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PCED Staff Note: This week’s post is part of a series on evaluating site selection factors from a local perspective titled, “Site Selection Factors”. The aim of the series is to outline the criteria used by companies to determine where they will build new facilities or expand existing ones. We will examine the top 10 factors as adapted from Area Development Magazine’s, “The Top Factor’s to Navigate the Location Maze”¹. Those factors, listed in order of priority, are as follows: Availability of Skilled Labor, Highway Accessibility, Quality of Life, Occupancy or Construction Costs, Available Buildings, Labor Costs, Corporate Tax Rate, Proximity to Major Markets, State and Local Incentives, Energy Availability and Costs. Guest bloggers will contribute each week from their area of expertise. Some topics may span multiple weeks.

 

To Be or Not to Be…  Proximate to Markets, That Is

 

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Looking at the top 10 site-selection criteria in this year’s edition of Area Development’s annual survey of corporate executives, it’s easy to understand how factors like “availability of skilled labor” and “state and local incentives” might influence where a company chooses to locate or expand. More to the point for local economic developers, it’s just as easy for them to assess whether or not their communities have these attributes that companies are seeking.

But what about something as vague as “proximity to markets”? Like another top-10 entry, “quality of life,” isn’t “proximity to markets” a relative term? After all, even though Hawaii might not seem like anyone’s idea of providing ready access to any markets at all, if a particular company’s customers are all located in Hawaii, then – at least in that instance – the Aloha State would seem to pass the “proximity to markets” test with flying colors.

And while we here in North Carolina often cite our strategic Mid-Atlantic geography as ideal for reaching the country’s major population centers along the East Coast, that makes not a bit of difference to the company whose target audience is situated entirely west of the Mississippi.

And of course, for manufacturers, the question doesn’t just end with how close their potential location is to their customers; there is also the issue of how far they are from their suppliers. For extraction-based industries like oil and gas, the most determinate site-selection variable by far will always be proximity to the resource itself being extracted; little else matters, which is why coal mines are in West Virginia, drilling platforms dot the Gulf of Mexico, biomass plants are surrounded by areas of dense timber, and hydraulic fracturing operations sit atop bountiful subterranean formations of gas-rich shale.

Proximity to markets is essentially a measure of the costs a company will bear, directly or indirectly, at whichever location it ultimately chooses. Those costs might take the form of a manufacturing company’s logistics expense in shipping finished products to the customer, receiving raw materials or components from vendors, or both. Those costs might also take the form of travel time for a corporate headquarters’ executives in jetting to and from key operations across the country or even around the globe.

And the greater the distance traversed – be it by goods destined for store shelves, by cargo containers bound for assembly plants on the other side of the world, or even by employees traveling worldwide to meet with clients and business partners – the more time, and thus, the higher the cost (financial or otherwise), burdened by the company.

But even if we have a general idea of what it means to be proximate to markets, is this really something that local communities can change or affect? Whereas with other site-selection factors that are prized by companies – such as tax rates, available sites and buildings, and even highway accessibility – at least measures can be taken and policies adopted to improve a community’s or state’s attractiveness in those areas, even if solutions might be longer-term.

With something as relative as “proximity to markets,” however, each location’s suitability is very much in the eye of the beholder. And if the beholder needs to be on the other side of the country or state from where your community is, there isn’t a whole lot that can be done about it. A community could be vastly superior with respect to labor cost and availability, taxes, quality of life, and many other criteria; yet, if that same community is nowhere near the customers that a company will serve, then it’s going to be an unlikely fit for the company, no matter the other advantages.

Novelist Charles Dudley Warner once quipped, “Everybody complains about the weather, but nobody does anything about it.”

Alas, when it comes to offering “proximity to markets,” communities may find themselves complaining when they’re in the wrong geography for a company’s site- selection needs, but there doesn’t appear to be much at all they can do about  it.

¹ “The Top Factors to Navigate the Location Maze.” Area Development, Volume 51, Number 4, Q42016, pp. 24-36.

Mr. Chris Chung

Mr. Chris Chung

Chief Executive Officer, Economic Development Partnership of North Carolina

This post was authored by Mr. Chris Chung, Chief Executive Officer of the Economic Development Partnership of North Carolina (EDPNC).