Manufacturing Day 2018: Looking Forward
The year opened with optimism following landmark tax reform, was tempered with the impact and uncertainty of ongoing international trade conflicts, and turned out to be a year of steady growth. As we celebrate Manufacturing Day 2018 with our clients, we recognize that ensuring a well-trained and educated workforce remains one of the most urgent challenges facing U.S. manufacturers today. Time and again, manufacturers rate workforce development as one of their top concerns. Ballard Spahr is proud to support the Manufacturing Institute and our manufacturing clients as a national Silver Sponsor of Manufacturing Day. While workforce challenges are today′s focus, we take this occasion to examine some other trends that affected manufacturers this year, and will continue to do so as the calendar turns to 2019.
Privacy, Cybersecurity, the Internet of Things (IoT), and the Proliferation of State Laws
This was the year that the General Data Protection Regulation (GDPR) took effect in the European Union, but there were plenty of new developments on this side of the Atlantic. While the GDPR covers a whole continent, in the United States, there are multiple governmental authorities with the capacity to regulate—creating a complicated and ever-changing patchwork of laws and regulations. As states have grown more comfortable with the complex issues of privacy and cybersecurity—and as tensions between state and federal governments have increased—states have begun to flex their muscles beyond the data breach notification laws that have been adopted in all 50 states. According to the National Conference of State Legislatures, in the first three-quarters of this year, at least 36 states, the District of Columbia, and Puerto Rico introduced or considered more than 265 bills or resolutions related to privacy and cybersecurity. So far in 2018, at least 14 of those states have enacted 31 bills.
Perhaps the biggest wild card in all of these bills is the California Consumer Privacy Act of 2018 (CCPA), which was not only adopted this year, but has already been amended. This rapidly passed bill (enacted in only seven days) ushered in a host of new privacy rights for California residents, including the right to know what personal information a business has collected about an individual, the right to request the business turn over that information, the right to demand that the information be deleted, and the right to opt out of the information being sold to third parties. Given the CCPA's broad reach and substantial penalties for non-compliance, tens of thousands of businesses—in and out of California—will need to comply.
Finally, while the CCPA—deservedly—received widespread national attention, California also became the first state to enact legislation directed at securing IoT devices. The legislation requires manufacturers of "connected devices" to equip them with "a reasonable security feature or features," such as forcing consumers to change factory-installed default passwords. No doubt this is just the start of state laws regulating IoT devices.
This week's announcement of a new accord with Canada and Mexico was the first positive news on the trade front in some time. Even so, as word spread that the deal did not address the 25% tariff on Canadian steel imposed earlier this year, manufacturers were reminded that it may still be closer to the beginning—rather than the end—of the trade wars. In particular, the conflict with China threatens to be comprehensive and long-running. The Trump administration continues to increase pressure on China, which appears to be digging in rather than backing down. Although China may be running out of ways to retaliate, its responses have inflicted serious pain on U.S. manufacturers and farmers alike.
Even the National Association of Manufacturers (NAM)—in lockstep with the Trump administration on most issues—is urging the administration to settle the conflict. In response to the most recent round of tariffs, the NAM cited several examples of U.S. manufacturers hurt by tariffs on parts, equipment, and chemical ingredients sourced from China that cannot easily be replaced. Still, there is no denying that China's practices have disadvantaged U.S. companies in the past. The NAM is pressing for a bilateral agreement that would end anti-competitive practices, protect intellectual property, and raise standards—particularly ethical and governance standards—in China. In the meantime, U.S. companies are wrestling with the question of how long it will be until they have no choice but to find new suppliers for their components and new markets for their products.
Notwithstanding these headwinds, tax reform, economic growth, and historically low (if increasing) interest rates have created a strong market for mergers and acquisitions. Deal activity increased substantially during Q2, reaching levels 50% above three-year averages. Data compiled in PwC's Global Industrial Manufacturing Deals Insights for Q2 show a few interesting trends. U.S. companies led the way, with six of the top 10 acquisitions. Also, the merger market is more diversified in 2018; while the industrial equipment category dominated merger transactions in 2016-2017, that category claims only three of the top 10 deals of 2018. Strategic acquisitions have outpaced financial acquisitions, reflecting 70% of deal value and 61% of deal volume. With favorable economic conditions prevailing, companies pursuing strategic realignment of their assets appear to be the beneficiaries of a seller′s market.
Whatever the trends this year and next, we want to help manufacturers prepare for the challenges and opportunities ahead. As we mark Manufacturing Day, we are announcing a year-long series of monthly webinars for in-house legal teams and managers dealing with topics affecting our clients every day. We will cover employment issues, politics, cybersecurity, products liability, sustainability, and many more subjects over the coming year. These sessions will share new insights, offer useful guidance, and help manufacturers navigate the road ahead. The first of these sessions, Moving Beyond #MeToo: Harassment, Discrimination and Pay Equity in the Manufacturing Workplace, will be held from noon to 1 p.m. ET on October 19. We hope you will join us.
Attorneys in Ballard Spahr′s Manufacturing Group provide comprehensive counsel on matters ranging from day-to-day operational issues to complex transactions and multi-district litigation.
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