As at least some manufacturing returns to, or is planned to begin in, the U.S., one interesting discussion is the process of determining where to locate operations. As states vie for business, companies should evaluate a number of economic factors, as well as potential risk.
For example, as has been noted before, southern states have routinely been selected as the location for call centers and warehouses, but as a recent BusinessWeek article notes, industries such as autos and aerospace are also shifting production to southern states. The article notes that, according to Southern Business & Development (SB&D) magazine, which tracks commercial projects in the south valued at more than $30 million, manufacturing made up 68 percent of investments announced last year. The number of projects totaled 410, which is the most in 20 years.
The South “has become the cheapest place to make things inside the largest economy in the world,” says Michael Randle, publisher of SB&D. Due to low taxes, cheap electricity and a mostly nonunion workforce, states such as South Carolina, Alabama and Tennessee are now among the least expensive production sites in the industrialized world.
The flip side of the coin, unfortunately, is that the labor force in those states may not meet companies’ requirements. For instance, according to U.S. Census figures, 83.1 percent of Tennessee’s 25-year-olds have no more than a high school degree—which ranks it 41st among U.S. states, the BusinessWeek article reports.
Dexter Muller, senior vice president for community development for the Memphis chamber of commerce, says that means it isn’t necessarily easy to find candidates with the right skills. When a large brewer took out ads three years ago to hire 200 workers in the area, it had to review thousands of applications to find candidates with the right skills, he says in the article.
“The quality of applicant wasn’t there,” Muller says.
Another factor to consider when determining where to locate operations is risk exposure due to natural hazards. Florida, for example, has been ranked as the U.S. state with the highest level of comprehensive risk exposure to multiple natural hazards by CoreLogic, a global property information, analytics and data-enabled services provider. That ranking is the result of analysis by the company’s Hazard Risk Score (HRS) analytics tool, which gathers data on multiple natural hazard risks and combines them into a single score.
Florida was found to be at regular risk from hurricane winds, storm surge, flooding, sinkholes and wildfires. Rhode Island, Louisiana, California, and Massachusetts round out the top five states with the most risk. Kansas, Connecticut, Oklahoma, South Carolina and Delaware round out the top 10 states at the most risk for natural hazards. At the other end of the scale, Vermont, North Dakota, New York, West Virginia and Michigan are among the states with the lowest risk of natural disasters.
“Florida’s high level of risk is driven by the potential for hurricane winds and storm surge damage along its extensive Atlantic and Gulf coastline, as well as the added potential for sinkholes, flooding and wildfires,” Dr. Howard Botts, vice president and chief scientist for CoreLogic Spatial Solutions. “Michigan alternatively ranks low for most natural hazard risks, other than flooding.”
Tax and other economic incentives can certainly be appealing. However, that appeal must also be balanced against other factors, such as an available labor force, availability of skilled labor, and even the threat of earthquakes, floods or wildfires. Whether it’s the decision to locate operations in a foreign country or in the U.S., companies must create a well thought-out business strategy to thoroughly study the costs—both business and personal—of manufacturing.
If your company is locating—or potentially locating—operations in the U.S., what are some of the factors that are considered when evaluating various states?