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Middle market manufacturing is a vital and growing segment of the U.S. economy — and faces a number of rapidly changing conditions. The increasing complexity of the sector is opening up companies not only to new opportunities, but also to new exposures.

“The competitive challenges of talent, trade, and technology all come together in manufacturing. The best midsized manufacturers are showing how to turn new challenges and risks into new markets and rewards.”

Survey Overview

Chubb’s special report “Middle Market Manufacturing: How to thrive in a transforming environment,” provides insight into how the fastest growing midsized manufacturers are leveraging the latest trends to their advantage and into how companies can best mitigate the resulting new risks, With this awareness, other businesses in the middle market can better position themselves to achieve new levels of performance.

The survey was conducted in partnership with the National Center for the Middle Market and the Ohio State University Fisher College of Business.

What is the middle market?

The middle market — defined in the report as companies with annual revenue between $10 million and $1 billion — represents just 3% of all U.S. companies, but it accounts for one-third of the country's private sector gross domestic product (GDP) and jobs. Manufacturers represent about 17% of these companies that drive the U.S. economy.

According to Tom Stewart, Executive Director of the National Center for the Middle Market, “The competitive challenges of talent, trade, and technology all come together in manufacturing. The best midsized manufacturers are showing how to turn new challenges and risks into new markets and rewards.”

The manufacturers polled for the report cited competition, consolidation and resulting downward price pressures as their largest concerns. These challenges and risks are rooted in other manufacturing trends, such as globalization and its resulting concerns, closer manufacturer-supplier and manufacturer-customer collaboration, increasingly high tech manufacturing technologies, new product mixes and revenue sources, and talent and workforce development challenges.

Manufacturing Trends

Globalization challenges may present a domestic sweet spot for growth

Increased sales globalization brings with it the need to understand ever-changing foreign and domestic trade policies, and customs regulations, as well as possible new forms of corporate governance (such as joint ventures) and currency risks—all of which mean additional resources and risks. The fastest growing middle market manufacturers in the study were those that took in international sales between one and 25 percent of their annual revenue (in other words, the great majority of their sales were domestic). The faster growth of this segment may indicate that there is much room for domestic expansion in the middle market.

Increased supply chain interdependence

With new efficiencies in communications and manufacturing technology, there is more interdependence both up and down the supply chain. Customer experiences can inform product development; manufacturing turnaround times shrink. While this interdependence can be largely positive, there is risk to be considered if a supplier neglects to meet its obligations to the manufacturer, or becomes liable for a harmful product failure. In addition, as sensitive data is often a necessary part of these collaborations, manufacturers have more exposure in the event of cyber-attacks.

Service offerings change product mix, drive revenue and growth

There is rapid growth in the service offerings of middle market manufacturers, many of whom now also install, monitor and service their products. This trend is almost certainly driven by new, higher tech products that require more customer handholding — as well as by recognition of new revenue streams. The survey indicated that the services component of middle market manufacturers grew 17% in 2017 and midsized manufacturers delivering these offerings grew 4% more than those who did not.

Manufacturing technologies increase productivity

New manufacturing technologies are changing how items are made and increasing productivity for those companies who invest in them. The middle market manufacturers experiencing the most growth are working at the intersection of the physical and digital worlds, utilizing new materials, advanced process controls, robotics and automation. Of course, adoption of these technologies requires not only a large investment, but also an understanding that with emerging technologies comes new, different and heightened operational and cyber security risks.

"New-skilled" labor shortage makes talent management harder

Sixty-eight percent of the fastest growing companies participating in the survey say that talent management is extremely or very challenging. This is not surprising since these are the same companies that tend to be using advanced technologies and competing for new and cutting-edge skills. Getting and keeping talent can mean the difference between fulfilling an order on time or failing the customer.

Keeping a comprehensive enterprise risk strategy up to date

The study noted that middle market manufacturers have little control over many of their challenges, like political climates, consolidation or rising costs; however, with awareness they can mitigate the new exposures that a rapidly changing market creates. One step companies can take is a regular review of their enterprise risk strategy, to ensure they have sufficient and proper protections in place.

Rediscover Manufacturing

Take a deeper dive into advances in technology, and the interconnected challenges facing manufacturers today.