Of all the companies hurt by tariffs this year, those in wholesale trade, manufacturing and construction have been hit the hardest. The Q3 2018 Vistage CEO Confidence Index, which surveyed 1,484 CEOs from small and midsize businesses, found more than three-quarters (79 percent) of respondents from wholesale trade were "moderately" or "strongly" impacted by tariffs, followed by 76 percent of respondents from manufacturing and 73 percent from construction.
What does "impacted" mean in this context? For some companies, it means higher costs and smaller margins. For others, it means supply chain problems and labor shortages. For others still, it means tense negotiations about price increases.
To find solutions to these challenges, I consulted with three experts in the field via a phone interview: Casey Brown, president of Boost; Alan Beaulieu, president of ITR Economics; and Joe Quinlan, managing director and chief market strategist, U.S. Trust, Bank of America Private Wealth Management. Here, Brown, Beaulieu and Quinlan explain how to solve some of the most difficult problems triggered by tariffs.
Problem: Your business is subjected to both import taxes and export taxes.
Solution: Be ruthless about cutting your costs and finding new markets. "If your primary end market is subject to tariffs, then you've got to scale up elsewhere -- either at home or some other part of the world," says Quinlan. "You need both ends. There's no other choice."
Problem: You don't know how to tell your client that you're raising your prices.
Solution: Focus on two key areas: messaging plus preparation. Don't go into a price conversation before you've sorted out answers to question such as: What is your messaging around tariffs? What will your customers say? What objections will they raise in response to your price increase? "It's imperative that your messaging be crisp, and your people be prepared -- like game theory," says Brown. "Think through: What are all the things they could say to us? How can we get ready for that conversation?"
Problem: You're having trouble justifying your price increases, even though they're driven by new tariffs.
Solution: Differentiate your business on the basis of value, not cost. In other words, don't let tariffs be the only reason for raising your prices. "If you want to raise prices, look for a value proposition that allows you to raise prices," says Beaulieu. "For example, look for ways to drive efficiencies in your operations."
Problem: You're dealing with a shortage of materials, rising costs and a shrinking pool of labor -- all at the same time.
Solution: Rethink your supply chain on both a local and global level. Consider your options "across countries and even across states," says Quinlan. There are "pockets of shortages of materials and labor."
Problem: Your salespeople don't know how to respond to objections to price increases.
Solution: Get your best people to craft specific responses to a limited number of scenarios, and then train everyone on the sales team to use those responses consistently. "If you have 100 salespeople, you don't want them each making up their own independent answers to those objections," says Brown. "You want to control that message at the organization level."
Problem: You're having trouble making choices about tariffs because you're not sure what the future holds.
Solution: Assume that tariffs will stick around and base decisions on how things are today. "We don't expect tariffs to go away in the near term," says Beaulieu. "Learn to deal with the tariffs that you have. Accept them as the status quo."
Problem: You're not sure whether to bring production home.
Solution: Think very carefully before taking the plunge, because the re-shoring process will be difficult, time-consuming, and expensive. "What's important for companies to understand is: If you're going to bring production home, (a) you've got to bring the workers with you and (b) it'll take time," says Quinlan. "You can't just build the plant tomorrow and have production coming out the other end in six weeks. It takes much longer."
Problem: You're worried that your client is going to complain when you raise your prices.
Solution: Go into negotiations knowing that they probably will complain, but not because they don't value your products or services or aren't willing to pay you. "They're always going to grumble," Brown says. "They're always going to complain. Just because they say they'll leave over a price increase doesn't mean they will leave. They're always going to bring to bear all the leverage that they have in order to pay less for stuff." Know this is the natural tension of the sales process and stand firm, reminding them of the value you deliver.
Problem: You don't know how to manage tariffs in the likely event of a softening economy.
Solution: Understand that the economy may change the scope of tariffs and therefore the costs associated with them. "We feel that there will be a reduction -- but not an elimination -- of tariffs because we're heading toward a softer economy in 2019," says Beaulieu.
U.S. Trust operates through Bank of America, N.A., and other subsidiaries of BofA Corp. Bank of America, N.A., does not serve in a fiduciary capacity with respect to all products or services. Fiduciary standards or fiduciary duties do not apply, for example, when the Bank is offering or providing credit solutions, banking, custody or brokerage products/services or referrals to other affiliates of the Bank.
Bank of America, N.A., Member FDIC. ARN3M5S3 | 12/2018