast to grow 3.8% per year on average to $8 billion in the five years to 2019. Demand Determinants:

Level of economic activity

Demand from telecommunication carriers, broadcasters and end users

New products and services

Rural and remote population


161

Radar and Satellite Operators Working closely with telecommunication service providers but offering only specialized satellite telecommunication services, the Radar and Satellite Operations industry is far and away the smallest industry in the U.S. telecommunications sector. However, the industry plays a critical role in the operation of satellites. Participants are involved in satellite telemetry, tracking and control services, as well as the operation of ground control stations. Revenue volatility is high, and industry profitability is even more volatile, largely due to the industry's dependence on the performance of downstream satellite telecommunications providers, which itself is conventionally volatile. The industry spent a large part of the past five years in decline, with a slumping bottom line. Over the five years to 2014, IBISWorld estimates that revenue will increase at an annualized rate of 0.4% to total about $2.1 billion. However, as the economy continues its slow recovery, industry revenue is expected to decline 1.1% in 2014. The industry grew rapidly prior to the recession and benefited from a growing number of broadband connections, as well as increased per capita disposable income and strengthened investment in computers and software. Higher demand from satellite telecommunication and TV providers also pushed satellite providers' networks to capacity and improved industry participants' bottom lines. However, the industry was hit hard during the recession; amid depressed downstream demand from telecommunication (IBISWorld report 51741) and satellite TV (51711b) providers, industry revenue contracted in 2009 and 2010, but turned around in 2011. The industry is expected to experience renewed demand over the five years to 2019. The digital economy will open up additional markets for satellite technology, creating greater demand for industry operators. Moreover, major telecommunications providers will likely move toward adding satellite infrastructure to their more traditional offerings. As a result of these changes, IBISWorld projects that revenue will increase at an annualized rate of 2.6% to $2.4 billion over the five years to 2019. Demand Determinants:

Global economic conditions

Digital economy trend Technological advancements


162

Information Technology Consulting The Information Technology Consulting industry is composed of firms that help companies design and implement information technology (IT) systems and software. Due to the low capital requirements of the industry, the majority of operators are small, nonemploying firms and independent contractors. In the five years to 2014, demand for all-inclusive consulting services has inspired a rash of merger and acquisition (M&A) activity among larger players, with smaller, specialized companies still entering the industry. As a result, the number of industry enterprises is growing at a slower rate than the number of establishments. In the five years to 2014, the industry has performed well as macroeconomic conditions have improved. Stronger corporate profit and increased investment in computers and software have precipitated industry revenue growth. Stronger business confidence has caused companies to invest in new systems, which are becoming more essential as the world becomes increasingly interconnected through digital mediums. The private sector has led industry growth, with IT consultants providing assistance to firms looking to improve existing systems, develop new tools or merge separate technologies during M&As. Furthermore, rising demand for industry services and higher-value added solutions in product development have enabled operators to increase prices and, thus, profitability. Consequently, industry revenue is projected to grow at an average annual rate of 3.6% to $354.2 billion over the five years to 2014, including an increase of 3.1% in 2014. As the economy strengthens, improving business sentiment and corporate profit levels will further drive industry performance. In the five years to 2019, industry revenue is expected to grow an annualized 4% to $431.1 billion. Increasing M&A activity in other industries will spur demand for IT consultants and, with more consolidations, companies will require assistance in the integration of accounting, information storage and other systems. Additionally, rising consumer use of mobile devices will create new opportunities for industry operators. Profit is also projected to grow slightly over the five-year period thanks to major companies continuing to shift more services toward higher value-added offerings such as computer systems design. Demand Determinants:

Business profit and confidence

Level of mergers and acquisitions activity

Developments in software and hardware

Outsourcing trends



163

Chemicals

Definition 32513 – Synthetic Dye and Pigment Manufacturing 32518 – Other Basic Inorganic Chemical Manufacturing 32519 – Organic Chemical Manufacturing 32521 – Resin and Synthetic Rubber Manufacturing 32522 – Artificial and Synthetic Fibers and Filaments Manufacturing 32532 – Pesticide and Agricultural Chemical Manufacturing 32551 – Paint and Coating Manufacturing 32552 – Adhesive Manufacturing 32561 – Soap and Cleaning Compound Manufacturing 32562 – Toilet Preparation Manufacturing

Industry Vitals



Profit ($bn)

Annual Growth 09-14

(%)

Annual Growth 14-19

(%)

Revenue per

Employee ($'000)

Wages % of

Revenue

Emp. per

Estab.

