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Bigger Is Not Always Better: Finding the Right Community for a Business Location

Companies seeking to lower their operating costs and grow their businesses may find the grass is greener outside of urban areas

Spring 2011
Companies stuck in survival mode - or any business that wants to better position itself for growth - may find greener pastures if they make a move out of the city. Abundant and skilled labor, lower operating costs, and lower taxes available in many smaller cities or rural communities throughout the country may be just what a company needs to turn its situation around and improve profitability.

The migration from urban to small-town America may be most appealing for cash-strapped industrial companies; relocating even a portion of operations to a lower-wage location can help to infuse much-needed funds back into the business. Smaller communities may also be more apt to offer incentives, from cash grants to infrastructure improvements, in order to attract new and growing companies that will bring jobs to their areas. Unlike a large urban center that is likely to have several major employers, rural communities see prospective employers as an investment in their economic future and will often be more supportive of business needs.

Going Rural
Relocating from an urban to a rural community or second- or third-tier city in any state will likely lower a company's operating costs; however, further savings may be gained by making a move to different state that may have a better tax scenario or government leadership that is more pro-business.

When an 80-year old manufacturing company located in Minneapolis sought to relocate in order to lower its taxes and cut its operating expenses, a rural community in Oklahoma stepped up to lure the company and its 100 jobs. Chickasha, with a population of 17,000, not only met the business' needs for a qualified, affordable work force and better tax environment, its community leaders were willing to provide a brand new facility built to spec to sweeten the pot.

Often, a community will make an additional investment if it believes the company will be a good employer and an integral part of the community for years to come. Now, the company estimates it will save $75,000 to $100,000 per month just by moving its operation to Oklahoma.

Apogee Retail, a nonprofit organization that works with charitable organizations to collect and sell secondhand clothing and household items, experienced a similar pull to a small community when it sought to consolidate its three call centers that were scattered around the United States in one central location.

Apogee evaluated more than 120 communities, big and small, throughout the nation before settling on Columbus, Nebraska, about 69 miles from Omaha with a population of 22,000. In addition to a highly skilled work force, the Columbus community presented an attractive incentive package to complete the deal, including a 40,000-square-foot call center facility with a subsidized lease rate.

The Columbus Economic Council, eager to land Apogee and the 500 jobs that it would bring to the community, was also impressed with Apogee's track record as a good employer and its priority to hire and train individuals with disabilities. "As employer of customer service and call center jobs, Apogee provides a balance to the area's mix of manufacturing companies - putting individuals with skills outside of manufacturing to work," said David Bell, co-chair of the Columbus Economic Council "We were willing to help with some of Apogee's upfront costs as we recognized the company would be a valuable addition to the Columbus community."

It is an investment that continues to pay off for both parties. Apogee, which was able to reduce its infrastructure and labor costs by moving to Columbus, now employs 600 people and was recently recognized by the state for its commitment to hiring individuals who are disabled.

Opting for Second-Tier Cities
When deciding where to relocate or establish a business, it comes down to where the company can operate in the most effective and efficient manner. While relocating from an urban to a rural community will almost always lower a company's operating costs, it doesn't necessarily mean that a second- or third-tier city won't also fit the bill. This was the case with Danfoss Turbocor's relocation from Montreal to Tallahassee, Florida, in 2006.

When the maker of magnetic compressors sought to move its operations to a community closer to its U.S. client base, Tallahassee beat out other larger urban areas by helping the company to save 20 percent on infrastructure costs, obtain a new 110,000-square-foot facility, and receive incentive grants totaling $7 million.

While Tallahassee boasts a population of 272,000, it is considered a second-tier city and an "urban island" surrounded by rural communities. As one city within one county, Tallahassee boasts that it can offer potential businesses a "one-stop shop" for economic development with joint planning between both entities. This flexibility and the community's ability to unite both its public and private sectors in partnership played a pivotal role in fulfilling Danfoss' unique needs.

To help meet Danfoss' goal to employ up to 150 skilled workers in three years, the president of a local community college pledged to help identify and train potential workers. When a new training facility was needed, it was a private partnership that delivered a building and made the necessary improvements before leasing it back to the college.

According to Beth Kirkland, executive director of the Economic Development Council of Tallahassee/ Leon County, Inc., "Our relationship with Danfoss provided a model for the future, demonstrating how collaboration to support business can have a long-term impact on the greater community." Kirkland explains that since Danfoss located in Tallahassee there has been a ripple effect on the community, resulting in spin-off business activity and new companies associated with Danfoss locating to Tallahassee.

The "best-sized" community for any business is one where the company can optimize its financial, labor, and productivity investment; however, some reasons to consider going small include:

  • Lower taxes: Relocating to a state with overall lower taxes is a company's best bet to realize the largest savings; however, smaller communities within the lower-taxed states may provide additional savings. Typically, the larger the city, the more likely it is a company will incur additional taxes that are needed in a major city to support all of the amenities.

  • Lower operating costs: Considering that labor is likely a company's biggest expense, moving production to an outlying community that has a lower cost of living - and, therefore, lower working wage - allows the company to dramatically reduce labor costs. In addition, lower infrastructure cost made possible by the lower cost of property in small or rural communities is one of the biggest contributors helping a company reduce operating costs.

  • Best of both worlds: Some communities offer businesses the opportunity to leverage the advantages of being near a metro area, yet still experience the benefits of being "a big fish in a small pond." By locating to a smaller community in close proximity to a larger city, companies can access the amenities and resources of the larger city, while benefiting from lower operating costs and the opportunity to be an employer of choice. With lower employee turnover and high-quality employees, the company will save even more money in the long run considering the reduced cost of hiring and training.

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