|By Gambale, Geraldine|
The results of our survey show a modest improvement in short-range new facility and expansion plans, as well as a realignment of site selection priorities with the availability of skilled labor being the number-one concern.
The economic tide finally appears to have turned. Real GDP growth increased at an annual rate of 3.2 percent ir the fourth quarter of 2013, i.e., from the third to fourth quarter, according to the
Year-end news on the manufacturing front was also very encouraging. The
U.S. consumer confidence also rebounded in December, said
In order to find out if the corporate executives who read
The Corporate Survey Respondents
All told, 240 individuals responded to our 28th annual
It follows that 45 percent of the respondents make their firms' final location decisions, while 36 percent give a preliminary recommendation (Figure 3). Sixty percent claim that the primary player in their companies' location decisions is executive management, but 18 percent say their companies' real estate departments are significantly involved (Figure 4).
Interestingly, the same percentage say their firms operate just one domestic facility as five or more domestic facilities - 37 percent in each case. When it comes to foreign facilities, 39 percent of the respondents say they operate just one, while 43 percent indicate their companies operate five or more (Figure 5).
Nearly half of the respondents (47 percent) report their companies employ fewer than 100 people, but nearly a third (31 percent) employ 500 or more workers (Figure 6).
The majority (60 percent) experienced no change in the number of their companies'facilities over the 12month period prior to the survey. However, 31 percent did increase their number of facilities (Figure 7) - up from 29 percent who made that claim when taking the 27th annual
On another positive note, when asked about the effect of the slow economic recovery on their facility plans, 20 percent of the respondents to our 28th annual
Projections for New Facilities/Expansion/ Relocation
When asked specifically about their timeline for opening new facilities, 45 percent of the respondents say they expect to open new facilities within a year or two (Figure 12) - up from 39 percent who had short-range new facility plans in 2012. Flowever, when it comes to the number of new U.S. facilities to be opened, this year's
The overall locations slated for new U.S. facilities, however, have not changed significantly. Once again the South (
Manufacturing and warehouse/distribution facilities represent about a quarter each of the new domestic projects (Figure 15). Nevertheless, two thirds of the
About half of the respondents to the 28th annual
Importantly, plans for
One third of the planned new foreign facilities will house manufacturing operations and about a fifth will be warehouse/distribution centers (Figure 21). Interestingly, 30 percent of the new foreign facilities will house data center, back office, or shared services operations, as compared with just 19 percent comprising those categories on the domestic side. Also, the
What is preventing the respondents' firms from investing more money in U.S. facilities? Nearly two-thirds cite
The short-term expansion plans of the respondents to our 28th annual
Additionally, 60 percent say their expansions will create fewer than 20 jobs (Figure 25), while only 49 percent made that claim in 2012.
Similar to the 2012 results, 21 percent of the 2013
Nevertheless, only 7 percent expect to relocate a domestic facility offshore. And, although the news is full of reports of U.S. manufacturers reshoring operations, just 3 percent of this year's
Factors in the Location Decision
When planning for new facilities, expansion, and/or relocation, those charged with making the decisions take numerous site selection and quality-oflife factors into consideration. As in years past, we asked the
Historically, highway accessibility and labor costs have ranked as the top factors in our
This is confirmed by the fact that more than 70 percent of the survey respondents say high unemployment rates are not making it easier for them to find the labor they need. More than 70 percent also say the unemployed are primarily lacking advanced skills, e.g., machine tool programming, advanced welding, etc. (figures 33 and 34).
Additionally, half of the
Of course, highway accessibility and labor costs are still paramount in the location decision; these factors are ranked 2nd and 3rd, respectively, considered "very important" or "important" by 93.5 percent and 90.8 percent of the survey respondents. The nation's aging infrastructure is, in fact, on everyone's mind. Bipartisan legislation was just introduced in
And labor costs are always a primary factor in location decisions. According to
The right-to-work state factor was, in fact, tied for 11th place in the rankings this year, considered "very important" or "important" by 80.6 percent of the
Among the top-10 site selection factors, one of two showing a five-position jump in the rankings is state and local incentives; this factor went from 13th in 2012 to 8th place in 2013's
In response to a related question about types of incentives, more than 70 percent of the survey respondents say they consider tax incentives most important when making a location decision (Figure 41), and two thirds say incentives are very or somewhat important to a project moving forward in a particular location (Figure 42). However, slightly fewer than half say they have actually received and utilized incentives in the past. Of those that have, about half only received a quarter or less of the incentives initially estimated value (Figure 43).
