trends in site selection: a location strategist’s perspective city of madison economic development...
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Trends in Site Selection:A Location Strategist’s Perspective
City of Madison Economic Development Commission
July 27, 2004
Darin M. Buelow
City of Madison EDC
Today’s Theme
• Madison – A Forbes 2004 Best Place
• Why (or why not) Madison for a business location?
Outline
• A quick profile of Deloitte’s Site Selection practice
• The location selection process
• Trends driving location decisions
• “Best practices” in business attraction
City of Madison EDC
Darin Buelow
• Senior Manager with Deloitte Consulting’s Fantus group, based in Chicago
• 13 years development experience, including site selection, due diligence, negotiation, location strategy, and construction services
• Corporate clients include: Best Buy, HP, UBE Automotive, Sherwin-Williams, ThyssenKrupp, Cintas, Suzuki, Schwan, Kohler, Pitt Plastics, Radio Flyer, Volkswagen
• Negotiated over $100M in incentives across dozens of projects
• Economic development clients include: State of Iowa, State of Washington, Cape Breton (Nova Scotia), Lake County (IL), Altoona-Blair County (PA), LaPorte County (IN)
City of Madison EDC
Deloitte’s Fantus Group
• The first and largest specialized location strategy consulting practice
• Began in 1919
• Many thousands of engagements
• Dedicated practices in Chicago, LA, New York, San Francisco, Atlanta, and Brussels
• Focus on facility and location strategy, site selection, economic development, real estate portfolio structuring/management, and real estate operations.
City of Madison EDC
Recent Field Experience…
Counties (since 1993) where recent field evaluations, due diligence, negotiations, and employer interviews have been conducted by Deloitte Consulting’s Fantus Group.
City of Madison EDC
Fantus typically conducts between 100 and 200 engagements annually
• An ever-evolving mix including:
• Manufacturing – our traditional “bread and butter,” especially for Midwest practice and during industry growth cycles
• HQ/Call Centers/Shared Service – strongest in the Midwest and West Coast practices; increasingly global
• Distribution/Warehouse – strongest in Midwest; focused on large, big-box retailers and consumer products companies
• Technology – emphasis on bio-med; many projects international; strong base in West Coast practices
• Public Sector/Economic Development – State, local, and international
City of Madison EDC
OrganizationalOrganizationalGoalsGoals
OrganizationalOrganizationalGoalsGoals
Consolidation
Merger/Acquisition
Market Access/Dynamics
Business Re-engineering
Reposition Corporate Culture/Image
Leadership Issues
Consolidation
Merger/Acquisition
Market Access/Dynamics
Business Re-engineering
Reposition Corporate Culture/Image
Leadership Issues
Capacity Constraints
Cost Containment
Lease Expiration
Talent Development
Tight Labor Markets
Union Issues
Changing Product Mix
Capacity Constraints
Cost Containment
Lease Expiration
Talent Development
Tight Labor Markets
Union Issues
Changing Product Mix
TACTICALTACTICAL STRATEGICSTRATEGIC
Why do companies consider new locations?
City of Madison EDC
Location decisions can be very troublesome for companies…
• Long-term and significant allocation of major capital and human resources
• Occur infrequently — internal skills are rare or rusty
• Huge commitment of resources over a short period of time
• High degree of uncertainty and risk
• Emotionally charged and politically sensitive
City of Madison EDC
Who are the “Consultants”?
• A wide range of companies have specialized site selection practices
• The Big 4: Deloitte Consulting - Fantus, KPMG, E&Y, PWC
• Engineering and construction firms: Fluor Daniel, Lockwood Greene
• Large real estate brokerage firms: JLL, Grubb & Ellis, CB Richard Ellis, Staubach
• The boutiques:
• smaller, specialized companies of 1-5 experienced consultants
• spin-offs of the other firms and ex-ED professionals
• Assorted others: general management consulting, HR consulting, logistics consulting, architecture firms, etc.
City of Madison EDC
And why should anyone pay attention to them?