Average Wage ($)

32513 Dyes and Pigments 7.8 0.2 4.7 1.5 820.3 8.2 56.3 67,577.50

32518 Inorganic Chemicals 39.2 3.3 5.4 3.2 1,125.7 7.7 52.4 87,206.00

32519 Organic Chemicals 161.0 10.5 7.1 3.2 1,697.0 5.0 74.0 84,062.60

32521 Plastics and Resins 109.3 6.8 2.3 1.2 1,455.4 5.6 54.1 81,527.80

32522 Synthetic Fibers 8.4 0.6 7.8 0.2 621.7 8.1 112.6 50,077.70

32532 Pesticides 16.8 1.4 5.4 3.4 1,440.7 4.6 54.3 66,846.50

32551 Paints 24.5 2.8 2.9 1.8 665.8 9.0 15.5 59,605.00

32552 Adhesives 13.4 0.9 3.4 2.0 718.8 9.3 34.1 66,836.20

32561 Soaps and Cleaning Compounds 55.4 3.7 0.6 1.3 1,246.0 5.3 34.1 66,190.20

32562 Cosmetic and Beauty Products 56.2 5.7 5.6 3.4 1,077.10 5.6 17.0 60,642.50


164

U.S. Geographic Concentrations There are 637 companies in the Target Universe. The Target Universe is defined as Headquarters companies with at least 100 employees. The following map represents the distribution of leads by state. The states with a darker shade represent a higher presence of companies within the industry. The states with the most chemical companies (with at least 100 employees) are:





Ohio (47 companies)


New York (41 companies) North Carolina (27 companies)


165

Segment Summaries

Dyes and Pigments The Dye and Pigment Manufacturing industry comprises a mere 1% of the chemical sector's revenue in the United States. Nevertheless, the industry still manufactures products that are key chemical intermediate products used by other sectors, such as coatings and ink manufacturers. Additionally, other downstream sectors, namely the construction and automotive manufacturing sectors, have stimulated demand for dyes and pigments. For example, as the number of housing starts rises, so does consumer demand for paint, which requires pigments as a key input commodity. Further exacerbating demand for industry products, resilient demand for dyes and pigments for applications related to coatings, plastics, paper and printing inks has spurred industry revenue growth. In particular, higher performance dyes and organic pigments have fared well in the five years to 2014. However, the industry has contended with volatile input commodity costs, namely the price of oil, which has made it arduous for dye and pigment manufacturers to mark up their petroleum-based products in line with spikes in oil prices. During the five years to 2014, industry revenue is expected to grow at an annualized rate of 4.7% to $7.8 billion, including a 1.6% rise in 2014, thanks to resilient demand for industry products from downstream markets, particularly the housing and automotive manufacturing sectors. Profit is expected to contract from 3.2% of industry revenue in 2009 to 2.9% in 2014, due to many dye and pigment manufacturers investing in manufacturing lines for high-performance pigments that have specific end-user applications. For instance, some operators developed manufacturing facilities that work with organic molecules (i.e. quinacridone) that can create industry products that have industrial colorant applications, such as outdoor paints and inkjet toners. During the five years to 2019, industry revenue is forecast to grow at an annualized rate of 1.5% to reach $8.4 billion. Robust demand for dyes and pigments from the plastic and car manufacturing sectors will stimulate industry revenue growth over the five-year period. However, competition from foreign dye and pigment manufacturers will intensify, as many globally-based companies enter the market, particularly Chinese dye producers that want to cater to downstream demand in specific markets, such as China, South Korea, India and Taiwan. Demand Determinants:

Demand from downstream markets and manufacturing sectors like automotive and construction

Consumer spending

Environmental pressures and concerns


166

Inorganic Chemicals Inorganic chemicals (e.g. mineral acids, ammonium sulfate, titanium dioxide and carbon black) are often used as raw materials in manufacturing processes (i.e. the production of paint, glass, paper, rubber and alumina). Accordingly, industry operators depend on demand from downstream industries that use these secondary products. When demand for manufacturing and construction collapsed during the recession, so did demand for products made from inorganic chemicals. However, some purchasers of industry products, like alumina producers, rebounded quickly, stimulating the need for inorganic chemicals. Consequently, in the five years to 2014, IBISWorld expects revenue to increase an annualized 5.4% to $39.2 billion, including a 2.5% increase in 2014 as the economy continues to recover. In 2009, the industrial production index fell 11.3% as the economy collapsed, and industry revenue followed suit, declining 16.3% that year. However, the manufacturing sector promptly began to rebuild, boosting demand for inorganic chemicals throughout 2010 and 2011. Moreover, exports have grown at an annualized rate of 2.4% since 2009, as a result of a weak dollar that kept domestically produced chemicals relatively less expensive in international markets. During the volatile economic environment of the past five years, profit margins for energy-intensive chemical manufacturers have benefited from steady electricity prices and low domestic natural gas prices. Over the five years to 2019, the industry will expand as demand from downstream industries continues to increase. Moreover, as the automobile sector recovers, tire and rubber manufacturers will demand more carbon black from industry producers. Similarly, as other chemical manufacturing industries rebound in the next five years, demand for industry-produced chlorine (a major input in chemical manufacturing processes) will increase as well. A rising trade-weighted index will likely drive down demand for exports, but domestic chemical manufacturing and construction activity is expected to increase and drive industry growth, due to further recovery in the U.S. economy. As a result, in the five years to 2019, IBISWorld expects industry revenue to increase at an annualized rate of 3.2% to $46.0 billion. Demand Determinants:

Demand from downstream markets and manufacturing sectors like glass and detergents

