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Montana manufacturers survey: operating in Montana has many advantages.

Living a "Montana lifestyle" with access to recreational opportunities is one of the advantages of operating a manufacturing business in Montana, according to respondents to BBER's annual manufacturers survey.

So is the affordable cost of living that allows people to pay their mortgages while bootstrapping a business, says Courtney McKee, co-owner of Headframe Spirits, a distillery in Butte (see sidebar, page 9). Not to mention the fact that people from "the governor on down will bend over backward to help you." .. For Robert Kincaid, an engineer at ATK Sporting Group in Manhattan, it's the strong Montana work ethic that helps make businesses successful. For James Stephens, co-founder of Blue Marble Biomaterials in Missoula, it's the opportunity to collaborate with universities, businesses, and industries that makes Montana a desirable place to do business (see sidebars, pages 11 and 13).

In the past year, manufacturing has experienced a resurgence throughout the U.S., with manufacturing employment at the highest level since 2008. Manufacturing continues to play a significant role in Montana's economy.

For this year's survey, BBER contacted more than 200 firms, including Montana's largest manufacturing facilities (as measured by the number of people employed), as well as smaller firms representative of their sectors. Of the firms contacted, 76 percent responded to the survey. More than 35 percent of the manufacturers surveyed indicated they have more than 50 employees in Montana. Just over 20 percent indicated their businesses are more than 50 years old, and one-quarter indicated their businesses have been in Montana 20 or fewer years.

Advantages and Disadvantages

Through a pair of open-ended questions, the survey asked participants what they saw as the biggest advantages of operating a manufacturing business in Montana and the most significant barriers to starting or expanding an existing manufacturing business in the state.

The most common responses were related to the high quality, availability, and low cost of labor (33 percent of respondents) and the high quality of life, Montana lifestyle, and recreational opportunities (29 percent). Other frequently cited advantages of operating in Montana were close proximity to raw materials or markets, lower costs in general, lower taxes, and less regulation. Surprisingly, 12 percent of survey respondents indicated there was no advantage to the business being in Montana. One response was: "None; it's poverty with a view."

The most frequently indicated barriers to manufacturing growth or new business formation in Montana were distance to markets and/or associated transportation and shipping costs (18 percent of responses) and lack of skilled or available workforce (26 percent). Regulations and taxes were also very common responses (31 percent), but many respondents did not differentiate between state and federal regulation or specifically mention federal regulations, which would apply in any state. Property tax, equipment tax, and workers' compensation rates were frequently identified as Montana-specific issues.

Important Business Issues

Survey recipients were given a list of business-related issues and were asked to rate each in terms of its importance to their businesses. There was no specified time frame, indicating the general and enduring nature of these issues.

Health insurance cost was the No.l issue, and 80 percent of respondents rated it very important, similar to last year. Workers' compensation rates were very important to 63 percent of responding firms, with workers' compensation rules rated as very important to 51 percent. Energy costs were somewhat less important to respondents, with 50 percent rating them as very important--the same as last year. Raw material availability was rated very important by 53 percent of respondent firms. The proportion indicating a shortage of qualified workers as very important in 2013 was 57 percent, a slight increase from 2012 and 2011 at 51 percent, an increase from 41 percent in 2010, 35 percent in 2009, 45 percent in 2008, and 50 percent in 2007, but down from 69 percent in 2006 when the economy was much stronger. Foreign competition was ranked the least important of the issues, with 47 percent of respondents rating it as very unimportant and just 17 percent rating it as very important.

When asked about plans for growth and how growth is financed, only 7 percent of respondents indicated they are not planning for growth or business expansion. Almost 70 percent of respondents indicated they use retained earnings or profits to finance growth, and more than half indicated using bank loans. Less than 10 percent of firms indicated using funds from family, friends, partners, or "angel" investors. About 5 percent indicated using funds from other investors, shareholders, or parent companies.

The Year 2013 in Review

Manufacturing in Montana has experienced three years in a row of improvements, with 2011, 2012, and 2013 each outpacing the prior year in employment, worker earnings, and outputs. Total manufacturing employment in Montana was 19,802 in 2010 and was estimated to have increased about 12 percent to more than 22,100 workers for 2013 (Table 1). Earnings of manufacturing employees exceeded $1 billion during 2012, with five Montana counties--Yellowstone, Flathead, Gallatin, Missoula, and Cascade--showing more than $50 million in manufacturing employee earnings. Manufacturing worker earnings were estimated to have grown about 6 percent, topping $1.1 billion for 2013. Annual sales from Montana manufacturers in 2013 were estimated at $14 billion, about 7 percent higher than 2012.

Manufacturing jobs in Montana produced, on average, about $49,300 in earnings per employee during 2012 (most recent data available), compared to the average for all sectors -$40,800 per employee (Table 2). Several sectors such as nonmetallic mineral products manufacturing, machinery manufacturing, motor vehicle and transportation equipment manufacturing, and chemical manufacturing had annual average worker earnings in excess of $50,000 per employee, and petroleum and coal products manufacturing had worker earnings that exceed $100,000 per employee during 2012.

