5th Annual Consultants Survey
Area Development Special Presentation (Dec/Jan 09)

For the fifth year in a row, Area Development's editors have asked the consultants who work with industrial companies, as well as with economic development agencies, to take a survey similar to the one administered to our corporate executive readers. As was expected, the consultants rated the site selection factors differently than our corporate readers did, and the consultants' clients' plans differ from those of the corporate readership as well. Considering the fact that only slightly more than half of our Corporate Survey respondents (52 percent) said they use consultants' services when site selecting, these disparities come as no surprise.

What Types of Companies Are Consultants Serving?
First let's look at the types of companies that the responding consultants are serving (Chart A). Forty-seven percent of the responding consultants said their clients include warehouse/distribution firms; only 14 percent of those executives responding to our Corporate Survey were from this sector. A quarter of those responding to our Consultants Survey said they work with financial services firms, another group with little representation (just 3 percent) among our Corporate Survey respondents. To recap, 64 percent of the respondents to our 2008 Corporate Survey were with manufacturing firms; fewer than 40 percent of those responding to our 2008 Consultants Survey noted they have worked on a location or expansion project in one or more manufacturing sector.

Only 37 percent of the responding consultants have performed location studies for their clients, and 31 percent have engaged in incentives negotiations on their clients' behalf. Yet, the responding consultants seem to be the deal "closers," with more than half of them claiming they have ultimately been responsible for their clients' final site selection decisions (Chart B).

Of those consultants who claimed they do perform location studies for their clients, nearly half said their clients had already narrowed down the geographic area of search before calling them in; but 25 percent also said their clients expect the consultants to make the location decision for them (Chart C).

The majority of the respondents to our Consultants Survey (63 percent) are working for smaller companies in terms of employment numbers (fewer than 500 employees). More than half have worked with both investor-owned and privately held firms (Charts D and E).


Do Their Clients Have New Facilities Plans?
Once again I must note that this survey was conducted in late summer 2008; therefore, the responses might not reflect the events that took place during the year's final quarter. Nonetheless, the respondents to our 2008 Consultants Survey were about equally divided when asked if the downturn in the U.S. economy had affected their clients' facility plans: 50 percent of the responding consultants said their clients' new facility plans had been put on hold, with 28 percent saying their clients were closing/consolidating facilities. However, 47 percent of the responding consultants said their clients still planned to open new facilities (Chart F).

Of those respondents who claimed their clients expected to open new facilities, a third said they planned to do so within one year, and more than half said their clients had two-year new facility plans (Chart G). Only 11 percent said their clients had longer-range new facility plans (compared to the 20 percent of the Corporate Survey respondents with plans three or more years out). This might be an indication of the fact that the consultants' services are not utilized until their clients' plans are more firmly in place.

Nearly two-thirds of the respondents to our 2008 Consultants Survey said their clients who have new facility plans expect to open only one new facility. Just 13 percent said their clients had plans for three or more new facilities (Chart H). Interestingly, 28 percent of the Corporate Survey respondents with new facility plans expect to open three or more new facilities within the next five years.

Whereas nearly half of the 2008 Corporate Survey respondents' new facilities are planned as manufacturing establishments, only 27 percent of the consultants' clients' new facilities are expected to house manufacturing operations (Chart I). Nearly half (47 percent) of the responding consultants' clients' new facilities are expected to be headquarters, R&D, back office/call center, and other types of facilities. This is nearly double the percentage of these types of facilities expected to be opened by the Corporate Survey respondents.

Many of the new facilities projects being worked on by the respondents to our 2008 Consultants Survey are slated for the South Atlantic (13 percent of the projects) - North Carolina, South Carolina, Virginia, West Virginia - and South (also 13 percent) - Alabama, Florida, Georgia, Louisiana, Mississippi. These regions are followed by the Midwest (12 percent) - Illinois, Indiana, Michigan, Ohio, Wisconsin - and the Middle Atlantic (12 percent) - Delaware, Maryland, New Jersey, New York, Pennsylvania (Chart J). Although only 7 percent of the Corporate Survey respondents planned new facilities for the Middle Atlantic region, the many more financial and information technology firms represented by the responding consultants might account for the difference in response between the two groups of survey-takers when it comes to activity in this region.

The responding consultants' clients plan more than a third (36 percent) of their new foreign facilities for Asia, with 16 percent slated for Mexico and 10 percent each for Canada and Eastern Europe (Chart K). These percentages are comparable to those reported by the Corporate Survey respondents.

