What Are Their Location Priorities?
As in years past, we asked our survey-takers to rate the factors on which they base their location and expansion decisions as "very important," "important," minor consideration," or "of no importance." We then added up the "very important" and "important" ratings and rounded to the nearest tenth of a percent in order to rank the factors in order or priority. These findings are presented in Figures 25 and 26.
The top two ranked factors - highway accessibility and labor costs - have not changed their position from last year, although their percentage ratings have dropped slightly. Highway accessibility was rated as "very important" or "important" by 95.4 percent of the 2008 Corporate Survey respondents. Obviously, sites that cannot satisfy a company's transportation infrastructure needs for receiving supplies, getting products to market, and giving employees and others access to the site will not make the cut.
An area's labor costs are always a top concern when companies make location decisions, and with profit margins shrinking in these tough economic times, these recurring costs take on even greater significance. The labor costs factor was rated "very important" or "important" by 91.4 percent of the 2008 Corporate Survey respondents, closely followed by occupancy and construction costs, which ranked third among the factors with a 90.4 percent rating.
Those site selectors looking to build to suit will find that the cost of construction has gone up. However, there is plenty of vacant space already built out; this should result in lower occupancy costs. Nonetheless, those shrinking profit margins previously referred to are forcing companies to look for savings wherever they can. (See the article on this factor in this issue of Area Development.)
Another way for companies to save money is through tax exemptions. This factor holds the fourth place spot this year, receiving an 88.6 percent rating in importance from the survey respondents - up from tenth place in 2007 when it was rated "very important" or "important" by just 82.8 percent of the respondents.
Two related factors - state and local incentives and corporate tax rate - also grew in importance ratings, although they did not jump ahead in the rankings. The former ranked seventh with an 87.2 percent rating, and the latter followed in eighth place with an 85.3 percent rating. Reduced tax revenues brought about by the current recession will obviously curtail state and local governments' ability to offer generous incentive packages or tax exemptions, but these factors will always rank high with site selectors.
When asked specifically about types of incentives, more than half of the Corporate Survey respondents said tax incentives were most important, while nearly half also cited the importance of incentives such as free land, utility rate subsidies, infrastructure and training support, etc. (Figure 27). In fact, the training programs factor advanced 5.7 percentage points in this year's ranking, receiving a 62.3 percent combined "very important" and "important" rating.
More than half of the respondents indicated their companies had received some type of incentives in the past, and nearly two thirds of these recipients were satisfied with their benefits. Of those who felt the incentives had fallen short, half claimed that the tax incentives expected had failed to materialize (Figures 28, 29, 30). Perhaps these firms had not met their end of the deal with respect to promised investment or job creation commitments in exchange for the incentives.
Energy availability and costs was ranked fifth by the 2008 respondents, receiving an 87.9 percent "very important" or "important" rating. Surprisingly, this was down from third place in 2007 with an 89 percent rating. However, when asked how rising energy costs were affecting their companies, nearly half of the Corporate Survey respondents said they were affecting operations, and a quarter claimed these costs were affecting supply and distribution network decisions (Figure 31). Additionally, 92 percent of the respondents claimed to have undertaken energy-saving facility modifications, and nearly 80 percent were recycling or re-using waste products from their operations (Figure 32).
Availability of skilled labor has taken a back seat this year to some of the more pressing cost issues. This factor dropped from fourth to sixth place in the rankings, while its combine "very important" or "important" rating actually only declined one percentage point to 87.7 percent. But the low union profile factor has seen its importance rating advance over the last two years - registering 78.4 percent in 2006, 80.6 percent in 2007, and 82.7 percent in 2008. Concern about bringing costs down is causing companies to increase their focus on avoiding locations where unions have negotiated generous packages for their members to the detriment of the company's bottom line (i.e., just look at the stranglehold UAW benefits have put on the U.S. auto industry). It's no surprise then that right-to-work state has gained in importance as well, with a 67.1 percent combined "very important" or "important" rating in 2006, 72.1 percent rating in 2007, and 76.6 percent rating in 2008 - a 14 percent increase overall.
