7th Annual Consultants Survey
Surveyed consultants still selected labor costs as the top site selection factor.
Geraldine Gambale, Editor, Area Development Magazine (Winter 2011)

In order to gain a broader perspective of industry executives' facility plans and priorities, we once again asked the consultants who serve industry to tell us about their clients' site selection needs and what the future holds for these clients. As previously stated, only half of the respondents to our 2010 Corporate Survey claim to use outside consultants when site selecting. Therefore, we would expect the results of our 2010 Consultants Survey to differ somewhat from the results of our 2010 Corporate Survey. The following analysis points to the differences and similarities in the responses of the two groups.

Consultants' Clients
Although many of the 110 individuals responding to our Consultants Survey say they have worked with clients in varied manufacturing sectors, no more than 30 percent of the respondents have worked with any one particular industry. However, nearly half of the respondents have worked on projects in the logistics and distribution/warehouse sector, nearly a fifth with clients in the financial services industries, and 11 percent with those in the renewable energy sector (
Slideshow, Chart A), so we could expect their responses to be skewed to the needs of those particular facility clients. Of note, the financial services sector is only represented by 3 percent of the Corporate Survey respondents and the renewable energy sector by a mere 1 percent of the corporate respondents.

Nearly 40 percent of those responding to our Consultants Survey say they work primarily with mid-size (100-499 employees) firms (
Slideshow, Chart B). A third of our Corporate Survey respondents say their firms employ 100 to 499 workers; therefore, once again, we note that this will come to bear on the similarities and differences in the results of our two surveys.

The responding consultants claim they primarily perform location studies/comparative analyses (30 percent) and incentives comparisons and negotiations (25 percent) for their clients. Interestingly, more than a quarter also say they make the final site selection decision (
Slideshow, Chart C). Nevertheless, about a quarter also say that most of the clients who ask them to perform a location search have already gathered preliminary site data, and nearly 40 percent have narrowed down the geographic area in which they wish to locate before calling in the consultants (Slideshow, Chart D).

Although those responding to our Corporate Survey note the effects of the Great Recession on their plans, the responding consultants appear to feel even more strongly about the recession's effects on their clients' plans: 40 percent or more say their clients have put new facility plans on hold, closed or consolidated facilities, deferred capital spending, and are seeking ways to optimize current facilities and layouts (
Slideshow, Chart E).

The respondents to our Consultants Survey did tend to agree with those responding to our Corporate Survey when commenting on when they expect the economy to improve (
Slideshow, Chart F) - 44 percent of the consultants said by 2012 (similar to the 48 percent of the corporate respondents who made that claim), and 38 percent of the consultants said by 2013 (as compared with 37 percent of the corporate respondents who felt that way).

Clients' New Facility Plans
Only 38 percent of those responding to our 2010 Corporate Survey say they have plans for new facilities within the next year or two; 43 percent of the corporate respondents actually said they had no new facility plans. However, 80 percent of those responding to our Consultants Survey say their clients have one- to two-year new facility plans (
Slideshow, Chart G), up from 75 percent who made that claim in 2009. Needless to say, those without plans are not calling on the consultants so their responses only reflect those clients with plans; they also reflect the fact that their clients do not engage them until they are further along in the location process.

Additionally, nearly three quarters of the respondents to our Consultants Survey say their clients are only planning one new facility (
Slideshow, Chart H); about half of the Corporate Survey respondents who are planning new facilities over the next five years claim to be planning two or more.

The responding consultants' work is concentrated in the South Atlantic (North Carolina, South Carolina, Virginia, and West Virginia) and Midwest (Illinois, Indiana, Michigan, Ohio, and Wisconsin) regions, which are slated for 13 percent and 15 percent of their clients' new facilities, respectively (Slideshow, Chart I). These two regions are also receiving many of the corporate respondents' new facilities. The consultants' clients are planning about a quarter of their new domestic facilities as manufacturing plants and another quarter as warehouse or distribution centers (Slideshow, Chart J).

About a third of the foreign location projects the consultants are working on are slated for Asia (
Slideshow, Chart K), a choice reflected by nearly half of the respondents to our Corporate Survey. Of the consultants' clients' new Asian facilities, about a third will go to China, 16 percent to India, and another 16 percent to Singapore. Interestingly, the corporate respondents slate a third of their new Asian facilities for China, nearly 30 percent for India, and 17 percent for Singapore.

Those responding to our Consultants Survey are working on many more projects for Mexico and Canada (14 percent for each) than those responding to our Corporate Survey (just 6 percent for Mexico and 9 percent for Canada). Eastern Europe is a favorite for the consultants' clients who slate 10 percent of their new facilities for that part of the globe, similar to the 12 percent of the corporate respondents planning new facilities there.