Consumer spending Export growth


167

Organic Chemicals The Organic Chemical Manufacturing industry has rapidly expanded over the past five years. The industry, which provides raw materials to different industries, such as plastic, paint and adhesive manufacturing, is anticipated to increase at an average annual rate of 7.1% to $161.0 billion over the five years to 2015. Much of this strong performance, however, was the result of rapid growth in 2011, as industry revenue spiked and demand from downstream customers (e.g. construction and manufacturing operators) improved after the global recession. The ensuing economic rebound caused many of the industry's customers to increase their production levels as consumer spending rose and demand from key buying markets, such as residential and nonresidential construction sectors, rebounded. Strong industry revenue gains in 2011 were also the result of a jump in organic chemical exports, which was fueled by strong growth in nations, such as China. However, industry exports have slowed shortly thereafter, as lower industrial and manufacturing activity from emerging economies has led to depressed demand for organic chemicals produced by this industry. Nevertheless, increasing consumer spending and US construction activity has buoyed organic chemical manufacturers. In line with these trends, revenue is expected to increase 3.8% in 2015. In addition, a lower global price of crude oil, a key input in organic chemical manufacturing will support industry profit. With lower operating costs, industry profit will increase to 6.5% of revenue in 2015. Over the five years to 2020, IBISWorld estimates industry revenue to grow at an average annual rate of 3.2% to an estimated $188.8 billion. Demand from key buying industries will expand, driven by higher consumer consumption and an increase in exports. A faster anticipated rise in industry revenue growth, when compared with wage growth and stable input prices, will allow for a marginal expansion in industry profitability. Demand Determinants:

Manufacturing activity level

Consumer spending


Export levels

Environmental pressures

Regulatory controls


168

Plastics and Resins Following a volatile period, the Plastic and Resin Manufacturing industry experienced positive demand growth in the five years to 2015. The industry relies on demand from two key sectors: downstream manufacturers and construction. This industry rapidly recovered after the recession, benefitting from increased construction and manufacturing activity. Consequently, revenue is expected to rise at an average annual rate of 2.3% to $109.3 billion in the five years to 2015, with a 0.9% rise in 2015. Prices of raw materials, such as crude oil, were volatile over the five years to 2015. Over the period, the world price of crude oil drastically fell at an annualized rate of 6.6%. Prices recovered from recessionary lows, growing 28.9% and 30.6% in 2010 and 2011, respectively. However, the price has dropped dramatically since, including an expected 41.1% drop in 2015 due to supply increases and depressed demand. As input prices rose, industry operators adjusted, reducing employment and adopting lower-cost, automated processes to restore profitability. However, as downstream activity recovered and prices fell, employment increased to meet higher demand requirements. Profit is expected to be strong in 2015 as industry players reap the benefits of lower input prices. Exports account for a significant percentage of industry revenue, but growth has been hampered by a strengthening dollar. The trade-weighted index, measuring the relative strength of the U.S. dollar to foreign currencies, is expected to grow an annualized 1.9% in the five years to 2015. Relatively more expensive to foreign buyers, exports are anticipated to grow only 0.4% annually, on average, over the period. Conversely, foreign imports become cheaper for domestic producers, increasing industry imports an estimated annualized 5.7% over the five-year period. Increasing downstream demand is expected to support industry demand in the five years to 2020, although rising input prices and a strengthening US dollar will constrain growth to an annualized 1.2% to $116.0 billion. Markets demanding plastic and rubber components, such as construction and manufacturing, are expected to continue solid growth trends, thereby increasing industry demand. Alternatively, the prices of crude oil and natural gas, two key inputs, are expected to grow at annualized rates of 5.1% and 6.0%, respectively, in the next five years, tightening profit margins and constricting growth as producers attempt to pass costs along to consumers. Demand Determinants:

Manufacturing activity, especially automotive and packaging


Demand for substitute goods Trade weighted index


169

Synthetic Fibers The Synthetic Fiber Manufacturing industry, which supplies fiber made from petrochemicals to producers of apparel, plastics and other consumer goods, has endured considerable challenges in the five years to 2014. Purchases of synthetic fibers, which are inputs for products such as clothing and home furnishings, are affected by changes in consumer spending and industrial production. As consumer spending recovered after the recession, downstream manufacturers increased production and thus purchases of synthetic fiber inputs. Moreover, as downstream manufacturing continues to expand abroad, exports have provided a growing source of revenue for the industry. Consequently, industry revenue is anticipated to increase from a recessionary base at an annualized rate of 7.8% over the period. Before the economic downturn, the Synthetic Fiber Manufacturing industry was contracting due to its dependence on a declining customer base as US apparel, carpet and textile mills gradually moved offshore. The recession exacerbated this trend and resulted in a dramatic reduction in demand for synthetic fiber. On top of steep declines in previous years, revenue contracted 46.3% for apparel knitting mills, 24.5% for carpet mills and 18.3% for textile mills in 2009. Thus, despite strong rebounds in 2010 and 2011 due to increases in housing starts and disposable income levels, which drive demand for home furnishings and other consumer products, industry revenue remains far below prerecession levels. As production in downstream industries slows, or decreases in the case of apparel mills, industry revenue is forecast to fall 1.0% to $8.4 billion in 2014. Over the five years to 2019, the industry will remain fairly stable. Demand from carpet mills and manufacturers of industrial products and consumer goods will modestly increase, and demand from textile mills will stabilize, offsetting declining demand from apparel mills. While some synthetic fiber manufacturers will move operations offshore to countries with lower labor costs and less rigorous regulations, others plan to expand production in the United States. As manufacturing activity continues to increase in developing economies, import competition will intensify and exports to foreign producers in downstream industries will grow. For these reasons, the Synthetic Fiber Manufacturing industry's revenue is projected to remain fairly steady, marginally rising at an annualized rate of 0.2% to reach $8.5 billion in 2019. Demand Determinants:

Downstream demand from textile industries, carpet manufacturers, industrial products and consumers goods.

