Chapter 4 discusses enhancing your community’s economic development “stool” by strengthening its three legs – attracting new businesses, helping retain and expand existing ones, and facilitating business start-ups. All three types of these businesses in your community have a choice about where to locate or expand. Most businesses make structured and logical choices about where they locate. For most businesses of significant size serving national markets, the first and foremost location decision criterion is financial – where the businesses can maximize profit? Put simply, that is accomplished by balancing revenue and cost, and finding the location with the best revenue vs. cost profile.
Revenue can certainly be location dependent, especially in a retail business dependent on customers dropping in. Many cost components such as raw materials, labor, transportation and other factors are also influenced by location, but the price of factors of production is just one element of cost. For example, labor should be evaluated based not only on the cost (salary or wage rate), but also on quality and productivity. Of course, communities are not mere commodities, but just the same, they often have to compete with other communities to attract and retain investment.
Success in “selling” a community to investors heavily hinges on the quality of the product (e.g., a “development ready” community) and the quality of the marketing effort performed by the community, usually through an economic development organization, Chamber of Commerce or other community promotion organization. As in any sales effort, “knowing your customer” can be critical to success. Therefore, we believe that community and economic developers, elected officials, and other key players in the community should become familiar with how companies make location decisions. There are many sources that explain the site selection process, but we can recommend two quick reads from the authors:
- “Business Attraction and Site Selection” by Robert Pittman in the Community Development Handbook, published by the Community Development Council, 2021
- “Location, Location, Location: Winning Site Selection Proposals.” by Robert Pittman in Management Quarterly, 2006.
In addition to the basic concept of profit maximization, the business location decision process (Understanding your community’s strengths and weaknesses; Identifying industries that are a good match; and Striving to become a better location for preferred and matching industries) also pointed out that each location decision is unique, and different companies or organizations have different selection criteria. An obvious example would be a software products company seeking a location with a good supply of programmers and a forest products company seeking proximity to its main input, trees. A community with a higher level of education resources – say a town with a university and a technical school that offer computer courses – should have an advantage in recruiting a software products company, and, depending on other possible considerations, should probably include software companies in its list of target industries to recruit. That community should obviously become more conversant with the site selection criteria of software companies and their other recruiting targets as opposed to forest products companies.
Basic Location Factors
Throughout our careers, the authors have often been asked (begged on occasion) to “please share with me your secret site selection checklist so we will know how to attract companies.” As we have just discussed, there is no secret, one-size-fits-all checklist because each project is different. However, there are some common things that most any company would have on a checklist of location factors such as reliable and reasonably priced utilities, including internet service. So let’s start with making a list of generic or basic location factors that most every community should be aware of.
State and Regional Levels
If a business is looking across several states to locate a facility, the economic development policies of the state will come into play. Factors such as state tax rates, right to work status, workers comp and state level incentives will be evaluated and compared.
Drilling down a bit, some site selection factors are regional in nature. Examples include regional transportation infrastructure and service, and regional water and sewer and other utility infrastructure and service. One of the most important regional factors is labor. Workers commute across city and county lines every day to jobs, and often the “laborshed” extends out from a city or site by an hour or more drive and dozens of miles.
One overarching factor separating different communities and sites as business locations is geography. Distances and associated transportation costs from raw material or intermediate goods suppliers, and from consumers and markets for finished products are prime considerations in facility location decisions.
Of course, individual communities are not in control of the state and local factors and policies that influence business location decisions, and they sure cannot move themselves to another location. They may be able to have some influence on state and local policies through the political process, but the best thing they can do to attract investment and move toward prosperity and the fulfillment of their vision is to become development ready as a competitive business location.
As discussed above, each business location decision is unique, but let’s look at some of the generic or basic factors at the community level that are commonly measured and evaluated by businesses making a location decision. Also as discussed above, the location factors will be different for a company producing a product vs. one producing a service (software, technical support center, etc.). The list is not exhaustive, just illustrative.
Labor: availability, cost, skill sets, productivity, work ethic.
