The fact is that the story of American manufacturing is rosier than many of us might think. It’s a story about leading from the middle. As a whole, the middle market may be just one part of our country’s economic recovery, but as an engine of sustainable growth and job creation, it’s a sector that deserves additional attention.
Middle market companies are often overlooked by the media. The typical middle market company employs three or four hundred people and brings in sales of $40 to $50 million a year. They are too big to be considered small businesses but not yet of a size that makes them large corporations and more than 70 percent of them are privately owned, with almost a third still under family ownership.
In the aggregate, they employ more than eight million manufacturing workers in the United States., and, despite uncertain economic times, they have been growing steadily, hiring consistently and quietly leading a resurgence in American manufacturing.
This week, we’re welcoming more than a thousand middle market executives to a meeting in Columbus, Ohio, where we will share some good news. In the past 12 months, the 20,000 or so middle market manufacturing firms in the United States grew sales by more than six percent — in total that’s around $48 billion of new revenues — and added around a quarter of a million jobs. The manufacturing middle grew more than three times as fast as the broader U.S. economy over the same period, and grew faster even than the developing economies like Brazil, India and Russia that we hear so much about.
You won’t hear as much about these companies. You likely won’t read about them in the press because they don’t quite fit into the small business section and they aren’t likely to be in your 401K, but the truth is that they are leading the recovery and renewal in American manufacturing.
What makes middle market companies different, and worthy of their own place in our business theories, is precisely what makes them so important. On average, an American middle market company is over 30 years old. And over 70 percent of them are privately owned, many by their founding families. These two factors combine to create a distinct formula. A formula for growth. These factors mean that they are both more established and therefore better positioned than smaller companies to survive through tough economic times, while also benefiting from more flexible management who can take a longer term approach than peers at larger corporate.
But the size and nature of these companies also means that they face their own set of challenges. Middle market firms are beset by a similar set of operational issues and constraints faced by small businesses — everyday concerns around compensation and margin pressures — and yet at the same time they are faced with the external challenges that beset larger companies — regulatory and healthcare costs — without the economies of scale that larger corporates benefit from.
If we want to navigate through these tough economic times, the role that the middle market plays needs to be recognized. We need to see U.S. business in a different way, not just as a two dimensional combination of large and small, but as a more complex and dynamic blend.
Dan Henson is President and CEO, GE Capital, Americas. Dr. Anil Makhija is the academic director of the National Center for the Middle Market, the leading source of knowledge, leadership and innovative research on the U.S. middle market economy and a partnership between The Ohio State University Fisher College of Business and GE Capital. For more information, please visit www.middlemarketcenter.org.