Consumer spending

Offshoring

Housing starts Population growth in emerging markets


170

Pesticides The Pesticide Manufacturing industry produces chemical and pesticide products to manage pests and diseases. Operators in this industry have benefited from the recent drop in oil prices and a prosperous agricultural sector. Additionally, larger operators' interest in using the United States as a manufacturing hub has also given a boost to the industry's operations. However, despite the recent success, the ongoing adoption of genetically modified (GM) crops and low farmer income during the recession caused revenue volatility over the five years to 2014, and continue to remain a threat. Consequently, during the five years to 2014, industry revenue is expected to grow at an estimated average annual rate of 5.4% to $16.8 billion. As the economy continues to recover and farmers earn higher incomes, customers will encounter increased crop production and demand for pesticides. Therefore, revenue is expected to grow 1.4% in 2014. Profit, which accounted for 4.8% of revenue in 2009, is also expected to grow to an estimated 8.3% of revenue in 2014. Expected increase in demand and more competitive cost structures because of a decline in oil prices and energy costs are expected to result in higher profit margins. Moreover, over the five years to 2019, industry revenue is projected to grow at an average annual rate of 3.4% to total $19.9 billion. Historically, agricultural output and income levels have been the most important determinants of industry demand, but new variables have emerged in recent years to the detriment of pesticide manufacturers. These variables include the flow-on effects of biotechnology developments and the growing size of the areas dedicated to GM crops. Even with these potential threats to the industry, increases in the size of crop areas planted for biofuel purposes (e.g. corn, wheat and rapeseed acreage) will enable the industry to continue its growth. Even though the industry is anticipated to experience revenue growth during the next five years, the number of manufacturers is expected to stabilize. As operators sought to gain market share and research and development advantages, a number of companies underwent mergers and acquisitions from 2009 to 2014. As this trend of consolidation continues, company numbers are projected to decrease at an annualized rate of 0.1% to 180 operators over the five years to 2019. Demand Determinants:

Local climate

Soil conditions

Agricultural diseases and parasites

Developments in the upstream agricultural industry, including farm income levels

Farming practices

Environmental pressures


171

Paints The Paint Manufacturing industry provides protective and decorative finishes for many US products in various end-use markets. Industry companies supply the construction sector with the coatings it needs for houses and other commercial buildings it constructs and the manufacturing sector with paint for products like cars, boats and consumer goods. While paint is essential to many industries, paint manufacturers remain vulnerable to macroeconomic shifts, as the economic recession severely impacted many operators. Since 2010, however, the economy has begun to recover and manufacturing activity has picked up, boosting paint sales. From the low point of 2009, industry revenue is expected to grow 2.9% per year on average to $24.5 billion in 2014. In addition to shifts in demand, the industry has endured volatile raw material costs and strict government regulation regarding different paints' chemical compositions; as a result, revenue is expected to grow just 0.1% in 2014. However, as the economy continues to expand and consumer spending increases, downstream industry customers are expected to increase production and purchase more paint in the five years to 2019. Rising demand from key purchasers, such as car manufacturers and residential builders, will boost sales of industry products, helping revenue rise at an estimated average annual rate of 1.8% to $26.8 billion in 2019. While revenue is projected to increase in the next five years, the number of operators in this fragmented industry is expected to continue to decrease. Some manufacturers have already exited the industry due to financial struggles during the recession, while other companies will likely partake in mergers and acquisitions. With rising costs from new government regulations and volatile material prices pressuring profit margins, companies will focus on improving their efficiency by acquiring other operators to increase economies of scale. As a result, IBISWorld expects the total number of industry enterprises to decrease an average annual 2.1% to 1,992 in the five years to 2019. Total industry spending on labor, however, will likely increase as industry operators look to gain a larger share of the growing market by hiring highly skilled research and development personnel to create new cutting-edge products to attract customers. Demand Determinants:

Residential and nonresidential construction

Health of general economy

Fashion trends

Environmental concerns and pressures


172

Adhesives The Adhesive Manufacturing industry has posted steady revenue growth caused by the recovery of downstream industries. In the five years to 2015, industry revenue grew at an estimated annualized rate of 3.4% to $13.4 billion. During the economic downturn, downstream industries were all sluggish because of weakened business activity. As the economic recovery took hold, these downstream industries recovered as well, which has led to five straight years of growth in demand for adhesives. Adhesive manufacturers rely heavily on several key industries to purchase their products, including the construction sector, aircraft manufacturers, automotive manufacturers, packaging providers and consumer goods manufacturers. Therefore, as demand for downstream users' products rise or fall, demand for adhesives follows suit. Unlike other manufacturing industries, the Adhesive Manufacturing industry has benefited from an increase in exports, which grew at an annualized 2.4% rate over the five-year period. Adhesive manufacturers use petroleum-based products in the production of adhesives; as domestic oil production boomed during the period, adhesive production in the US was attractive to manufacturers due to its proximity to input supply and low transportation costs. Canada and Mexico are also big users of adhesives; in 2015, these two countries are expected to account for 47.3% of exports. The increasing volume of exports has benefited revenue for the industry over the past five years, despite the imposition of strict government regulation domestically, a comparative disadvantage in terms of international competitors. Nevertheless, in 2015, revenue will increase an estimated 0.4%. Due to increased demand, profit will amount to 7% of revenue in 2015, up from 5.5% in 2010. Over the five years to 2020, revenue is estimated to grow at an average annual rate of 2% to $14.8 billion. Key buying industries' production levels are expected to increase, supporting demand for adhesives. While industry revenue is projected to grow, the number of companies is anticipated to remain flat through 2020. Meanwhile, the number of establishments will grow at an average annual rate of 0.2% to 553 operations, as new entrants to the market are offset by acquisitions by industry heavyweights. Many players, including PPG Industries, expanded market share by completing acquisitions over the past five years, and this trend is anticipated to continue. Demand Determinants:

