by Josh Bays, on Feb 25, 2020 8:30:11 AM
The growth in U.S. industrial activity is well documented over the last few years. As most companies that manufacture products in the United States can attest, this growth in activity has dramatically increased the competition for resources such as workforce, real estate, transportation service providers and support services. The following graph shows the monthly industrial production index – after strong growth in 2018, 2019 levels are generally holding steady.
U.S. Industrial Production Index (2012 = 100)
Source: Federal Reserve
In this highly competitive landscape, there is an additional resource that is becoming more constrained, impacting the way manufacturers should approach their site selection process. This less-than-obvious constrained resource is the support provided by economic development organizations (EDOs).
Broadly speaking, support from EDOs can come in the form of initial project location assistance, the granting of economic incentives, and/or general business assistance after a company has chosen a location for its investment. More often than not, a successful project is assisted in all three phases.
Traditionally, EDOs allocate this assistance on the merit of a project’s job creation, payroll schedule and capital investment commitments, as well as the project’s alignment with the region’s target industry objectives.
As industrial activity has increased in recent years, so has the perception among EDOs as to what constitutes “a quality manufacturing project.” Expectations about project specifications, especially average wages, have steadily increased in economic development circles, a trend that is likely to continue as industrial activity continues to accelerate. Asking the question of “what is a good manufacturing wage?” will likely yield a wide range of answers based on whom is asked the question, corporations or communities.
Site Selection Group, a full-service location advisory, economic incentives and corporate real estate services firm, strongly believes companies are better served knowing what exactly will move the proverbial needle prior to commencing their site selection projects. Based on recent project experience, Site Selection Group recommends companies consider the following five methods for better positioning their site selection projects to maximize support from EDOs.
1. Tell the company’s story in a way that resonates with the community
EDOs want to get as much public relations mileage out of project announcements as possible. Site Selection Group recommends companies position their project in a manner that gets EDOs excited about the company’s story and products early in the process, even when a project is still strictly confidential to the broader public. If an EDO believes the company’s story will generate positive publicity post announcement, they will prioritize the project over one with similar specifications, but which has a boring story. Site Selection Group suggests incorporating product demonstrations, corporate videos and company history into the courting process.
2. Express the desire to be a good corporate citizen
EDOs want companies that will ingrain themselves in the community through charitable causes, support for economic development, participation in industry organizations and involvement in community functions. Site Selection Group recommends companies showcase to prospective communities how they’ve achieved the same level of involvement in their existing locations. In fact, Site Selection Group recommends that ease of ingraining themselves in the community should be part of the overall site selection scoring criteria.
3. Demonstrate the project’s legitimacy before you talk about economic incentives
Site Selection Group firmly believes that location decisions should be based on a community’s ability to satisfy a project’s operational needs such as workforce, logistics efficiencies, business environment, regulatory climate and other factors. However, economic incentive packages for most manufacturing projects can be substantial enough to help companies draw distinctions between a set of competitive semifinalist options. Therefore, Site Selection Group believes it is critical to navigate the site selection process in a manner that maximizes leverage for economic incentives.
Unfortunately, EDOs (and Site Selection Group for that matter) have been inundated in recent years with project requests from “less-than-legitimate” projects that may have unbelievable job counts and fast ramp-up periods, unrealistic utility requirements, and other far-fetched numbers. This trend can be attributed in part to recent tax reform and uncertainty around tariff policies, as well as the emergence of several “fad” industries. Too often, these types of projects place economic incentives at the core of their initial or ongoing business plan and, as a result, let the prospect of economic incentives steer the project too early in the process.
Simply stated, EDOs have become weary of confidential companies who start the conversation by asking for hefty economic incentive proposals. As a result, Site Selection Group recommends that manufacturing companies demonstrate the legitimacy of their project and showcase the prudent manner in which they’ve narrowed their geographic focus before seriously addressing economic incentive proposals.
4. Ensure the project’s timing requirements are realistic
Far too often, companies internally generate project timelines that are painfully unrealistic. An unfortunate truth of the manufacturing site selection process is that it typically takes longer than most companies hope, especially if it is being done correctly. In a hyper-competitive landscape where EDOs must prioritize projects to which they’ll dedicate resources, those projects that have realistic timelines will certainly get preferential treatment. Site Selection Group recommends companies fully vet their project timelines with the various service providers that can confirm the timing of each project stage.
5. Consider disclosing identity once the geographic focus is narrowed
Site Selection Group recommends companies consider confidentially disclosing the company’s identity once the geographic focus is narrowed to the semifinalist communities to demonstrate project legitimacy. In Site Selection Group’s experience, EDOs will justify dedicating more resources to a known project than it will a nameless project with only a codename. Of course this requires a thorough approach to navigating the non-disclosure agreement process, but confidentiality is something most EDOs take very seriously.
Each of these five methods for maximizing support from EDOs might not be applicable for every manufacturing site selection project, but checking as many of these boxes as possible can go a long way in generating the best return. In this competitive economic cycle, it is more important than ever for companies to have the proper advisers in place to best position your project.