The available land factor went from sixth place last year to 10th in this year's rankings, down to an 82 percent importance rating from 85.4 percent in 2007. However, the 2008 Corporate Survey respondents are more concerned about availability of buildings. This factor jumped from 14th to 11th position, with its importance rating increasing from 79.3 percent to 80.8 percent. Companies that need to fast track their projects will first look at locations where available facilities can satisfy their site selection needs. Similarly, expedited or "fast-track" permitting has increased in importance, moving up in the rankings to 15th place with a 72.5 percent "very important" or "important" rating.
Although two-thirds of the 2008 Corporate Survey respondents said environmental concerns are more important now than in the past (Figure 33), when rating the environmental regulations factor in relation to others, it ended up in 14th place for 2008 with a 76.1 percent rating, down from ninth place last year with an 83.2 percent rating. Perhaps as companies are becoming more aware of sustainable development for its inherent advantages, the environmental regulations of specific areas have become less of a determinant in location decisions.
At the time this survey was conducted - late summer 2008 - credit markets had yet to completely freeze up. This is the only plausible explanation for more than two-thirds of the 2008 Corporate Survey respondents claiming that tightening credit was not affecting their facility plans (Figure 34) and for ranking availability of long-term financing in 17th place with a 64.2 percent rating. However, this was actually up two spots in the rankings and 1.2 percentage points from 2007. Again, if this survey were conducted today, the answers might be much different.
The factor showing the greatest change in the rankings is availability of advanced ICT services, which fell from 12th place last year with a combined importance rating of 82.2 percent to 21st place among the factors this year with a combined 55.5 percent rating - a decline of 26.7 percentage points or an astonishing 32 percent. The 2007 survey form described advanced ICT services as "high-speed Internet, wireless, VOIP, etc." The 2008 Corporate Survey questionnaire described advanced ICT services as T1, T3, OC" - more esoteric terms. This change in description is the only way to explain the precipitous drop in the importance of this factor. Respondents may have been confused by the T1, T3, OC examples - designations not as universally understood as "high-speed Internet," etc. This is the only explanation I can offer for this anomaly.
The factor showing the second-largest decline in importance is railroad service. This factor fell nearly 11 percentage points to a combined "very important" or "important" rating of 27.2 percent. This decline was not expected. Railroads have made massive investments to expand tracks and equipment in the past several years; besides moving traditional commodities, they are now increasingly moving consumer goods. Many warehouse/distribution facilities are being built in proximity to these railyards. However, since only 14 percent of the Corporate Survey respondents are with warehouse/distribution operations, this might explain the decreased priority given to railroad service this year.
The quality-of-life factors are traditionally ranked separately from other site selection factors. Throughout our Corporate Survey history, low crime rate has topped the list of quality-of-life factors. This year is no exception, with low crime rate achieving a 78.2 percent combined "very important" or "important" rating.
The healthcare facilities factor jumped from fifth place among the quality-of-life factors in 2007 (with a 57.4 percent rating) to second place this year (with a 77.6 percent rating) - a 20.2 percentage point gain and the largest increase overall among all the survey factors, both site selection and quality of life. Each year business' costs for employer-sponsored healthcare have risen; thus, this factor has become a more important location determinant. Decision-makers must consider which states and communities offer the lowest healthcare costs and least risk to employers, while providing ample quality coverage.
The lowest-ranked quality-of-life factors for 2008 were recreational opportunities and cultural opportunities (both rated as "very important" or "important" by less than half of the 2008 Corporate Survey respondents). Tough economic times have resulted in leisure time activities being given low priority.
We also asked our survey-takers if they consider whether there are businesses performing similar activities to theirs in the area of search - 70 percent said "yes," and 60 percent said this factor was important in their site decision (Figures 35 and 36). It has been noted that clustering of industries provides greater access to material resources and employee talent. In fact, more than a third of the respondents making site visits said they meet with representatives of similar area businesses (Figure 37).