With 50 states and nearly 400 metro areas, the United States offers manufacturing companies a wealth of location options. Each location has a unique mix of factors that may appeal to specific firms, including tax incentives, workforce training programs, lower utility costs and proximity to rail.
Here is a checklist of key factors manufacturers should consider before making a location decision.
- Invest time to understand the variability of US labor markets: Supply, quality, and cost of labor are critical to the success of most (if not all) business location projects. Many of today’s manufacturing operations require technical skill sets that may or may not be available in some areas of the US. Communities offering comprehensive, high quality technical training programs properly aligned with the needs of local employers are better equipped to deliver a pipeline of well-trained and highly skilled workers.
- Pursue development incentives to support investment: Many local and state governments, as well as utility service providers, are actively supporting the resurgence of U.S. manufacturing by providing incentives to companies making investments in US operations. The types and value of such incentives offered vary across the country, but are largely tied to the capital expense, the number of jobs to be created, and the wages to be paid. Incentive programs offered in the US may include grants, low interest loans, tax abatements and credits, and job training support, among others.
- Analyze transportation cost differentials: In- and out-bound transportation costs, including the delivery of raw materials and the shipment of finished products to customers, can comprise a major share of the cost of goods sold in the U.S., and can vary widely (and not always intuitively) depending on the location. Given shortages of truck drivers and equipment, as well as trends towards sustainability, it may also be prudent to investigate alternative modes of transportation, such as rail.
- Diligently review utility services and rates: Reliable, cost-competitive electric power is critical for most manufacturing operations today. US power rates will vary across the country from as low as 4 cents to more than 12 cents per kilowatt hour (kWh), which could mean millions of dollars annually at play for large power users. For operations such as food processing, water quality and availability and wastewater treatment capacity are also key operating factors. Rates and available capacities will vary greatly between locations and even among sites in the same location.
- Consider tax climates: State and local tax rates and structures vary greatly across the country. Carefully assess the potential impact of corporate income taxes and taxes on the purchase of production equipment, real estate, machinery, and inventory. It is critical to consider company accounting structures and strategies to find the optimal arrangement for the specific operation.
In short, deciding where to locate a manufacturing operation in the U.S. is a complex decision involving a multitude of considerations. Companies can minimize risks and reap rewards by carefully analyzing these factors in their decision-making process. A qualified site selection consultant can help companies objectively consider these factors, and others, to ensure the optimal location that achieves both operating environment goals and maximum benefits.
Michelle Comerford is the Industrial & Supply Chain Practice Leader at Biggins Lacy Shapiro & Co., one of the largest, most highly regarded site selection and incentives advisory firms in North America. BLS & Co. helps manage the complexities associated with finding optimal location and securing incentives to support new ventures. Michelle has recently been published in fDi Magazine, Inbound Logistics, Trade & Industry Development, Supply & Demand Chain Executive, among others.
Follow Michelle on LinkedIn or Twitter or contact her directly at mcomerford@BLSstrategies.com.