It should be noted that energy avail- ability and costs dropped from 6th to 10th position in the rankings, although this factor is still considered "very important" or "important" by more than 80 percent of the
Another site selection factor showing a five-position jump in the rankings, as well as the greatest percentage increase in importance overall, is available land. This factor jumped from 18th to 13th position but, more importantly, it increased an astounding 21.3 percentage points and is now considered "very important" or "important" by 80.3 percent of the
However, a deeper analysis of the importance of available land may be gleaned from a 2012 study of available land in the
In a related question, we asked our
It is interesting to examine some of the other factors that have shown large increases or decreases in their importance ratings. The factor showing the second-largest increase in importance - gaining 12.8 percentage points - is proximity to suppliers. Although this factor maintained its 19th position in the rankings, it is now considered "very important" or "important" by more than two thirds of the
Availability of long-term financing showed the third-highest percentage increase in importance, jumping 11.7 percentage points and considered "very important" or "important" by nearly three quarters of the survey respondents, but just moving up one spot to 16th in the rankings. Businesses considering new facility or expansion projects need access to long-term financing in order to proceed with their projects without tying up their available resources.
Although the railroad service factor is usually ranked near the bottom of the list of site selection factors, this year it shows the largest decrease in the importance ratings - minus 14.2 percentage points and only considered "very important" or "important" by 29.4 percent of the
Quality-of-life factors are ranked separately from the other site selection factors. Nevertheless, only one quality-of- life factor would be rated among the top-10 factors overall - low crime rate, with a combined "very important" or "important" rating of 80.9 percent. This is historically the top-ranked quality-oflife factor, despite the fact that the U.S. crime rate has dropped over the last two decades.
Although rankings of the nine quality-of-life factors don't change dramatically from year to year, eight of the nine quality-of-life factors have actually seen their combined importance ratings increase. As the economy improves, there might be more focus on life outside the workplace. Additionally, the highly skilled workers need by today's advanced technology firms are more mobile and look for desirable places to live, as well as work (see article on "quality of place" in this issue). With that in mind, the quality-of-life factor showing the largest percentage increase in importance - up 13.5 percentage points with a combined "very important" or "important" rating of 66.4 percent - is recreational opportunities.
Also increasing nearly 10 percentage points are healthcare facilities and ratings of public schools. The increased importance of these two factors is no surprise considering the aging demographic of the current work force, as well as the pressing need for a qualified up-and-coming labor pool.
Related to quality of life is a loca- tion's weather patterns or climate. Recent devastating hurricanes and other weather-related disasters, as well as the bitter cold sweeping the nation this year, brings weather concerns to the forefront. Nearly half of the
Sources of Information and Project Timelines
More than 80 percent of the
While 62 percent of the respondents search the Internet for site and facility planning information, 83 percent claim social media, e.g.,
Forty-two percent of the survey respondents say they start the information-gathering process from three months to a year out, with nearly 60 percent making contact with the locations of interest from a month to three months later. An overwhelming majority (89 percent) put between one and five locations on their "short list," and about half will visit up to five of those finalist locations before making their site selection decision, while a third will just visit one or two. Generally, most location decisions are made within three months to a year of initial contact, say more than 80 percent of the respondents.
Nearly 60 percent of those responding to our 28th annual
The results of the 28th Annual
There's also been a realignment of site selection priorities, with the need for skilled labor being the most critical concern. A quarter of this year's respondents actually say this shortage is preventing them from spending more of their earnings on investment in U.S. facilities - up from 19 percent who cited that factor in 2012 in response to this question. And, the percentage blaming their reluctance to spend on the new healthcare regulations under the Affordable Care Act jumped from 39 percent to 52 percent now that the ACA went into effect.
"I doubt advocates of this legislation would have foretold the negative impact on employment," said
Despite these concerns, 52 percent of the
After the 18-month long Great Recession, which officially ended in
As in years past,
The Consultants Survey Respondents
Slightly more than half of those responding to our 10th annual
About three quarters of the responding consultants say they provide their clients with location studies/comparative analyses as well as help with the site selection decision. Their other primary role is incentives negotiation and management, as per 69 percent of the respondents (Chart B).
