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Divergent Views of the Prime Location Economic Developers Misreading the Landscape
July, 2007
By Claudie Fanning and Richard Kadzis
Economic development strategists may be overlooking the most pertinent selling points when trying to lure business to their jurisdictions. An October 2006 survey of real estate end users, service providers, economic development organizations and consultants reveals that corporate decision makers and economic developers have different perspectives of how and why a location serves a company's needs.
Corporate real estate end users view access to markets as the most important factor in considering a location, whereas economic developers tend to overestimate quality of life factors. There is also a difference in how corporations and service providers regard the quality of labour versus the cost of labour.
A growing tendency by corporations to prioritize market access over basic cost savings underscores the new reality of economic development. To compete for jobs and investments, economic development corporations (EDCs) now need to take a portfolio perspective and understand the much higher level needs of their corporate clients.
LABOUR DRAW
Access to talent means meeting the growing corporate demand for both experienced knowledge workers and entry-level employees. The survey shows that the demand is for high quality and low cost labour pools - something that may challenge EDCs to deliver on both attributes simultaneously. However, it's actually an opportunity for EDCs to provide better messaging about the lifecycle stage of their communities' talent or knowledge pools.
Talent is now a deciding factor in where companies locate or expand. Still, companies need to draw workers from across a wide spectrum of talent. They also need skilled and qualified trainees - e.g., plastics manufacturing and call centres.
There are wide gaps in how corporations and service providers versus EDCs regard quality of labour alongside costs of labour. The former also place a higher degree of importance on the question of union activity.
Quality of life issues also bleed into the decision factor mix, but mainly from the standpoint that EDCs place a far higher emphasis on cultural, sports and other lifestyle amenities than do end users and service providers, including consultants. It's also a fact that most new facilities are branch operations where the bulk of new hires are drawn from local labour. This factor could diminish the perceived importance of lifestyle issues.
EDCs can leverage municipal reputation to reposition the way end users view the so-called human capital issue. End users may not see the factors influencing the degree of talent present in an expanding geographic market, or even indications of a market in decline, because they exhibit less interest in influencing factors like local school quality and tend to focus more on a community's reputation for economic development.
EDCs may be able to educate and competitively differentiate on these precursors to high quality talent pools that are ignored by decision makers. Communicating the advantages of labour supply, quality and cost should be a major objective in the business recruiting efforts of EDCs.
INCENTIVES AND COMPETITIVENESS FACTORS
Corporations generally view financial incentives as important although previous research shows that incentives rank below the top 10 decision factors. The reality is that incentives take on more weight in the site selection process once a company or its consultant narrows its options to a short list. EDCs surprisingly rated the importance of tax, training and other incentives slightly lower than corporations and their service providers. This may be a lower ranking due to the fact that these types of basic incentives are now considered table stakes.
Also noteworthy is the corporate and service provider preference for economic development zones as a specific incentive lever. This would imply that corporations are interested in the opportunity for the potential concentration or incentive driven clustering of business enterprises and services within ED zones rather than corporate incentives that accrue to companies on a stand alone or individual basis.
The vitality of the existing business base as driven by the critical mass of other firms already doing business in a given location is another factor worth noting. Fewer EDCs view this as a priority compared to their corporate and service provider counterparts.
Interestingly, EDCs perceive that their ability to provide corporate prospects with project facility financing is more important than end users and service providers think it is. The survey also shows that EDCs tend to overrate the importance of currency issues in the mix of location business factors. End users and their service providers do not tend to place as high a priority on the question, probably because of the globally networked nature of their enterprises allowing for a sort of built-in hedge against currency exchange losses.
End users place a higher level of importance on the availability of brownfield options than do EDCs. The issue of joint and several liability needs to clearly stated by EDCs in marketing brownfield sites. Meanwhile, corporations and service providers seem less aware of public-private partnership (P3s) opportunities that could enhance local business operating climates.
Municipal reputation becomes more important as part of the marketing strategy of the EDCs, which today must have ways to reduce red tape and streamline permitting processes to be competitive. Offering a business-receptive permitting environment or a site-ready industrial park is now seen as staple pieces of a community's total location offering. It is no longer an enhancement.
ADAPTIVE MARKETING STRATEGIES
The challenge for EDCs may be that end users and their site consultants can also gain access to a range of other decision support sources without necessarily obtaining them from the corresponding EDCs. These data also include demographics, labour force, wages, economic profiles, site inventories, commuting patterns, workforce readiness, skill and education levels and other information. However, this could be seen as an opportunity for EDCs to strengthen their competitive positions by learning how to effectively present their product on-line.
Gaps highlighted by this study show the opportunity or need for EDCs to develop a reverse mentality and to adapt to new thinking of their corporate clients. These differences imply a new rule of thumb: EDC jurisdictions should look outside of their communities, not within, to assess their level of readiness to serve their globally networked corporate prospects.
EDCs should benchmark their offerings against their ability to add flexibility to companies' portfolio or location needs, not against what they perceive to be sufficient office, industrial, R&D, retail or other inventory; nor against what they necessarily feel is the right mix of university partnerships, talent pool, skilled or trainable labour, incentives, infrastructure or other resources.
The previous article was excerpted from a CoreNet Global research bulletin, Trends in Corporate Real Estate Location Selection: An Economic Development Perspective. Claudie Fanning is Manager, Global Communities, and Richard Kadzis is Director of Special Projects with CoreNet Global. For more information, see the web site at www.corenetglobal.org.
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