Unemployment

Disposable income

Consumer sentiment

Changes in automobile production Level of international trade


173

Soaps and Cleaning Compounds During the past five years, the Soap and Cleaning Compound Manufacturing industry has contended with steep competition from foreign-based soap manufacturers. Foreign-based manufacturers have inundated the market with low-cost soap products, pressuring demand for domestically manufactured products. Additionally, in response to low per capita disposable income, many consumers have moved toward low-cost, private-label soap and cleaning products, further restricting revenue growth. Nevertheless, soap and cleaning compound manufacturers have used eco-friendly products to appeal to environmentally conscious consumers, which has stimulated industry revenue. As a result, revenue is anticipated to grow at an annualized rate of 0.6% to $55.4 billion during the five years to 2015. Revenue is expected to decline by 0.2% in 2015, constrained by slow demand growth for cleaning products from downstream markets, such as janitorial and accommodation and food services. Slow domestic population growth restricts demand for cleaning products, inducing many manufacturers to look for growth opportunities abroad. Additionally, a strengthening dollar over the period has slowed export growth. Meanwhile, the price of oil, a vital input commodity for soap manufacturers, has experienced extreme volatility. While operators can change soap prices to pass high input commodity costs to consumers, strong competition has prevented many operators from doing. This will force industry players to lower prices in response to recent drops in oil prices, thus limiting overall revenue growth while increasing profit margins. Profit is expected to increase from 5.5% of industry revenue in 2010 to 6.7% in 2015. As per capita disposable income rises, many consumers will slowly shift to relatively high-cost, brand-name soaps and cleaning products. Additionally, downstream markets, such as restaurants, will require more cleaning products to comply with regulations and maintain cleanliness in line with the rise in consumer foot traffic. Due to a rise in physician visits, the healthcare industry will demand more supplies as well. As a result of these trends, over the five years to 2020, industry revenue is forecast to grow at an annualized rate of 1.3% to $59.0 billion. Demand Determinants:

Population growth

New product development

Sustainability trends

Prices


174

Cosmetics and Beauty Products The wide range of beauty and personal care goods produced by the Cosmetic and Beauty Products Manufacturing industry protects its participants from drastic changes in disposable income. Fluctuating incomes do affect cosmetics, but essential goods, such as shampoo, experience steadier demand. Industry revenue has increased steadily in recent years, aside from double-digit revenue growth in 2012 spurred by recovering demand in overseas markets, as some of the industry's largest export partners began to experienced postrecessionary growth. Due to steady demand, IBISWorld expects revenue to grow 5.6% in 2015 to $56.2 billion, in line with the industry's 5.6% annualized revenue growth in the five years since 2010. The number of industry employees declined in the wake of the recession, but has since begun to recover. Nonetheless, in the five years to 2015, industry employment rose at an average annual rate of just 0.5%. Keeping labor costs low has helped players sustain relatively high average margins of more than 10% of revenue, even as spiking oil costs have threatened profit. Average industry profit has been further bolstered by increased market opportunities overseas. The total value of industry exports has grown 3.5% per year on average since 2010. Overseas retailers depend on the perceived high quality of U.S.-made goods, and the weakness of the US dollar made domestic products cheaper on the global market throughout 2011. The currency's growing value has, however, limited export growth in recent years. The characteristics that have supported the Cosmetic and Beauty Products Manufacturing industry's growth during the past five years will also drive its success in the five years to 2020. The industry's diverse product lines and commitment to research and development (R&D) will keep revenue growth steady; IBISWorld expects revenue to increase at an average annual rate of 3.4% to $66.4 billion, with average profit margins exceeding 12.0% by 2020. Operators will likely continue to develop premium product lines to satisfy domestic consumers with rising disposable incomes, as well as foreign customers who expect US-made goods to be high quality. As a result, exports are forecast to climb to 17.3% of revenue by 2020. To meet this growing demand, IBISWorld expects employment and wages to increase during the next five years as industry players invest more into facilities and human resources and expand their R&D teams to remain competitive. Demand Determinants:

Fashion trends

Industry marketing

New product development

Physiological and environmental attitudes Disposable income and consumer confidence



175

Food Products

Definition 31161 – Meat, Beef and Poultry Processing 31182 – Cookie, Cracker and Pasta Manufacturing 31191 – Snack Food Manufacturing 31192 – Coffee and Tea Manufacturing 31194 – Seasoning and Dressing Manufacturing 31199 – All Other Food Manufacturing Niches/Emerging Industries including:

Gluten Free Foods

Organic Foods

Industry Vitals



Profit ($bn)

Annual Growth 09-14

(%)

Annual Growth 14-19

(%)

Revenue per

Employee ($'000)

Wages % of

Revenue

Emp. per

Estab.

