According to The Conference Board, America's Smaller Companies Will Use Acquisitions and Alliances to Survive and Grow in Coming Years

But Many Are 'Scared to Death of the Internet'



Apr 11, 2001, 01:00 ET from The Conference Board

    NEW YORK, April 11 /PRNewswire/ -- Many of America's small and mid-sized
 companies will be acquiring other firms and forming partnerships with larger
 companies to survive and grow during the next five years.
     A new study from The Conference Board, covering 184 small and mid-sized
 firms in a wide range of industries, finds that nearly 40 percent plan to
 acquire other companies in coming years.  Many of these smaller firms are
 already in an aggressive buying mode.  MDU Resources, a natural-resource firm
 based in North Dakota, has made 71 acquisitions since 1992. Brady Corporation,
 a Milwaukee firm that makes 50,000 different industrial products, has made
 15 acquisitions since 1996. And The Manitowoc Company, a diversified
 manufacturer based in Manitowoc, Wisconsin, bought five firms last year alone.
     Faced with competitors with greater scale and more clout, smaller firms
 often have had to choose between trying to buy up other firms, in order to
 increase market share and compete, or be bought out themselves. Rising numbers
 of firms are also forming strategic partnerships with larger companies in
 order to get cheap capital.  Almost a quarter of the responding companies said
 that alliances will be the principal way they will finance their growth
 (alliances, a well-established growth strategy in Europe and Asia, are now
 proliferating in the U.S.).
 
     'SCARED TO DEATH OF THE INTERNET'
     Surprisingly, very few of the surveyed companies say the Internet will
 play a major role in their future growth. Only 10 percent expect Internet
 sales to be a key source of their revenue growth during the next five years.
 Many smaller firms feel they have been thriving by exploiting traditional
 growth strategies.
     "For all the cyberspace ballyhoo, many small and mid-sized firms are still
 scared to death of the Internet," suggests Howard Muson, author of the study.
 "Manufacturers are hesitant to risk alienating trusted distributors by
 offering direct sales on the Net. Others are accustomed to serving local and
 regional markets and aren't ready to deliver products to wider geographic
 areas. But it's clear that the leaders of many of these companies are
 concerned about the costs and complexities of the technology itself."
     Surveyed firms say the three major drivers of the growth will be new
 customers, new products and services, and acquisitions.
 
     SMALL BUT VERY GLOBAL
     About 75 percent of the firms surveyed sell their goods and services
 outside the United States. Many plan to step up their global sales in coming
 years. Large numbers of smaller firms are already selling their products in
 Canada, Western Europe and Asia. Growing numbers are also in Eastern Europe,
 Australia and Africa.
     Many smaller firms have built robust global businesses. Acme United has
 been manufacturing office supplies in China for 10 years. Southco, Inc. has
 employees in 17 countries. MAPICS sells its enterprise software in 71
 countries.
     "For a mid-sized company, this is a very dangerous period," says Francois
 de Visscher, a Greenwich, Connecticut-based financial consultant and
 investment banker whose firm works with closely held, mid-sized companies. "If
 you are a $100 million company, a $500 million, or a $1 billion company,
 you're not a small business anymore. You've built an infrastructure that's too
 costly to focus on just one or two niches, but you're not big enough to
 compete with the 'big boys.' You have to either downsize and become a real
 niche player, which is difficult to do, or grow faster than you ever thought
 of doing."
 
     THE GREAT PEOPLE SEARCH
     CEOs were asked to identify the three management tools and structures they
 deem most essential for growth in the next five years. Strategic planning
 emerged as the number one requirement.  The number two and number three
 essentials: a reward system tying compensation to achievement of growth
 objectives, and a human resources department that can recruit people with the
 skills required and retrain current staff.
     "It's not too surprising that effective HR departments are considered
 especially critical for growth nowadays, when so many companies see scarcity
 of qualified employees as one of their biggest barriers," says Muson. "The
 number two and number three 'most essential' structures both underline a CEO
 preoccupation -- 'Good people, good people, good people!'"
     More noteworthy is the emphasis on reward systems as drivers of growth. To
 be effective, these systems, which link bonuses and other incentives with such
 measures as operating margins and ROI, require intricate design and strong
 follow-through. Almost 68 percent of companies with under $50 million in sales
 have a reward system tying compensation to achievement of growth objectives,
 compared with 78 percent of those with $100-$500 million in sales and
 88 percent of companies with above $500 million.
 
     The 184 respondents to The Conference Board survey included 115 CEOs,
 11 chairmen and 24 presidents of their companies.
 
