When preparing and mailing out our 2009 Corporate Survey forms in late summer, we expected the results would bear witness to the economic downturn our nation has experienced since December 2007. As our survey-takers filled out these questionnaires, the United States was in the midst of the longest and deepest recession since the one experienced in the 1930s; unemployment had reached a 26-year high of 10.2 percent and, at that time, many economists expected it to climb much higher. Job worries curtailed household and, consequently, business spending, and everyone kept wondering when the economy would bottom out.
This was the mindset of our survey-takers in late summer. Nearly two years' worth of dismal economic news - initiated by the subprime mortgage crisis and a near meltdown of the nation's financial and credit markets - is reflected in our 2009 Corporate Survey results, which indicate a continued slowdown of plans for new and expanded facilities, as well as relocation, and increased emphasis on cost-related site selection factors. Let's examine these results more closely.
Nearly two-thirds of those who responded to our 2009 Corporate Survey are with manufacturing firms (Figure 1), and about 70 percent of these individuals are the chief or high-level executives of their companies (Figure 2). More than half make the final location decision at their firms, with another quarter of the respondents involved in their companies' preliminary site selection decisions (Figure 3).
Seventy percent of the responding executives are with firms that operate more than one domestic facility, and nearly two-fifths say their companies operate five or more U.S. facilities (Figure 4). More than half of the respondents to our 24th Annual Corporate Survey also claim to have five or more foreign facilities, but 27 percent of the respondents said they only run one foreign operation.
More than a quarter of the corporate executive respondents indicated their firms employ 1,000 or more people. The bulk of the respondents (42 percent) are with mid-size companies having 100-499 employees (Figure 5).
It's no surprise that more than half (58 percent) of the 2009 Corporate Survey respondents said their number of facilities had not changed over the last 12 months (September 2008-09 period). In fact, 21 percent reported decreasing their number of facilities during that period (Figure 6). Last year, only 12 percent of the 2008 Corporate Survey respondents had reported decreasing their number of facilities over the prior 12-month period.
Seventy percent of those who had decreased
their number of facilities said they were consolidating operations
(Figure 7). Other primary reasons cited for decreasing the number of
facilities were a decrease in product sales (76 percent) and a need to
lower operating and/or labor costs (70 percent). By comparison, only 39
percent of the 2008 Corporate Survey respondents who had decreased
their number of facilities over the prior 12-month period cited a
decrease in product sales as the reason for their actions.
Among the 21 percent of 2009 Corporate Survey respondents who said they
had actually increased their number of facilities over the previous 12
months, 55 percent cited an increase in product sales (Figure 8), as
compared with the 72 percent of the 2008 Corporate Survey respondents
who had cited an increase in sales as the reason they had increased
their number of facilities. More than 40 percent of the respondents to
our 24th Annual Corporate Survey also said the increase in their number
of facilities resulted from a merger or acquisition, i.e., they took
over another firm's facility - again, no surprise, their gain was
another company's loss.
This year, we asked a specific question about the effect of the
economic downturn on our corporate executive readers. In response to
this question, only 14 percent of the respondents said they plan to
open new facilities and only about a fifth said they had plans to
increase hiring (Figure 9). A quarter said they were putting new
facility plans on hold and/or deferring hiring plans; 30 percent said
they needed to defer capital spending. In fact, 8 percent of the
respondents said they were seeking new sources of funding/financing.
When do our 2009 Corporate Survey respondents expect the economy to improve? About 70 percent do not expect this to happen until the end of 2010 or some time in 2011 (Figure 10). These expectations are reflected in their plans for new and expanded facilities, as well as relocations, all of which we'll examine next.
Plans for New and Expanded Facilities and Relocation
As expected, more than half of our 2009 Corporate Survey respondents said they have no plans to open new facilities - up from 38 percent last year (Figure 11). Nevertheless, about a third plan to open facilities in one to two years.
Of those with new facility plans, more than half expect to open only one facility, and about a fifth of the respondents expect to open two (Figure 12); again, this number decreased from last year's expectations.
