Our 2010 survey results were gathered and analyzed toward the end of last year's third quarter, which happened to be a good one for the economy. At that time, manufacturing activity, as measured by the Institute for Supply Management (ISM), registered 56.6, indicating steady growth. Americans' confidence in the economy also rose to a five-year high, and they started to open up their wallets, with consumer spending up 2.5 percent in last year's third quarter.
CEO's confidence increased in turn. Chief Executive magazine's CEO Confidence Index increased 14.7 points in late November 2010. Consequently, we see that business investment in equipment and software grew as well (at a 15 percent rate in 2010's third quarter), and companies began to hire. Jobs were added in 41 states last October, although we must admit that this was not enough to significantly reduce unemployment numbers.
So while the 2009 Corporate Survey results reflected the nation's economic downturn, we expected that the results of the 2010 Corporate Survey would validate the economy's return to growth, albeit at a slow pace. Let's look at these results now to see if they reflect the latest U.S. economic news.
The Respondents
Some 158 executives responded to our 2010 Corporate Survey. Of those, fully two-thirds are with manufacturing firms (Slideshow, Figure 1). More than 40 percent are the owners or highest-level executives of their firms (e.g., CEO, chairman, president), and another quarter are high-level corporate officers (e.g., vice president, treasurer) (Slideshow, Figure 2).
It follows, therefore, that 43 percent of the 2010 Corporate Survey respondents are responsible for their companies' final location decisions. More than half of the remaining respondents are involved in either the preliminary site selection decision or information gathering (Slideshow, Figure 3).
Forty-six percent of the corporate respondents operate five or more domestic facilities, while only slightly more than a quarter of these executives operate just one domestic facility. Nearly a third of the respondents say they operate foreign facilities. Of these, more than two-thirds claim to operate five or more foreign facilities (Slideshow, Figure 4).
When considering all their facilities worldwide, 30 percent of the respondents to our 2010 Corporate Survey say they employ 1,000 or more people. A similar percentage say they employ fewer than 100 individuals worldwide, and another third of the respondents say they employ between 100 and 499 workers (Slideshow, Figure 5).
More than 60 percent of the respondents report that their companies did not add or decrease their number of facilities over the 12-month period prior to the survey. However, 22 percent claim to have increased their number of facilities and 17 percent claim to have decreased their number of facilities over the aforementioned period (Slideshow, Figure 6).
Nearly 40 percent of the respondents who claim to have increased their number of facilities attribute those additions to growth in sales/production. More than 40 percent point to the need to serve new markets as a primary reason for adding facilities. When it comes to decreasing their number of facilities, 75 percent of those respondents who have done so over the 12-month period prior to the survey cite the need to consolidate facilities, with nearly 30 percent focusing on a need to lower operating and labor costs, and more than 20 percent pointing to decreased product sales (Slideshow, Figures 7 and 8).
Did the Great Recession affect our 2010 Corporate Survey respondents' facility plans? Interestingly, about 20 percent say "no" - they still plan to open new facilities and hire more workers. However, many of the respondents say "yes" - the Great Recession led them to seek new ways to optimize current facility layouts (33 percent); caused them to defer capital spending (30 percent); put new facility plans on hold (25 percent); and reduce current employment (22 percent) (Slideshow, Figure 9).
When asked about when they expected the economy to improve significantly, last year, 40 percent of the 2009 Corporate Survey respondents said they expected that to happen by 2011. Now, however, nearly 50 percent of our 2010 Corporate Survey respondents think the economy will not improve significantly until 2012, and nearly 40 percent have set the timeline for improvement back until 2013 (Slideshow, Figure 10).
The sluggish pace of economic recovery is reflected by the responses of this year's survey-takers. Let's now examine these respondents' plans for new and expanded facilities to see if they also reflect their longer-range outlook for economic improvement.