The responding consultants' clients are of varying sizes in terms of employment numbers. About a third say they work with companies having fewer than 100 employees, but 40 percent also say they work with firms that employ 1,000 or more people (Chart C).
The majority of respondents to our
Half of the respondents say that most of the clients who ask them to perform a location search have already gathered preliminary data and narrowed down the geographic area in which they wish to locate. Only 25 percent say their clients expect them to make the location decision on their behalf (Chart E).
When asked about the effects of the slow economic recovery on their clients' facility plans, the respondents to our
Clients' Projections for New Facilities/ Expansion/Relocation
A quarter of the respondents to our 10th annual
Of the total new domestic projects with which the responding consultants are involved, 17 percent are slated for the South (
Nearly 30 percent of the new domestic facility projects assisted by the responding consultants represent manufacturing plants, and just less than a quarterare warehouse/distribution facilities (Chart K).
Fully two thirds of the respondents to our
The greatest percentages of the projects being worked on by the responding consultants are in
When it comes to
The responding consultants say about 40 percent of their new foreign facilities will house manufacturing operations and 15 percent will be warehouse/distribution facilities (Chart 0).
Nearly 60 percent of those responding to our
About two thirds of the responding consultants say those clients who are planning to relocate are seeking to lower their labor costs and also need to be In closer proximity to suppliers and/or markets served (Chart R).
About half of the consultants, and a similar percentage of those responding to our
Nearly a fifth of the consultants claim to be seeing an increase In the number of companies establishing foreign facilities as opposed to domestic ones (Chart S). And while only 3 percent of the
Why aren't the consultants' clients spending more of their earnings on U.S. facilities? More than 60 percent say it's because of economic instability in
Factors Influencing Clients' Location Decisions
We also asked those taking our
Interestingly, the same two factors are ranked 1st and 2nd by the
And more than three quarters of the responding consultants also say higher unemployment rates are not making it easier for their clients to find the labor they need, with more than two thirds saying the unemployed are primarily lacking advanced skills (Chart X). Additionally, because of this, three quarters of the consultants also say their clients have become very or somewhat dependent on contract workers (Chart Y), although 81 percent claim this contingent labor force comprises less than 25 percent of their clients' work forces at any given time (Chart Z).
The consultants' 2nd ranked factor - highway accessibility - is considered "very important" or "important" by 97.4 percent of the respondents. Again, the respondents to both surveys agree that this factor is a priority when deciding where to site or expand a facility in order to get supplies in, products out, and employees and visitors to the workplace. In fact, 92.9 percent of the respondents to the
The consultants generally rank state and local incentives as more important than do the
The factor showing the largest jump in the consultants' rankings - eight positions to 4th place - is available land, which also has the largest percentage increase in the
Although tabor costs are bumped down and tied for 5th position in the
The respondents to our
Three quarters of the respondents to our
And while only half of the respondents to our
It's important to note that 18 of the 26 site selection factors are rated higher in importance by the consultants than any of the nine quality-of-life factors. That being said, when ranking the quality-of-life factors, the consultants place colleges and universities in area in 1st place - with an 82.5 percent combined importance rating. With availability of skilled labor being the primary site selection concern, it follows there is a need for the work force to acquire new and advanced skills at institutions of higher learning.
Low crime rate, which is always ranked 1st by our
The quality-of-life factor showing the largest increase in importance (21.6 percentage points) is housing costs. Housing availability also shows the second-largest increase in its importance rating - up 10.9 percentage points to achieve a 68.4 percent rating. These results may seem surprising considering the precipitous housing price declines and market glut of the recent past. However, the increased importance given to these two quality-of-life factors may be in anticipation of a turnaround in the housing situation, with lower inventories and price increases in many markets.
Consultants' Information Sources and Project Timelines
Just like the
More than half of the responding consultants claim to maintain their own site selection database. Nearly all of them (93 percent) have searched the Internet for site and facility planning information (only about 60 percent of those responding to the
More than 70 percent of those responding to our
The cost and availability of real estate, utilities, and infrastructure, along with tax structure, remain very important in the site selection process. Utilities and infrastructure are of vital importance to manufacturing and distribution projects. This trend has held consistent for many years.
