Tag: industry consolidation

Tough Economy Expected to Force Industry Consolidation

Consolidation across the American economy is one of the most discussed results of the down-turning economy. While economic gurus aren’t predicting a return to national monopolies, Americans will definitely have fewer choices to make by the time the economy turns the corner in the next year or two. Most industry watchers agree that this across-the-board contraction in U.S. markets will have a positive effect, both for industry and the consumer. Consolidation is expected to force industries in all sectors of the economy to become leaner and more efficient while improving product quality and customer service.

Times have changed since the breakup of the monopolies that controlled the American economy and workplace in the 1800s and early 1900s. It’s been a quarter of a century since the government split apart the Bell Telephone System, America’s last remaining monopoly, and some would say, opened Pandora’s Box. The plethora of phone options and short-lived providers that followed gives credence to the current view that too much competition is not always a good thing. Customers became annoyed by the constantly changing phone rates and service options. Many of the new companies were unable to maintain promised service levels and failed. While there is still healthy competition in the telecommunications industry today, there are fewer big players and each one is stronger. Consumers may have fewer products to choose from, but products are more dependable and reliable. 

The U.S. auto industry is undergoing a similar consolidation. True, if GM can’t stop the bleeding, the Big 3 may become the Big 2 which would be a considerable loss to U.S. industry. But on the plus side, each of America’s auto makers is pruning out the dead wood. Low-profit lines like Hummer and Saturn are on the chopping block. Labor contracts are being renegotiated to more reasonable and sustainable levels. Detroit is finally releasing its grip on “bigger is better” and embracing a fuel-efficient future. When the dust settles, industry experts expect the U.S. auto industry to be leaner, meaner and more competitive with foreign auto makers.

The same healthy consolidation is expected to happen across most sectors of the U.S. economy. Stay tuned Wednesday for more on this subject. 

Consolidation Mergers Can Strengthen U.S. Industry

Consolidation is the new industry watchword. As we discussed in our last post, industry experts expect consolidation to affect every sector of the U.S. economy as we struggle to climb out of the current recession. The good news is that some experts, particularly Federal Reserve Chairman Ben Bernanke, are now cautiously predicting an end to the recession this year. Echoing a statement he made to Congress last month, Bernanke said in an interview with CBS’ 60 Minutes this week that if the government’s shoring up of the U.S. banking system succeeds, “… we’ll see the recession coming to an end probably this year.”

That doesn’t mean that U.S. business will return to its pre-crash ways. The hard lessons learned during the past year are expected to have a lasting impact on U.S. businesses. Savvy business owners are expected to continue leaner, more-efficient practices adopted during the recession to protect themselves against a still uncertain future. But we’re not out of the woods yet. Consolidation is playing a major role in weeding out weak and under capitalized players and broadening the scope of strong companies. Consolidation mergers could play a significant role in strengthening U.S. industry across the board.

In a March 16, 2009 article posted on SupplyChainDigest online, Materials Handling Editor Cliff Holste says, “SCDigest predicts the automated materials handling industry will soon see rapid consolidation …” Holste reports that a merger between two of the conveyor systems industry’s biggest suppliers is imminent, barring any last minute glitch. It could be the first of many. Holste and SCDigest believe the material handling industry is ripe for consolidation. Contributing factors include:

  • Over-abundance of suppliers in a shrinking market. Even before the recession, Holste reminds us that many industry watchers didn’t believe there was enough business to support all the players profitably. The recession just accelerated what might have been a slower winnowing of the ranks.
  • Consolidation allows companies to increase their product and customer scope while cutting expenses, primarily in personnel cuts across the board. Mergers “can goose profits of the combined companies,” Holste notes, while nearly halving expenses.
  • Well capitalized companies are buying out poorly capitalized ones resulting in stronger firms better able to withstand the economy’s financial roller coaster and provide long-term products and services to their clients.