New and Expanded Facility
& Relocation Plans
Last year, 54 percent of the Corporate Survey respondents had no new facility plans; this year, that number is down to 43 percent - a significant improvement. Thirty-eight percent of the 2010 Corporate Survey respondents have one- to two-year new facility plans, with another 18 percent planning for new facilities over a longer time frame. In 2009, 34 percent of the Corporate Survey respondents had one- to two-year new facility plans and just 12 percent were planning for new facilities over the three- to four-year time frame (Slideshow, Figure 11).
Of those with plans, half only expect to open one new facility; a fifth have plans for two; and 15 percent say they will open five or more new facilities (Slideshow, Figure 12).
The 2010 Corporate Survey respondents say the Midwest region (Illinois, Indiana, Michigan, Ohio, and Wisconsin), which had seen a decline in new facilities activity over the last several years, will garner the greatest percentage of their new domestic facilities (14 percent). This region is closely followed by the Middle Atlantic (Delaware, Maryland, New Jersey, New York, and Pennsylvania) and South Atlantic (North Carolina, South Carolina, Virginia, and West Virginia) regions, each expected to see 13 percent of the new domestic facilities. The Mid-South (Arkansas, Kentucky, Missouri, and Tennessee), the Plains (Iowa, Kansas, Minnesota, Nebraska and the Dakotas), the Southwest (Arizona, New Mexico, Oklahoma, and Texas), and the West (California, Nevada, Oregon, and Washington) tied for 10 percent of the new domestic facilities apiece (Slideshow, Figure 13). The Plains, in fact, saw the greatest increase in interest: in 2009, only 4 percent of the projected new facilities were planned for that region.
About a third of the new facilities planned by the 2010 Corporate Survey respondents will house manufacturing operations and another 30 percent will be warehouse/distribution centers (Slideshow, Figure 14). These results aren't surprising, considering the respondent population, i.e., two-thirds are with manufacturing firms. Unfortunately, nearly half of these new facilities will create fewer than 20 new jobs. All told, 77 percent will create fewer than 100 jobs (Figure 15). Nonetheless, this is an improvement over last year, when more than 80 percent of the projected facilities were expected to create fewer than 100 jobs.
Once again, the majority of the 2010 Corporate Survey respondents' new foreign facilities are slated for Asia - 48 percent this year. Of these, about a third will go to China and nearly 30 percent to India. Overall plans for Asia are actually up from last year, when the 2009 respondents reported that 39 percent of their new facilities were planned for Asia. Nonetheless, half of those were planned for China and only 20 percent for India. It seems that this year, activity is moving to other Asian locales, perhaps in response to rising Chinese labor costs (Slideshow, Figures 16 and 16a).
Coming in at a distant second place, South America will garner 11 percent of the planned new facilities - up from just 6 percent reported in 2009.
And our neighbor to the north, Canada, is expected to garner 9 percent of our 2010 Corporate Survey respondents' new facilities - up from just 4 percent reported by the 2009 Corporate Survey respondents. A reduction in Canada's corporate tax rate to 16.5 percent on January 1 could account for this surge in interest.
Our neighbor to the south, Mexico, did not fare as well. Only 6 percent of the planned new foreign facilities are projected to go to Mexico - down from 14 percent and the second-place choice last year (along with Western Europe). Apparently, recent spates of violence in certain areas of Mexico have had an effect on our 2010 Corporate Survey respondents' new facility plans.
Only 8 percent of the 2010 corporate respondents' planned new foreign facilities are slated for Western Europe, a traditional favorite, also down from 14 percent last year. The financial crisis in Europe is most likely responsible for this decline in interest. However, projected new facility activity for Eastern Europe, as reported by the 2010 Corporate Survey respondents, jumps to 12 percent - up from 8 percent projected by the 2009 Corporate Survey respondents.
As with the planned new domestic facilities, about a third of the new foreign facilities planned by our 2010 corporate respondents will house manufacturing operations, and a quarter will be warehouse/distribution centers (Slideshow, Figure 18).
