Darin Buelow, Principal, Strategy & Operations, Deloitte and Matt Adams, Manager, Deloitte (Winter 2011)
As 2010 drew to a close, the respondents to Area Development's 25th Annual Corporate Survey seemed to reflect the cautious optimism of many who follow the ups and downs of the U.S. economy. The 2010 survey results suggest that, while a rapid return to pre-recession levels of investment may not be imminent, the respondents are seeing stabilization, while careful and cost-conscious expansion and job creation appears to be on the horizon.
Among the signs that the economic spiral of the last several years has calmed is the decrease in the number of respondents reporting a planned closure of facilities, though that number is still off the three-year (2006-2008) survey average. More strikingly, those respondents who cited a "decrease in product sales" dropped dramatically from last year. The results also suggest that companies are slowing headcount reductions and hiring deferrals, with those respondents planning for growth in line with pre-recession averages. Similarly, fewer companies are responding that they envision no foreseeable investments.
These are relatively modest gains, particularly in light of even more illuminating responses regarding confidence in the economy as a whole. Respondents indicated a protracted recovery, with most expecting significant improvement in either 2012 or later, a longer timeline for recovery than anticipated in last year's survey. It is also interesting to note that consistent downward trends in manufacturing investment continue, both foreign and domestic, as those anticipating investment in the sector have decreased steadily from 51 percent in 2006 to 34 percent this year for domestic, and 63 percent to 35 percent for new foreign facilities.
Costs continue to be king, as seven of the top 10 site selection factors cited by the survey respondents are either cost-related or directly impact costs. This focus is also evident in the expectation of increased investment for back office, call centers, data centers, and shared services, all of which, when deployed at scale, can be used as cost-reduction vehicles.
Incentives are increasingly important, reflecting both the relative scarcity of capital and companies' awareness that states and communities are hungry for job creation. Energy costs are still influential, though less so than in the last couple of years, suggesting that companies may be adjusting to the possibility of higher energy cost levels in the years to come.
Not surprisingly, the availability of both ICT infrastructure and unskilled labor likely resulted in their erosion as important factors in the location decision, although the longer-term demographic trends for North America suggest a continuing tightening of the labor force in coming decades.
As 2011 begins, it will be very interesting to witness which companies choose to expand and invest in what may be a year of stabilization for the broader economy. Those that do should be able to position themselves to capture skilled talent and grow revenues at comparatively lower price points for deployment and operational costs.