• They lead an increasing number of location studies
• Location “influencers” are believed to be involved in nearly half of all major site selections
• Tend to manage larger projects and companies that produce significant economic impact
• Have many repeat clients
• MOST know what they are doing and can manage a project to a successful conclusion
City of Madison EDC
Typical Site Selection Process
project drivers
success factors
project specifications
search area
Implementation Implementation Negotiations Negotiations Due Diligence Due Diligence Screening ScreeningStrategyStrategy
countries/regions/states
fatal flaw analysis
compare costs and conditions
identify 6-10 top areas
field investigations
verify screening and process-drill down
identify specific opportunities and risks
best 3-5 community/site options
risk analysis
real estate
incentives
transition planning
facilities plan
vendor selection
construction ramp-up
City of Madison EDC
1. Access to customers2. Stable social/political environment3. Ease of doing business4. Reliability/quality of other utilities5. Ability to hire tech professionals6. Ability to hire management staff7. Level of corruption8. Cost of labor9. Ability to hire skilled laborers
10. Crime & safety11. National taxes12. Cost of utilities13. Roads14. Avail/quality - university/tech training15. Local taxes
1. Access to customers2. Stable social/political environment3. Ease of doing business4. Reliability/quality of other utilities5. Ability to hire tech professionals6. Ability to hire management staff7. Level of corruption8. Cost of labor9. Ability to hire skilled laborers
10. Crime & safety11. National taxes12. Cost of utilities13. Roads14. Avail/quality - university/tech training15. Local taxes
Factors that are most critical to a corporate global location decision
16. Access to raw materials17. Available land – all services in place18. Air service19. Labor relations/unionization20. Access to suppliers21. Preferential trade agreements22. Available building/space – all services23. Cost of shipping (freight cost)24. Labor regulations25. Cost of real estate26. Access to finance27. Ports28. Healthcare29. Ability to hire general laborers30. Availability of grants/incentives
16. Access to raw materials17. Available land – all services in place18. Air service19. Labor relations/unionization20. Access to suppliers21. Preferential trade agreements22. Available building/space – all services23. Cost of shipping (freight cost)24. Labor regulations25. Cost of real estate26. Access to finance27. Ports28. Healthcare29. Ability to hire general laborers30. Availability of grants/incentives
City of Madison EDC
Location Process Drivers
• Domestically, costs are the key factor for the majority of competitive projects
• Some companies screen strictly on costs to narrow the field
• Often very focused on costs early in the engagement, but may lower the bar once trade-offs are understood
• A threshold screen
• “…eliminate all areas with wages over 10% above the regional/national averages”
• Performance-based solutions are key for some talent and market driven projects
• Screen almost entirely on non-cost, operational factors such availability of technical talent, access to a specific customer, etc.
City of Madison EDC
The location selection process generally takes 6-8 months for large projects
Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
2002 2003
Site Selection Tasks
•Definition and specifications
•Phase I location strategy
•Select finalist state(s)/areas (by client)
•Phase II location due diligence (2-3 areas)
•Executive tour (2 areas)
•Select finalist community/site
•Real estate acquisition
•Incentive negotiations
• Announcement
•Zoning/permitting issues
• Break ground
• Site preparation
• Begin construction
•Facility design & layout
•Shipper relationships/suppliers sourcingstrategy
•Vendor selection/relationship
•General contractor selection
•Human resources relocation and recruitingstrategy
Ongoing Tasks (Can be done in parallel)
(Dec 5)
City of Madison EDC
Trends in Site Selection
•Cost reduction
•Globalization
•Functional Trends and Issues
City of Madison EDC
job reductionsjob reductions real estate consolidation and real estate consolidation and
dispositiondisposition severing lower value functions severing lower value functions