It's not surprising that the new foreign facilities will create more jobs than the new domestic facilities, i.e., manufacturing jobs are still being outsourced. Although more than 60 percent of the new foreign facilities will create fewer than 100 jobs, a quarter will be responsible for 100-499 new jobs, and 12 percent for the creation of between 500 and 1,000+ jobs - double the percentage represented by the new domestic facilities (Slideshow, Figure 19).
An improving economy is also reflected in our 2010 Corporate Survey respondents' facility expansion plans. Forty-one percent of the 2010 respondents say they will expand facilities over the next two years (Slideshow, Figure 20), as compared with only 27 percent who reported one- or two-year expansion plans in 2009. Nearly a quarter of the 2010 respondents claim these expansions will create 100 to 1,000+ jobs (Slideshow, Figure 21), as compared with only 15 percent of 2009's Corporate Survey respondents who projected such job creation to result from expansions.
Relocation activity is to remain consistent on a year-over-year basis: 21 percent of the 2010 Corporate Survey respondents expect to relocate a domestic facility in a year or two, similar to the results reported last year (Slideshow, Figure 22). Of those with plans, abut 40 percent say the relocation will result from a need to be in closer proximity to suppliers and/or markets served, approximately a fifth cite the need for an improved business climate, and 16 percent claim their relocation is based on lowering operating/occupancy costs (Slideshow, Figure 23).
Finally, despite sporadic reports of U.S. firms moving foreign operations back to the states, no significant onshoring or offshoring activity is reported by the 2010 Corporate Survey respondents. Just a mere 4 percent expect to relocate a domestic facility to an offshore location, and nearly all of the respondents (98 percent) with foreign facilities will not be relocating any of them back to the United States (Slideshow, Figure 24).
The Site Selection Factors
In order to evaluate the site selection factors on which our readers base their location and expansion decisions, we asked our survey-takers to rate these factors as either "very important," "important," "minor consideration," or "of no importance." As in years past, we then added the "very important" and "important" ratings together in order to rank the factors in order of importance. The factor ratings and rankings are shown in figures 25 and 26. This year, we also present a 25-year comparison of the ratings of the survey factors, which is shown in Figure 26a.
Over the course of our survey's 25-year history, highway accessibility and labor costs have invariably been the top-two ranked factors and this year is no different than past years. Highway accessibility is the number-one factor, considered "very important" or "important" by 97.3 percent of the 2010 Corporate Survey respondents. In other words, sites lacking good infrastructure access are automatically eliminated from consideration.
Labor costs follows in second place with a 91 percent importance rating. In general, labor costs are a company's largest operating expense. Nevertheless, this factor's importance rating actually declined by 5.7 percentage points from 2009. Persistently high unemployment rates may have allowed companies to keep wages in check, resulting in the decline in this factor's importance rating.
As in the past, three related tax factors made the 2010 Corporate Survey respondents' "top 10" - tax exemptions (ranking third with a 90.9 percent importance rating), state and local incentives (ranking fifth at 89.3 percent), and corporate tax rate (ranking sixth with an 86.3 percent importance rating). State and local incentives actually jumped three spots in the rankings - from eighth place in 2009 to the fifth spot this year, and its importance rating increased 4.4 percentage points. The onerous tax burden placed on U.S. companies always results in the tax factors being deemed a primary concern in the location and expansion decision process. If we look at the 25-year perspective, it appears these factors are receiving even greater scrutiny today than they did years ago.
Separately, we asked our survey-takers whether their firms had considered applying for U.S. government stimulus funds. Nearly four-fifths say they have not (Figure 30). However, more than 60 percent of the Corporate Survey respondents say their companies have received some sort of incentives, with the majority of respondents (58 percent) considering tax incentives, including credits and exemptions, the most important type (Slideshow, figures 31 and 32).