Average Wage ($)

31161 Meat, Beef and Poultry Processing 220.5 11.9 4.3 0.8 445.9 7.2 76.4 32,206.50

31182 Cookie, Cracker and Pasta Production 24.4 1.5 1.7 1.9 479,4 9.8 66.0 45,906.20

31191 Snack Food Production 35.2 4.9 4.2 3.4 714.5 6.1 76.4 43,431.00

31192a Coffee Production 11.1 0.5 7.5 1.5 911.8 5.6 32.6 50,653.70

31192b Tea Production 1.6 0.1 6.9 4.3 927.5 6.1 40.0 56,157.00

31194 Seasoning, Sauce and Condiment Production 18.8 0.9 1.1 1.9 583.4 9.7 42.8 56,768.70

31199 Baking Mix and Prepared Food Production 23.2 1.2 0.1 0.5 356.8 11.2 47.3 39,905.70


176

U.S. Geographic Concentrations There are 489 companies in the Target Universe. The Target Universe is defined as Headquarters companies with at least 100 employees. The following map represents the distribution of leads by state. The states with a darker shade represent a higher presence of companies within the industry. The states with the most food products companies (with at least 100 employees) are:




Minnesota (26 companies)


Ohio (26 companies)

Wisconsin (25 companies) New Jersey (22 companies)


177

Segment Summaries

Meat, Beef and Poultry Processing While per capita meat consumption is expected to fall only marginally in the five years to 2014, the recession has exacerbated consumption declines. Consumers scaled back the quality and quantity of meat purchases due to reduced disposable income and low confidence in the economy, and reduced consumption has persisted even as the economy recovered. Also, adverse health effects associated with red meat consumption have driven some consumers toward alternative protein sources. In addition to broad trends related to consumer preference and disposable income, disease outbreaks have limited industry growth during specific years. In 2013, for example, Porcine Epidemic Diarrhea (PED) virus began decimating pig litters, depleting the supply of hogs. Reduced herd numbers have pushed prices up, deterring some consumers from purchasing pork products. Despite these detriments, meat remains a staple product; greater economic issues largely do not affect overall meat sales. During the five years to 2014, revenue for the Meat, Beef and Poultry Processing industry is expected to grow at an annualized rate of 4.3%. Key downstream markets, including those in frozen foods and animal food production, have also exhibited growth over the past five years, leading to greater demand for meat products. Meanwhile, competition from substitute seafood products has been minimal, thanks to seafood's comparatively high prices and consumers' reluctance to spend on relatively extravagant meals. Consumers' returning purchasing power is expected to bolster consumer spending on meat. However, an expected dip in the price of corn and other crops used for feed is projected to decrease industry revenue 2.3% to $220.5 billion in 2014. Due to recovering consumer sentiment, population growth and strong export demand, meat-processing revenue is forecast to increase an average 0.7% annually during the five years to 2019, to reach $228.9 billion. Despite the stability of consumer demand for meat-based products, unpredictable weather conditions and disease outbreaks can cause volatility from year to year. For example, a sudden drought in the Midwest, Plains or Rocky Mountains could reduce livestock numbers, lower meat supplies and increase food prices. Also, a single case of livestock infection could result in substantial short-term losses and international trade bans for the affected meat. To combat such volatility, the industry has developed technologies intended to reduce disease outbreaks. Demand Determinants:

Consumer preferences

Disposable income

Nutrition and health concerns

Environmental factors

Seasonality


178

Cookie, Cracker and Pasta Production This is no time to toss your cookies aside. Over the past five years the Cookie, Cracker and Pasta Production industry has benefited from improving demand for industry products as per capita disposable income recovered from the recession. While the price of industry goods rose due to higher input costs, the post-recession environment caused many consumers to choose cooking pasta and baking for oneself in order to stretch their food dollars. Moreover, the rise of popular cooking television shows has younger generations increasingly deciding to buy their own pasta, baking mixes and dough to prepare their own meals and desserts. Many of the larger producers were able to pass on input cost increases to downstream markets and maintain demand for their products, a difficult feat for smaller producers. Despite lower profitability for smaller companies, new producers entered the industry to capture a share of the growing market for specialty goods. Producers have focused on innovating healthful products in response to shifting consumer demand. The leading manufacturers in this industry reformulated their existing products, and debuted low-calorie brand extensions and gluten-free and organic products. Producers benefited from charging a premium for these value-added snacks, pasta, and flour mixes, further boosting the industry revenue and profitability. Additionally, the growing importance of snacking in international markets convinced industry participants to expand their operations across the globe; most recently, in August 2014, Mondelez International opened its new headquarters in Mumbai, India. Overall, industry revenue is anticipated to increase at an average annual rate of 1.7% to $24.4 billion over the five years to 2014, including a 2.1% jump in 2014 alone. Industry prospects are optimistic, with revenue anticipated to grow at an annualized rate of 1.9% to $26.9 billion over the five years to 2019. Rising discretionary income enables consumers to purchase a greater volume of snacks and trade up to branded and premium products at retail stores. Also, as health and nutrition become more important, demand for specialty products, such as gluten-free, organic and nutrient-enhanced food will rise and support the growth of manufacturers. Increasing demand for specialty products abroad will also boost industry exports, further supporting revenue growth. Consequently, IBISWorld projects industry revenue to grow an annualized 1.9% to $26.9 billion in the five years to 2019. Demand Determinants:

