Eighty-four percent of Minnesota’s manufacturing executives are confident about their company’s future, but they’re always keeping an eye on outside inhibitors to growth.

With a wary eye still watching the horizon for economic and regulatory turbulence, Minnesota’s manufacturers appear to be cautiously poised to grow in 2014, according to the results of the sixth annual State of Manufacturing survey.

While they still characterize Minnesota as being on the “wrong track” as a competitive business location for manufacturers, executives statewide express rising confidence in the growth potential of their own enterprises.

My firm, Public Opinion Strategies, recently interviewed 400 Minnesota-based manufacturing executives between February 28 and March 13 as part of our look at the State of Manufacturing®. Enterprise Minnesota supplemented this research by convening 14 focus groups throughout the state during roughly that same time period.

While the number of manufacturing executives who think Minnesota’s business climate is on the right track remains effectively unchanged since 2011 (41 percent), the number who think the state is on the wrong track has grown from 47 percent to 51 percent over that same period.

Despite this, a whopping 84 percent of those same executives said they were “confident” about the financial future of their company, the highest level in the six years we’ve been conducting this study. This confidence is highest (96 percent) among companies with more than $5 million in annual revenue. The percentage of executives who say they are “very” confident (36 percent) represents a significant eight-point spike over the past two years.

Similarly, manufacturers are hopeful about the economy. Only seven percent are concerned about a recession in the next year, the lowest number in the six years we’ve recorded. 54 percent expect a “flat” economy this year and 37 percent expect economic expansion.



Nearly half (45 percent) of manufacturers expect increases in their gross revenues in 2014, with about 35 percent expecting profits to increase. Barely more than one quarter (27 percent) expect to invest more in capital expenditures.

Minnesota’s unfavorable business climate is also seen as a key inhibitor of business growth. Fully 48 percent of respondents said issues “such as taxes, regulations and policy uncertainties” might negatively impact their firm’s growth. Rising health care and insurance costs were next, at 31 percent. This perception most affects firms that have been in operation for less than 15 years (57 percent). Respondents predicted that the overwhelming source of future growth (76 percent) would be through new customers.



Virtually all (97 percent) of Minnesota’s manufacturers expect to maintain or grow their workforce in the year ahead. About a third (30 percent) expect their firms to grow, split proportionally between companies in the Twin Cities and Greater Minnesota. Least likely to project growth (21 percent) are companies with less than $1 million in revenue. About a quarter (23 percent) of Minnesota’s manufacturers saw growth in their workforce in 2013, while 62 percent stayed about the same.

Significantly, the “ability to attract and retain qualified workers” continues to grow as an increasingly chronic concern for manufacturers, particularly in Greater Minnesota. While 34 percent cite this as a major concern statewide, we have seen its importance steadily increase since 2011. That number climbs to 43 percent in Greater Minnesota.

Moreover, two-thirds (67 percent) say it is “difficult” to “attract qualified candidates to [their] firm’s vacancies,” the highest margin we’ve seen over the six-year life of this series. Manufacturers in Greater Minnesota find this most pressing at 75 percent, a noticeable jump from the 42 percent we saw four years ago and considerably higher than the 61 percent of firms in the Metro area. The difficulty is even more acute in large and more established firms: more than four-fifths of companies with more than $5 million in revenue (82 percent) or more than 50 employees (83 percent) are having trouble finding qualified applicants.

Only a few executives (12 percent) expect to lose more than 5 percent of workers to retirement in the coming two years. As a possible response to this shortage, more manufacturers expect to invest more in employee development. A quarter (25 percent) of them predicted they would “invest more in employee development as a percent of payroll” in 2014, seven percent higher than last year. This interest is greatest (42 percent) among companies with more than $5 million in revenue and/or more than 50 employees.

A majority of executives expect to increase wages for the first time since the recession. Fifty-four percent said that, on average, wages over the last two years have gone up, an 11-point increase from 2013. 39 percent expect them to “stay about the same.” A whopping 62 percent expect wages to increase in 2014, a 14 percent upsurge from those polled in 2013. Greater Minnesota firms are more likely to say their wages are going up (66 percent) than those in the Metro area.



As in all other years, the cost of health care coverage tops the list of manufacturers’ concerns at 58 percent. Most anxious about health care are companies with over $5 million in revenue (66 percent) and companies in Greater Minnesota (64 percent). Government policies and regulations came in a close second at 55 percent.

Similarly, the ability to provide affordable health care is again the dominant factor in recruiting new employees, overshadowing “salary and wage expectations” by almost 20 percentage points (51 percent to 32 percent). The cost of health care coverage was also named the most important factor (59 percent) when it comes to attracting and retaining qualified workers.



Manufacturers are continuing their interest in developing foreign markets for their products, with almost one in four (23 percent) now saying they ship 11 percent or more of their products internationally. This represents an 11-point increase over last year and signifies the highest level we’ve reported in six years. About one third of companies with more than $5 million in revenue ship internationally.

“Home-sourcing,” the trend of OEMs bringing their supplier work back from foreign sources, has benefitted 24 percent of manufacturers statewide and 34 percent for companies with more than $5 million in revenue. Of those benefitting from home-sourcing, 31 percent said that “shorter lead times” were the primary reason their supply-chain relationships changed.



Companies that have engaged in formal programs for marketing, strategic planning and quality management processes in the last year exhibited sharply better revenues and profitability than those that haven’t.

Roughly half the companies surveyed engage in formal processes for marketing (48 percent) or strategic planning (50 percent). About 37 percent of companies have a formal quality management system, such as ISO.

Companies that have a formal marketing process expect an increase in gross revenues by a two-to-one margin (60 percent-31 percent) over those that don’t. These companies also expect better profitability (46 percent-26 percent).

Similarly, companies that incorporate formal strategic planning into their processes also project better financials than those that don’t: 56 percent-33 percent for gross revenues and 44 percent-27 percent in profitability.

Companies with ISO-like systems expect greater revenues (53 percent-40 percent) and greater profitability 38 percent-33 percent over companies that don’t.

Full top-line results and cross tabulations are available at www.enterpriseminnesota.org/state-of-manufacturing

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Public Opinion Strategies