Occupancy and construction costs is the fourth-place factor, jumping from seventh place last year and receiving a combined 89.8 percent importance rating. Although overall construction costs did not increase in 2010, there was a mid-year spike in the cost of construction materials (lumber and steel, in particular), which may account for this factor's combined "very important" or "important" rating increasing 3.1 percentage points.
Availability of skilled labor is always of great importance to our corporate executive readers, and this year is no exception. Our 2010 Corporate Survey respondents ranked this factor seventh with a combined 85.9 percent importance rating. A look back reveals the consistency of this factor's importance over our survey's 25-year track.
Interestingly, availability of unskilled labor, which was ranked in the 23rd spot for 2010, showed the second-largest drop in importance among all the site selection factors - it was rated 45.4 percent in importance, a drop of 10.1 percentage points from 2009. Again, high unemployment rates have resulted in an expanded labor pool - many unskilled and some actually overqualified or skilled workers - from which companies can draw.
In the number-eight spot is inbound/outbound shipping costs, with an 84 percent importance rating. Rising fuel costs come into play here and influence distance from suppliers and markets served.
And energy availability and costs is ranked ninth, with 82.1 percent of the 2010 Corporate Survey respondents rating this factor as "very important" or "important." Surprisingly, this factor declined in importance by 5.9 percentage points in 2010, from an 88 percent importance rating and a fourth place ranking in 2009. This might be a reflection of the types of companies responding, i.e., perhaps not as energy-intensive. In fact, when asked about the impact of rising energy costs on facility plans, oddly enough, nearly half of the survey respondents say there is no impact (Slideshow, Figure 27).
Nonetheless, the factor showing the largest increase in its importance rating is railroad service. Although this factor still falls near the bottom of the list (ranked 25th), its importance rating increased 8.6 percentage points over last year, and it is now considered "very important" or "important" by more than a third of the survey respondents. Rising fuel costs may have also resulted in a new respect for railroad service.
Additionally, more than three quarters of the 2010 Corporate Survey respondents agree that sustainable development is more important now than in the past (Slideshow, Figure 28). Eighty-five percent of them are making energy-saving modifications to existing facilities; more than half are recycling or re-using waste products; and about a quarter are seeking LEED certification as well as changing their supply or distribution routes/methods (Figure 29). However, nearly 60 percent say that, unfortunately, communities are not offering incentives for green initiatives (Slideshow, Figure 33).
It should also be noted that the environmental regulations factor moved up five spots in the rankings, from 17th position in 2009 to the 12th spot this year, although its importance rating only increased by 3.6 percentage points to 74.8 percent. Its advancement in the rankings may also reflect the increased emphasis on sustainability measures.
Rounding out the top 10 site selection factors is availability of buildings, which received a combined 81 percent importance rating from the 2010 Corporate Survey respondents, up 5.3 percentage points from 2009, the second-largest increase among the site selection factors. The importance of this factor may be an indication that faster response to market demand is necessitating that companies get up and running quickly. In fact, nearly half of the Corporate Survey respondents say the existence of a shovel-ready or pre-certified site is also important (Slideshow, figures 34 and 35).
As in last year's survey, all of the other site selection factors (ranking lower than 10th) were rated as "very important" or " important" by less than 80 percent of the Corporate Survey respondents. But we should look at the factor showing the largest decrease in its importance rating - availability of advanced ICT services. This factor dropped 10.3 percentage points in importance, considered "very important" or "important" by 72.9 percent of the 2010 respondents and landing in 14th place, down from ninth in 2009 when it received an 83.2 percent rating. Perhaps company executives feel that most locations have adequately improved their ICT networks so that this factor now takes a backseat to others.
Finally, we asked our survey-takers if they consider whether there are businesses performing operations similar to theirs when site selecting, and 60 percent say "yes," with about half saying this is an important concern (Slideshow, Figure 36).
