Economic factors and local government incentives have always played an important role in influencing companies’ site selection processes. But the most successful efforts — where a new corporate citizen becomes a valuable addition to a productive and welcoming community — are those in which both economic development and community development factors are balanced and integrated.
When companies seek out new communities in which to expand or relocate facilities, a range of both qualitative and quantitative factors are part of their site selection decision. Quantitative factors include the basics such as highway, rail, air, or port access; energy availability and costs; and the presence of an adequate and appropriately skilled workforce. These basics — the required elements for doing business — are often augmented by various state and local incentives such as tax credits and exemptions or favorable financing arrangements.
Qualitative factors, on the other hand, include such features as a low crime rate, good healthcare facilities, varied and affordable housing, and other quality-of-life considerations such as strong local schools and inviting recreational and cultural amenities. Such qualitative factors — by definition — are difficult to measure and quantify, and they are more likely to reflect relocating executives’ personal preferences and subjective judgment.
...an executive with a location decision to make should look beyond the attractive presentations and be alert to less obvious evidence of close cooperation between economic and community development groups.
Community Development Drives Economic Development
While local governments and business groups often work hard to sweeten the quantitative factors that drive relocation decisions, companies that are expanding or relocating are beginning to pay increasingly close attention to qualitative factors. This shift in emphasis was illustrated very clearly in Area Development’s 28th annual Corporate Survey.
The vast majority of the survey respondents are instrumental in their companies’ relocation or expansion decisions — more than 80 percent of them make either the final decision or a preliminary recommendation. These influential executives were asked to rank the importance of dozens of issues that affect their location decisions. While the comparative rankings of various issues’ importance are naturally of interest, one particularly striking feature is the growing importance that is given to qualitative issues in general.
Of the nine quality-of-life factors that were suggested, all were cited as either “important” or “very important” by more than half of the 2013 survey respondents. Even more remarkable is the rapid growth in importance of most of these quality-of-life factors. For example, when compared with the 2012 responses, all but one of the qualitative factors jumped in importance — in some instances by 10 percentage points or more in just a year. Local healthcare facilities, public schools, and recreational opportunities scored particularly dramatic increases in importance.
These sharp increases suggest there’s more going on here than merely a shift in the personal preferences of the executives being surveyed. Such an abrupt jump in the importance of almost all of the quality-of-life factors suggests that a growing number of companies are recognizing the powerful effects such qualitative issues can have on their employees — and ultimately on their companies’ operational and financial performance.
Source: Area Development's 28th annual Corporate Survey. All figures are percentages and are the total of "very important" and "important" ratings in the survey and are rounded to nearest whole number.
The Importance of Human Capital
A somewhat similar shift can be seen in the ranking of quantitative issues. The number-one quantitative issue cited by survey respondents in 2013 was the availability of skilled labor. Just one year earlier skilled labor availability was ranked third, after highway access and labor costs. The number of survey participants who cited skilled labor availability as either “important” or “very important” jumped more than five percentage points — from 89.4 percent to 95.1 percent — in a single year.
Although the availability of skilled labor is considered a “quantitative” factor, it is in many ways closely related to many of the leading qualitative issues, particularly educational factors. After all, most of the qualitative factors that make a community an attractive site for corporate relocation and expansion also make it an attractive place for skilled workers to move. This is a good example of the close interrelationship between quantitative and qualitative factors.
In many ways, human capital can be as important as financial capital when considering a community for a planned relocation or expansion. The best quantitative factors — including generous incentive packages — cannot turn a poor choice into a good one. Factors such as a good educational system, low crime, economic vitality and diversity, and the ability to respond to economic downturns or other challenges generally will equal or outweigh targeted incentives.
Community and Economic Development: An Integrated Approach
People are the fabric of any community. The goal of community development is to improve the quality of life and promote sustainable human development in such areas as health, education, social integration, environment, and social culture. The healthiest communities are those with a mix of incomes and development activities that can offset each other during economic swings.
While tax incentives, grants, transportation access, and other “hard” factors always will be critical in a location decision, qualitative issues seem to play an ever-growing role in attracting the types of companies communities want most.
Executives responsible for recommending a location need to recognize and objectively analyze such intangibles. One important feature they should look for is an integrated approach to community and economic development — a community in which the intersection between economic development strategies and community development programs is virtually seamless. If community stakeholders — such as social welfare organizations, charities, the healthcare professions, and neighborhood associations — are not also involved in and committed to economic development efforts, it can be difficult for a relocating business to generate the community support that is needed. You can’t have one without the other.
At the same time, the economic development team should reach out to community organizations for other reasons. Not only does the economic team need to garner community support, it also should identify unmet needs that business developers can address in order to contribute to the overall cultural and social vitality and long-term sustainability of the community.
Every economic development office or chamber of commerce is going to do its best to present a positive picture of a community, including a positive indication of community support. So an executive with a location decision to make should look beyond the attractive presentations and be alert to less obvious evidence of close cooperation between economic and community development groups. For example, in addition to meeting with a broad cross section of the community — not just the business development organization — it is important to also look for evidence that there is an organized effort to integrate community and economic development — an effort that includes measurable benchmarks.
One especially important component of an integrated economic and community development approach is the community’s strategic plan. In years past, federal financial support encouraged many states and localities to develop comprehensive strategic plans. That momentum has slowed somewhat in recent years, leading many localities to assign a lower priority to actively developing or maintaining their community strategic plans.
While the absence of a structured community strategic plan might not be a firm “deal killer,” most large organizations will regard such an absence as a major concern. Likewise, most relocation consultants will be hesitant to recommend a locality that doesn’t have in place a strategic plan that defines where it wants to be in the future.
Beyond confirming the actual existence of a community strategic plan, companies should also verify that the plan is active and effective and is not just gathering dust in a bookcase in the business development organization’s headquarters. Look for signs that the document is actively used in the organization’s ongoing mission.
The Community Strategic Plan: Key Components
In terms of content, a community strategic plan should address communitywide issues, not just economic development. These include major qualitative issues such as schools, employment, crime, homelessness, and community infrastructure.
Several years ago, the American Planning Association issued a Planning Advisory Service Report — “An Economic Development Toolbox: Strategies and Methods” http://www.planning.org/eda/toolkit/ — which described a number of strategies local governments can use, either alone or with other institutions, to carry out their economic development vision. The report organizes these strategies into the following groups:
- Coordination of economic development programs and support services
- Business development
- Development incentives and financing
- Business attraction and retention
- Workforce education and training
- Land supply analysis for business growth
- Infrastructure investment
- Investment in quality-of-life factors conducive to business innovation
It’s noteworthy that coordination between economic development and support services topped the list, with business-oriented quality-of-life factors serving as the other “bookend.” These strategies can serve as a starting point checklist when reviewing a community’s strategic plan. Depending on community size and circumstances, the list could be condensed into four main components:
- Workforce development
- Business retention
- Business attraction
- Integration with community development
In addition to these components, one more element should be included in the strategic plan — a strategy for organizational sustainability for the economic development organization itself. Those responsible for the location decision should make sure the development organization has a strategy for its own long-term success, so it will be there for the company down the road when further support might be needed.
While tax incentives, grants, transportation access, and other “hard” factors always will be critical in a location decision, qualitative issues seem to play an ever-growing role in attracting the types of companies communities want most. Those executives who are charged with making or influencing site selection decisions should recognize this trend and look for tangible evidence that the communities they are considering are taking an integrated approach to community development — an approach in which business, social, and community organizations operate from a shared vision and a shared set of goals and priorities.