from corefrom core relocations to lower cost relocations to lower cost
environmentsenvironments expanded search areasexpanded search areas
multi-country searches, not just multi-country searches, not just multi-statemulti-state
focused off-shore, particularly for focused off-shore, particularly for labor intensive operationslabor intensive operations AsiaAsia Mexico, Central America and Mexico, Central America and
BrazilBrazil E. EuropeE. Europe
JVs and outsourcingJVs and outsourcing
job reductionsjob reductions real estate consolidation and real estate consolidation and
dispositiondisposition severing lower value functions severing lower value functions
from corefrom core relocations to lower cost relocations to lower cost
environmentsenvironments expanded search areasexpanded search areas
multi-country searches, not just multi-country searches, not just multi-statemulti-state
focused off-shore, particularly for focused off-shore, particularly for labor intensive operationslabor intensive operations AsiaAsia Mexico, Central America and Mexico, Central America and
BrazilBrazil E. EuropeE. Europe
JVs and outsourcingJVs and outsourcing
actions / impacts
intense pressure to reduce costsintense pressure to reduce costs pre and post economic downturnpre and post economic downturn
consolidation, relocation, and consolidation, relocation, and rationalization of operationsrationalization of operations
increasing global competitionincreasing global competition products and servicesproducts and services factors of productionfactors of production
intense pressure to reduce costsintense pressure to reduce costs pre and post economic downturnpre and post economic downturn
consolidation, relocation, and consolidation, relocation, and rationalization of operationsrationalization of operations
increasing global competitionincreasing global competition products and servicesproducts and services factors of productionfactors of production
issues / trends
Cost reduction continues to bea corporate imperative…Cost reduction continues to bea corporate imperative…
City of Madison EDC
Globalization and Offshoring
foreign direct investment (FDI) foreign direct investment (FDI) more likely, even for mid-sized more likely, even for mid-sized companiescompanies contract manufacturing contract manufacturing JV/outsourceJV/outsource greenfieldgreenfield
mitigation of FDI risk through mitigation of FDI risk through country/city selection (political, country/city selection (political, labor, human, natural disaster labor, human, natural disaster etc.)etc.)
mobile income tax strategiesmobile income tax strategies
foreign direct investment (FDI) foreign direct investment (FDI) more likely, even for mid-sized more likely, even for mid-sized companiescompanies contract manufacturing contract manufacturing JV/outsourceJV/outsource greenfieldgreenfield
mitigation of FDI risk through mitigation of FDI risk through country/city selection (political, country/city selection (political, labor, human, natural disaster labor, human, natural disaster etc.)etc.)
mobile income tax strategiesmobile income tax strategies
actions / impacts
increasing need to compete increasing need to compete globally globally create/improve market accesscreate/improve market access reduce costreduce cost create/improve access to source create/improve access to source
materialsmaterials labor availabilitylabor availability
barriers to entry fallbarriers to entry fall technology enables globalizationtechnology enables globalization risk a growing concernrisk a growing concern global taxationglobal taxation
increasing need to compete increasing need to compete globally globally create/improve market accesscreate/improve market access reduce costreduce cost create/improve access to source create/improve access to source
materialsmaterials labor availabilitylabor availability
barriers to entry fallbarriers to entry fall technology enables globalizationtechnology enables globalization risk a growing concernrisk a growing concern global taxationglobal taxation
issues / trends
City of Madison EDC
Who is Madison Competing With?
• The usual suspects:•Other Wisconsin communities/counties
•Illinois, Minnesota, Michigan, Iowa
•Tier 1 U.S. R&D Centers: Boston, San Diego, San Jose, Research Triangle, Atlanta, Front Range, etc.