Quality and taste of products

Price levels


Food trends


179

Snack Food Production The Snack Food Production industry has benefited from increased demand for snacks over the past five years, with revenue growth supported by rising discretionary income levels. As the economy continued to strengthen, renewed consumer spending boosted demand for potato chips, tortilla chips, nuts and seeds. In addition, as the price of corn and wheat increased, which are major ingredients used in most snack foods, many larger producers were able to maintain earnings by passing on higher costs to consumers in the form of higher prices. Consequently, industry revenue is anticipated to increase an annualized 4.2% to $35.2 billion over the five years to 2014, including a 3.0% jump in 2014. Shifting food consumption trends have also impacted the performance of snack food producers over the period. Specifically, growing health concerns and awareness of the health consequences of eating foods high in sodium, fat and sugar have made consumers wary of consuming regular potato chips, tortilla chips and other snacks. However, demand for nuts and seeds has grown as Americans have become more aware of these snacks' health benefits. In response to growing health concerns, producers have introduced more healthy varieties of existing products, including reduced-fat and reduced-sodium brand extensions, as well as 100-calorie snack packs to appeal to consumers who want to limit their portions. These products, which are priced at a premium, have boosted industry profit in the five years to 2014. The industry's future looks promising, with an improving global economy expected to lift both domestic and foreign demand for snacks produced in the United States. Projected increases in per capita disposable income will enable some consumers to trade up to premium brands and product segments like nuts, helping drive industry revenue growth. Additionally, as consumers demand more healthy versions of existing products, producers are expected to continue introducing a wider variety of snacks. As input prices stabilize, the industry's profitability will improve, enticing new companies to enter the industry. Furthermore, most of these new enterprises are anticipated to be niche, small-batch producers of premium snacks. Overall, industry revenue is anticipated to grow an annualized 3.4% to $41.7 billion over the five years to 2019. Demand Determinants:

Food consumption trends

Product innovation

Price levels

Health and nutrition concerns

Availability of substitute snacks

Per capita income


180

Coffee Production The Coffee Production industry exhibited growth over the past five years, propelled forward by an increasing number of consumers purchasing high-cost gourmet coffee. Although per capita coffee consumption is expected to grow only moderately at an annualized rate of 1.2% during the five years to 2014, more consumers are buying premium, sustainable coffee. For example, many individuals have switched from high-volume, low-quality coffee products to gourmet coffee, such as espresso, which is typically sold in smaller packaging. Although consumer foot traffic at cafes has increased, thereby hampering demand for at-home coffee products, many individuals have still demanded coffee for brewing at home. According to 2014 data from the National Coffee Association, 61% of respondents reported drinking coffee on a daily basis, compared with 35% and 18% of respondents who consumed nongourmet coffee and espresso-based coffee, respectively. Nevertheless, coffee producers have contended with volatile input commodity prices over the period, such as the price of coffee beans. Severe climactic conditions caused low coffee bean harvest yields in 2010 and 2011, leading to a soaring increase in the world price of coffee. Although coffee producers have responded to volatile coffee bean prices by implementing higher coffee prices, they were unable to significantly mark up prices and remain competitive. Over the five years to 2014, industry revenue is anticipated to grow at an annualized rate of 7.4% to $11.1 billion, due to stable demand for coffee from grocery wholesalers and other retailers. In 2014, however, industry revenue is expected to decline 1.4% as industry operators will struggle to respond quickly to high coffee bean prices and strong market competition, which provides incentives for lower product pricing. Profit is expected to rise from 3.9% of industry revenue in 2009 to 4.9% in 2014 as industry operators continue to offer a specialized product portfolio, such as sustainable coffee. During the next five years, operators' ability to adapt to fluctuations in coffee bean prices and consumer preferences, such as ethical consumerism and the growing awareness of fair trade and organic coffee production methods, will be vital to industry performance. In the five years to 2019, industry revenue is forecast to grow at an annualized rate of 1.5% to $12.0 billion, driven by more consumers purchasing premium coffee. Demand Determinants:

Disposable income

Emergence of “café cultures”