The planned location of new domestic facilities has changed for some regions (when compared to last year's survey responses), but not for others (Figure 13). Whereas New England (Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island, Vermont) will be home to just 4 percent of the new domestic projects (same as cited last year), the Middle Atlantic region (Delaware, Maryland, New Jersey, New York, Pennsylvania) has seen a dramatic increase in interest; i.e., 15 percent of the domestic projects planned by the 2009 Corporate Survey respondents will go to this region, up from only 7 percent of the domestic projects planned by the 2008 Corporate Survey respondents.
The South Atlantic region (North Carolina, South Carolina, Virginia, West Virginia) is also to receive 15 percent of the planned new domestic facilities - up from 12 percent planned by last year's survey respondents. The Midwest region (Illinois, Indiana, Michigan, Ohio, Wisconsin) and the Southwest region (Arizona, New Mexico, Oklahoma, Texas) are each expected to receive 13 percent of the new domestic projects - same exact expectations as reported last year.
Interest in four other U.S. regions - the South (Alabama, Florida, Georgia, Louisiana, Mississippi), Mid-South (Arkansas, Kentucky, Missouri, Tennessee), Mountain (Colorado, Idaho, Montana, Utah, Wyoming), and West (California, Nevada, Oregon, Washington) - has tapered off somewhat.
The 2009 Corporate Survey respondents said that 10 percent of their new domestic projects will go to the South (down from 14 percent planned by last year's respondents); 9 percent to the Mid-South (down from 10 percent reported last year); just 4 percent to the Mountain region (down from 6 percent reported last year); and 8 percent to the West (down from 10 percent reported last year).
The Plains states - Iowa, Kansas, Minnesota, Nebraska, North Dakota, South Dakota - took a significant hit. Only 4 percent of the projects planned by the 2009 Corporate Survey respondents are slated for this region, down from 10 percent of those that were planned by the 2008 Corporate Survey respondents.
Considering the fact that about two-thirds of the respondents to our 24th Annual Corporate Survey are with manufacturing firms, it follows that 42 percent of the planned new domestic facilities will house manufacturing operations; more than another quarter will be warehouse/distribution facilities (Figure 14).
Approximately 80 percent of the new domestic facilities will create fewer than 100 new jobs (Figure 15). This is unfortunate considering the nation's current unemployment crisis and bears out the findings of economic analysts who believe businesses' continued reluctance to hire will put a drag on the economic recovery.
When it comes to plans for new foreign facilities, Asia remains the consistent leader for our Corporate Survey respondents: 39 percent of the foreign facilities planned by the 2009 respondents are destined for this region (last year's figure was 38 percent). China will garner half of the Asian projects, and India 20 percent (Figures 16 and 17).
Unfortunately, our neighbor to the north, Canada, can only expect to receive 4 percent of the 2009 Corporate Survey respondents' planned new foreign facilities - down from 13 percent of those planned by the 2008 Corporate Survey respondents. Our neighbor to the south, Mexico, holds fast, garnering 14 percent of the planned new foreign facilities. Some 14 percent of the new foreign projects are also slated for Western Europe, up from just 9 percent of those planned by the 2008 Corporate Survey respondents, and there's increased interest in the Middle East (up from 3 percent last year to 6 percent of this year's planned projects) and Africa (up from 1 percent in 2008 to 4 percent for 2009).
Forty percent of the new foreign facilities will house manufacturing operations, and 21 percent will be warehouse/distribution facilities (Figure 18). It appears that the new foreign facilities planned by the respondents to our 24th Annual Corporate Survey will create more new jobs than the domestic ones: 40 percent of these new facilities will create more than 100 jobs (Figure 19).
Plans for expansion of existing facilities bear witness to the economic downturn as well. Sixty percent of the 2009 Corporate Survey respondents said they had no plans to expand existing facilities - up from 51 percent who made that statement in last year's survey (Figure 20). Just 27 percent all told had one- or two-year expansion plans, down from 38 percent last year. Of those with expansion plans, 84 percent said their expansions would create fewer than 100 jobs (Figure 21).
Relocation plans, on the other hand, are not much changed from last year: 20 percent of the 2009 Corporate Survey respondents plan to relocate a domestic facility within the new year or two (Figure 22). Of those with relocation plans, 58 percent cited a need to address operating/occupancy costs at their present location, and 22 percent said labor costs as well as the need for an "improved business climate" were among their reasons for planning a relocation (Figure 23).
