Dean J. Uminski, CEcD, Principal, Crowe Horwath (Dec/Jan 09)
Most people associate site selection with business expansion, but in today's distressed economy, site selection is increasingly linked to business consolidation.
Business leaders who have to reduce four or five locations to two or three - or 20 locations to five - must approach the task as rigorously as they would were they expanding the physical presence of their business. The same strategic factors that come into play when building a network of manufacturing facilities, distribution centers, retail locations, or offices also apply when an organization reduces its scale to fit changing times.
While the percentage of respondents to Area Development's 23rd Annual Corporate Survey who said they decreased their number of facilities in 2008 (12 percent) remained consistent compared with 2007 (13 percent), one new question in this year's survey augers ill for 2009. When asked if the downturn in the U.S. economy affected their company's facility plans, many respondents answered affirmatively, reflecting serious concern about the unknown length or severity of the economic downturn. These respondents said they are putting new facility plans on hold (24 percent), reducing staff (18 percent), deferring hiring plans (18 percent), and closing or consolidating facilities (15 percent). In contrast, only 22 percent of respondents said their companies still plan to open new facilities or increase hiring rates (13 percent).
Shrinking access to credit and capital, reluctance by both retail and corporate customers to spend, and increased pressure on margins are forcing businesses everywhere to reassess and rationalize their physical assets. Making the decision to close one or more locations is never easy but sometimes is unavoidable. And while business incentives can rarely make a poor location viable, they could be a factor that sways a company's decision to locate in one jurisdiction versus another in today's economy.
However, because many incentives reward job creation, they might not provide as much benefit to businesses that must contract their work forces. State and local governments wanting to attract consolidating businesses to their jurisdictions in these difficult times need to consider offering more incentives that recognize other social and economic contributions, such as environmental efficiency and sustainability.