The quality-of-life factors are ranked separately from the other site selection factors. In 2009, none of the nine quality-of-life factors were rated higher in importance than the primary site selection factors. This year, however, low crime rate - which is historically ranked as the primary quality-of-life concern as borne out by our survey's 25-year record - received an 84.6 percent importance rating, which would actually place it eighth among the overall list of factors. It's no surprise that crime rates rise during an economic downturn and this reality is reflected in our 2010 Corporate Survey responses. All of the other quality-of-life factors would fall into the bottom half of the overall list of factors; i.e., quality of life only comes into play when other primary site selection needs have been satisfied.
Informational Resources
The respondents to our 2010 Corporate Survey say that their primary source of site selection information is site magazines like Area Development (86 percent claim to use these). About half also use general business and financial publications when considering facility locations (Slideshow, Figure 37).
Three quarters of the Corporate Survey respondents also use the Internet in their site and facility planning (Slideshow, Figure 38).
Interestingly, about two thirds of the respondents are looking for listings of available sites and buildings online, and more than half are seeking location-specific information, names of contacts at economic development agencies, and just general industry news (Slideshow, Figure 39). However, less than 30 percent of the respondents use the Internet to obtain this type of information on a daily or weekly basis (Slideshow, Figure 40).
This makes sense considering the fact that 68 percent of the Corporate Survey respondents say they start the information-gathering process one to two-plus years prior to making a location decision, and 40 percent of the respondents claim they only contact the locations of interest six months or more after initiating their search. Nearly all of the respondents (92 percent) put just one to five locations on their "short list," with 86 percent actually visiting between one and five of the finalist locations (Slideshow, Figures 41-44).
On a final note, only half of the respondents to our 2010 Corporate Survey use outside consultants when site selecting (Slideshow, Figure 45). The majority of those using consultants employ them to perform the real estate transaction (70 percent), conduct location studies/comparative analyses (64 percent), and engage in incentives comparisons and negotiations (Slideshow, Figure 46). Following this report are the results and analysis of our 2010 Consultants Survey. Since only half of our corporate respondents say they use consultants in the site selection process, we would expect the results of our Consultants Survey to differ somewhat from those of our 2010 Corporate Survey.
Economic Outlook
The results of our 2010 Corporate Survey indicate a more positive investment environment overall - plans for new facilities and facility expansions are up over last year. Recent economic reports also bear out our survey respondents' optimism. The ISM's index of manufacturing activity continued to rise in January 2011 for the 17th straight month, reaching 57 (50+ indicates growth).
"The ISM report shows that manufacturing activity is maintaining relatively strong growth momentum that is allowing the industry to recover from the devastating recession," said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI. "The Manufacturers Alliance/MAPI remains optimistic about the continuation of the industrial recovery and predicts that manufacturing production will increase 4 percent in 2011."
Additionally, with Congress' passage of the tax-cut bill in mid-December 2010 slashing wage earners' Social Security taxes and putting more money in their pockets, expect consumer spending to continue to rise.
The tax-cut bill is also expected to help businesses, large and small, to expand and hire. It gives businesses an incentive to invest in new equipment this year by allowing them to expense 100 percent of their capital expenditures in 2011. The bill also renews various tax breaks for specific industries, including renewable energy.
About 8.5 million jobs were lost in 2008 and 2009, and only one million have been added back since the recovery began in June 2009. As the economy grows and orders increase, employers will most certainly begin to hire and put a further dent in unemployment numbers.
As we were analyzing our 2010 Corporate Survey results at year's end, the Federal Reserve predicted the U.S. economy would expand by 3-3.6 percent in 2011. If this holds true, next year's results should indicate even greater facility location and expansion activity, as well as more job creation. In addition, there may well be a shift in site selection priorities to reflect better times ahead.
25th Annual Corporate Survey
The economy's gradual recovery during 2010 has resulted in increased business optimism, a rise in new facility plans, and some changes in site selection priorities.
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