Are They Expanding or Relocating?
About half of the 2011 Corporate Survey respondents say they have plans to expand their facilities at their present locations, with 40 percent expecting to do so within the next two years (Slideshow, Figure 22). However, the projected job creation number for these expansions is dismal: 86 percent of the planned expansions will create fewer than 100 jobs (Slideshow, Figure 23).
Importantly, 54 percent of the 2011 Corporate Survey respondents note that excessive government regulations are preventing them from spending more of their earnings on investment in U.S. facilities, and a whopping 65 percent note that they are put off by the nation's current state of economic instability (Slideshow, Figure 24).
Nonetheless, relocation plans are picking up: 34 percent of the 2011 Corporate Survey respondents say they plan to relocate a domestic facility, with nearly a quarter expecting to do so within the next two years (Slideshow, Figure 25). Of those with relocation plans, more than 40 percent cite high taxes at their present location as the reason behind their projected move, with a quarter also citing excessive government regulation, high labor costs, and the need to be in closer proximity to suppliers and/or markets served (Slideshow, Figure 26).
Nonetheless, offshoring and onshoring moves are not on the horizon. Nearly all of our 2011 Corporate Survey respondents say they do not expect to relocate a domestic facility to an offshore location or a foreign facility back to the United States (Slideshow, Figure 27), despite what we are hearing about U.S. manufacturers bringing their operations back home.
Which Site Selection Factors Are Important?
In order to find out how our corporate executive readers make their location and expansion decisions, as in years past, the editors of Area Development magazine asked our survey-takers to rate the site selection and quality-of-life factors as either "very important," "important," "minor consideration," or "of no importance." We then added the "very important" and "important" percentage ratings in order to rank the factors on which the corporate executives base their decisions. The results of the 2011 Corporate Survey respondents' factor ratings and rankings are shown in figures 28 and 29.
Once again highway accessibility and labor costs remain the top-two ranked site selection factors in that order, rated as "very important" or "important" by 93.8 percent and 88.4 percent, respectively, of the 2011 respondents.
Highway accessibility is always at the top of the survey-takers' list of site selection factors, so it follows that proximity to major markets is also very important. In fact, proximity to major markets showed the greatest jump in importance - 16.6 percentage points - moving from 17th place in the 2010 Corporate Survey rankings, with a 66.4 importance rating, to ninth place for 2011, considered "very important" or "important" by 83 percent of the 2011 Corporate Survey respondents.
Not only are the respondents concerned with labor costs, but also with the availability of skilled labor. This factor is actually tied with labor costs for second place in the 2011 rankings, having received the same 88.4 percent importance rating, and moving up from seventh place in the 2010 Corporate Survey rankings.
Moreover, although the U.S. unemployment rate remains high, two thirds of the 2011 Corporate Survey respondents say this is not making it any easier for their companies to find the labor they need (Slideshow, Figure 30). In fact, more than 40 percent of the respondents say the unemployed are lacking both basic skills in reading and math, as well as advanced skills like machine tool programming, bioprocessing, etc. This combination of a lack of basic and advanced skills might also account for the fact that nearly 40 of the 2011 respondents say they are dependent on contract or contingent workers who perhaps help to fill the skills gap (Slideshow, Figure 31).
Additionally, a lack of basic skills among the unemployed might also be behind the added importance given to the availability of unskilled labor factor. Although this factor was only ranked 20th, it shows the second-greatest increase in importance among the factors - advancing 13.5 percentage points and considered "very important" or "important" by nearly 60 percent of the 2011 Corporate Survey respondents.
As the economic recovery sputters along, the focus on costs is further reflected by our 2011 Corporate Survey results. Occupancy and construction costs is the fifth-ranked factor, with 85.9 percent of the respondents considering this factor "very important" or "important." And the tax-related factors are also among the respondents' top-10 priorities. Corporate tax rate is ranked fourth in importance; state and local incentives is tied with occupancy and construction costs for fifth place; and tax exemptions is ranked eighth among the site selection factors. All of these tax-related factors were rated "very important" or "important" by more than 80 percent of the 2011 Corporate Survey respondents.