- Power: cost, reliability, service, redundancy
- Natural Gas: cost, availability
- Water and Sewer: cost, excess capacity to handle future growth
- Internet: Download/upload speed, cost, service interruptions, redundancy
- Telephone: cost, cell coverage, different carriers
- Roads/Highways: Interstate and 4-lane highway access, road conditions, traffic congestion
- Public Transportation: availability and service to facility
- Rail: adjacent to facility, Class I and short-line service, frequency and quality of service (if rail needed)
- Air: distance to commercial service airports, frequency of flights, destinations served, hub status, general aviation airports and service
Public services: quality of fire, police, emergency medical and other public services.
- Regulations and permitting: requirements and enforcement
- General attitude toward businesses: supportive or adversarial
- Land use and zoning laws
Taxes: local sales tax, local property tax
Business Support Services:
- Production: local suppliers of production inputs, machine shops mechanical assistance
- Financial/Legal: availability and quality of professional services such as accounting and legal, banking services
- Childcare: Private, in-home and public childcare availability
- Early Education: Birth to 5 years old programs
- K-12: Quality of K-12 education
- Higher Education:
- Availability/proximity of 4-year colleges, degree programs in engineering and other required skills
- Availability/proximity of graduate programs in technology, business and production-related degrees
- Availability/proximity of technical schools
Sites and Buildings:
- Availability and cost of prepared, ready to build industrial/commercial sites
- Availability and cost of industrial buildings meeting contemporary standards
- Availability and cost of office space
Evaluating Community Competitiveness
As mentioned above, some of the factors above are quantitative in nature and can be measured mostly objectively with data (e.g. labor cost) and some are qualitative and must be evaluated in other ways (e.g. the “work ethic” of the local labor force). Even for the quantitative measures, it is often difficult to get an “apples to apples” comparison across communities. For example, the average hourly wage rate for manufacturing workers might be $25/hour in Community A and $19 in Community B, making the latter look better from a manufacturing labor standpoint. However, the $25 wage rate could reflect the presence of more skilled, advanced manufacturing workers in Community A as opposed to less skilled workers in Community B. For this reason, labor cost comparisons should be done as narrowly and specifically as possible, and in most cases data is available to do that.
For labor cost and other factors that can be measured quantitatively (e.g. utility costs), a straightforward way to measure community competitiveness is with a simple spreadsheet that compares a community with other communities (competing and/or of other interest), and perhaps the state where data is available. It is also good to measure trends to see how competitiveness may be changing. Data for this analysis can come from a variety of sources including the federal government and companies that repackage and sell data from government agencies and other sources.
For the qualitative comparison factors such as labor force work ethic and business climate, the best way to gather information on competitiveness is through contact with local businesses. This can come in a variety of ways, including one-on-one confidential interviews with business owners or managers, focus groups, and surveys. Understandably, it is often difficult to get qualitative information from other communities for comparison, but it is still important to have the qualitative information for only the home community as an aid to recruiting companies.
Given all the factors listed above (and that’s just some of the many factors that can be evaluated for community competitiveness) the data gathering and comparisons can quickly get time prohibitive. Therefore, often the best thing to do vis-à-vis competitive comparisons is to narrow down the scope of what you are comparing to a specific sector or industry that a community is specifically trying to recruit. For example, a community might be interested in attracting a Tier 2 or Tier 3 supplier for the manufacture of electric vehicles. The community would need to understand the kind of labor and other factors of production that are important to electric vehicle parts manufacturing such as, say, assembly line workers trained in robotic production and electrical engineers. Very often communities identify the “target” industries they would like to attract and grow based on their comparative advantage and vision for the future. They can then produce marketing material touting their advantage for one or more specific target industries.
Competitive comparisons and benchmarking are not just useful for marketing to certain industries, they are also useful to help a community understand its competitive position, generically or for a particular industry or sector. The community can use the analysis to see where it has an advantage over the comparison communities, and where it needs to improve to be more competitive in the future.
The basic business location decision factors shown above pertain to the production of a product or service. Business executives making location decisions also want to live in a desirable community for personal reasons, and to make it easier to attract and retain top talent. Furthermore, quality of life factors are becoming even more important with the increase in remote work. A spreadsheet comparison like the one above but with quality of life factors such as housing affordability, arts and recreation, and other key livability factors can also be constructed. It’s often easier to get quality of life data on comparison communities from a variety of sources including the Census Bureau and various data publishing companies.