SHOULD I STAY OR SHOULD I GO?
The CEO of an international chemical company is at a crossroads. One path leads right back to where the company was founded: Canada. The other points south, to the United States, where most of the company’s customers are located. Which road is best traveled?
Making a snap judgment based on loyalty or conventional market wisdom would be the worst thing to do, according to the experts we chatted up. Before making the ultimate relocation decision, our confused CEO must successfully complete a major self-assigned homework project, and turning in a crappy cardboard California mission or baking soda volcano won’t cut it this time.
Lesson one involves revisiting one’s original business goal, followed by calculating the return on investment (ROI) of each option. What would be the total cost of each option? What would be the total savings from each option? Keep in mind that recouping losses from a move can take years. By the same token, using the Canadian company’s quandary as an example, after recouping those losses being closer to customers can cause profits to soar higher than they ever would have in the Great White North.
While the core mission and ROI of a business are paramount, they are not the only factors to consider when it comes to relocation. Regulatory issues, tax rates, tax credits, utility costs and access to inland and ocean ports, international airports, rail corridors and Interstates all must factor into a manufacturing CEO’s ultimate call. And, speaking of calls, there are economic development corporations (EDCs) all over the U.S. just itching to get chief executives on the horn to boast about the business advantages of moving to their respective states.
Take Texas. It does not surprise Governor Greg Abbott that Chief Executive magazine again ranked the Lone Star State No. 1 for business in the United States. “The Texas model is proof that limited government secures economic liberty and encourages unlimited opportunity,” Abbott said on July 5, when his state celebrated another momentous relocation victory: the grand opening of Toyota Motor North America in Plano, where the world’s second largest automaker moved its vast operations on this side of the world from Torrance, California, where it had been for decades.
Abbott is keen to why Toyota joined Hulu, Jacobs Engineering, Mitsubishi Heavy Industries, Kubota, Jamba Juice, Sabre and many others who decided to “Go Big” in Texas (as the state’s current business-enticement motto goes). “Restrained government, lower taxes, smarter regulations, right-to-work laws and litigation reform, these are the pro-growth economic policies that help free enterprise grow,” the governor beamed.
“Amen to that, brother,” is essentially what Hudson Products CEO Grady Walker would say to that. At May’s announcement that the leading manufacturer of air-cooled heat exchangers and axil flow fans would be relocating its manufacturing plant from Tulsa, Oklahoma, to Rosenberg, Texas, Walker remarked, “Hudson Products had several options outside of Texas, but the pro-business climate in this state is second to none.”
Greasing the deal for Hudson was a Texas Enterprise Fund grant offer of $1,020,000. But that is money well spent considering the relocation is expected to create 150 jobs with a capital investment of more than $6 million, according to the Greater Fort Bend Economic Development Council. “The impact these 150 jobs will have on Fort Bend County is tremendous,” says County Commissioner Vincent Morales Jr. “We are growing the tax base, growing the job base and bringing more residents into west Fort Bend County who will live, shop and eat here.”
School is not out yet
An EDC making an offer a CEO can’t refuse means more homework awaits. “Go over the risks, resource demands, legal issues and other changes/requirements that the move to a new facility will entail,” advises California Manufacturing Technology Consulting (CMTC). “Including senior management or staff that are key to your operations in this review, can help you form a more complete picture of what the move will require.
“Also, be sure to double- and triple-check the new location to make sure that it has adequate resources such as power, gas, water, Internet access, roadway access, etc. Otherwise, you could end up moving your company to a new location that may not serve your needs as well as the previous location.”
As t’s are being dotted and i’s are being crossed, CEOs should see to it that all employees know about the intent to move. Then come the nuts and bolts of preparing documents, tooling, customer materials and, of course, products for a safe move to the new location. It is important to test production equipment once it has been re-installed and to perform a company-wide audit after moving in, according to the CMTC, which is based in Torrance (begging the question: How did you let Toyota get away?).
Location, location, relocation
Business incentives are great, as are skilled labor pools, close proximity to colleges and universities and a great quality of life for employees. But even if those factors combine to help create bigger, better and/or safer production, a CEO could be chasing new money after bad if their plant winds up in place with burdensome access to rail, airports, Interstates and ports (ocean or inland).
Louisiana-based offshore energy service and supply company Offshore Service Vessels was known as Edison Chouest Offshore last year when it began shipbuilding operations under the TopShip LLC banner in Mississippi. Receiving more than $36 million in state funding and tax incentives no doubt played a huge role in the decision to open in Mississippi, where as of January of this year 425 of a promised 700 TopShip jobs had been filled.
However, also key to the decision was the opportunity for TopShip to open at a new inland port where the former Ingalls Composite Facility had been, according to CEO Gary Chouest, who is the billionaire son of the company’s late founder, Edison Chouest. “The strategic location of TopShip will allow us to take advantage of the deepwater Port of Gulfport and their future expansion plans,” Gary Chouest said of the property the Gulfport authority acquired in March 2015.
Don’t tell him you can’t go home again.
“Born in Mississippi,” Chouest said at the time, “I am back home.”