Quality-of-life factors can also play a role in the site selection process, particularly for professional and technical-laden companies. However, the importance of these factors has generally declined during the past five years due to economic conditions in
The 2013 survey reflects the continued vital role of executive management in the site selection process. At 60 percent, the percentage of senior executives significantly Involved in the process dwarves the participation of real estate (18 percent) and operations/business unit management (15 percent).
It is also interesting to note the continued cautious approach of corporate decision-makers in terms of the economy. Sixty percent of the respondents to this year's
For those companies planning to open new facilities, the South and Midwest appear to be the favored locations. Corporate decisionmakers indicate that 16 percent of new facilities will be opened in the South, while 14 percent will be opened in the Midwest. This trend mirrors what we are seeing from clients and also reflects well on the changes made to improve the business climate in these regions.
The survey results reflect the sluggish growth seen in many global markets following the recession, but slow improvement is evident. More companies have added facilities rather than reduced them, and 45 percent expect to add facilities within two years. Also positive, more are planning on adding employees than reducing their ranks or postponing hires. However, 60 percent have neither added nor reduced facilities over the past 12 months, and opinions are mixed as to when sustained economic growth might emerge-in 2014,2015, or not until 2016.
Two of the top-three site selection factors are labor-related in both the 2012 and 2013 surveys. Of 26 possible site selection factors, availability of skilled labor tops the 2013 list, jumping up from third place in 2012. Labor costs dropped to third place, trading places with availability of skilled labor. This reflects an uptick we've seen in advanced manufacturing as skilled labor and logistics take precedence over labor costs.
Asked about skilled labor, slightly more than 58 percent of survey participants say it is "very important" and nearly 37 say it is "important." In contrast, only 14 percent say that availability of unskilled labor is "very important." For advanced manufacturing concerns, skilled labor is particularly critical - and the regions that are aggressively investing in work force development are winning the competition for these companies. Seventy-one percent of respondents report that advanced skills, such as machine tool programming, are what unemployed workers lack.
Sandwiched in between the labor issues is highway accessibility, which continued to be ranked as the second-most-important site selection factor. Of those surveyed, 60.4 percent say such accessibility is "very important," and 33.1 say it is "important" - and access to highways greatly outscores other modes of transport, including rail, air, and waterways.
The results of the 2013
The survey, as well as SSG's experience, suggests that the majority of new projects are driven by an increase in demand for goods and services. Another common trend is that corporate projects, especially in the production and material-moving sectors, continue to become more capital-intensive and less labor-intensive.
These results help clarify a common misconception that new corporate investment in the U.S. by companies with a foreign presence is the "reshoring" of existing foreign operations. It is SSG's experience that the rise in offshore costs is causing companies to choose the U.S. for new investment over foreign locations, but those costs haven't risen to thresholds that have sparked a mass reshoring trend. However, this reshoring trend could become reality if cost structures keep increasing in the current fashion, but it is unclear when that would happen.
Regarding key location drivers, the availability of a qualified, productive, yet cost-effective work force will continue to be the most important factor when locating corporate investment. In addition to labor, most decision-makers will place a high priority on business environment factors that will have the greatest long-term impact on their operation, and will only use economic incentives to draw fine distinctions between short-list communities that can adequately support their business.
By all accounts, most industries will continue to experience positive growth over the next couple of years, and it will be interesting to see the opportunities that arise.
This year, the highway accessibility and labor costs factors were outranked by availability of skilled labor.
Nearly half the
The survey produced interesting findings - some speaking to urgency and cautioning which corporations are making investment decisions, others speaking to the impact of public and regulatory policy on how and where the U.S. economy will grow.
It's no surprise that labor is the most important factor in site selection. What's interesting is that availability of skilled labor is the top priority. Perhaps that speaks to a more challenging skills gap today. While educational attainment has tripled in the U.S. in the past 30 years, there is concern that skills for which we've trained don't match the skills industrial clients need.
It's also interesting to look at some detailed parts of the survey. Public policy is clearly influencing decisions. For example, about half of respondents indicated the biggest factors holding back investment decisions are taxes, regulations, and uncertainty over economic policy. At the same time, the majority feel that the need for capacity and ability to access new markets is the top factor in facility expansion. So on one hand, companies are eager for growth and access to markets, but for half of respondents, policy uncertainty is effectively delaying investment decisions.