In addition to relatively high wages, manufacturing produced significant added value to Montana's economy. As a measure of economic output, gross state product (GSP) represents the value added to goods and services produced in the state. Although manufacturing accounted for roughly 3 percent of total employment and 4 percent of worker earnings in Montana during 2012 (most recent data available), it accounted for more than 6 percent of GSP. The GSP per employee ($99,300) in manufacturing was nearly double the average GSP per employee ($52,870) for all sectors in Montana during 2012, indicating manufacturing jobs added substantially more value to the economy compared to several other sectors (Table 2). The growth of real GSP per employee in manufacturing has also been outpacing real GSP growth per employee in other sectors, demonstrating greater efficiency and growing value-added per manufacturing employee.

Many survey respondents indicated that 2013 was as good as or a better year for their firms than 2012. More than 40 percent of firms indicated increased sales and production during 2013, and less than one-quarter of firms reported declines in profits--a marked improvement from 2011 and 2012 when more than 30 percent of firms reported lower profits.

Other signs of ongoing improvements among Montana manufacturers included: 50 percent of those surveyed reported making major capital expenditures in 2013 versus 40 percent in 2012, 27 percent reported new product lines, and 91 percent reported that they did not eliminate any capacity. However, 18 percent of the firms surveyed indicated they temporarily curtailed production during 2013, and 18 percent indicated a shortage of workers during the year.

Outlook for 2014

Forecasters have predicted relatively slow growth in the U.S. economy during 2014. New home starts and existing home sales in the U.S. are expected to increase modestly, and unemployment is expected to decrease somewhat. However, uncertainty lingers in regard to federal policies impacting interest rates, inflation, and health insurance costs. Increased domestic production of oil and gas is expected to help keep energy costs low and boost U.S. manufacturing.

The manufacturers who responded to the BBER's annual survey expressed strong optimism in their outlook for 2014. More than 40 percent expected improved conditions during 2013, and 47 percent expected better conditions for 2014, compared to just 9 percent who expected 2014 to be worse than 2013 (Figure l).The most optimistic sectors were in the food/beverage and machine/equipment sectors, with 63 and 58 percent respectively, expecting a better year in 2014. The most pessimistic outlook was among the wood products segment, with only 51 percent expecting increased sales, 37 percent increased profits, and 31 percent expecting increased production in 2014.

The proportion of firms planning major capital expenditures increased slightly between the 2013 and 2014 surveys, with 40 percent of responding firms planning major capital spending in 2014 (Figure 2) compared with 33 percent in 2013. Food/beverage facilities reported the highest rate of planned capital expenditures, with 63 percent planning major capital expenditures, while only 23 percent of wood products manufacturers planned expenditures.

Overall, the 2014 manufacturing outlook for Montana is quite positive, with expectations of higher sales, increased production levels, and greater profits among most of the state's manufacturing sectors. As shown in Figure 3, many manufacturers are also predicting increased employment in 2014.

Butte Distillery Grows More Rapidly than Anticipated

"Drilling holes into hard earth. Packing dynamite into walls that hold untold tons of rock above you. It takes finesse not to bring the mountain down on you."

In the late 1800s Butte was the richest hill on earth, and immigrants came from Ireland, Italy, Czechoslovakia, and China to find their fortune mining gold, silver, and copper. Mining was hard work, and after a long day's work, miners would often share a drink together.

Butte has lots of stories, and John and Courtney McKee like to tell a few of them on their website, www.headframespirits. com. With the city's rich culture and history in mind, the McKees opened Headframe Spirits so friends could gather together to drink some spirits and tell old stories about Butte ... and create a few new ones.

In 2010, the McKees founded Headframe Spirits, a name they came up with from the structural frames--or headframes that are still scattered throughout Butte above mine shafts. Located in one of the city's historic buildings, Headframe Spirits produces bourbon, whiskey, vodka, and gin and manufactures distillation equipment for other distilleries.

The McKees decided to start a business in Butte after John lost his job in the biodiesel industry. Getting financing was a struggle, and they started with a conservative business plan, hoping that John would get a paycheck after about 12 months of operation. Courtney planned on helping out part-time at the distillery and continuing on with her consulting business to help support the family. On opening night, the distillery was so busy that the McKees had to recruit their friends to get behind the bar and mix up cocktails.

"We had no idea how successful it would be," Courtney said. "Within three months, we had five people on the payroll."

Headframe Spirits now has 25 people on the payroll, and the McKees have been named Montana Entrepreneurs of the Year for 2013.

Butte was a great place to live while bootstrapping the business, Courtney said. It was affordable, and they could still manage to pay their mortgage while building their business. In addition, they were able to build a network of people to advise them. In Connecticut where Courtney grew up, it was nearly impossible to get into the mayor's office or the governor's office, she said. "In Montana, everyone from the governor on down will bend over backward to help you," she said. "There's an attitude of 'let's be successful together and make Montana the entrepreneurial destination it is.'"