Thirty-five percent of the new foreign facilities to be opened by the consultants' clients will be manufacturing plants and about fifth warehouse/distribution operations (
Slideshow, Chart L). This reflects the fact that more of the consultants' clients' manufacturing plants are going offshore than stateside, a conclusion not borne out by the responses to Corporate Survey. The results are also indicative of the industry mix of the consultants' clients, as well as the notion that consultants are utilized more on foreign than domestic location projects. Their expertise is more necessary and sought after when dealing with foreign governments and regulations than with U.S. governmental and other agencies.

Further validating this conclusion is the fact that 40 percent of the respondents to our 2010 Consultants Survey say they have seen an increase in the number of companies establishing foreign facilities as opposed to domestic ones over the last year (
Slideshow, Chart M). Nearly all of the respondents to our Corporate Survey (96 percent) said their companies did not intend to locate a domestic facility offshore.

Conversely, a quarter of the responding consultants claim their clients intend to locate a foreign facility back onshore, a somewhat complicated endeavor. Only 2 percent of the corporate respondents made such a claim. More than a third of the responding consultants cite rising foreign labor and transport costs as well as product quality issues as the primary reasons their clients are considering moving offshore facilities back to the states (
Slideshow, Chart N). A similar percentage say recent geopolitical events have actually caused their clients to avoid investment in specific areas of the word (Slideshow, Chart O).

Consultants' Site Selection Priorities
The 2010 Consultants Survey takers were asked to rate the same site selection and quality-of-life factors presented to the Corporate Survey takers as "very important," "important," "minor consideration," or "of no importance" to their clients. The consultants' rankings are similar in some respects to those of the corporate respondents. In fact, nine of the top 10 factors are the same on both the corporate respondent and consultant respondent lists, albeit in slightly different orders (
Slideshow, Chart P). Let's take a look:

The responding consultants rank labor costs as the number-one site selection factor, considered "very important" or "important" by 96.8 percent of the respondents. Labor costs placed second in the Corporate Survey.

Also with a 96.8 percent importance rating and tied for the number-one spot in the Consultants Survey is state and local incentives - not surprising since incentives comparisons/negotiations are one of the consultants' primary jobs. Our corporate respondents only placed this factor in fifth position with an 89.3 percent importance rating.

More than half of the responding consultants say incentives are more important to their clients now than in the past (
Slideshow, Chart V); nearly half believe tax incentives along with other financial incentives (grants, loans, and the like) are the most important types of incentives (Slideshow, Chart W); nearly half also say that more communities are instituting investment and/or job creation criteria that must be met in order for their clients to receive the incentives (Slideshow, Chart X); and 40 percent say incentive closing funds are the factor they have found most deficient in their recent evaluations for location and expansion projects (Slideshow, Chart Y). Moreover, 45 percent of the respondents to our Consultants Survey say their clients have not considered applying for U.S. government stimulus funds Slideshow, (Chart U).

It follows that two other tax-related factors placed among the consultants' top 10: tax exemptions was ranked seventh, with an 88.4 percent importance rating, and corporate tax rate is in the ninth place spot, with an 86.4 percent importance rating. The respondents to our Corporate Survey ranked these factors slightly higher.

Although the respondents to our Corporate Survey ranked highway accessibility as the most important site selection factor, it is ranked third by the responding consultants, considered "very important" or "important" by 95.8 percent of the respondents. Once again, a site needs good infrastructure access in order to make a client's short list of potential locations.

Fourth on the consultants' list of priorities is availability of skilled labor, with a 92.6 percent importance rating. This factor was in seventh position on the corporate respondents' list. Having a work force with the required skill sets is always important. But, interestingly, the availability of unskilled labor factor showed the greatest change since 2009 in the consultants' ratings - dropping 14 percentage points in importance to 47.9 percent and ranking 24th this year among the factors. The same reasons accounting for its drop in importance in the Corporate Survey (down 10.1 percentage points) can be blamed here, i.e., high unemployment rates have made a large pool of unskilled workers readily available and, therefore, not as much of a site selection concern for consultants and their clients. This reasoning - as well as the industry mix of the responding consultants' clients - might also be behind the second-largest drop in importance among the factors: the right-to-work state factor dropped 9.9 percentage points to a 71.3 percent importance rating, and fell from 13th position in 2009 to 20th in the 2010 Consultants Survey - the greatest drop in the rankings among the site selection factors.