It also appears clients are concerned about timing and are cautious, but once projects are approved, they're prepared to move forward. Indeed, about 80 percent of respondents expect their site selection process to take less than a year once initial contact is made with the locations of interest. For those experienced in site selection, if a client needs to make a significant decision and wants the process completed that quickly, there's concern about a consultant's or economic developer's ability to make sure that decision is cost and service appropriate.
Finally, there is good news. Regarding clients'expectations for project work, the majority are bottom-line determined to move ahead. While there are concerns over policy, taxes and regulations, and availability of skilled labor, they have determined that decisions must be made and, for most, here in
By lohn Moms, Leader of Industrial Services for the
In today's arena of competing in the global marketplace, cities and localities need to recognize that what used to be a competition between states and regions for new jobs and capital investment has now developed into a highly competitive global competition. If cities don't look to the future and think globally, they risk the chance of being overlooked as a place to do business.
Many quantitative and qualitative decisions are made at the beginning of every expansion project that affect an organization, including the design and construction process, long-term sustainability, and operation in a new global economy. While the initial costs may be a significant driver, all factors need to be taken into consideration when making the most efficient and cost-effective expansion or relocation decision.
It comes as no surprise that the top three site selection factors - availability of skilled labor, highway accessibility, and labor costs - for 2013 remain unchanged from 2012. The economic recovery is still having an impact on businesses that are thinking about expanding. For the expansions that I worked on in 2013, the quality and cost of a professional work force is of paramount importance. I have found that the availability of a highly skilled and cost-effective work force depends on the proximity to universities and technical/trade schools.
When looking at the quality-of-life factors in
In addition to a highly skilled and cost-effective work force, companies want a transportation nexus that will allow them easy shipping access to their customers within one day's drive. Manufacturing and distribution companies need to ensure that their products are well positioned for just-in-time delivery with transportation access for shipments across the U.S.
Like many surveys I have read on topics I am professionally involved in, the
I was not surprised to see availability of skilled labor lead the list of site selection factors, rising two spots and about 6 percent from last year's survey. Identifying locations with a labor force well suited to meet the immediate and long-terms needs of a particular company has become a challenge nationwide, as our economy continues to recover and our work force struggles to support the changing needs of employers, especially in the manufacturing sectors. What I did find surprising was that there was no mention of the HR function among the departments involved in the site selection process. My personal experience is that HR representatives are playing a more significant role in location decisionmaking and getting involved earlier in the process.
In addition to the rising focus on labor, our clients have never been as concerned with the reduction and mitigation of delivery risk, as site location decisionmaking durations continue to compress, as indicated by a 9 percent increase over 2012 in the number of respondents who reached a decision within 3- 6 months. Several survey responses reflect this trend, including 61 percent of respondents categorizing shovel-ready/ pre-certified site as very or somewhat important. Along similar lines, the existence of available buildings remains critical, with 78 percent of respondents assigning existing building availability into the same top two categories.
The results of the
The first two factors in the new rankings for
Highway accessibility, logistics, and transportation costs are also a critical factor. As fuel costs rise, companies are thinking ahead to where their customer base will be located (either consumer or other companies) and how best to position a manufacturing or distribution facility so it will continue to be located central to customers and not outside a logical delivery route.
The movement of the labor costs factor from first to third in the rankings is a reflection of a tight labor market. The immediate concern is finding a skilled work force; the cost of labor can sometimes be replaced by increased automation. As robotics becomes less expensive, we are finding companies looking for additional ways to automate, thus reducing the number of overall employees, but still needing employees with a higher skill level.
We were surprised by the drop in the ranking of energy costs from 6th in 2012 to 10th in 2013. Many manufacturing companies will increasingly demand lower energy costs to compete and reshore production from overseas. We continue to hear that maintaining low-cost energy is paramount for our client's ongoing success.
The available buildings factor did move from a ranking of 8th in 2012 to 6th in the 2013 survey. This is due to a dwindling supply of quality existing facilities. As the real estate market tightens, this factor could rise in the rankings for 2014.
Nearly half of the
I The same two factors are ranked 1st and 2nd by the
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