Americans live to compete. For most of its existence, the United States has been one of the most competitive countries in the world, vying for first place in every possible category. To Americans, settling for “good enough” is simply unacceptable. From science to sports to technology, we don’t stop until we’re on top.
When it comes to business, America’s competitive streak is even more pronounced. No other country so successfully combines a marketplace of labor with a marketplace of ideas. Americans innovate, invent, improve, transform. And although big corporations and small businesses get more attention, few companies compete as successfully as those of the middle market. These companies are unhindered by the rigid bureaucracy that so often hampers larger corporations, but they have enough spare capital to maintain resilience during dry spells and downturns. They are, quite simply, the market that moves America.
But moving America isn’t easy, and even as the recession fades further into the past, middle market companies face myriad challenges in the competition to be No. 1. These businesses are striving for success in an increasingly globalized world—and an increasingly regulated country. During our Roadshow tour, we’ve spoken with a number of companies that have expressed concern about a few key problems the middle market faces. Here’s a look at their biggest concerns.
THE SKILLS GAP
The era of assembly lines is over. No longer do scores of workers perform repetitive tasks all day, every day. Instead, manufacturers are looking for employees with specialized skills and technological know-how.
But American schools rarely focus on vocational training, instead giving students a broader education in liberal arts. That works well for students who want it—but not every student wants it or needs it.
“American students need more encouragement to learn manufacturing skills,” says Chris Buch, a sales manager for Detroit-based Omega Plastics. “They need encouragement from higher education institutions telling them to look into manufacturing—there’s a home there for just about anybody.” Today’s manufacturers need workers with an array of talents, but “the United States hasn’t embraced the possibilities of skills training,” Buch says. As long as almost half of employers are unable to find workers skilled enough to fill vacant positions, America will struggle to compete with manufacturing-focused countries like Germany.
America’s regulatory landscape is changing quickly. Can middle market companies change with it? That’s the challenge many businesses are facing in a century of complex, often burdensome, economic and environmental regulations. These government-imposed rules can cost smaller businesses thousands of dollars a year in taxes and penalties—money some companies simply don’t have to spend.
What’s the solution to these regulatory stipulations? For some companies, the answer boils down to a matter of location. Phil Hagerman, co-founder of Diplomat Pharmacy of Flint, Mich., notes that Michigan Gov. Rick Snyder has helped to diversify the state’s business interests by lifting many onerous regulations imposed by previous administrations. If states like Michigan continue to ease the burden of unnecessary regulations, they may well become new hubs of American business. Middle market companies are eager to comply with the law—but they are also eager to work efficiently and without bureaucratic roadblocks. Pro-business states like Michigan present a perfect opportunity to drive America’s economy and remain competitive with highly deregulated countries such as China.
RISING HEALTH CARE COSTS
Chief among the regulatory challenges faced by middle market businesses is health care, where costs have risen steadily over the last decade. Small and mid-sized businesses often struggle to meet these costs; they also face a formidable challenge in meeting the new, more stringent standards of the Affordable Care Act, President Barack Obama’s health care overhaul.
That’s a major problem for any company that wants to remain competitive: How can you attract the best talent if you can’t offer the best benefits? Some companies have maintained top-notch health care by taking advantage of the tax credits offered to small and medium-sized businesses by the Affordable Care Act. And as more individuals purchase private health insurance separate from their employers, companies will face less pressure to provide the highest level of insurance. Middle market companies in the health care industry also face regulatory challenges as the Affordable Care Act is rolled out. But through acquisitions and investment, many of these companies have maintained a competitive edge on the market.
These issues are unique to the United States, which—unlike most European competitors—does not offer government-provided universal health care. American employers must tackle the challenges of health care costs while continuing to compete on a global scale.
ACCESS TO CAPITAL
Following the 2008 recession, banks became stingy with capital, leading smaller companies to draw on their reserves and risk long-term stability. Middle market companies, however, were well situated to survive the downturn: Agile and efficient, many were able to cut overhead and production costs without sacrificing quality. Philip Wenzel, vice president of commercial products at lawnmower manufacturer Briggs and Stratton, notes that his middle market company’s nimbleness helped keep customers satisfied throughout the recession.
“We did everything that was necessary for our business,” Wenzel says, “but we cut everything that didn’t add value to our customer. We minimized all unnecessary expenses. And we made sure we always protected our employees.”
For companies like Wenzel’s, making it through the downturn turned out to be the easy part. As the economy rebounded, many banks remained hesitant to lend out capital, still intimidated by the wounded economy and reluctant to take risks. Lately, this trend has mostly been reversed, but some businesses still struggle to access capital even as banks gain stability. Without capital, middle market businesses can’t do what they do best: take the big risks that lead to the biggest rewards. And if they can’t take risks, middle market companies simply won’t be able to compete with the highest-performing companies across the world.