•Mexico (manufacturing)
• The unusual suspects:•China
•India
•Central America (CAFTA)
>10,000
4,000 – 5,000
2,000 – 4,000
1,000 – 2,000
500 – 1,000
300 – 500
100 – 300
0 – 100
>10,000
4,000 – 5,000
2,000 – 4,000
1,000 – 2,000
500 – 1,000
300 – 500
100 – 300
0 – 100
FDI Total Value(US$ million)
Year 2002 Foreign Direct Investment (FDI) by ProvinceYear 2002 Foreign Direct Investment (FDI) by Province
Heilongjiang
Jilin
Liaoning
Hebei
Beijing
Tianjin
Inner Mongolia
Shandong
Jiangsu
Shanghai
Zhejiang
Fujian
GuangdongGuangxi
Hainan
HunanJiangxi
AnhuiHubei
Henan
Guizhou
Yunnan
SichuanChongqing
Gansu
Ningxia
Shaanxi
Shanxi
Qinghai
Xinjiang
Tibet
City of Madison EDC
China’s Advantage in Costs and Skills
Commercial Environment Labor Force
Relative to the rest of ASEAN, China offers low cost labor at a reasonable skill level
Relative to the rest of ASEAN, China offers low cost labor at a reasonable skill level
-10
-5
0
5
10
15
20
25
30
1 2 3 4 5 6 7 8 9 10 11 12Skills
Co
sts
Japan
China
South Korea
Australia
Hong Kong
Taiwan
India
Singapore
Philippines
Malaysia
Thailand
Indonesia
US$
150,000100,000
50,000 25,000
Source: EIU, IMD
City of Madison EDC
“The Sky is Falling”….!!!
Is everything moving offshore? No.
1. Food manufacturing
2. High cube to weight ratio products (e.g., tissue)
3. Distribution
4. Defense, Homeland Security
5. Critical time-to-market products (e.g., Tier 1 automotive)
6. Small or specialized manufacturing
7. Entrepreneurial enterprise
8. High water content product manufacturing (e.g., Windex)
9. Healthcare related industries
10. R&D requiring unique linkages to universities
City of Madison EDC
Manufacturers face intense global cost competition
US companies focused offshore, US companies focused offshore, particularly for labor intensive particularly for labor intensive operationsoperations
non-US companies also looking non-US companies also looking offshore, but…offshore, but… heightened focus on Mexico and heightened focus on Mexico and
Canada to serve North AmericaCanada to serve North America areas with abundant technical areas with abundant technical
and skilled production labor will and skilled production labor will thrivethrive
need for advanced training, need for advanced training, training partnershipstraining partnerships
US companies focused offshore, US companies focused offshore, particularly for labor intensive particularly for labor intensive operationsoperations
non-US companies also looking non-US companies also looking offshore, but…offshore, but… heightened focus on Mexico and heightened focus on Mexico and
Canada to serve North AmericaCanada to serve North America areas with abundant technical areas with abundant technical
and skilled production labor will and skilled production labor will thrivethrive
need for advanced training, need for advanced training, training partnershipstraining partnerships
actions / impacts
exodus of US labor intensive exodus of US labor intensive industryindustry shedding lower skilled operationsshedding lower skilled operations still struggling with higher and still struggling with higher and
technical skilled labor availabilitytechnical skilled labor availability wage pressureswage pressures
US wages increasingly highUS wages increasingly high need for global positioningneed for global positioning
new markets/customersnew markets/customers global JIT suppliersglobal JIT suppliers
outsourcingoutsourcing
exodus of US labor intensive exodus of US labor intensive industryindustry shedding lower skilled operationsshedding lower skilled operations still struggling with higher and still struggling with higher and
technical skilled labor availabilitytechnical skilled labor availability wage pressureswage pressures
US wages increasingly highUS wages increasingly high need for global positioningneed for global positioning
new markets/customersnew markets/customers global JIT suppliersglobal JIT suppliers
outsourcingoutsourcing
issues / trends
City of Madison EDC
Typical Location Criteria: Manufacturing Projects
Critical
Co
stC
on
dit
ion
s
• Skilled labor supply/talent pool• Labor quality• Labor relations• Market access (suppliers &
customers)• Real estate quality and availability• Utility capacity/quality
• Labor• Freight• Power • Gas/Fuel (processors)
Important
• Real estate• Taxes• Incentives• Other Utility costs
• Transportation infrastructure/ service
• Semi-/unskilled labor pool• Industrial training• Regulations• Quality of Life
City of Madison EDC
Distribution centers areoptimizing their global networks
