Innovative products and new ways of growing businesses are helping Connecticut companies stay on top, but a lack of availability of qualified workers and the state’s high cost of doing business rank as top concerns, according to the 2006 Survey of Connecticut Businesses from the Connecticut Business & Industry Association and accounting firm Blum Shapiro.
“The overall thing is that business conditions right now are still good,” said Peter M. Gioia, CBIA vice president and economist. Profitability is up and net loss is down, he said. There are distinct reasons for that success, but there are also specific concerns business executives cited in their responses to the survey.
More than 60 percent of the 1,006 respondents said their companies had developed new products or services within the last year. That was up from 49 percent last year.
“They’re developing new products and services,” Gioia said. “Innovation is really there, and that’s very, very important.”
Company leaders are also considering new strategies to help their businesses grow. Thirty-five percent of the respondents said they will use technology to achieve that end, 26 percent cited direct marketing as a way to help companies grow, 25 percent said they will use strategic alliances and 24 percent said the Internet could help them grow. Respondents also mentioned acquisitions, outsourcing and research and development as ways to grow their businesses.
“This year a greater number of executives have a positive outlook on the economic health of their business, and they expect favorable business conditions will continue into next year,” said Carl R. Johnson, managing partner of Blum Shapiro, in a prepared statement. “There has been a significant increase over the past two years in the number of businesses that have developed new products or services to stay competitive in the global economy.”
One concern cited by businesses was that many full-time jobs are going unfilled because executives cannot find qualified workers. Forty percent of respondents said they had positions go unfilled because they could not find qualified workers, compared to 13 percent who said the same thing last year. Other reasons for not filling positions were the hiring of part-time employees, the cost of health-care benefits and a decrease in business orders.
Twenty-two percent of the respondents said they had a hard time finding skilled machinists and people to fill other manufacturing jobs, 11 percent said filling sales positions was difficult, 9 percent said engineers were in short supply, 8 percent said entry-level positions were going unfilled and 9 percent said positions for customer service representatives were going unfilled.
Connecticut’s aging workforce could be a reason for the lack of qualified workers.
“One of the concerns we’ve heard is the aging workforce,” Gioia said. “There are impacts taking place right now.”
Economic Challenges
The survey showed that businesses anticipate job creation will slow for the second year in a row, as just 22 percent of executives are expecting to increase their workforce levels within the next year, compared with 25 percent in 2005 and 33 percent in 2004. Two-thirds of companies expect their workforces to remain stable and 12 percent expect to make cuts.
“With baby boomers entering retirement age in greater numbers over the next five years, the need for skilled workers will continue growing, and if companies can’t find qualified workers, they won’t be able to maintain future competitiveness,” Gioia said in a prepared statement. “This could be Connecticut’s most significant economic challenge.”
The lack of affordable housing and transportation issues in the state need to be addressed, according to the survey. Residential real estate sales across the state are falling, which will likely lead to a moderate correction in prices, Gioia said. Commercial and industrial real estate will likely do well in the future, however, somewhat offsetting drops in the residential real estate market.
Transportation was cited as an important issue, especially for companies located along the Interstate 95 corridor. Although state lawmakers have taken steps over the past two years to improve the transportation infrastructure, 51 percent of business executives said much more needs to be done.
Health-care costs remained respondents biggest cost concern for the fifth year. Eighty percent of respondents said their health-care costs rose over the last year, with most reporting increases of more than 10 percent. Most companies – 94 percent – said they still provide health-care benefits to full-time employees.
Overall, though, Connecticut still holds value as a good place to do business. More than 40 percent of respondents said the state’s quality of life is the biggest reason, but the high cost of doing business was named by 74 percent as the greatest challenge to operating a company in the state. According to the CBIA, the state has among the highest business costs in the United States., as well as slower job growth than in much of the nation.
Sixty-seven percent of respondents said that the most important thing the state should do to retain businesses and attract new ones is to reduce the cost of doing business. Forty-four percent suggested reducing taxes and offering more tax credits, 31 percent suggested improving the state’s transportation infrastructure, 25 percent want the state to encourage business investment and 20 percent want the state to improve the regulatory climate.
“While more Connecticut companies are achieving profitability, executives must still find innovative ways to increase sales and productivity because of the high costs of operating a business in the state,” said John R. Rathgeber, CBIA president and chief executive officer, in a prepared statement. “Even so, executives remain optimistic about Connecticut and understand the vital role state lawmakers play in creating a more competitive business climate.”
Gioia was mostly encouraged by the survey’s results, however. Although some sectors will see slowing, the state’s businesses are mostly doing well.
“We’ve got a strong base to work with,” he said.