The responding consultants ranked energy availability and costs fifth among the factors with a 91.5 percent importance rating. Consultants appear to be more keenly aware of the volatility of energy costs than their corporate counterparts, who only gave this factor an 82.1 percent importance rating. Also, nearly half of the responding consultants say rising energy costs are impacting their clients' facility plans (
Slideshow, Chart Q). In fact, nearly four-fifths say sustainable development is more important to their clients now than in the past (Slideshow, Chart R). When it comes to measures to reduce a company's carbon footprint, 80 percent of the respondents to the Consultants Survey say their clients are making energy-saving modifications to their facilities, and more than 40 percent say their clients are seeking LEED certification for facilities, as well as recycling or re-using waste products (Slideshow, Chart S). Nearly 60 percent claim that the communities they are working with are offering their clients specific incentives for "green" initiatives (Slideshow, Chart T). Only 40 percent of the Corporate Survey respondents found this to be true.

Along with their awareness of the importance of energy costs, the consultants have placed proximity to major markets in the sixth spot, with 90.5 percent of the responding consultants considering this factor as "very important" or "important." And proximity to suppliers, although ranked just 15th, showed the largest percentage increase among the site selection factors - jumping 8.9 percentage points to a 79.8 percent importance rating. Additionally, the consultants agree with the corporate respondents regarding the increasing importance of railroad service, which showed the second-largest increase in importance - 8.7 percentage points - and is considered "very important" or "important" by 46.8 percent of the responding consultants.

Occupancy and construction costs is ranked eighth by the consultants, considered "very important" or "important" by 88.3 percent of the respondents. This is similar to the importance rating given this factor by the corporate respondents, although it ranked higher (fourth) on their list of site selection factors.

Rounding out the consultants' top 10 is availability of buildings with an 86.3 percent importance rating, up 8.4 percentage points, the third-highest increase in the consultants' ratings, and jumping ahead seven spots in the rankings from 2009, the largest jump in the consultants' rankings overall. The consultants' view of this factor is in sync with that of our corporate respondents, who also ranked this factor in tenth position. Both groups recognize the need to get projects up and running quickly in response to quickly changing market conditions. In fact, more than 70 percent of the responding consultants say the existence of a shovel-ready or pre-certified site is very or somewhat important in their clients' site search (Chart AA). Finally, we asked those taking our 2010 Consultants Survey if their clients consider whether there are businesses performing similar activities to theirs in the area of search. More than 80 percent said this was the case and that this is an important concern (Chart BB).

When it comes to the quality-of-life factors - which are ranked separately from the other site selection factors - the corporate and consultant respondents agree: low crime rate is the number-one factor, with a 75 percent importance rating in the Consultants Survey. Similarly, both groups ranked recreational opportunities last among the quality-of-life factors, with the consultants giving it a 43.7 percent importance rating. Again, in tough economic times, recreational needs are put aside.

Consultants' Sources of Information
Just like our Corporate Survey respondents, 85 percent of those responding to our Consultants Survey say they use site magazines like Area Development as a source of site selection information. Nearly half also use general business magazines, and slightly more than half use financial publications for this purpose (
Slideshow, Chart CC).

Nearly all of the consultants say they use the Internet for site and facility planning, with more than 80 percent using that resource for information on specific locations as well as to obtain contact names at economic development agencies, while three quarters of the respondents seek listings of available buildings and sites online (
Slideshow, Charts DD and EE).

More than 60 percent of the respondents to our Consultants Survey search the Internet daily for the above information, and half the respondents contact the locations of interest within a month of their initial search (
Slideshow, Charts FF and GG). That's double the percentage of corporate respondents contacting the locations of interest within a one-month time frame, which would again indicate that the consultants are called in more toward the end of their clients' site search process.

Nearly 90 percent of those responding to our Consultants Survey say between one and five locations make their clients' short list and a similar percentage claim to visit the same number of locations (
Slideshow, Charts HH and II). The corporate and consultant respondents can at least agree on these last two points.

Summing Up
As previously stated, only half of those responding to our Corporate Survey utilize the services of consultants. In addition, the responses to our Consultants Survey seem to indicate that those corporate executives who are utilizing the services of a consultant are in an active facility planning position, while many of those responding to our Corporate Survey still say they have no new facility or expansion plans - although the numbers have improved since 2009.

Over their respective 25-year and seven-year histories, Area Development's Corporate Survey and Consultants Survey have been a barometer for the industry and we trust the same holds true this year. The remarkable consistency with which our respondents rate and rank the site selection factors leads us to trust the validity of the results. This year, the results of both our surveys reflect renewed optimism for economic recovery and increased plans for growth over last year, albeit at a sputtering pace. We expect next year's results to bear out these conclusions.

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