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32nd Annual Survey of Corporate Executives Commentary: Loosening the Reins on Pent-Up Capital

Last year saw an increase in capital investment, which has continued through the first quarter of 2018.

Q1 2018
After a decade of the “new normal” where capital investment dollars waited on the sidelines, 2017 leapt out of the starting gate and has continued at a torrid pace thru the first quarter of 2018. In a world awash in global instability, the U.S. remains both a safe haven for foreign dollars and a growth accelerator, as repatriated dollars, corporate tax cuts, and — perhaps to some degree — a fear of presidential tweets have clearly loosened the reins on a decade’s worth of pent-up capital.

As always, Area Development’s Corporate Survey serves as an interesting annual quantification of the tangible experiences my colleagues and I encounter in the field. Some of the more interesting observations that the survey captured are as follows:
  • It is no surprise to us that the southeastern states are the overwhelming choice for manufacturing and capital investment. Aggressive and proactive economic develop teams, available land, new infrastructure, strong incentives, growing labor demographics, customized training regimes, and sophisticated business-oriented state governments are just a few of the reasons mega-deals land in this region.
  • C-suites still and always will call the shots. Effectively connecting with those C-suite players has a greater impact than anything else on the success or failure of winning a project for both EDOs or consultancies. Even if real estate or tax departments provide easier access, they are the implementers and often behind the timing curve in the corporate location decision process. It’s best to spend time and resources courting the top.
  • Challenging state and local tax conditions and the new federal tax legislation are going to eventually turn personal decisions — i.e., “Do I leave a high tax state because I can’t deduct my home or want to deal with the costs anymore?” — into personnel issues that will likely affect company relocation plans — i.e., “I can’t find enough good employees on Long Island or northern California even though I pay a great wage because the location is just too expensive. So we have to relocate.” Within the next year or so, when folks start paying the 2018 tax bill, we’ll likely see these state and local tax issues rise further to the top of the list.
  • 67 percent of respondents say that incentives are very or somewhat important to a project moving forward in a particular location. That’s more than ever for the survey, but in reality, that percentage should be 100 percent. Companies may not openly admit it, but all are aggressively shopping locations, and incentives are a factor. Locations are increasingly seen as commodities. They need to continuously show their value proposition in terms of generating a value-added workforce at a reasonable cost. If they can’t, they will be out of the hunt.
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