Interestingly, plans to move operations either offshore or onshore seem to cancel each other out: just 3 percent of the 2009 Corporate Survey respondents said they expect to relocate a domestic facility offshore, with another 3 percent saying they expect to relocate a foreign facility back to the United States (Figure 24).
Now let's examine the site selection factors that determine how our readers make their location decisions.
Site Selection Priorities
Once again, we asked our survey-takers to rate the factors upon which they base their site and facility planning decisions as either "very important," "important," "minor consideration," or "of no importance." We then added the "very important" and "important" ratings together in order to rank the factors in order of priority. These ratings and rankings are shown in Figures 25 and 26.
The two factors - labor costs and highway accessibility - historically ranked on top remain in that position. This year, labor costs moved into first position from second last year, considered "very important" or "important" by 96.7 percent of the 2009 Corporate Survey respondents. In fact, labor costs showed the second-largest gain in importance among the site selection factors, increasing by 5.3 percentage points. Costs have become paramount during this recessionary period.
Nonetheless, highway accessibility takes the number-two spot, with 92.9 percent of the respondents to our 24th Annual Corporate Survey ranking this factor as either "very important" or "important." If a site does not have good infrastructure access for suppliers, customers, and employees, it will be eliminated from consideration.
Tax-related factors are also a top concern in the minds of our 2009 Corporate Survey respondents. Tax exemptions ranked third, considered "very important" or "important" by 88.4 percent of the 2009 Corporate Survey respondents; corporate tax rate itself placed fifth, with an 87 percent importance rating; and state and local incentives was ranked eighth, with an 84.9 percent importance rating. All of these factors remained in the top-10 rankings from last year.
When asked separately about the types of incentives they considered most important, half of the survey respondents cited tax incentives (Figure 27). And more than a third said incentives for land, utility-rate subsidies, infrastructure support, and the like were most important. However, only slightly more than half of the respondents to our 24th Annual Corporate Survey said they had actually received incentives in the past (Figure 28). We also asked our survey-takers if funding from the U.S. government's Stimulus Plan was affecting their site and facility plans, and nearly all (96 percent) said no (Figure 29).
Another cost-related factor - energy availability and costs - was ranked fourth this year, considered "very important" or "important" by 88 percent of the Corporate Survey respondents. In fact, when asked whether energy costs were affecting their facility plans, two-thirds of the respondents said they were affecting facility operations and/or supply/distribution network decisions (Figure 30).
Another energy-related question posed to our survey-takers was about sustainable development. More than 70 percent of the respondents said that sustainable development was more important now than in the past (Figure 31), and many of the respondents said they were taking steps to reduce their carbon footprint (Figure 32). In fact, the same percentage of respondents who have a heightened awareness of sustainability are making energy-saving modifications to their facilities (72 percent), and more than half the respondents are even recycling or re-using their facility's waste products. However, 68 percent of the respondents said that, unfortunately, communities were not offering specific incentives for "green" initiatives (Figure 33). Interestingly, though, 73 percent of the Corporate Survey respondents said pending cap-and-trade legislation was having no effect on their facility plans (Figure 34).
Availability of skilled labor is always high on the list of our survey respondents' site selection criteria and this year was no exception. This factor retained its sixth place ranking from 2008, receiving an 86.9 percent rating in importance from the 2009 Corporate Survey respondents.
Ranking seventh is another cost-related factor - occupancy or construction costs - although this factor actually fell from third position in 2008, with a 90.4 percent importance rating, to seventh place for 2009, with an 86.7 percent rating in importance. Stalled construction projects across the nation and the world have pushed construction and materials costs down, and this may account for the drop in this factor's ranking.
The site selection factor showing the greatest change in rating (+27.7 percent) and ranking overall is availability of advanced ICT services. This factor jumped from 21st place in 2008 with a 55.5 percent importance rating to ninth place this year, with 83.2 percent of the 2009 Corporate Survey respondents rating this factor as "very important" or "important." Last year, I described the low rating given this factor as an anomaly caused by the description of advanced ICT services as "T1, T3, or OC" - esoteric terms. In 2007 this factor was ranked 12th with an 82.2 percent importance rating; the 2009 rating returns this factor to its rightful place among the site selection criteria.