less handling, more automation, less handling, more automation, improved inventory management, improved inventory management, higher number of turnshigher number of turns
focus on all costs (e.g., labor, focus on all costs (e.g., labor, taxes, utilities), not just freighttaxes, utilities), not just freight
rationalizing vendors, strategic rationalizing vendors, strategic sourcing – supplier capabilitiessourcing – supplier capabilities
outsourcing (3PL & 4PL)outsourcing (3PL & 4PL) regional focus (globally and regional focus (globally and
within U.S.)within U.S.) fewer, larger facilitiesfewer, larger facilities hub and spokehub and spoke
superior transportation superior transportation infrastructure and capabilities by infrastructure and capabilities by key modeskey modes
less handling, more automation, less handling, more automation, improved inventory management, improved inventory management, higher number of turnshigher number of turns
focus on all costs (e.g., labor, focus on all costs (e.g., labor, taxes, utilities), not just freighttaxes, utilities), not just freight
rationalizing vendors, strategic rationalizing vendors, strategic sourcing – supplier capabilitiessourcing – supplier capabilities
outsourcing (3PL & 4PL)outsourcing (3PL & 4PL) regional focus (globally and regional focus (globally and
within U.S.)within U.S.) fewer, larger facilitiesfewer, larger facilities hub and spokehub and spoke
superior transportation superior transportation infrastructure and capabilities by infrastructure and capabilities by key modeskey modes
actions / impacts
concurrent focus on cost and concurrent focus on cost and customer servicecustomer service
need to improve efficiency and need to improve efficiency and lower cost through the entire lower cost through the entire supply chain and physical supply chain and physical networknetwork
global sourcing and networksglobal sourcing and networks consolidation / rationalizationconsolidation / rationalization
of current networkof current network with acquisitionswith acquisitions
concurrent focus on cost and concurrent focus on cost and customer servicecustomer service
need to improve efficiency and need to improve efficiency and lower cost through the entire lower cost through the entire supply chain and physical supply chain and physical networknetwork
global sourcing and networksglobal sourcing and networks consolidation / rationalizationconsolidation / rationalization
of current networkof current network with acquisitionswith acquisitions
issues / trends
City of Madison EDC
Typical Location Criteria: Distribution Center Projects
Critical
Co
stC
on
dit
ion
s • Semi-/unskilled labor pool• Highway access• Market access (suppliers &
customers)• Real estate quality and availability
• Labor• Freight (inbound, outbound)• Real Estate
Important
• Taxes (property, inventory)• Incentives
• Transportation services• Water pressure (mega-DC)• Labor relations• Industrial training• Regulations
City of Madison EDC
Shared services/contact centers arecost and customer service focused…
shared services centersshared services centers large regional centerslarge regional centers Americas, Asia/Oceania, EMEAAmericas, Asia/Oceania, EMEA locations with broad financial skills locations with broad financial skills
and multi-lingualand multi-lingual diversification of riskdiversification of risk
customer contact centerscustomer contact centers outsourcing waveoutsourcing wave 33rdrd and 4th tier US locations and low- and 4th tier US locations and low-
cost offshore locationscost offshore locations multiple operations to cover time zone multiple operations to cover time zone
and maintain reasonable sizeand maintain reasonable size low-risk, technology-capable locations low-risk, technology-capable locations
(phone, internet etc.)(phone, internet etc.)
shared services centersshared services centers large regional centerslarge regional centers Americas, Asia/Oceania, EMEAAmericas, Asia/Oceania, EMEA locations with broad financial skills locations with broad financial skills
and multi-lingualand multi-lingual diversification of riskdiversification of risk
customer contact centerscustomer contact centers outsourcing waveoutsourcing wave 33rdrd and 4th tier US locations and low- and 4th tier US locations and low-
cost offshore locationscost offshore locations multiple operations to cover time zone multiple operations to cover time zone
and maintain reasonable sizeand maintain reasonable size low-risk, technology-capable locations low-risk, technology-capable locations
(phone, internet etc.)(phone, internet etc.)
