By Sarah White
The SelectUSA Investment Summit took place in Washington, DC in June, hosting foreign companies; state, regional, and local economic development organizations; and service providers focused on helping facilitate foreign direct investment into the United States. As an exhibitor, McCallum Sweeney had the opportunity to talk with foreign companies considering U.S. market entry, and we discovered that it can be difficult for these small and medium sized companies to know where to start in the site location process. With so many states and locals selling their advantages, it is understandable for companies to feel overwhelmed by their choices. To help foreign companies, we wanted to summarize some of the top location factors for foreign companies to consider when choosing to invest in the U.S.
When considering establishing a location in the United States for an industrial facility, it is important to study a myriad of factors, but among the most important are the geographic considerations. The U.S. is a large country with an overwhelming amount of diverse location options. It is important for foreign companies to remember that not every state, county, or city are alike and the operating environment can vary significantly from one jurisdiction to another. While the U.S. investment climate is one of this country’s greatest competitive advantages, the decision to locate in one location versus another will greatly affect a project’s development cost and schedule, and long-term success. Before beginning the site selection process, the company team must clearly define the project’s driving factors for the project to be successful. It can be helpful to have technical experts as well as financial and human resources individuals represented on the company team throughout the decision process.
1. Site and Infrastructure
Communities are often touting their great quality of life and community attributes, but at the end of the day, an industrial facility must go on actual property. That piece of land (or existing building) must meet the project’s specifications in terms of dimensions and developability to accommodate the facility’s layout while maximizing production and/or distribution efficiencies. In order to meet layout requirements, impediments such as easements and environmental concerns like wetlands must be taken into consideration.
Not only does the land have to meet the layout requirements, but the project’s utility and transportation infrastructure needs must be met in order for the location to be suitable. Some projects are more utility intensive and will require substantial electric, natural gas, water, wastewater, or telecommunications capacities so utility availability and adequacy may be the key drivers. The company must also look at the utility rates since these costs will be ongoing throughout the life of the project.
Transportation infrastructure such as deepwater access, rail service, or runway access can also be transportation drivers. Sites must have adequate access for both truck and passenger traffic, and the term “adequate” will change project to project depending on the anticipated number of vehicles.
There is no perfect site, but many of the technical attributes such as site characteristics, utility, and transportation infrastructure are criteria that must be met in order for the project to succeed in that location. It is important to focus on these factors early in the process because all of the great community attributes will not come into play if the piece of land and associated infrastructure does not work for the project.
While many environmental protection regulations are enacted at the federal level, most permitting is administered at the state and local (county or city) levels, and the permitting process, cost, and schedule will vary. The amount and types of permits required will differ for each project based on the project’s specific process and environmental impacts (air emissions, wetlands, etc.). For example, a paper mill may require air permits for its emissions and wastewater permits for treating process wastewater. The process for these intensive permits can be lengthy and the time and requirements for obtaining these permits will vary depending on the jurisdiction. Other less-intensive projects, such as a general distribution operation, would likely require less permitting.
Local jurisdictions will also have restrictions such as zoning or even more location-specific industrial park covenants. These regulations will enforce items such as allowable uses, setback requirements, height restrictions, and landscaping that will impact a company’s site plan. The regulatory environment can have a major impact on the cost, and particularly the schedule, of starting a facility and continuing to operate smoothly in a location.
States and communities will often assist with recruiting and can be a valuable resource for incoming companies. A shortage of skilled manufacturing workers due to the aging workforce is a concern across the country and many communities have implemented innovative programs to prepare the younger workforce for industrial jobs.
States also have various training programs through community colleges and other resources that can be made available to projects. They can even help customize a training program to fit the company’s requirements to train local workers for the project. Not all state training programs/assistance are created equally so the company must find a fit to meet their workforce needs.
In addition to recruiting and training the workforce, the company will need to evaluate the wage rates in the area to see if there will be wage pressure from existing companies or other outside influences. A prospective company must feel comfortable that they will be able to recruit the necessary workforce while also being able to retain them with wages that make financial sense for the project.
Incentives will not make a bad location good, but they can help mitigate weaknesses at potential locations. Incentives can greatly help in reducing initial costs (site preparation, utility extensions, etc.) and recurring costs (taxes, utility rates, etc.) to the company. To lessen the financial burden, some states and communities are more aggressive than others and have more resources to aid companies in return for jobs and capital investment commitments.
Financial incentives can come from local communities, states, utility providers, and other organizations. When evaluating incentives, one must look for realizable incentives since many incentives that states and communities offer may not be as helpful. For example, many states offer corporate income tax credits, but the company may not have enough tax liability to take advantage of these credits. In negotiations, one can also ask for assistance to reduce critical timelines, such as expedited permitting and commitments that infrastructure will be in place in conjunction with the company’s development schedule.
5. Quality of Life
Overall quality of life of a community can affect recruitment and retention of talent. If planning to bring existing employees from offices abroad to the U.S. or considering a U.S. headquarters location, it will be important to look at the available cultural amenities. Larger metropolitan areas may be more diverse and able to offer more cultural amenities, such as foreign school programs or cultural groups. International business clusters have emerged as foreign companies seek to locate near common cultural amenities so it is important to evaluate existing industry location.
K-12 schools, crime rates, recreational opportunities, and cost of living are just some of the factors that help shape the quality of life in a community. People will be more apt to work at a facility that is located in an attractive place for both themselves and their families. Companies want their facilities to thrive and will look for communities that are also thriving.
While site/infrastructure, permitting, workforce, incentives, and quality of life are not an all-encompassing list, all of these factors are going to influence the project’s initial and recurring costs and development schedule. It is imperative that they are taken into consideration throughout the siting process in order to find the optimal U.S. location for the company. The company representatives on the team typically have other day-to-day jobs, so a site location consultant can help a company sift through the site decision process more efficiently. As site selection consultants, we do not make the location decision for a company, but we do help companies make defendable, informed decisions.
Sarah White is senior consultant with McCallum Sweeney Consulting, where she has provided site selection services for clients for almost nine years. Presently, Ms. White is providing site evaluation and labor and incentives analysis on a number of major site location projects including manufacturing and distribution operations. Ms. White also provides economic development consulting and currently manages the site certification program for the South Carolina Department of Commerce.