Like microbreweries, distilleries are becoming more popular nationwide, and Montana now has between 15 and 17 in the state, Courtney said. Headframe's spirits are popular with the locals and tourists and are named after some of Butte's historic mines: Orphan Girl Bourbon Cream Liqueur, Neversweat Bourbon Whiskey, High Ore Vodka, Anselmo Gin, and Destroying Angel Whiskey.

The McKees have recently announced that they will expand and eventually hire about 50 employees. They plan to use Butte's Kelley Mine Yard and buildings for a production distillery, a restaurant, and an outdoor event space.

Expanding production into the Kelley Mine would make Headframe Spirts the largest distillery west of the Mississippi, Courtney said.

Missoula High-Tech Company Creates Greener Economy

Used coffee grounds, spent brewery grain, algae, and wood chips could be the pathway to a greener economy that is less dependent on foreign oil. That is, with a little help from Missoula's high-tech startup, Blue Marble Biomaterials.

Set near the Missoula airport in a 30,000-square-foot building, Blue Marble scientists are working to replace petroleum-based chemicals in the food, beverage, and personal care markets with natural, sustainable biochemicals. Thousands of consumer products such as chewing gum, skin cream, perfumes, foods, and beverages contain petroleum-based chemicals, and Blue Marble's technology aims to bring traceability and responsibility to quality products and ingredients, according to Chief Science Officer James Stephens.

Blue Marble Biomaterials uses plant material and managed ecosystems of bacteria to produce complex chemical compounds, which are refined using a green chemistry process, Stephens says. The process begins with organic material--coffee grounds, wood chips, and more. Blue Marble scientists then add their trade-secret technology to the mix and produce natural materials to enhance consumer products, from the flavors in chewing gum to the fragrances in perfume.

Blue Marble began seven years ago near Seattle, but the company rapidly outgrew its facility and started to look for a permanent home. The owners landed in Missoula because of the quality of life, an educated workforce, accessible transportation, and a supportive community, Stephens says. Plus, he graduated from the University of Montana with degrees in microbiology and medical technology. Another aspect that appealed to Stephens was the ability to collaborate with universities, businesses, and industries. Blue Marble's partners range from local operations--the university, the Montana Department of Natural Resources, and others--to Fortune 500 companies like Anheuser-Busch.

In a year and a half, Blue Marble has expanded from four employees to 19. They are hoping to speed the company's growth through grants from the Big Sky Trust Fund, the U.S. Small Business Administration, and the Montana Board of Investments. Blue Marble hopes eventually to grow to about 100 employees.

One of Stephens' goals is to keep forming partnerships that advance the company's sustainable technology and offer consumers environmentally-friendly product choices. His timing is right, since a renewable economy has become a priority for consumers, government, and corporations.

Steven W Hayes is a BBER research forester; Todd A. Morgan is the Bureaus director of forest industry research; Charles E. Keegan III is the BBER's retired director of forest industry research; Colin Sorenson is a BBER research economist; and Shannon Furniss is the Bureau's communications director.

Table 1

Employment in Montana Manufacturing Sectors, 2010 and 2013

Manufacturing Sector            2010     2013 *   Change

Wood, paper & furniture         4,216    4,158    -1%

Food & beverage                 3,545    3,900    10%

Primary & fabricated metals     2,063    3,180    54%

Chemicals, petroleum & coal     2,085    1,880    -10%

Machinery                       1,168    1,400    20%

Nonmetallic minerals            938      1,700    81%

Textiles, clothing & leather    784      831      6%

Computers, electronics &        641      749      17%

All other manufacturing         4,362    4,350    0%

Total                           19,802   22,148   12%

* Estimate.

Source: Bureau of Economic Analysis, U.S.
Department of Commerce.

Table 2

Earnings and Gross State Product (GSP) per Employee
in Select Sectors of Montana Economy

                       2012 Earn-      2012 GSP     Real GSP per
                        ings per         per          Employee
Select Sectors of       Employee       Employee        Growth
Montana Economy       (thousand $)   (thousand $)    2001-2012

All sectors               40.8           52.9           11%

Manufacturing             49.3           99.3           51%

Durable goods             44.9           69.2           47%

Nondurable goods          56.4          152.1           55%

Mining                    97.8           96.6           -54%

Construction              45.8           41.7           -13%

Retail trade              28.3           35.0           22%

Professional,             48.0           51.6           26%
scientific, and
technical services

Health care and           48.2           44.2            9%
social assistance

Accommodation and         20.0           24.0           14%
food services

Government                56.4           53.8            3%

Source: Bureau of Economic Analysis,
U.S. Department of Commerce.
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Comment:Montana manufacturers survey: operating in Montana has many advantages.
Author:Hayes, Steven W.; Morgan, Todd A.; Keegan, Charles E., III; Sorenson, Colin B.; Furniss, Shannon
Publication:Montana Business Quarterly
Article Type:Statistical data
Geographic Code:1U8MT
Date:Jun 22, 2014
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