actions / impacts
consolidation, rationalization and consolidation, rationalization and relocationrelocation
operating costs (labor, labor, operating costs (labor, labor, labor)labor)
customer needs and geographic customer needs and geographic coverage drive deployment – coverage drive deployment – globallyglobally
re-engineering process and re-engineering process and technology enabled technology enabled greater mobilitygreater mobility
skill requirements skill requirements both higher and lowerboth higher and lower
data and call volume data and call volume managementmanagement
consolidation, rationalization and consolidation, rationalization and relocationrelocation
operating costs (labor, labor, operating costs (labor, labor, labor)labor)
customer needs and geographic customer needs and geographic coverage drive deployment – coverage drive deployment – globallyglobally
re-engineering process and re-engineering process and technology enabled technology enabled greater mobilitygreater mobility
skill requirements skill requirements both higher and lowerboth higher and lower
data and call volume data and call volume managementmanagement
issues / trends
City of Madison EDC
Typical Location Criteria:Shared Service and Call Center Projects
Critical
Co
stC
on
dit
ion
s
• Labor availability• Labor quality• Telecom infrastructure• Real estate availability
• Labor costs• Real estate costs
Important
• Corporate Taxes• Telecom• Incentives (call centers)
• Quality of life• Training• Management labor pool• Business services• Labor regulations• Air service• Power service
City of Madison EDC
Technology companies no longerfocus on “growth at any cost”
exodus of labor intense operations to exodus of labor intense operations to low cost countrieslow cost countries overseas outsourcing to reduce costs assembly operations focus on low-cost
countries multi-country R&D efforts
paying more attention to labor, freight, taxes, and utility costs
focus on the ability to effectively recruit scientific, engineering, technical, and skilled production talent critical mass of existing local talent access to top universities and programs
exodus of labor intense operations to exodus of labor intense operations to low cost countrieslow cost countries overseas outsourcing to reduce costs assembly operations focus on low-cost
countries multi-country R&D efforts
paying more attention to labor, freight, taxes, and utility costs
focus on the ability to effectively recruit scientific, engineering, technical, and skilled production talent critical mass of existing local talent access to top universities and programs
actions / impacts
consolidation and downsizingconsolidation and downsizing increased FDIincreased FDI new production operations more new production operations more
focused on traditional locational focused on traditional locational measuresmeasures
still driven by talent and the still driven by talent and the environment in which to attract themenvironment in which to attract them
cluster in regions with a substantial scientific, technical and/or academic presence and eminence
consolidation and downsizingconsolidation and downsizing increased FDIincreased FDI new production operations more new production operations more
focused on traditional locational focused on traditional locational measuresmeasures
still driven by talent and the still driven by talent and the environment in which to attract themenvironment in which to attract them
cluster in regions with a substantial scientific, technical and/or academic presence and eminence
issues / trends
City of Madison EDC
Typical Location Criteria:Technology Projects
CriticalCritical
Co
stC
on
dit
ion
s
• Technical skilled labor pool• Quality of life• Labor quality• Training• University presence• Real estate quality• Power & telecom capacity/quality
Important
• Labor (labor intensive)• Logistics• Real estate• Utilities (Power-California)• Taxes• Incentives
• Transportation access• Technical support services• Semi-/unskilled labor• Air service
City of Madison EDC