Rounding out the top-10 site selection factors is one that was just added to the list this year - inbound/outbound-shipping costs. Some 81.7 percent of the respondents to our 24th Annual Corporate Survey gave this factor a "very important" or "important" rating to rank it 10th among the factors. It comes as no surprise during this recessionary economic period that seven of the top-10 factors are cost-related.
The site selection factor showing the second-largest change (-7.4 percent) is availability of unskilled labor, which was ranked 22nd this year, only considered "very important" or "important" by 55.5 percent of the survey respondents; last year this factor was ranked 18th with a 62.9 percent rating in importance. With unemployment being at its highest level in decades, there's no shortage of unskilled labor to fill the number of dwindling positions actually available, and this situation is probably responsible for our respondents' decreased concern about this factor.
Among the quality-of-life factors, our 2009
Corporate Survey respondents ranked low crime rate as their top
priority. This factor has historically been ranked as the primary
quality-of-life consideration over our Corporate Survey's 24-year
history. Seventy-nine percent of the 2009 respondents rated this factor
as either "very important" or "important," and it was one of only two
quality-of-life factors to actually increase its importance rating.
Low crime rate was also rated more than 10 percent higher than the
second-ranked quality-of-life factor, heathcare facilities, which
declined 9.2 percentage points, receiving a 68.4 percent importance
rating from the 2009 Corporate Survey respondents. Nonetheless, this
factor's second-place finish among the respondents' quality-of-life
concerns is no surprise with the healthcare debate now before Congress
being front and center in the media and on the respondents' minds.
As a final location-factor question, we asked our survey-takers if they
consider whether there are businesses performing similar activities to
theirs in the search area. Slightly more than half of the 2009
Corporate Survey respondents said yes, and more than half said this
factor is very or somewhat important in their location decision (Figure
Just as our 2009 Corporate Survey results were being received (mid-October), the majority of economists were announcing that in their estimation the worse recession in decades was officially over, but the recovery was expected to be slow. A Conference Board report that the U.S. economic recovery was on track was further confirmed by late October government reports of a 3.5 percent pace of economic growth for the year's third quarter. In late December, the Commerce Department adjusted this figure to just 2.2 percent. Nevertheless, this ended four straight quarters of contracting economic activity - the first time that has happened in records dating back to 1947.
The federal government's cash-for-clunkers program had consumers heading out to trade in their gas-guzzlers and buy more fuel-efficient vehicles, and an $8,000 tax credit for first-time homebuyers put some zip back into the housing market. Spending on housing projects increased at an annualized rate of 23.4 percent, the largest jump since 1986.
Business also boosted spending on equipment and software at a 1.1 percent rate in the July-September 2009 period, representing the first increase in nearly two years. And as economies in Asia, Europe, and elsewhere began to improve, exports of U.S. goods soared to an annualized rate of 21.4 percent in the third quarter - the most since the final quarter of 1996. Now, with depleted inventories, businesses are expected to increase production.
"We are beginning to crawl out of a very deep hole," said economist Ken Mayland, president of ClearView Economics, at the end of October. "It will take time to get back to normal again and there are questions about how consumers will hold up in the months ahead. But I think the recovery will be sustained."
Will his prediction hold up? A true gauge of sustainable economic growth will be an uptick in hiring. As we go to press on this issue, there's encouraging news on the labor front: the unemployment rate edged back down to 10 percent in November from 10.2 percent in October. Employers also increased the hours of those who had not been laid off, putting more earnings in their pockets - all good news for consumer confidence and spending. Of course, it may take months to generate new jobs for the 15.4 million Americans officially out of work.
Federal Reserve Chairman Ben Bernanke warns that unemployment could remain high even as moderate economic growth continues. Yet, moderate growth is better than the negative growth we've experienced over the last two years; and it may be just what's needed to increase our corporate executive readers' plans for expansion and new facilities and, ultimately, job creation. If that holds true, next year's Corporate Survey results will be more positive than this year's for those who can hold on for the bumpy economic ride.