However, fewer of the consultants' clients planned new foreign facilities will go to China than those projected to be established by the Corporate Survey respondents (35 percent of the consultants' clients' facilities as compared to 44 percent of the corporate respondents' facilities) as well as to India (16 percent as compared to 25 percent) (Chart L). Again, the disparities may be explained by the differences in operations between the responding consultants' client base and the corporate respondents.

Although about 40 percent+ of each group's (consultants' clients and corporate respondents) new foreign projects will be manufacturing facilities, a fifth of the foreign projects that the consultants' clients are working on are slated to be back office or call center type of operations (Chart M). Only 5 percent of the new foreign facilities to be established by the respondents to our Corporate Survey will fit this description.

When asked if they had seen an increase in the number of companies establishing foreign facilities as opposed to domestic ones, only 29 percent of the respondents to our 2008 Consultants Survey said, "Yes" (Chart N). Last year, 48 percent said, "yes" in response to this question. In fact, 35 percent of the 2008 responding consultants said their clients had actually located a foreign facility back to the United States (Chart O). The respondents continue to see problems when helping clients to locate overseas, including regulatory and social/cultural issues (each type seen by 29 percent of the respondents), utility infrastructure (25 percent), and legal (22 percent) among others (Chart P).

What Are Their Clients' Site Selection Priorities?
The consultants were asked to rate the same site selection and quality-of-life factors as the Corporate Survey-takers as either "very important," "important," "minor consideration," or "of no importance." We once again added the "very important" and "important" ratings together and rounded to the nearest tenth of a percent in order to rank the factors in priority order (Chart Q).

This year the consultants ranked state and local incentives as the number-one priority of their clients, with 96.1 percent of the respondents rating this factor as either "very important" or "important (up from 90.9 percent last year, and compared to the 87.2 percent combined rating given this factor by the respondents to our 2008 Corporate Survey). The increased need to reduce costs in these tough economic times, as well as the fact that consultants consider incentives negotiation one of their primary responsibilities, is probably reflected by the heightened importance of state and local incentives.

In fact, more than half of the respondents to our 2008 Consultants Survey said they believe incentives have always been of great importance to their clients, and more than a third of the respondents felt incentives were more important now than in the past (Chart R). Nearly 60 percent of the responding consultants thought tax incentives, exemptions, and the like were more important (up from 39 percent last year); and nearly half said other financial incentives such as grants, bonds, and loans were paramount in their clients' site selection decisions (up from 37 percent in 2007) (Chart S).

More than a third of the respondents to our Consultants Survey also reported that more communities were instituting investment and/or job creation requirements as a condition of awarding incentives than had done so in the past (Chart T). In response to a related question, more than a third of the responding consultants said they found incentives closing funds lacking when performing location studies (Chart U).

It should also be noted that the tax exemptions factor received an 89.9 percent combined rating in importance from the consultants this year and was ranked fifth among the factors. The corporate tax rate factor was ranked seventh with an 86.8 percent combined rating. This factor showed the second-largest gain in importance (12.4 percentage points) among the site selection factors rated by the consultants.

Interestingly, although more than two-thirds of those responding to our Consultants Survey said tightening credit markets were affecting their clients' facility plans (Chart V), only 58.5 percent rated availability of long-term financing as "very important" or "important." However, this was an 8.5 percentage point increase over last year - the third-highest jump in importance among the site selection factors.

Highway accessibility, which was ranked as the number-one site selection factor by the respondents to our 2008 Corporate Survey, was ranked second in importance by the respondents to our Consultants Survey, with a 95.8 percent combined rating. A related factor, proximity to markets was ranked eighth with an 86.3 percent combined rating. The respondents to our Corporate Survey only ranked this factor 12th with a 78.7 percent combined rating. As previously noted, the responding consultants' priorities often diverge from those of the Corporate Survey respondents; remember that only about half of the respondents to our Corporate Survey reported they use consultants' services when site selecting.

The respondents to our Consultants Survey ranked availability of skilled labor as third in importance among the site selection factors, with a 94.9 percent combined rating, down from second place last year. However, this is higher than the sixth-place ranking given this factor by the respondents to our Corporate Survey. Consultants are keenly aware that a low-cost location won't spell success for a company if skilled labor is not available.

Energy availability and costs was ranked fourth by the responding consultants, who gave it a 90.7 percent combined "very important" or "important" rating. More than 40 percent of the respondents said rising energy costs (especially over the period preceding this survey) were impacting their clients' facility operations and also affecting their supply and distribution network decisions (Chart W).

Increasing fuel costs are probably responsible for the heightened importance given to railroad service. Although this factor was only ranked 23rd by the responding consultants, it showed the largest increase in importance over last year's consultants' ratings; the rating of railroad service rose an astonishing 42 percent, with its combined rating in importance increasing from 35.1 percent to 50 percent. Remember that nearly half of the responding consultants said they have helped to site warehouse/distribution facilities; they and their clients have realized the energy costs savings that can be achieved through the use of railroad service over trucking.