The competition for technology projects…
Media Del ReyMedia Del Rey Silicon HollowSilicon Hollow
Silicon ForestSilicon Forest
Silicon Gulch/ Silicon Hills
Silicon Gulch/ Silicon Hills
Silicon VillageSilicon Village
Silicon VineyardSilicon Vineyard
Silicon GulchSilicon Gulch
Silicon ValleySilicon Valley
Multimedia GulchMultimedia Gulch
Silicon IslandSilicon Island
Silicon BeachSilicon Beach
Digital CoastDigital Coast
Silicon DesertSilicon Desert
Cyberchella ValleyCyberchella Valley
Silicon MesaSilicon Mesa
Silicon CitySilicon City
Silicon PrairieSilicon Prairie
Telecom CorridorTelecom Corridor
Silicon FreewaySilicon Freeway
Biotech BeachBiotech Beach Silicon BayouSilicon Bayou
Silicon BeachSilicon Beach
Silicon SwampSilicon Swamp
Telecom ValleyTelecom Valley
Silicon TriangleSilicon Triangle
Silicon RiverSilicon River
Automation AlleyAutomation Alley
Silicon Tundra/ Silicon Valley NorthSilicon Tundra/ Silicon Valley North
WebPortWebPort
Silicon IslandSilicon Island
Silicon AlleySilicon Alley
Silicon Valley ForgeSilicon Valley Forge
Philicon ValleyPhilicon Valley
Silicon HollerSilicon Holler
Silicon MountainSilicon Mountain
Silicon SeaboardSilicon Seaboard
Silicon Dominion/ Silicon PlantationSilicon Dominion/ Silicon Plantation
E-CoastE-Coast
Cyber DistrictCyber District
Silicon HillSilicon Hill
Silicon NecklaceSilicon Necklace
Silicon SandbarDot CommonwealthSilicon Mountain
Silicon SandbarDot CommonwealthSilicon Mountain
Silicon SnowbankSilicon Snowbank
Silicon PlainsSilicon Plains
Silicon GlacierSilicon Glacier
Silicon OrchardSilicon Orchard
Silicon IslandSilicon Rain ForestSilicon IslandSilicon Rain Forest
City of Madison EDC
Biotech / Biopharma is Growing…
• Sales of biopharmaceuticals grew from $8 billion in 1993 to $22.3 billion in 2000 – small compared to the pharmaceutical industry: $400 billion (2002)
• The future looks bright, with an estimated 371 biotech-based drugs in development. At the end of 2002, approximately 122 biotech-based drugs were in Phase III trials or awaiting approval in the United States.
• The top 10 biopharmaceutical companies accounted for 64.7% of the segment’s global sales in 2002. Of those, six companies had sales of $1 billion or more 2002: Amgen, Genentech, Serono, Chiron, Biogen, and Genzyme Corp.
City of Madison EDC
Competition for Biotech / Biopharma Investment
• Clinical development (R&D) locations vs. manufacturing locations
• Top cluster locations include:• Boston
• San Francisco
• San Diego
• Long Island – Princeton – Philadelphia corridor
• Los Angeles / Thousand Oaks
• Washington – Baltimore corridor
• Raleigh-Durham
• Seattle
• International manufacturing candidate locations include:• Singapore
• Switzerland
• Puerto Rico
• Ireland
City of Madison EDC
Headquarters examining redeployment at a steady pace
evaluating joint deployment with evaluating joint deployment with existing operations:existing operations: shared serviceshared service regional HQregional HQ R&DR&D
Taxes and incentives seem to be more Taxes and incentives seem to be more compelling to the C-suite than compelling to the C-suite than operational issuesoperational issues
evaluating joint deployment with evaluating joint deployment with existing operations:existing operations: shared serviceshared service regional HQregional HQ R&DR&D
Taxes and incentives seem to be more Taxes and incentives seem to be more compelling to the C-suite than compelling to the C-suite than operational issuesoperational issues
actions / impacts
corporate and personal tax issuescorporate and personal tax issues rationalizing deployment of global vs. rationalizing deployment of global vs.
national HQnational HQ More willing to consider relocation More willing to consider relocation
from “granddad’s” hometownfrom “granddad’s” hometown imageimage customer/operational accesscustomer/operational access ease of doing business (regulations)ease of doing business (regulations) politicspolitics
corporate and personal tax issuescorporate and personal tax issues rationalizing deployment of global vs. rationalizing deployment of global vs.