Consumer preferences

Production methods and buying practices


181

Tea Production Emerging from the shadow of the Coffee Production industry (IBISWorld report 31192a), the Tea Production industry is beginning to come into its own. Bolstered by rising health consciousness and disposable income among consumers, IBISWorld estimates industry revenue will increase at an annualized rate of 6.9% in the five years to 2015, including growth of 1.9% over 2015 as revenue reaches $1.6 billion. A growing emphasis in favor of healthy living is shifting consumer dietary patterns toward healthier beverages such as tea, driving industry growth. Tea manufacturers are marketing the various health benefits of tea consumption, such as its effect on lowering cholesterol. Tea leaves are rich in antioxidants and multiple studies indicate certain compounds in green tea may help prevent and treat cancer. Additionally, as Americans continue to become more health conscious, they are seeking flavorful alternatives to sugar-rich, carbonated beverages. Tea is also becoming more popular thanks to the growing variety of flavors, strengths and sweeteners offered by manufacturers. Differentiated tea offerings have enabled industry players to charge premium prices for unique blends, boosting industry revenue and profit. Moreover, the high brand recognition and customer loyalty that major players command have also contributed to high profit margins and sales growth. In particular, Unilever, a multinational conglomerate that makes up about half of industry revenue, has the distinction of longevity with its Lipton brand. As members of a growing industry, niche players have had some significant opportunities to serve increasingly fragmented consumer needs and segments. Other growth opportunities include single-serve tea cups compatible with K-cup coffee makers for increased convenience. The Tea Production industry will continue growing strongly over the next five years. America's aging population, which embraces tea's antiaging and health attributes, will be a strong source of future demand and drive specialty product sales, particularly for green and herbal teas (herbal tea does not contain tea plant leaves). In addition, a continued emphasis on innovation and new product introductions will further stimulate demand over the next five years. Industry revenue is therefore projected to grow at an average annual rate of 4.2%, to total $1.9 billion in 2020. Demand Determinants:

Emergence of specialty tearooms and cafés

Healthy eating trends Consumer preferences


182

Seasoning, Sauce and Condiment Production The Seasoning, Sauce and Condiment Production industry benefited from increased demand for its products over the past five years. Armed with thicker wallets, as represented by a rise in per capita disposable income, some consumers chose to trade up to premium and more expensive brands, sustaining industry growth. Despite the positive effect of higher income levels, higher prices curbed demand for dressings and condiments at retail stores. Due to higher input costs, manufacturers raised their product prices to maintain earnings. Consequently, many consumers continued to purchase discounted and promoted items at grocery stores or turned to generic brands due to increasing prices, restraining industry growth in the latter half of this period. Overall, IBISWorld expects industry revenue to grow at an average annual rate of 1.1% to $18.8 billion over the five years to 2014, including a projected increase of 3.2% in 2014. Other factors that influenced the performance of manufacturers during this period include growing health and nutrition concerns among consumers. Increasing knowledge of the consequences of eating food with high fat and sodium content has caused some consumers to shun fatty and salty condiments and sauces. Consequently, manufacturers have expanded their product lines by introducing healthier brand extensions to appeal to this growing consumer segment. Additionally, the increasing popularity of ethnic cuisines and flavors has spurred demand for imported goods, intensifying the level of competition that domestic producers face. However, manufacturers benefited from the growing foreign demand for sauces and condiments produced in the United States, as exhibited by growth of exports. The industry's future prospects look positive, with industry revenue anticipated to grow in the next five years at a slightly faster rate than in the previous period. Higher disposable income levels will drive demand for industry products at the retail level, lifting demand from food manufacturers. Additionally, consumers are expected to dine out at restaurants more often as consumer spending grows, lifting demand from foodservice providers. As a result of these trends, IBISWorld projects revenue to grow an annualized 1.9% to $20.7 billion over the five years to 2019. In addition, operators are expected to benefit from slowly rising input costs, which will help boost industry profitability once operators pass down the costs to consumers. Demand Determinants:

Consumer eating habits

Downstream industry performance (food manufacturers, grocery wholesalers, food retailers and food service)

Disposable income

Product innovation


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Baking Mix and Prepared Food Production The Baking Mix and Prepared Food Production industry is rising but displaying signs of slight stagnation as the industry matures. Nevertheless, the industry continues to benefit from rising disposable income over the past five years. As more consumers returned to work and saw their discretionary incomes increase, demand grew for baked goods and precooked convenient food items, such as prepared vegetables and refrigerated liquid eggs. Additionally, manufacturers introduced a variety of healthier prepared foods, appealing to a growing health- and nutrition-conscious consumer base. While health trends have supported increased demand for certain product segments, such trends have also curbed demand for other industry products, including dessert mixes, syrup and other dried and dehydrated products. As a result, industry revenue is anticipated to grow at an annualized rate of 0.1% over the five years to 2014. In 2014, industry revenue is expected to increase 0.2% to $23.2 billion. Intensifying foreign competition has also hampered industry performance. Despite the US Food and Drug Administration's (FDA) discovery of tainted spice imports in 2013, industry imports experienced double-digit annualized growth during this period, driven by exotic spices and ingredients from India. Increasing purchase costs, exhibited by a high agricultural price index growth, also challenged domestic producers. Prices of corn, eggs and other key industry inputs grew substantially over the past five years and fluctuated substantially year-over-year, causing many manufacturers to raise product prices in order to maintain earnings. The prices of key production inputs are expected to remain steady over the five years to 2019, which will allow producers to better adjust prices in order to maintain profit margins without damaging demand. Additionally, the forecasted strengthening of the domestic economy will help drive consumer demand for value-added products, such as precut vegetables and prepared food. Increasing incomes and changing consumption trends in East Asia are also anticipated to expand the size of the industry's export markets. Conversely, growing consumer health-consciousness is projected to continue curbing demand for processed products that have high fat and sugar content, such as dessert mixes and prepared meals. Overall however, industry revenue is estimated to grow an annualized 0.5% to $23.7 billion in the five years to 2019. Demand Determinants:


Availability of substitute products Food consumption trends