Closely related to energy issues are environmental concerns. All the talk about "green" or sustainable development should be reflected in the consultants' ranking of the environmental regulations factor. However, this factor only bumped up slightly in importance to a 71.6 percent combined rating, and its 17th place ranking held steady. Nonetheless, when asked if environmental concerns were more important to their clients now than in the past, 72 percent of the respondents to our 2008 Consultants Survey said, "Yes" (Chart X). In response to this, 100 percent said their clients were undertaking energy-saving facility modifications, and 70 percent said their clients were also recycling or re-using waste products from their operations (Chart Y). However, unfortunately, nearly two thirds of the respondents said the communities they have worked with are not offering any specific incentives for green initiatives.

Occupancy and construction costs moved up to the sixth spot in the consultants' rankings this year, with an 87.1 percent combined rating, from 11th place in 2007, with an 84.4 percent combined rating. But, strangely enough, labor costs dropped from third place in last year's Consultants Survey, with a 93.8 percent combined importance rating, to tenth position in the 2008 Consultants Survey, receiving only an 82.8 percent combined rating - an 11 percentage point decline and the third-largest decrease in the ratings among the site selection factors. Labor is a recurring cost and I would have expected the consultants to say this factor was of greater importance to their clients then reflected by this year's results. Perhaps all of the recent employee layoffs are keeping these costs down and are responsible for this factor being given lower priority.

The factor showing the greatest decline in the ratings overall (14.5 percentage points) is expedited or fast-track permitting. Again, 50 percent of the respondents to our 2008 Consultants Survey said their clients' new facilities plans had been put on hold so "fast-tracking" projects might not be as important as in previous years.

And the site selection factor showing the second-largest drop in the ratings given by the responding consultants (down 12 percentage points) is availability of advanced ICT services. The respondents to our 2008 Consultants Survey ranked this factor 14th, with a 72.8 percent combined rating, down from 10th place in 2007, when they gave it an 84.8 percent combined "very important" or "important" rating. The rating of this factor was an anomaly in both the Corporate and Consultants surveys, and I offer up the same explanation for both. Our description of advanced ICT services last year was "high-speed Internet, wireless, VOIP, etc." This year we changed that to read "T1, T3, OC" - more esoteric terms. Next year, we'll try to keep it simple again and see if this factor bounces back up in the rankings.

Those responding to our 2008 Consultants Survey rated the same quality-of-life factors in first and second place as those responding last year: ratings of public schools was ranked first, with a 73.7 percent combined rating, followed by low crime rate in second place, with a 71.6 percent rating. The responding consultants also ranked the same two quality-of-life factors as least important as were ranked as such by the respondents to our 2008 Corporate Survey - recreational opportunities and cultural opportunities. Again, these factors take a back seat to other site selection and quality-of-life concerns during turbulent economic times.

Finally, 78 percent of the responding consultants said their clients consider whether there are business performing similar activities to theirs in the area of search (70 percent of those responding to our Corporate Survey also said this was a consideration). And 41 percent of the responding consultants also said their clients elect to meet with representatives of these area businesses during the location process (Chart Z).

What Are the Consultants' Sources of Information?
Three-quarters of the respondents to our 2008 Consultants Survey said they obtain their site selection information from the Internet. Importantly, nearly 60 percent also use site magazines like Area Development, more than double the percentage reading general business publications for this type of information (Chart AA).

Nearly all of the respondents who use the Internet obtain website addresses from general search engines like Google or Yahoo. Yet more than two-fifths (43 percent) of those using the Internet for site information also get website addresses off of print ads in magazines such as ours (up from 33 percent making this claim last year). More than a third of the responding consultants also obtain website addresses from ads on websites like Area Development Online (Chart BB).

Finally, although 83 percent of those responding to our Consultants Survey found economic development websites most useful, nearly half of the respondents also found online site magazines such as Area Development Online and property databases like FastFacility.com equally useful (Chart CC).

In sum, the responses to our 2008 Consultants Survey were gathered during late summer and do not reflect the events taking place in the financial markets and throughout many manufacturing and other industries during the last quarter of 2008. The consultants' responses also differ - sometimes markedly - from those given by the corporate respondents. Remember that many of the corporate respondents claim they do not use the services of consultants when site selecting, and the consultants' reported client base includes many of the types of companies that were not well represented by the corporate respondents. In any event, the two sets of responses make for an interesting perspective on location analysis and facilities plans for the years ahead.

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