national HQnational HQ More willing to consider relocation More willing to consider relocation
from “granddad’s” hometownfrom “granddad’s” hometown imageimage customer/operational accesscustomer/operational access ease of doing business (regulations)ease of doing business (regulations) politicspolitics
issues / trends
City of Madison EDC
Typical Location Criteria:Headquarters Projects
CriticalCritical
Co
stC
ost
Co
nd
itio
ns
• Quality of life• Image (area, site)• Professional/technical labor supply• Real estate quality• Air service (global reach)• Quality of local education• Telecommunications
• Real estate (Class A)• Corporate Taxes• Incentives• Personal Taxes
• Climate• Higher education/University• Training• Business services• Lodging and restaurants• Access to customers• Diversity
Important
City of Madison EDC
Economic Development Perspectives
Cost reduction, consolidation of operations, shifting focus on global investment, and strained capital markets have combined to reduce the number of prospects and projects in nearly every industry:
Then… Now…
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1998 1999 2000 2001 2002
U.S. Facility Location Announcements
Source: Site Selection Magazine
City of Madison EDC
What are Leading Economic Development Agencies Doing to Stay Competitive?
• Understand the “Hooks” that attract business investment
• Develop an Economic Development Strategy: Vision – Reality – Mission
• Market wisely
• Get prepared on all fronts
• Data/information, sites, training, incentives, infrastructure
• Focus on meaningful targets
• Build coalitions to help in the effort
• Be organized and industry-knowledgeable
City of Madison EDC
What are the “Hooks” That Draw Prospects to Communities?
• Past successes
• Favorable infrastructure / geography
• Available real estate
• Favorable statistics
• Deep / unique labor skills
• Low operating costs
• Incentives
• Strong E.D. strategies
• Aggressive marketing
• Market access / business synergies
City of Madison EDC
Hard $
Soft $
One-Time Ongoing
• Property tax abatement (real, personal, inventory)
• Reduced property assessment
• Reduced rent
• Reduced utility rates
• Utility tax exemptions
• FTZ designation
• Corporate income tax credits (subject to actual liability)
• Low-interest loans/financing
• Customized training (instruction, travel, wages)
• Cash grant
• Land cost write-down
• Sales/use tax exemptions
• Site improvements (grading, utility extensions, etc.)
• Free soil/environmentaltests
• Zoning/covenant variances
• Expedited permitting
• Relocation assistance
• Hiring assistance (recruiting, advertising, testing, screening)
• Temporary space
• Power reliability improvements
4 3
2 1
Incentive “Hooks”
City of Madison EDC
E.D. Strategy “Hooks”
• Targeted industries
• Regional cooperation / co-opetition
• Leadership
• The E.D. strategic plan
• Companies have strategic plans; these are tracked by analysts (Wall St.)
• Corporations expect communities to also maintain a strategic plan; these are tracked by people like Deloitte
City of Madison EDC
Strategy drives success
• Economic development strategy is key
• Formulate a Vision – Understand your Reality – Develop your Mission
Mission
How do you turn the Vision into
Reality?
Vision
What do you want
to be?
Reality
Where are younow?
(Assessment)
City of Madison EDC
Our Perspective on Madison’s Competitive Position
• Substantial and continued successes in the areas of biotech and other high-technology R&D
• Solid track record of incubation and support of entrepreneurial growth (WARF, some venture capital)
• Healthy local economic indicators for residents: housing growth, low unemployment, etc.
• Well-known as a great place to live and raise a family
City of Madison EDC
Our Perspective on Madison’s Competitive Position
But,
• Evolution towards service industries and R&D is continuing – functional diversification
• Distinct disadvantage in several key indicators and cost metrics: labor availability, labor cost, tax, etc.
• The competition regularly out-markets Madison
• Not as well-known as a business location, certainly not perceived to be on par with Tier 1 R&D locations
•Wisconsin ranked 27 in Milkin Institute’s 2004 State Technology and Science Index, down from 25 in 2002
•Massachusetts and California ranked #1 & 2
City of Madison EDC
Concluding Thoughts
•The challenge is before you
•The stakes are high – for all involved
•The competition is tremendous
•Proactive, not reactive strategies tend to win investment
•Play to Madison’s strengths
•Corporate retention is key
•Address development needs