Just a year ago, the many executives we spoke with for our State of the Industrial Goods Industry report gave a largely positive assessment of the sector. In 2025, amid a downturn marked by tremendous geopolitical turmoil and a rapidly changing tariff landscape, they have a very different outlook.
As volatile as industrial goods has been historically, leaders could scarcely be prepared for how the current downturn would play out. “This drop-off in the last two years was quick and deep,” said one component supplier executive. “It's been the lowest since I've been in the agriculture industry in the last 12 years.”
In this year’s report, "New Rules For The Next Horizon" — created in partnership with the Association of Equipment Manufacturers and focused on the agriculture and construction sectors — executives gave conditions in industrial goods an average rating of 5.7 out of 10, down from an average of 8 in 2024. Sentiment was especially low in agriculture, which is experiencing meaningful revenue declines.
The good news is that the sector’s core businesses remain vital and robust. Even as they contend with the difficulties of the current environment, the executives in our survey and interviews can see better days ahead. More than 70% say they are confident in their company’s ability to adapt to future market changes, and across all sectors give high ratings for the future state of the industry.
Why industrial goods firms struggle to plan around tariffs
It’s no shock that tariffs are one of the biggest pain points industrial goods firms are facing today. Anticipating and responding to new trade rules leaves companies essentially stuck in first gear, with severely limited ability to focus on medium- and long-term planning. Our research revealed that a startling 51% of leaders’ time is now dedicated to initiatives with time horizons of less than one year.
Across the industry, organizations are taking a wide variety of actions in response to the tariffs. Foremost among these is an increased focus on cost management. Among other measures, executives we interviewed are implementing internal metrics and cost-of-capital models to ensure smarter capital allocation.
Not surprisingly, companies are especially concerned about their supply chains, with 68% saying tariffs have impacted their strategy moderately or more. One key challenge is supplier reliability, resulting from a rise in distressed suppliers that has reduced the pool that can meet demand, quality, and research and development standards. Transportation delays and shipping cost increases were also cited as challenges by a significant proportion of survey respondents.
Geopolitics and talent strains push industrials toward transformation
Even aside from their tariff response and supply chain strategies, industrial goods firms say geopolitical tension, talent management, and a host of other challenges are affecting their ability to compete. The myriad difficulties may be accelerating industrials’ return over the past year to a focus on core products, operations, and customer experience.
For example, firms have largely turned their attention away from attempts to diversify into new markets that may not align with their main competencies, in favor of initiatives that can help them reduce costs and increase revenue. Beyond those efforts, companies are concentrating on long-term priorities such as business transformation, capital efficiency improvements, and adoption of technology.
Six shifts reshaping the industrials value chain
All along the value chain, many of the foundational components of the sector are transforming. We’ve identified six changes that will have an especially profound impact on everyone in the industry over the next five to 10 years — and present major opportunities for those who are prepared to take tactical action.
- The distribution channel is being rewritten quietly, but irreversibly: Amid increasing competition, savvy manufacturers are radically changing their channel playbooks and launching all manner of experimental redesigns, challenging traditional dealers.
- The market is taking the shape of a barbell: In both agriculture and construction, customer segments are splitting between large consolidators and small operators, with midsize businesses getting squeezed out.
- Labor is a core lever of competitiveness: Labor shortages and skills gaps are becoming a bottleneck, while also serving as a catalyst for vocational partnerships and productivity-enhancing technology solutions.
- Digital tools are moving from optional to operational: Digital has become a key lever for dealer and customer stickiness, operational efficiency, and aftermarket growth, driving more parts sales and increased wrench time while lowering service costs.
- OEM-supplier relationships are becoming more transactional and fragmented: Tensions are building between the two sides over the responsibility for leading and paying for innovation.
- Companies are returning to basics: Increasingly they are resisting the lure of hype and shifting toward resilient strategies centered around their core products.
No matter where in the industrial goods ecosystem they're positioned, companies that don’t remain vigilant about the changes we’ve outlined will, quite simply, be left behind. To avoid that outcome, they will need to reevaluate long-accepted strategies and seek outside help where necessary to implement new, best-in-class practices.
