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Area Development

First Person: Charles "Chuck" Pawlak

Apr/May 08
Has the desire to build new high-tech facilities grown over the past few years? Why or why not?
Pawlak: In the last few years, there has been a significant uptick in high-tech facility siting and construction. This is driven by several factors: continued growth of some sectors (e.g., biotech), the need for more complex and dense data centers, and the worldwide clamor for alternative energy sources. Most of the emerging technologies require complex facilities, including clean rooms, and the newest style data centers are essentially built like semiconductor fabs, without the process systems; this sector is growing exponentially. Finally, the solar business, which got its start in Europe, is growing worldwide, with a current focus on the United States. These solar (or photovoltaics) plants are high-tech in nature and proliferating.

How does site selection for high-tech facilities differ from manufacturing or other facilities?
Pawlak: Every company has the same risk reward costs, but those costs can be much larger with high-tech facilities. Since there's less history in their industry, high-tech companies are often blazing the path - not following the path. And when they are looking at site selection, they have a lot more things to consider. An industry like pharmaceuticals, for example, where there are all kinds of issues with chemicals and gases, may have worries that lighter manufacturers don't have. So the number of criteria expands significantly in the high-tech sector.

What are some additional requirements site selectors need to keep in mind when siting a high-tech facility?
Pawlak: If you are trying to run or operate a facility that has a clean room, for instance, you have far more angst over its infrastructure requirements than you do if you are a lighter manufacturer. For example, some semiconductor facilities and photovoltaic facilities are huge users of water. That might eliminate a lot of locations, whereas other types of industry wouldn't even worry about these criteria. These facilities also use significant amounts of power. So some of the infrastructure support requirements are more complicated and more important than for other industries.
Additionally, building a clean room is incredibly expensive, and the property tax bill for a company can be almost as much as the cost of labor. There's just a host of important and complex factors that need to be analyzed.

What are some of the current trends you see in siting plants that make parts for photovoltaics (PV)?
Pawlak: The siting factors mirror the incentives. These plants are huge users of power, so low-cost, reliable power is key. They are capital-intensive; therefore, any assistance with financing and tax structure is important. With alternative energy being in vogue, PV companies are trying to get to market quickly, so "shovel ready" sites - or other means to reduce the permitting and approval process - are valuable. Since overall cost is always critical, lower-cost locations have an advantage.

Do you see these trends continuing?
Pawlak: Yes, these high-tech industries are growing at significant rates, and most are in the early stages of worldwide proliferation; there is considerable upside for the foreseeable future.

What are some specific incentives that high-tech companies might expect to receive when locating a plant in the United States?
Pawlak: Incentives are typically expected to cover four areas: cost/tax reduction, utility rate reductions, streamlined permitting and approvals, and human resource assistance. Some states are more aggressive than others in the cost/tax arena and, often, this can be the deciding factor for a location decision. All of these high-tech sectors are capital-intensive, time-to-market sensitive, and utility "rich." Therefore, these types of incentives are paramount to these companies.

Where are the more popular spots for high-tech plants to be located in the United States? Is one U.S. region more attractive than another?
Pawlak: Any region of the country is viable if it can meet the key siting factors that I mentioned. Also, most of these industries prefer low natural risk locations, and some require reasonable proximity to their customers.

How is international site selection different from domestic site selection?
Pawlak: Companies go overseas because they are attracted to less expensive labor and the tax concessions that international governments offer that the United States cannot. Because U.S. companies will hire people in the foreign country, and use local suppliers and vendors, many international governments will bend over backwards to get a U.S. company located in their region. For instance, U.S. companies might be able to receive a tax holiday for the first 10 years of operation, let's say, and then bring in a new technology and start the 10 years all over again!

Do foreign countries also offer outright grants to U.S. companies to locate on their soil?
Pawlak: International governments often grant start-up money. They can say, for instance, `We are going to give you a $100 million grant up front to start up your business, and you never have to give it back. We just need a commitment that you'll hire so many people and generate so many products.' So there are commitments on both sides.

What are some of the challenges in choosing to site a company in a foreign country?
Pawlak: Going overseas involves a risk/reward analysis because there are potentially many negatives you have to guard against, depending on the country. The reward can be a considerably lower cost structure. The risk side, however, involves asking, `Can we get up operationally and productively as quickly as we could in the U.S. or another developed country, such as in Europe?' More importantly, does the country have the right kind of laws and protections in place to make sure intellectual property is protected? Companies also need to be aware of the safety of their people and products and the accessibility of vendors and suppliers. Can local vendors serve your new industry? If not, you will have to bring it all with you, which can be very expensive.

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