     Source:
     Managing Growth: Smart Strategies for Smaller and Mid-Sized Companies
     Report No. 1290
     The Conference Board
 
 

SOURCE The Conference Board
    NEW YORK, April 11 /PRNewswire/ -- Many of America's small and mid-sized
 companies will be acquiring other firms and forming partnerships with larger
 companies to survive and grow during the next five years.
     A new study from The Conference Board, covering 184 small and mid-sized
 firms in a wide range of industries, finds that nearly 40 percent plan to
 acquire other companies in coming years.  Many of these smaller firms are
 already in an aggressive buying mode.  MDU Resources, a natural-resource firm
 based in North Dakota, has made 71 acquisitions since 1992. Brady Corporation,
 a Milwaukee firm that makes 50,000 different industrial products, has made
 15 acquisitions since 1996. And The Manitowoc Company, a diversified
 manufacturer based in Manitowoc, Wisconsin, bought five firms last year alone.
     Faced with competitors with greater scale and more clout, smaller firms
 often have had to choose between trying to buy up other firms, in order to
 increase market share and compete, or be bought out themselves. Rising numbers
 of firms are also forming strategic partnerships with larger companies in
 order to get cheap capital.  Almost a quarter of the responding companies said
 that alliances will be the principal way they will finance their growth
 (alliances, a well-established growth strategy in Europe and Asia, are now
 proliferating in the U.S.).
 
     'SCARED TO DEATH OF THE INTERNET'
     Surprisingly, very few of the surveyed companies say the Internet will
 play a major role in their future growth. Only 10 percent expect Internet
 sales to be a key source of their revenue growth during the next five years.
 Many smaller firms feel they have been thriving by exploiting traditional
 growth strategies.
     "For all the cyberspace ballyhoo, many small and mid-sized firms are still
 scared to death of the Internet," suggests Howard Muson, author of the study.
 "Manufacturers are hesitant to risk alienating trusted distributors by
 offering direct sales on the Net. Others are accustomed to serving local and
 regional markets and aren't ready to deliver products to wider geographic
 areas. But it's clear that the leaders of many of these companies are
 concerned about the costs and complexities of the technology itself."
     Surveyed firms say the three major drivers of the growth will be new
 customers, new products and services, and acquisitions.
 
     SMALL BUT VERY GLOBAL
     About 75 percent of the firms surveyed sell their goods and services
 outside the United States. Many plan to step up their global sales in coming
 years. Large numbers of smaller firms are already selling their products in
 Canada, Western Europe and Asia. Growing numbers are also in Eastern Europe,
 Australia and Africa.
     Many smaller firms have built robust global businesses. Acme United has
 been manufacturing office supplies in China for 10 years. Southco, Inc. has
 employees in 17 countries. MAPICS sells its enterprise software in 71
 countries.
     "For a mid-sized company, this is a very dangerous period," says Francois
 de Visscher, a Greenwich, Connecticut-based financial consultant and
 investment banker whose firm works with closely held, mid-sized companies. "If
 you are a $100 million company, a $500 million, or a $1 billion company,
 you're not a small business anymore. You've built an infrastructure that's too
 costly to focus on just one or two niches, but you're not big enough to
 compete with the 'big boys.' You have to either downsize and become a real
 niche player, which is difficult to do, or grow faster than you ever thought
 of doing."
 
     THE GREAT PEOPLE SEARCH
     CEOs were asked to identify the three management tools and structures they
 deem most essential for growth in the next five years. Strategic planning
 emerged as the number one requirement.  The number two and number three
 essentials: a reward system tying compensation to achievement of growth
 objectives, and a human resources department that can recruit people with the
 skills required and retrain current staff.
     "It's not too surprising that effective HR departments are considered
 especially critical for growth nowadays, when so many companies see scarcity
 of qualified employees as one of their biggest barriers," says Muson. "The
 number two and number three 'most essential' structures both underline a CEO
 preoccupation -- 'Good people, good people, good people!'"
     More noteworthy is the emphasis on reward systems as drivers of growth. To
 be effective, these systems, which link bonuses and other incentives with such
 measures as operating margins and ROI, require intricate design and strong
 follow-through. Almost 68 percent of companies with under $50 million in sales
 have a reward system tying compensation to achievement of growth objectives,
 compared with 78 percent of those with $100-$500 million in sales and
 88 percent of companies with above $500 million.
 
     The 184 respondents to The Conference Board survey included 115 CEOs,
 11 chairmen and 24 presidents of their companies.
 
     Source:
     Managing Growth: Smart Strategies for Smaller and Mid-Sized Companies
     Report No. 1290
     The Conference Board
 
 SOURCE  The Conference Board