Although tax exemptions dropped from the third place spot in 2010 to eighth in the current results, showing a decrease of 7.3 percentage points in importance, two thirds of the respondents say they consider tax incentives the most important type of incentive when making a location decision (Slideshow, Figure 32). Nonetheless, only about half of those responding to the survey have actually received and utilized incentives in the past (Slideshow, Figure 33), and only 38 percent say they actually received 75-100 percent of the incentives initially estimated value (Slideshow, Figure 34). However, almost all of the respondents say they never had to repay incentives monies because investment and/or job creation criteria were not met (Slideshow, Figure 35). Among the more challenging aspects of assessing, negotiating, and securing incentives are understanding the programs and the time required for the overall process (cited by nearly half of the respondents), as well as projecting the value of incentives offers and documenting the terms (Slideshow, Figure 36).
Energy availability and costs is ranked seventh among the site selection factors. Nearly a third of the 2011 Corporate Survey respondents also say high energy costs are affecting their facility operations (Slideshow, Figure 37), and almost two thirds say sustainable development is more important to their companies now than in the past (Slideshow, Figure 38).
Eighty percent of the respondents claim to be making energy-saving modifications to their existing facilities in order to reduce their companies' carbon footprint, while a quarter are also seeking LEED certification for new or existing facilities (Slideshow, Figure 39). Unfortunately, two thirds of the respondents say communities are not offering specific incentives for "green initiatives" (Slideshow, Figure 40). On the other hand, 86 percent say neither are they encountering "green performance" requirements as a stipulation for receiving incentives (Slideshow, Figure 41).
Rounding out the top-10 factors is low union profile, considered "very important" or "important" by 81 percent of the 2011 Corporate Survey respondents. Additionally, the right-to-work state factor, which is ranked 12th in importance (up from 16th in the 2010 Corporate Survey), showed the fourth-highest increase in importance - jumping 9.6 percentage points and considered "very important" or "important" by more than three quarters of the survey respondents. Companies have found it less costly to operate where they don't have to meet union salary and benefit demands, and high-profile cases - e.g., Boeing opening its new facility in right-to-work South Carolina instead of non-right-to-work Washington State - may have pushed these factors to the forefront. In fact, as we went to press, Indiana became the first state in a decade to enact a right-to-work law.
The factor showing the third-highest increase in importance is availability of long-term financing, advancing 11.5 percentage points and now considered "very important" or "important" by 70 percent of the 2011 Corporate Survey respondents. Although credit markets have loosened up somewhat since the financial crisis, many companies are still struggling to obtain financing.
Area Development's editors also asked our survey-takers about the importance of available buildings and shovel-ready sites in their location searches. Although available buildings dropped out of the top-10 site selection factors listed for 2011, 80 percent of the survey respondents still say the existence of an available building is very or somewhat important (Slideshow, Figure 42), and 57 percent consider the existence of a shovel-ready or pre-certified site very or somewhat important in their location search (Slideshow, Figure 43). The necessity of getting facilities up and running quickly and speeding products to market in today's highly competitive and fast-changing business environment is reflected by these responses.
We also asked if our corporate executive readers consider whether or not there are businesses performing activities similar to theirs in the area of search. More than half of the 2011 Corporate Survey respondents say yes, and that this factor is very or somewhat important as well (figures 44 and 45).
Quality-of-life factors were once again ranked separately from the primary site selection factors. If these were ranked together, low crime rate - the number-one quality-of-life factor this year and over the 26-year history of Area Development's survey - would be ranked among the top 10, considered "very important" or "important" by 82 percent of the 2011 corporate respondents. Among the other quality-of-life factors, ratings of public schools had the largest increase in importance - 7.6 percentage points with a 68.8 percent importance rating - perhaps reflecting the 2011 respondents' belief that the nation's available labor pool lacks even the most basic skills. Other than low crime rate, though, none of the quality-of-life factors would rank among the top 10 overall, indicating that these factors only come into play once other primary site selection criteria have been satisfied.