Area Development
Organizations have faced many challenges over the last two years that have impacted them in various ways, including how business location decisions are made. Disrupting trends include supply chain challenges, COVID restrictions, currency volatility, political tensions and instability, ESG (environmental, social, and governance) legislation changes, and many others that are making manufacturers rethink the locations of their production and distribution facilities. {{RELATEDLINKS}}

At EY, we support clients globally in site selection decisions, and we’re witnessing trends previously seen in Europe and Asia now impacting the Canadian market.

Key issues most manufacturers across various sectors face this year include:

• Economic security (de-globalization): The 2020s will look different than the past three decades, which saw the rise of globalization. We expect the post-pandemic political climate will see countries looking to ensure capacity is available at home.

Today we’re seeing rising oil and gas prices and anticipate continued shortages of critical materials. Countries and companies are increasingly focusing on becoming more self-sustainable. As such, there is a need for land availability to accommodate these facilities — a situation that offers Canadian jurisdictions a unique opportunity to compete.

We already see early results of the increase in competition. Canadian jurisdictions at all levels are ramping up their capabilities in attracting foreign direct investment and economic development.

Just 5 to 10 years back, economic development departments in municipalities and provincial ministries were fairly small and mostly focused on marketing activities. Today there is a clear evolution of economic development departments. Organizations are targeting to better understand investors’ needs and the competitive market and are collaborating with investors for smooth and seamless localization experiences. Invest Ontario is a great example of the evolving role economic development agencies will play in Canada. Ontario is already a top-tier destination for investment and strategic business growth. The new agency will drive greater economic growth, support strategic domestic firms, and attract business from around the world. Invest Ontario is focusing on three strategic sectors where the province has a global competitive advantage — advanced manufacturing, life sciences, and technology — all while moving at the speed of business. Similar organizations are already established in other provinces — including Québec, British Columbia, and Alberta — as well as in some regions and municipalities.

We expect the post-pandemic political climate will see countries looking to ensure capacity is available at home. • Supply chain disruptions: Supply chain issues daunted North American producers over the last two years. To mitigate the risk of future supply chain concerns from overseas locations, organizations are looking to reshore/near-shore some services in North America to secure a more consistent supply closer to home.

Warehouse and industrial supply are at record lows as companies increase their inventory holdings. More companies are now considering decentralized and regional strategies to be more responsive to future supply chain shocks. Specific actions result in expanding companies’ footprints by buying or leasing additional land for storage facilities or potential production expansion. We’re witnessing similar activities across different sectors, including agricultural, food production, battery supply, and others.

• Tax and incentives trends:
The tax landscape keeps evolving. As government incentives and spending from the pandemic wind down, companies will need to consider how these changes — along with changes in tax legislation, the deductibility of certain expenditures, and taxes on greenhouse gas emissions — will impact how they are investing in their businesses.

Corporate tax rates, as well as the availability of tax incentives to encourage investment in different regions and in new, efficient, and clean technology will impact where and how companies will invest in their facilities. Low- or zero-interest loan incentives and cash grants, in particular, will play an increasingly important role in improving cash flow and business growth given the increased cost of borrowing.

At the federal level, several measures have been introduced to encourage investment in clean technology, particularly in the manufacturing space, to help the government meet its clean-energy objectives. Some recent examples include: