Area Development Q3 2016 by Area Development

2016 THE PATH TO INCENTIVES

HEALTHY WORKSPACES BOOST PRODUCTIVITY

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Q3/2016

TRANSFORM LIVES and BUSINESSES Also:

»Intermodal Continues to Revolutionize Logistics »Companies Heading Back Downtown

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QUICK STARTED COMPANIES Academy Sports + Outdoors Acuity Brands, Inc. ADP Aflac, Inc. Alcoa, Inc. American Red Cross Bass Pro Shops Beaulieu America Blue Bird Boeing Briggs and Stratton Corporation Carter’s, Inc. Caterpillar Caesarstone Dendreon Corporation DIRTT Environmental Solutions Express Scripts Frito-Lay GEICO Gerresheimer Great Dane Gulfstream Aerospace Corp. Hitachi Automotive Systems America, Inc. The Home Depot The HON Company

Honda Precision Parts of Georgia Hyundai Dymos Hyundai Powertech IKEA Inalfa Roof Systems IVC US, Inc. JCB Kellogg’s Kia Motors Manufacturing Georgia King’s Hawaiian Kubota Manufacturing of America Kumho Tire USA, Inc. LG Chem America, Inc. LMI Aerospace, Inc. Mando America Corporation Meggitt PLC Mercedes-Benz USA Merial U.S. Milliken & Company Mitsubishi Hitachi Power Systems America Mohawk Industries NCR Corporation Neaton Rome, Inc. Nordson Corporation ORAFOL Americas Inc.

Perdue Farms Pirelli Tire North America Premium Peanut, LLC. Proctor & Gamble Quad/Graphics QuikTrip Corporation Ricoh Electronics, Inc. Sewon America, Inc. Shaw Industries Group, Inc. Shire SKC, Inc. Star Granite & Bronze Starbucks Coffee Company Suniva, Inc. TACG Toppan USA, Inc. Toyo Tire North America Trident Seafoods Trinity Rail Operations Triumph Aerostructures Vanguard National Trailer Company voestalpine Walmart eCommerce Fulfillment Center Wrigley ZF Industries

You’re looking for a place where heavy lifting meets sharp thinking. A place where companies don’t just grow, they change the landscape.Talk about your overachievers. And they all share one thing in common – Georgia. Home to Quick Start, the #1 workforce training program and the best engineers in the nation. Visit Georgia.org/Industries to find out how you can become Georgia’s next success story.

Georgia Department of Economic Development

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CONTENTS COVER STORY

16 The PATH to Credits

47 Intermodal Continues to

and Incentives

Revolutionize Logistics and Industrial Real Estate Strategies

The PATH Act provides companies with more stability in terms of investment planning and may significantly impact the number and scale of future investments.

Growing intermodal volumes are promoting investments by port authorities in inland ports and by railroads in logistics centers.

19 Healthy Workspaces

Boost Employee Morale and Productivity

While most employees would agree that their environment has an impact on their health, how many have considered whether the workplace promotes a healthy lifestyle and helps them achieve their wellness goals?

44 Key High-Tech Sectors

41 Companies Heading

Groundbreaking discoveries in key high-tech fields are transforming lives while making businesses more competitive.

In order to lure tech-savvy millennials, many companies that years ago moved out to the suburbs are heading back to downtowns that offer the lifestyle this generation of employees desires.

Transform Lives and Businesses

73 Adaptive Reuse and Infill Projects Change the Urban Landscape

Although there are some challenges to adaptive reuse and infill projects, they can help to develop creative office space in historic, vibrant metro areas, while boosting ROI and environmental sustainability, and catering to the local community and talent pool.

Back Downtown

EDITOR’S REPORT Location Canada Canada’s new federal government is expected to build on the nation’s already enviable position for foreign direct investment.

Exclusive Online Content

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NOW ONLINE... • New Overtime Rules Will Challenge Employers • EMSI: Regional Talent Attraction Study Results — It’s Not All About Core Cities • First Person | Jim Lawton | Chief Product & Marketing Officer | Rethink Robotics • In Focus: A Changing Technology Landscape for the Construction Industry • In Focus: More Than a Facelift — Interior Wall Protection Upgrades Help Meet Facility Management Benchmarks • Location Notebook: West Virginia’s Economic Diversification Helping the State to Meet Challenges • Front Line: “Smart Cities” Use Technology & Data to Improve Citizens’ Lives Area Development® Site & Facility Planning (USPS 345-510) is published five times per year (Q1, Q2, Q3, and Q4 — and Annual Directory in December) at Richmond, VA, by Halcyon Business Publications, Inc., 400 Post Ave., Westbury, NY 11590. Periodicals postage paid at Westbury, NY, and additional offices. Single copies, $10. Yearly subscription U.S. & Canada, $75; foreign, $95.

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for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

Volume 51 | Number 3 Q3/2016

Quote:

One machine can do the work of fifty ordinary men. No machine can do the work of one extraordinary man. Elbert Hubbard (1856–1915), American writer, publisher, artist, and philosopher

SPECIAL REPORT 2016

DEPARTMENTS 4 Editor’s note

The Key to Raising Productivity

6 In Focus

To Address Energy Goals, Remember the Building Envelope

8 In The Know Area Development presents the results of its 7th annual Top States for Doing Business survey of site consultants. Results indicate their top picks overall and in 10 weighted subcategories that factor into the overall rankings.

• Survey of Millennials’ Goals Provides Help in Their Retention • U.S. Manufacturers Attempting to Upskill Their Workforces • Cloud Adoption Multiplying Data Center Demand • Business Location Tracker

10 First Person

Stephen Gold, President & CEO, MAPI

Special Investment Report

Mexico MEXICO’S ECONOMY IS WELL-POSITIONED FOR SUCCESS SPECIAL INVESTMENT REPORT

12 Front Line

Forward-Thinking Companies Leveraging Additive Manufacturing

13 Front Line

Cities Pledge to Reduce and Track Greenhouse Gas Emissions

80 Ad Index/

Web Directory

Mexico’s Economy Is Well-Positioned for Success

Join Our Newsletter areadevelopment.com/newsletter Follow Us On twitter.com/areadevelopment

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POSTMASTER: Send address changes to Area Development, Circulation Department, 400 Post Ave., Westbury, NY 11590. Subscribers requesting address changes must provide both old and new addresses. © Copyright 2016 by Area Development® magazine. ISSN: 1048-6534. Printed in the U.S.A. Area Development® is a registered trademark of Halcyon Business Publications, Inc.

AREA DEVELOPMENT | Q2/2016

EDITOR’SNOTE

Q3/2016

The Key to Raising Productivity The Brookings Institution recently released a report entitled “America’s Advanced Industries: New Trends,” in which its research analysts noted that advanced manufacturing has continued to increase its output and add jobs over the last two years. In this issue’s cover story, we explore some of these high-tech manufacturing sectors that are transforming lives and businesses — from photonics, which enables wearable devices, to robots that work alongside humans, to nanotech materials that are key to the Internet of Things (IoT). All these advances should raise productivity levels that have slowed. And that’s good news for all Americans because rising productivity will lift living standards, says Stephen Gold, president and CEO of the Manufacturers Alliance for Productivity & Innovation (MAPI), in this issue’s First Person column. This issue of Area Development also contains our 2016 Top States for Doing Business report, which is based on our survey of site consultants. They have an inside view of all the factors companies look at when deciding where to locate and expand their businesses. As in years past, the Southern States lead the pack. According to Brad Migdal, senior managing director of Cushman & Wakefield’s Business Incentives Practice, this may be because the Southern States’ permitting processes are among the most favorable in the nation, and their local governments have traditionally been very generous with incentives. When it comes to incentives, the PATH Act, which was signed into law by President Obama at the end of 2015, is an important development for several federal credits and incentives, according to Roma Waclawek of EY. It provides companies with more stability in terms of investment planning and may significantly impact the number and scale of future investments. Needless to say, the outcome of the upcoming presidential and congressional elections will affect taxes and incentives and factor into business planning decisions. What will happen with minimum wages? The Affordable Care Act? And other legislation affecting business investment decisions? For better or worse, the next president and Congress will be in the economic driver’s seat.

www.areadevelopment.com EDITORIAL E-mail: editor@areadevelopment.com Editor Geraldine Gambale Staff and Contributing Editors Dale D. Buss Craig Guillot Dave Claborn Cynthia Kincaid Mark Crawford Phillip Perry Dan Emerson Mark Schantz Tom Ewing Steve Stackhouse -Kaelble Clare L. Goldsberry Karen Thuermer DESIGN/PRODUCTION Art & Design Patricia Zedalis Production Manager Jessica Whitebook Production Assistant Talea Gormican EXECUTIVE Publisher Dennis J. Shea dshea@areadevelopment.com Sydney Russell, Publisher 1965-1986 ADVERTISING SALES William Bakewicz (ext. 202) billbake@areadevelopment.com Valerie Krpata (ext. 218) valerie@areadevelopment.com ONLINE SERVICES Digital Media Manager Justin Shea (ext. 220) jshea@areadevelopment.com Business Development Matthew Shea (ext. 231) mshea@fastfacility.com Web Designer Carmela Emerson BUSINESS SERVICES Reader Service Barbara Olsen (ext. 225) olsen@areadevelopment.com Circulation Gertrude Staudt circ@areadevelopment.com

Editor

EXECUTIVE OFFICES

2016 Editorial Advisory Board

Halcyon Business Publications, Inc.

Christine Bustamante National Co-Leader, Global Location and Expansion Services, KPMG

Scott Kupperman Founder, Kupperman Location Solutions, LLC

Gregory Burkart Managing Director, Specialty Tax Practice Leader, Duff & Phelps, LLC

Dan Levine Practice Leader, Scott Redabaugh Managing Director, Location Strategies and Economic Development Jones Lang LaSalle Oxford Economics, Inc. Dick Sheehy Director, Advanced Planning & Jamie M. Lominack Real Estate Manager, Site Selection, CH2M HILL Michelin North America Eric Stavriotis Senior Vice President, Bill Luttrell Senior Locations Strategist, CBRE Werner Global Logistics, Werner Enterprises, Inc. Thomas Stringer Esq., Managing Director Michael McDermott Consulting Manager, & Practice Leader, Site Selection & Business Global Business Consulting, Incentives, BDO Consulting Cushman & Wakefield, Inc. Dean J. Uminski Executive, Bradley Migdal Senior Managing Director, Site Selection Consulting, Crowe Horwath LLP Business Incentives Practice, Dan White Senior Economist, Cushman & Wakefield, Inc. Moody’s Analytics John Morris Leader of Industrial Services for the Americas, Cushman & Wakefield, Inc.

Les Cranmer Senior Managing Director, Savills Studley Dennis Cuneo Partner, Fisher & Phillips LLP Tim Feemster Managing Principal, Foremost Quality Logistics Larry Gigerich Managing Director, Ginovus Stephen Gray CEO, Gray Construction Minah C. Hall Managing Director, True Partners Consulting LLC

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Kathy Mussio Managing Partner, Atlas Insight

President Dennis J. Shea Finance Mary Paulsen finance@areadevelopment.com

All correspondence to: Area Development Magazine 400 Post Avenue, Westbury, NY 11590 Phone: Toll Free: Fax:

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MEMBER of

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FLORIDA’S TALENT KEEPS COMPANIES ON THE

WHEN BRIGHT TALENT MEETS A GOLDEN OPPORTUNITY, IT CREATES AN INFIRNO For more than 60 years, Lockheed Martin has produced innovative global security and aerospace technologies in Florida. One of their newest projects in the state is INFIRNO®, a high-performance targeting sensor for air, maritime and ground platforms. It has highdeﬁnition optical sensors that enable users to identify, track and engage multiple targets at extended ranges, while also providing intelligence, surveillance and reconnaissance capabilities. Alissa Windham had the opportunity to work as a systems engineering intern on the INFIRNO® team during the design phase. In fact, the skills she developed through her courses at the University of Florida’s College of Engineering prepared her for multiple internships at Lockheed Martin. Getting that real-world experience helped her gain fundamental skills and ultimately ﬁnd a future with the Fortune 100 company, where she is employed as a full-time systems engineer.

FLORIDA TALENT BY THE NUMBERS

st 1 in high-tech

rd 3 largest

employment in the Southeast

workforce in the U.S.

+ 28K annual STEM

+ 311K high-tech

graduates

employees

ALISSA WINDHAM

FRANK ST. JOHN

“Our success – and our nation’s technological advantage – depends on a constant supply of highly trained, highly capable technical talent.” – Frank St. John, Vice President, Lockheed Martin

To maintain that standard of excellence, Florida colleges and universities are committed to collaborating with companies to ensure that STEM programs and high-tech curriculums are relevant to industry needs and remain on the cutting edge of innovation.

“Florida is able to keep high-quality talent in the state, giving high-tech companies like Lockheed Martin and others access to employees who are critical to our businesses’ success.” – Frank St. John, Vice President, Lockheed Martin

Alissa is just one of Florida’s 28,000+ STEM graduates helping tech companies compete and succeed in the industry. Lockheed Martin Vice President Frank St. John, who began his career with the company more than 25 years ago as an intern, believes that access to educated, prepared talent is critical to the company’s future.

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To learn more about the Florida-Lockheed Martin talent partnership, visit ﬂoridathefutureishere.com/LMtalent.

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INFOCUS

To Address Energy Goals, Remember the Building Envelope By Darlene Pope, Senior Vice President, JLL Energy and Sustainability Services

Darlene Pope is Senior Vice President of JLL’s Energy and Sustainability Services group and Director of JLL’s Smart Building program. Before joining JLL, Pope was founder of CoR Advisors, a leading smart building consultancy firm acquired by JLL in 2015. Pope created and leads the annual Building Energy Summit®, a national forum on energy-efficient building technologies and solutions.

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Energy-use reduction typically starts at the light switch — but what if it started at the window? After all, your company’s carefully concocted energy savings strategy could be going right out the window, literally. A building’s HVAC and lighting systems are usually considered ground zero for energy optimization goals, while what happens outside is typically overlooked. That thinking must change, given the importance of a building’s exterior to preventing air leakage, heat transfer, and other energy inefficiencies. With a proactive, data-informed approach to managing the building envelope, facility decision-makers can drive energy efficiency and avoid often far costlier renovations. The roof, for example, is the crown jewel of any building’s defense against leaks and moisture, and also can reduce energy waste. A common misperception is that the only recourse for an aging roof is to replace it outright. However, research shows that roughly half of the roofs being replaced today don’t need replacement. Instead, targeted repair could extend the life and improve the performance of the existing structure.

Why It’s Time to Pay Attention to Our Building Envelopes Buildings are the single biggest component of the world’s energy puzzle, accounting for 36 percent of all U.S. energy use and 65 percent of electricity consumption. However, an estimated one third of energy use in commercial buildings is unnecessary or inefficient. Between 30 to 50 percent of energy loss is caused by air leakage and heat transfer through the building envelope and roof, according to U.S. Dept. of Energy (DOE) research. It doesn’t have to be that way. The DOE also estimates that a well-designed air barrier system could cut down on air leakage in commercial buildings by up to 83 percent, lower gas bills by more than 40 percent, and curb electrical consumption by 25 percent or more.

Sophisticated Forensics Tools Highlight Vulnerability — and Opportunity With a little help from advanced technology, a facility manager can significantly reduce the threat of moisture and heat loss. Today’s sophisticated sensors, thermo scans, and other diagnostic technologies can pinpoint heat loss and moisture issues in far more detail than previously possible. A flyover survey conducted with NASA-grade infrared cameras, for example, can visualize changes in roof temperature down to one-hundredth of a degree. These images are able to reveal levels of heat loss and moisture not evident by other means. Pressurizing curtain walls and windows to test for air leakage can also determine exactly how much air is escaping through façade cracks or window leaks. Using cutting-edge diagnostics technology can help facility managers ensure that the right repairs are made at the right time, for the best value. In many cases, small retrofitting projects can significantly benefit overall energy savings, as well as occupant comfort. For example, if windows must be updated to meet code, investing a little more on efficiency features such as triple glazing can save 44 percent of electrical heat savings, with payback in just six years. A well-maintained and regularly observed building envelope won’t just save on energy bills, either. It will be better built to stand the test of time. And that’s a financial benefit that’s worthy of every company’s attention. for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

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INtheKNOW

Survey of Millennials’ Goals Provides Help in Their Retention Deloitte Touche Tohmatsu Limited recently released the results of its fifth annual Millennial Survey. Some 7,700 millennials from 29 countries were surveyed to learn more about their values and ambitions, drivers of job satisfaction, and increasing representation in senior management teams. The 2016 results reveal that millennials, in general, express little loyalty to their current employers and many are planning near-term exits — about a quarter within one year and more than 40 percent within two years. According to the survey, this lack of loyalty is due to a number of factors: First, nearly two-thirds of the millennials surveyed feel they are underutilized and not being developed into leaders. Secondly, millennials believe most businesses

are solely profit-driven. Nearly 90 percent of those surveyed believe “the success of a business should be measured in terms of more than just its financial performance.” And, thirdly, millennials put their personal goals ahead of organizational goals. Among these goals are a good work/life balance, finding a life partner, owning their own homes, and financial security that will allow them to save for retirement. The absence of company allegiance presents a serious challenge to any business employing a large number of millennials. Nevertheless, according to the survey, because most young professionals choose organizations that share their personal values, it’s not too late for employers to overcome this “loyalty challenge.”

U.S. Manufacturers Attempting to Upskill Their Workforces In early summer, PwC released the results of a survey on talent in the manufacturing industry and how U.S. manufacturers are preparing to attract a new generation of workers. The survey of 120 U.S. manufacturers, which was conducted in cooperation with the Manufacturing Institute, reveals that manufacturers have either already begun to develop a talent pipeline necessary to harness new and disruptive manufacturing technology — e.g., 3D printing, robotics, IoT — or are ramping up their efforts to do so. According to the survey results, only 33 percent of manufacturers say they have little or no difficulty in hiring talent to exploit advanced technology, while 44 percent have moderate difficulty. However, 31 percent who say they see no skills shortage now believe one will occur over the next three years, and another 29 percent say there is a skills shortage now and it will be even more acute over the next three years. When asked if advanced technology will affect

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their number of employees, 45 percent of the PwC survey-takers say it will not. However, 38 percent anticipate hiring additional workers to manage all the new technologies. These workers will come from the Millennial generation (born 1981 to 1997) and from Gen Z (born 1994 to 2004). Most of these workers will need to have a college degree. It should be noted that in 2013, only 25 percent of advanced technology workers had no college degree (as compared to 63 percent in 1980). In order to upskill their employees, most of the respondents say they resort to in-house training (74 percent), followed by recruitment of local STEM students (41 percent), and training outside the company (40 percent). And although just 25 percent of those surveyed say they look to hire people outside their industry, as manufacturers invest and deploy advanced technologies, they are increasingly drawing workers from other fields, e.g., information technology.

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

Track business relocations and expansions on Area Development Online.

Studies/Research/Papers on Area Development Online. We cull insightful corporate real estate-focused studies, research, and papers from credible industry sources at www.AreaDevelopment.com/Studies.

We track announcements of all significant investment and job-creation projects throughout the United States and Canada at www.AreaDevelopment.com/NewsItems.

BUSINESS LOCATION TRACKER

New Dow Chemical Plant To Be Built in Idaho The Dow Chemical Company plans to construct a new 60,000-square-foot manufacturing facility in Burley, Idaho, to produce the STYROFOAM brand insulation.

Auto Supplier To Create 400 Jobs in Flint, Michigan C3 Venture Flint, a producer of interior plastic automotive parts, is establishing its $9.68 million assembly plant in Flint, Mich.

Dollar Tree to Invest $110 Million in Virginia Headquarters Dollar Tree, Inc.’s corporate headquarters investment in the City of Chesapeake, Va., will retain 825 jobs and create 600 new jobs over the next six years.

New Santa Monica Headquarters for Edmunds.com Edmunds.com, the online car information and shopping network, has opened its new 143,000-square-foot headquarters at the Colorado Center in Santa Monica, Calif., housing a staff of 700.

Mercedes-Benz Vans Breaks Ground on $500 Million S.C. Plant Construction has begun on Mercedes-Benz Vans’ new Sprinter plant for the North American market in North Charleston, S.C., which is expected to create 1,300 direct jobs and an additional 400 at suppliers.

Aerospace MRO Relocating to Kansas Triumph Group, Inc., an aerospace MRO company, is relocating its Missouri operations to a new purpose-built, 156,000-square-foot facility in Logistics Park, Edgerton, Kan., representing the company’s third facility in the state.

Amazon.com To Open Jacksonville Fulfillment Center Food Processor Opens Its Missouri Facility

Lowe’s to Create 600 Jobs in Tennessee

Moon Ridge Foods has opened its processing facility in Pleasant Hope, Mo. The company plans to hire 160 associates over the next two years.

Home improvement company Lowe’s will invest about $100 million to locate a new direct fulfillment center in Coopertown, northwest of Nashville, in Robertson County, Tenn.

E-commerce retailer Amazon.com has announced plans for an 800,000+-square-foot fulfillment center in Jacksonville, Fla., which will create more than 1,500 full-time jobs.

Cloud Adoption Multiplying Data Center Demand The ever-increasing demand for online content such as movies, videos, apps, and social media is spurring the adoption of cloud services to store all this content. This, in turn, is expected to double the size of the North American data center industry by 2021, according to JLL’s 2016 North America Data Center Outlook report. “With information streaming in from every corner of the world, organizations struggle to understand where and how to best manage and process their data to deliver instant, reliable access to information for consumers and businesses alike,” says Bo Bond, Central Region lead for JLL’s Data Center Solutions Group. “Cloud services, digital content, and new data sovereignty

laws are setting the data center market on fire,” he continues. “Demand is historically strong, so the onus is on the data center operators to build space fast enough, while also accommodating shorter, more flexible lease structures that have become highly popular as data strategies have evolved.” Additionally, data sovereignty laws subject digital data to the laws or legal jurisdiction of the country in which the data is stored. According to the JLL report, countries around the globe are increasingly enacting such laws. Consequently, some of the data industry’s biggest players are quickly expanding globally to meet growing demand and regulatory compliance requirements.

AREA DEVELOPMENT | Q3/2016

FIRSTPERSON STEPHEN GOLD

PRESIDENT & CEO

Why is manufacturing so important to the U.S. economy? Gold: Start with basic economics: to raise living standards you need to increase your society’s wealth and/or purchasing power. Countries do this by creating new value and increasing productivity. That would be much harder to achieve if the U.S. were solely a service economy. A vibrant manufacturing base leads to more research and development, innovation, productivity, exports, and middleclass jobs. Manufacturing helps raise living standards more than any other sector. Manufacturing generates more economic activity than other sectors. For every dollar of domestic manufacturing value-added, another $3.60 of economic activity is generated elsewhere across the economy. For every manufacturing job, there are 3.4 jobs created in nonmanufacturing industries. No other sector comes close to these numbers. Why is it underestimated in official government data? Gold: First, the government categorizes businesses by the North American Industry Classification System (NAICS) — manufacturing industries are accounted for in codes 31 through 33. But most of the activities within these codes are measured at the plant level, not the full company level. Because manufacturing-related activities such as R&D, corporate management, logistics operations, and advertising and branding often do not occur on-site at a plant, they are considered to lie in other sectors, and thus outside the scope of manufacturing’s impact. Secondly, in calculating the manufacturing footprint, the federal government measures the value chain from the production of raw materials to the loading dock at the manufacturing plant — in other words, the upstream supply chain. This ignores the downstream sales chain, whose businesses — without the manufactured products — would operate at a more limited extent, if at all. And finally, government statistics measure only the value of manufactured goods sold to “final demand” — that is, destined for households, business investment, government, or export. Products made as an intermediate input into another sector’s supply chain (for example, bricks, aluminum, and lumber for the construction sector) are not included in the federal government’s measurement of manufacturing.

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MAPI

How are disruptive technologies — e.g., robotics, IoT, 3D printing — affecting manufacturing productivity? Gold: For decades, and especially between 1992 and 2007, manufacturing labor productivity averaged over 3 percent. Since then, productivity in the sector has been halved. This is a key factor behind the slow output growth and slow wage growth we’ve experienced since the recession’s end in 2009. If we are to significantly increase living standards for Americans, productivity must rise again. The good news is that manufacturing is in the midst of a new revolution, driven by digitalization and the integration of cyber and physical systems. The most important new technologies being developed have the potential to dramatically increase productivity in the coming decades. This is especially true of efficiency-enhancing equipment such as robotics and other advances in automation that will allow U.S. manufacturers to compete with companies across the globe. What is the impact of Big Data? Gold: Manufacturers have lagged behind other sectors, such as retail and finance, in adopting Big Data analytics. Manufacturers rarely sell directly to consumers — their customers are typically other manufacturers that use the inputs to make their own products or distributors that act as middlemen to get the products to market. So the opportunity for manufacturers to create a big database wasn’t apparent for a while. But a new era is dawning. With widespread use of sensors and controls and more sophisticated use of analytics, companies can explore uncharted waters. Advances in technology enable more accurate forecasts of product demand and production, a better understanding of plant performance across multiple factors, and faster service and support to customers. The advances also allow manufacturers to take a more strategic view of quality from a corporate-wide perspective. The biggest game changer, perhaps, is that in time manufacturers will be able to use data to provide full product lifecycle services, increasing their value even more to society.

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

Even as their workforces shrink, what are manufacturers doing to satisfy their needs for highly skilled workers? Gold: The best opportunity to train students for manufacturing careers is for businesses to partner with school districts and technical colleges. We see this happening nationwide. In Latrobe, Pa., Kennametal’s Young Engineers Program provides a dozen local high school students with hands-on experience at the company for a semester. In Charlotte, N.C., Siemens has partnered with Central Piedmont Community College to create a 3.5-year mechatronics apprenticeship program. In Columbus, Ga., Pratt & Whitney works with Columbus Technical College and the Muscogee County School District so that high school students can take a certified manufacturing course at the technical college and work part time at the jet engine manufacturer. Manufacturers have introduced hundreds of programs like these across the country. Can you give us your predictions as to what U.S. manufacturing will look like by mid-century? Gold: It’s not difficult to imagine smart factory floors,

robotics and advanced automation, and supply chains fully integrated through real-time data collection and analytics — all staffed by technologically savvy employees. At the same time, certain fundamentals of manufacturing will stay the same. Even in the most knowledge-based economies, manufactured goods will continue playing a critical role in the public’s experience. The sector’s ability to innovate and lift living standards through increased productivity will remain central to policymakers’ desire for economic growth. Proximity to customers will continue to drive investment decisions. This means the United States, as the most affluent, influential economy in the world, will remain one of the top focal points for manufacturing for decades to come.

THE ASSIGNMENT

Area Development’s Editor recently asked Stephen Gold, President & CEO of the Manufacturers Alliance for Productivity and Innovation (MAPI), about the true impact of manufacturing on the nation’s economy and standard of living.

When it comes to expanding or relocating your data center,

• Low-cost, high-quality energy Our industrial rates are 26% lower than the national average

• Diverse and reliable energy mix Our 42% carbon-free resource mix is the best in the region

• Economic development electric incentive rate option 'LVFRXQWHG HQHUJ\ UDWH IRU XS WR ÀYH \HDUV IRU TXDOLI\LQJ FXVWRPHUV

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01/02/16 8:05 PM

AREA DEVELOPMENT | Q3/2016

FRONTLINE

Forward-Thinking Companies Leveraging Additive Manufacturing

any companies are so busy running their businesses in a reactive way to market forces that they fail to seriously consider what the future might bring. To expand and thrive, it is essential for companies to leverage the newest technologies to stay competitive and be at the forefront of innovation, strengthening their brands and gaining market share, while the others scramble to catch up. Forward-thinking companies are doing just that. For example, global heavy equipment manufacturer Caterpillar, recognizing the disruptive potential of 3D printing and additive manufacturing (AM), has created its “AM Factory” (AMF) — a unique research facility full of the latest AM technologies. Here engineering teams can discover innovative new ways to apply 3D printing to new products, the supply chain, and operations. It allows them to expand how they think about design — even inventing and manufacturing products that can only be made using AM. “To be a leader in the industrial use of additive manufacturing, we knew it was important to increase our efforts in the development of technology,” says Stacey DelVecchio, AM product manager for Caterpillar. “We have 10,000 design engineers at Caterpillar, so getting the tools in place for our engineers to easily access and understand how to use additive in the design process is no small task, but we’re making good progress.” AMF is also set up as an internal supplier to Caterpillar, which increases efficiency and reduces costs. “We are already the source of numerous Cat® part numbers that our engineers have approved to be 3D printed,” adds DelVecchio. “This is a milestone for us. We’ve established a quality plan for the AMF, which makes us a stronger supplier and gives us the experience to know what’s appropriate for any external suppliers we are working with.”

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The polymer room in Caterpillar’s state of the art Additive Manufacturing Factory is not only a tool for product development, but also a supplier for Caterpillar parts.

By Mark Crawford

Another Example Lowe’s, the home improvement company, established its Innovation Labs several years ago to explore how different disruptive technologies may impact the future of retail. For example, Lowe’s is developing visualization capabilities using virtual reality tools for interacting with their customers. Tango, a new imaging technology developed by Google, combines area learning, depth sensing, and motion tracking to give devices the ability to see their environment in 3D. Lowe’s has partnered with Google and Lenovo to provide a new app that will help its customers virtually measure and style their space. Another virtual reality home improvement design and visualization tool is the “Holoroom,” which creates a more immersive visualization of a home improvement project. Lowe’s is also introducing a 3D printing and scanning service to provide homeowners a simple way to design and produce hard-to-find replacement parts and unique décor items. “The home is a very personal space and 3D printing gives homeowners unprecedented access to build items that reflect their individuality,” indicates Kyle Nel, executive director of Lowe’s Innovation Labs. “Until now, it’s been hard for the average consumer to benefit from this technology because of the cost and complexity, so we are providing a more approachable and affordable customization experience.” For any emerging technology, it can be difficult to put together a business case because there is little historical data to help with decision-making. This is when visionary leaders are needed who understand the importance of investing in these technologies and can see the future payoffs. “While this may sound simple, it can be incredibly difficult to do,” says DelVecchio. “The key is investing in these technologies at the appropriate level for your company and finding a leader who will champion the work.”

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

FRONTLINE

Cities Pledge to Reduce and Track Greenhouse Gas Emissions

limate experts estimate that urban regions cause at least 40 percent of greenhouse gas (GHG) emissions. Reductions from just three urban sectors — buildings, transportation, and municipal waste — could potentially exceed total emissions from the U.S. and the European Union. To address this issue among cities worldwide, the Compact of Mayors was formed in September 2014. Former New York City Mayor Michael Bloomberg and United Nations Secretary-General Ban Ki-moon were principal founders. So far, 126 U.S. mayors have joined the Compact, mostly in 2015. The membership date is important because it starts a one-year clock requiring a city to prepare a GHG inventory for buildings and transport. Cities also must identify climate hazards. Data must be reported within a standardized, apples-to-apples format and updated. While voluntary, the Compact is a program with rigor. Many cities are close to the end of their first year. Some work can be tracked via the Compact’s website (www. compactofmayors.org). But, the website only presents completed work, not updates. After the inventory, implementation plans are due in three years. Comparative decisions about GHG directly affect development. Phoenix, for example, has a long-range plan to develop a cityscape with dispersed neighborhood, commercial, and employment centers linked via transit and bike-paths. This redevelopment will reduce automobile dependency and, more importantly, even the demand for travel — a big shift for a city like Phoenix. Just as important, new and different development projects could change funding programs. Consider transportation: In the future, mayors might ask to “flex” federal highway dollars to transit, based on concerns about comparative GHG levels. Currently, that flex allowance is limited. Should state and federal DOTs change policies? Answers aren’t easy,

By Tom Ewing

but they can become controversial.

Work Is Progressing A check with officials in three Compact cities — Atlanta, Knoxville, and Phoenix — indicates that inventory work is progressing, but it’s more difficult than expected. Brian Blackmon is project manager at the City of Knoxville’s Office of Sustainability, already a DOE “Climate Action Champion” city; its leadership is familiar with sustainability. Still, Blackmon comments, “You can’t necessarily describe (the Compact) work as easy. If you’ve done it before, you know what you’re getting into. If you haven’t, it can seem pretty overwhelming.” October is Knoxville’s one-year anniversary. The completed inventory will likely be ready by end of 2016. In Phoenix, Chief Sustainability Officer Mark Hartman says his team will need at least its full year to complete the inventory, and perhaps need a contractor to finish the work. Phoenix, like Knoxville, has a history of working on climate issues, and Phoenix’s inventory builds upon prior work. Atlanta’s inventory is due in July, and it will be ready, says Dr. Jairo H. Garcia, director of Climate Policies & Renewables for Atlanta. His advice for a novice city: Get expert help or commit to training staff. Garcia says Atlanta’s BeltLine project exemplifies the development decisions and priorities linked to ideas implicit in the Compact. The BeltLine will redevelop a network of parks, multi-use trails, and transit along a 22-mile railroad corridor circling downtown. Atlanta officials call it “the most comprehensive transportation and economic development effort ever undertaken in the City of Atlanta and among the largest in the United States.” Look for similar development priorities when public officials begin to link infrastructure and capital projects to GHG data. AREA DEVELOPMENT | Q3/2016

When it comes to site selection, there’s no one-size-fits-all approach, but there are key

questions most businesses have when they’re considering expanding or establishing new operations. The 2016 Virginia Business Site Locator Guide aims to answer those questions, and much more. We hope that when you’re done reading, you’ll agree that the Commonwealth is the best place for business. If you expand or locate your business in the Commonwealth, you’ll join some of the country’s largest and most successful enterprises. Twenty-one Fortune 500 companies are headquartered in Virginia, including Capital One, CarMax and Advance Auto Parts. Other major corporations — such as Amazon, Ikea and Geico — also have established operations in the state. The Commonwealth also continues to shine on business rankings, snagging spots on Forbes’ and CNBC’s best states for business lists. More important than rankings, however, are the reasons why companies are choosing Virginia. The Site Locator Guide lets you hear from company executives who said yes to locating or expanding their businesses in the Commonwealth. It also provides a breakdown on the state’s research and development facilities; colleges and universities; industry employment projections and much more.

VIRGINIA: KEY TO YOUR SUCCESS

WHY VIRGINIA? Location: Virginia’s central, East Coast location provides access to many customers. More than half of the U.S. population lives within a 750mile radius. Virginia is next to Washington, D.C.; within 300 miles of New York City; and halfway between Maine and Florida. Labor Force: The Commonwealth’s workforce is large, well educated and, most importantly, ready to work. Virginia has a labor force of more than 4 million. One in three Virginians holds a bachelor’s or advanced degree. The Commonwealth has one of the lowest unionization rates in the country — 6.2 percent. Low Business Costs: Locating in Virginia could mean more money in your pocket. The corporate income tax rate (6 percent) has not increased since 1972. The unemployment insurance tax rate is 12 percent lower than the national average. Virginia has one of the lowest average workers’ compensation costs in the nation. Building costs range from 6 percent to 21 percent below the national average, depending on the region. The Commonwealth’s cost of living is below the national average in many categories. There’s no franchise or net worth tax. Infrastructure: The Old Dominion is proud to offer a worldclass infrastructure.

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· The Port of Virginia is one of the three busiest container ports on the U.S. East Coast. · Six major highways connect Virginia to the rest of the nation: I-95, I-81, I-64, I-85, I-77 and I-66. · There are 14 commercial airports, including Washington

Dulles International and Ronald Reagan Washington National airports. Ten railroads operate in the state, including two of the nation’s largest, CSX Corp. and Norfolk Southern Corp. Virginia is one of the most connected states in the country. Seventy percent of the world’s Internet traffic passes through the Metropolitan Area Exchange East in Ashburn. There are more than 60 broadband providers in the state. Incentives: Virginia offers many incentives to companies expanding or locating their business in the Commonwealth, including financial assistance, tax credits and customized training. Below are examples of grants available to businesses. For a more comprehensive list visit www.yesvirginia.org. The Commonwealth’s Opportunity Fund: This grant is administered by Virginia’s governor and must be matched by localities. The Governor’s Agriculture and Forestry Industries Development Fund (AFID): These grants are available to companies who add value to Virginia-grown agricultural and forestry products. The Virginia Economic Development Incentive Grant (VEDIG): This is a discretionary performance incentive, designed to encourage companies to invest and create jobs by locating significant operations in Virginia. Education: The Commonwealth has an excellent education system. Career and Technical Education (CTE) courses serve more than 277,000 students in middle schools and high schools. The state boasts 58 local and regional technical centers. More than 575,000 students are enrolled in over 230 higher education campuses around the state. Virginia has 15 public, four-year colleges; 23 public community colleges; 45 private, accredited four-year universities; and 65 out-ofstate higher education institutions that have campuses in the Commonwealth. Quality of life: From foodies to nature aficionados, Virginia has something for everyone. There are more than 500 miles of trails, 22 national parks and 36 state parks in the Commonwealth. The state’s varied landscape includes beaches, mountains and rural and urban areas. Virginia offers the largest concentration of historical attractions in the U.S., including Colonial Williamsburg, Jamestown Settlement, Yorktown National Battlefield, Monticello and many Civil War sites. There’s a growing craft beverage culture, including over 230 wineries and more than 140 craft breweries. Live professional sporting events are available in Virginia, or nearby, including NASCAR, football, baseball, hockey and basketball.

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Contacts for Your Location Needs Stephanie Maheu Marketing & Communications Manager Armada Hoffler Properties Virginia Beach, VA 757-366-4000 smaheu@armadahoffler.com www.armadahoffler.com

William Roberts Business Development Manager Liesfeld Contractor, Inc. Rockville, VA 804-749-3276 wroberts@liesfeld.com www.liesfeld.com

Charles J. Bauman III Director, Economic Development Camden County, NC Camden, NC 252-338-6363 ext. 103 cbauman@camdencountync.gov www.camdencountync.gov

Brian Witthoefft Managing Director, Leasing & Marketing Lingerfelt Commonwealth Partners Richmond, VA 804-270-0015 bwitthoefft@lingerfeltco.com www.lingerfeltcommonwealth. com

Carl Sachs Director of Economic Development Culpeper Department of Economic Development Culpeper, VA 540-727-3410 csachs@culpepercounty.gov www.CulpeperUSA.com Leonard Sledge Director of Economic Development Hampton Department of Economic Development Hampton, VA 757-727-6237 or 1-800-555-3930 lsledge@hampton.gov www.chooseHampton.com Rick L. Weddle President & CEO Hampton Roads Economic Development Alliance Norfolk, VA 757-627-2315 rlweddle@hreda.com www.hreda.com Brian Shull Director of Economic Development Harrisonburg Department of Economic Development Harrisonburg, VA 540-432-7736 econ_dev@harrisonburgva.gov www.HarrisonburgDevelopment. com Tom Elder Economic Development Director Isle of Wight County Isle of Wight, VA 757-356-1962 telder@isleofwightus.net www.insidetheisle.com

Marjette Upshur Director of Economic Development Lynchburg Office of Economic Development Lynchburg, VA 434-455-4490 marjette.upshur@lynchburgva. gov www.opportunitylynchburg.com Lisa Lyle Director of Recruiting & Marketing Martinsville-Henry County, Virginia Martinsville, VA 276-403-5942 Llyle@YesMartinsville.com www.YesMartinsville.com Michael Larkin Head of Merritt’s Virginia Team Merritt Properties, LLC Ashburn, VA 703-858-2725 mlarkin@merrittproperties.com www.merrittproperties.com Russell Held Vice President, Economic Development The Port of Virginia Norfolk, VA 757-683-2115 rheld@portofvirginia.com www.portofvirginia.com March Altman Deputy County Administrator County of Powhatan Powhatan, VA 804-598-5612, ext. 2000 maltman@powhatanva.gov www.powhatanva.gov

Marantha Edwards Economic Development Director Town of Leesburg Leesburg, VA 703-737-7017 medwards@leesburgva.com www.leesburgva.com

Warren Harris Director Virginia Beach Department of Economic Development Virginia Beach, VA 757-385-6464 wharris@vbgov.com www.YesVirginiaBeach.com

AREA DEVELOPMENT | Q3/2016

TAXES & INCENTIVES

The PATH to Credits and Incentives The PATH Act provides companies with more stability in terms of investment planning and may significantly impact the number and scale of future investments. By Roma Waclawek, Location Investment Services and Credits & Incentives, Ernst & Young LLP

In a competitive world, everyone needs an incentive.

oday’s business world is largely built on competition. Most of us primarily associate it with businesses competing for clients and market share; however, recently, a different kind of rivalry has become more prominent — one that involves companies comparing sites for new investments or deciding whether to maintain operations in existing locations. This competition exists at different levels and involves assorted benefits — credits and incentives — offered by the competing parties to secure a favorable outcome. Which is why, similar to other countries, the U.S. offers prospective investors a wide array of potential benefits, some regulated at the federal level and others remaining at the discretion of state and local authorities. The end of 2015 brought an important development for several federal credits and incentives: on December 18, President Obama signed the Protecting Americans from Tax Hikes (PATH) Act, effectively making some credits and incentives permanent, while extending others for additional years.

Work Opportunity Tax Credit While increasing automation and mandatory wage increases may limit the motivation for adding new jobs in some industries, for many others, employees remain an integral element

AREA DEVELOPMENT

— and also one of the main cost positions. As businesses are always looking to maximize return on investment, optimizing labor costs continues to be one of the key reasons why companies decide to move operations overseas or utilize outsourcing. It is also why credits and incentives aimed at offsetting these costs, including the Work Opportunity Tax Credit (WOTC), are as relevant as ever. The WOTC program was created to incentivize employers to hire and retain qualified veterans and individuals from target groups facing barriers to employment, including welfare and food stamp recipients and designated community residents. By hiring eligible individuals, an employer qualifies

for the tax credit calculated on each employee’s target group, first-year wages, and number of hours worked. With the credit value amounting to between $2,400 and $9,600 per employee, for 1,000 annual hires, an annual credit of approximately $200,000 may be generated. Contributing to the bottom line and reducing the effective tax rate, WOTC continues to be an important incentive with employers collectively claiming about $1 billion of credit annually. The PATH Act extended WOTC for an additional five years, retroactive to Jan. 1, 2015 through Dec. 31, 2019, with additional time to screen employees hired by May 31, 2016. It also introduced a new target group for the

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long-term (at least 27 weeks) unemployed. These individuals are eligible for tax credits from Jan. 1, 2016 onward. The extension creates an opportunity to claim tax credits for all businesses planning to increase headcount in the upcoming years, including both employers already familiar with WOTC and ones that have not utilized the tax credit so far. Knowing beforehand that the credit will remain in force until 2020, employers may plan their hiring needs more effectively and become proactive in employing individuals from the target groups. Between 10 and 40 percent of a company’s new hires may initially screen eligible for WOTC. The WOTC program can be attractive to all industries (i.e., retail, restaurants, healthcare, financial, manufacturing, telecommunications, construction, professional services, and more). EY recently implemented WOTC for one of the largest staffing companies in the world by creating an integrated WOTC solution within their hiring systems for an efficient and effective process. This also resulted in increased WOTC performance measures and tax credits generated. In addition, EY implemented an automated solution that significantly increased the WOTC performance and compliance, as well as doubled the WOTC credits, for one of the largest U.S. pharmaceutical companies.

New Markets Tax Credit With states and local authorities competing for investments by offering customized incentive packages, some areas in the U.S. persistently remain less developed than others, with high unemployment and poverty rates — which is why a special incentive scheme aimed at stimulating growth in less prosperous locations was introduced in 2000 in the form of the New Markets Tax Credit (NMTC). NMTC is an instrument for attracting businesses to some of the most distressed communities by providing a federal tax credit for investments made in businesses or economic development projects in these communities. The credit totals 39 percent of investment costs claimed over seven years and is awarded not to the investor, but to Community Development Entities (CDEs). CDEs then use the proceeds to make community investments, including in businesses and real estate projects. Instead of a tax credit, a qualified business receives cash up front to reduce cash investment in its project, which may provide an estimated 15 to 20 percent pretax return on the investment. EY recently obtained a $16 million federal allocation for an Illinois client from the healthcare sector to finance equipment for the expansion of its facilities. The NMTC program has been renewed by the PATH Act through 2019 with a set budget of up to $3.5 billion annually, thus making it possible for additional communities and businesses to benefit. The five-year extension, instead of annual renewals, provides businesses with more stability and allows for better planning in terms of new investments and their location. As a result, more companies may consider investing in eligible communities as NMTC creates significant

cash flow savings and, combined with additional incentives offered locally, often creates incomparable investment conditions. Moreover, the next NMTC award round will provide a record $7 billion in allocation (combined budget for 2015 and 2016), which means increasing both the expected number of participating CDEs and the amount assigned to each of them to further invest.

Renewable Energy Tax Credits While energy efficiency and sustainability remain high on agendas across different sectors, the high costs of renewable energy systems often limit the extent and value of investments. However, thanks to federal tax credits, investing in renewable energy enables businesses to combine the goal of becoming more sustainable while saving on energy costs and managing an effective tax rate. The Investment Tax Credit (ITC) is aimed at businesses installing renewable energy equipment and technologies, including solar, geothermal, fuel cells, microturbines, combined heat and power systems, and geothermal heat pumps. The credit value amounts to either 10 or 30 percent, depending on the technologies used. While the ITC-eligible systems should be primarily used by their owner, for qualified renewable energy facilities, the Production Tax Credit (PTC) is available instead. The PATH Act extended ITC and PTC for additional years at the current value with subsequent phase-out schedules and modified the expiration date for solar and wind technologies, which now depends on when the construction began instead of when the system was placed in service. Businesses will be also able to benefit longer from the 50 percent bonus depreciation, which was renewed through 2017. The latter, while not a renewable-energy–specific change, enables business to further lower effective investment costs, as a large part of renewable energy equipment is usually eligible. As a result, substantial opportunities for businesses to invest in renewable energy projects or to procure the output power they generate have been created. In the long term, the above measures are expected to continue to drive down renewable investment costs as more systems are sold and installed and additional businesses enter into power-purchase agreements. One of EY’s green procurement clients, a multinational bank pursuing renewable energy procurement globally and in the U.S., will benefit from purchase agreements with pricing approximately 30 to 50 percent lower as a result of the PATH Act. This is due to the fact that renewable energy developers are able to monetize a PTC or ITC available for their projects and pass along the monetization benefits through lower power-purchase agreement pricing.

R&D Credit While businesses often do not have a choice whether to invest in R&D, they may be quite selective when it comes to where they invest. And as R&D investments are considered AREA DEVELOPMENT | Q3/2016

prestigious, various incentives are offered worldwide to attract them. Taken together, competitive employment costs, lower tax rates, and other benefits make investing in R&D abroad appealing for both U.S. and foreign companies. The federal R&D credit is a nonrefundable tax credit that may be used by a business to reduce its federal tax liability on top of the 100 percent deduction allowed for R&D costs. As it is intended to reward companies for increasing their R&D spend, its value depends on the increment compared to a base amount for previous years. The credit is applicable retroactively as well as to current investments and, if unutilized, may be carried back for one year and carried forward for 20 years. Until recently, the R&D credit has always been a temporary provision. The permanent extension introduced by the PATH Act creates a more stable environment to plan for and to conduct R&D work and makes the U.S. an attractive location for R&D investments. Businesses now may be certain that eligible costs will qualify for the credit while mapping R&D projects in a multiple-year perspective without the uncertainty of whether the credit will be extended for another year. The PATH Act provisions also make it easier for eligible small businesses to utilize the R&D credit, as they may now claim it against their alternative minimum tax liability. In addition, small businesses with less than $5 million of gross receipts will be able to apply the credit against the em-

ployer’s payroll tax liability up to $250,000. Both concessions apply to companies that do not generate a lot of tax liability, and as such, they will be now able to reinvest the tax benefits in their further growth.

In Sum The PATH Act not only gives businesses additional time to claim select credits and incentives, but also provides more stability in terms of investment planning with regard to headcount, capital spend, R&D costs, and sustainability. As most businesses plan in three-to-five-year cycles, extending credits and incentives for a few years in advance (or permanently) may significantly impact the number and scale of investments that we will see in the upcoming years. With the November elections coming up, it remains to be seen what the future of credits and incentives will be. As keeping jobs and investments in the United States is one of the few things both political parties and all candidates seem to agree on, improving existing and/or introducing new credits and incentives could be seen as the way to create attractive business conditions for domestic and foreign investors. Nonetheless, the PATH extension has given businesses more certainty until any further changes are introduced — whether for better or worse. ■ THE VIEWS EXPRESSED ARE THOSE OF THE AUTHOR(S) AND DO NOT NECESSARILY REFLECT THE VIEWS OF EY LLP.

THIS ISN’T THE CENTER OF TULSA.

YOU ARE.

Move your business to the Tulsa region and you can do more than share in the economic boom our downtown renaissance represents—you can be a driver of it. We offer businesses the resources, opportunities, incentives, and quality of life that add up to long-term, mutual success. Please visit GrowMetroTulsa.com/MoveForward to download our regional business overview.

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FACILITY DESIGN

HEALTHY WORKSPACES BOOST EMPLOYEE MORALE AND PRODUCTIVITY While most employees would agree that their environment has an impact on their health — and evidence-based research supports this — how many have considered whether the workplace promotes a healthy lifestyle and helps them achieve their wellness goals? Janine Grossmann, Practice Leader of Interiors for the Ontario offices of Perkins+Will, works with clients in designing their workplaces and determining how to incorporate strategies that help promote health. She recently spoke to Area Development about health and wellness in workplace design. In your recent blog post, you indicate that health and wellness in workplace design is on the rise as a priority. Can you expand on this? Grossmann: When we meet with clients, there is always the 300-30-3 rule discussion. On average, companies typically spend a ratio of about $3 per square foot per year for utilities, $30 for rent, and $300 for payroll. This means that even small productivity gains as a result of health and wellness measures have larger impacts than cost savings from energy or rent. Organizations want healthier employees because — in addition to decreased costs associated with fewer sick days and less time off — healthy employees will also be

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more engaged in their work and in the organization. In addition, employers are starting to formulate health and wellness design strategies as a tool to attract and retain top talent. The elusive millennials entering the workforce value healthy, active lifestyles, and are demanding the same from their workplaces no matter what the building typology. The C-suite is paying attention to this trend and answering the calls for healthy workplaces to capture emerging talent. Does a space designed to promote health and wellness mean all its employees will be healthier? Grossmann: A person’s health and wellness is still an

individual’s responsibility, from the food they eat to the amount of exercise they perform, and the actions they take to protect their mental health. However, there are buildings that can make these choices less accessible for employees. Movement is a key component to a health- and wellness-enhancing design. A space that promotes the use of elevators over stairs, or does not even allow for the option of stair use, is already hindering an occupant from making a healthier choice. High-tech labs or manufacturing facilities tend to be situated in suburban settings and may offer a limited range of meal options that sacrifice quality in favor of availability. In AREA DEVELOPMENT | Q3/2016

this respect, landlords can take the initiative by establishing healthy eating programs and attracting healthy vendors. Landlords can also partner with local producers to host a regular farmers’ market in the parking lot. It’s not only a good way to access healthy local food, but also a great way to engage with the local community and establish a positive presence.

“

Employees and employers alike are seeking spaces that are healthy as well as functional and sustainable.

can simultaneously boost mood and affirm the corporate brand that is intrinsic within employees. Our experience as a firm with high-tech laboratories in Toronto’s MaRS Discovery District is an example of combining health and wellness considerations with those of sustainability and functionality. Crossdisciplinary research occurs in a continuous, activated space with ample daylighting, which allows for collision space and facilitates collaborative thinking.

How do you see health and wellness fitting into manufacturing and high-tech spaces? Grossmann: We find in designing labs and What is the biggest high-tech spaces that challenge with the conversation is often about the activities integrating health and that will be performed wellness into a design? The law offices of Nixon Peabody in Washington, D.C., maximize daylighting and interior plant life, as well as providing access to stairs in the space, such as Grossmann: To us, that promote employee movement and wellness. making sure there is dispelling the seemingly clearance for machines, contradictory notion of or ventilation for fumes. increasing productivity However, it is often while encouraging forgotten that these spaces will be places of work for movement has been the biggest challenge. Increased people, and their design will impact occupant health. movement and physical activity are directly linked A particular challenge of the suburban setting to improved health and wellness, which can in for manufacturing and high-tech spaces is the turn lead to better engagement with work and, dependency on single-occupant cars. The concern consequently, greater productivity. Activating areas then becomes finding ways to facilitate healthier such as stairs can reduce facility energy use while commutes and increase access to amenities to foster positively influencing employee health. Centralizing health and wellness in the facility. This can be done key spaces by distributing fewer printers or server in the form of a small office gym or yoga studio, stations in strategic locations can also result in or even a space where occupants can relax after a increased movement. stressful morning commute. Combining the ability to move with open, inviting An upside that a suburban setting offers is collision spaces can increase opportunities for the possibility for easier access to the natural the meeting of ideas and dynamic collaboration. environment. Landlords can capitalize on this by Research has shown that walking can lead to more introducing biophilic activities such as walking trails creative thinking; even indoor movement can boost around the office or a garden space for coffee and the number of creative responses and protect longlunch breaks. Maximizing daylighting and abundant term cognitive function. indoor plant life can also introduce aspects of the Health and wellness may not always be at the natural environment into a manufacturing or highforefront of discussions concerning high-tech tech space. In fact, workers with access to daylight and manufacturing spaces, but the conversation get, on average, 46 more minutes of sleep each night. is changing. Employees and employers alike More sleep has a huge impact on productivity. are seeking spaces that are healthy as well as A vibrant, animated space with abundant functional and sustainable. By implementing a few natural lighting and corporate branding can also of these strategies, facility owners can provide the increase morale at work. Providing such an area immeasurable added value of good health. ■

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Aggregated from the top consultants, think tanks and institutions, and distilled into usable information • Reviewable Archives: Search the Area Development archives for content, opinion, and reports spanning the last five years from the top industry minds

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Providing What Others Don’t

2016

By Steve Kaelble

Top States for Doing Business Georgia South Carolina Texas Tennessee Louisiana Alabama Florida Indiana North Carolina Mississippi Ohio Nevada California Kentucky Arizona Arkansas Oklahoma Michigan New York South Dakota

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

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hat’s it take to be recognized as a top state for doing business? On one hand, it’s a complicated question to answer, because there are a lot of factors that go into that kind of a reputation. On the other hand, you can get a pretty good idea of what it takes by checking out the attributes of some of the states that top the list. The overall cost of doing business is, of course, a primary consideration, one that encompasses a wide range of components, from real estate costs to utility rates to labor expenses. The environment created by state and local leaders plays a big role, too — the choices they make on tax structures and business incentives can tip the scales on cost, and they also can impact the no-hassle factor driven by their overall responsiveness, their regulatory practices, and how fast they respond to permitting requests. And the kinds of workforce programs states establish make a tremendous difference in both labor-related costs and hiring challenges. A location or facility project won’t get far without adequate capital, either, and that’s a factor that can vary quite a bit from one place to another. Site consultants have an insider’s view into all of these factors — and an unbiased perspective, too. That’s why Area Development’s Top States for Doing Business analysis solicits the views of in-the-know

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

Business Environment

Labor Climate

Economic Development Policies

METHODOLOGY FOR 2016 TOP STATES FOR DOING BUSINESS

consultants. For 2016, we surveyed consultants and asked them to name their top state picks in each of 10 categories that impact location and facility decisions. They shared their top picks in each category, and we weighted those scores to come up with rankings within each factor, along with overall rankings that take all of the factors into account. There’s a familiar face atop the overall rankings — Georgia is back again in the #1 spot for the third year in a row. The Peach State rode to the top by ranking in the top six spots on each of the factors in the survey — including #1 picks for cooperative and responsive state government as well as workforce development programs, and #2 for competitive labor environment, regulatory environment, and speed of permitting. An integrated and statewide approach to economic development puts everything from workforce to global commerce to innovation promotion to film industry support under one umbrella — and virtually every county is regularly touched by state economic development support in one way or another. It goes without saying that you can’t stay ahead in the competitive business of economic development if you’re not constantly moving forward, and Georgia hopes to hang onto its lead in workforce development with its brand-new WorkSource Georgia initiative. It’s a unified, statewide approach for helping employers and qualified job-seekers find each other, and for

spotlighting training and educational opportunities. South Carolina ranks second, on the strength of its incentives, businessfriendly government and permitting processes, and overall cost of doing business. The tax environment gets high marks, and no wonder — the corporate income tax rate is 5 percent, and there are no state property taxes, inventory taxes, local income taxes, taxes on manufacturing equipment or materials for finished products, nor wholesale taxes. Texas usually ranks highly on this list, and this year it’s third overall. It’s #1 in multiple factors, including access to capital, competitive labor environment, and favorable regulatory

Our 2016 Top States for Doing Business rankings reflect the results of our recent survey asking the consultants to give us their top state picks in 10 categories that impact companies’ location and facility plans. The responses were weighted with their #1 choice in each category receiving three points, #2 choice receiving two points, and runnersup in each category receiving one point. States were ranked in order based on the total of weighted scores across all 10 categories.

AREA DEVELOPMENT | Q3/2016

Business Environment

Overall Cost of Doing Business Texas South Carolina Tennessee

1 2 3

Florida Georgia Alabama North Carolina

4 5 6 6T

Mississippi Oklahoma

8 9

Indiana

Corporate Tax Environment Florida Texas

1 2

Nevada South Dakota Wyoming Georgia

2T 4 5 6

Alabama Indiana Tennessee South Carolina Mississippi

6T 6T 9 10 10T

environment. There’s neither a corporate nor individual income tax in Texas, and the Tax Foundation’s latest State Business Tax Index has Texas in the top 10. Its labor environment gets a boost from a full three dozen public universities and 50 community college districts, along with a Skills Development Fund that awards millions of dollars annually to upgrade worker skills. Overall Cost of Doing Business

What components go into the cost of doing business? That, of Utah 10T course, depends tremendously on the business, and such questions as whether it needs lots of real estate or square footage, whether it’s a higher or lower user of energy, whether it needs a lot of workers or just a few, whether it has lots of customers in relatively close proximity, and many other variables. Needless to say, the business cost also includes taxes.

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Economic Development Policies

Labor Climate

Business Incentive Programs South Carolina Louisiana Georgia

1 2 3

Tennessee Texas Alabama New Jersey

4 5 6 7

Mississippi Florida

8 9

Our consultants give high marks to Texas, where the business tax burden tends to be lower, where a deregulated energy market ensures utility competition,

and where rightto-work status encourages strong Indiana 9T choices in the labor market. Tennessee, meanwhile, ranks Access to Capital among the nation’s & Project Funding best when it comes Texas 1 to low state and California 2 local taxation per New York 3 capita, helped Georgia 4 along by its lack of Florida 5 a personal income Tennessee 6 tax on wages and North Carolina 7 salaries. And South Colorado 8 Carolina boasts a Massachusetts 8T favorable tax status, Ohio 10 too, along with the Illinois 10T transportation cost advantage of a few hundred million potential customers reachable by truck in two days or less. Highly ranked states tend to balance their advantages in different ways. Indiana, for example, does have a corporate income tax (with a rate that is on the decline), but it also compares favorably in workers’ compensation premium rates, and its cost of living is below average.

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

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Corporate Tax Environment

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AREA DEVELOPMENT

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Nobody likes taxes, but most people recognize that to a certain extent they are a necessary evil — a business can’t succeed without a host of public services, from education to infrastructure to public safety. But each state divides the burden in a different way, sometimes vastly different. Top-ranked Florida, for example, has no personal income tax, and there’s no corporate income tax for limited partnerships and subchapter S-corporations. You won’t find a state-level tax on property, and there’s no inventory tax or tax on goods in transit. There are sales taxes, but those are offset by a long list of exemptions, ranging from manufacturingrelated machinery, equipment, and energy to R&D expenses, commercial space activities, and film production. Tied for second are Texas and Nevada, both of which go without state corporate and individual income taxes. There’s no state property tax in Texas, and the franchise tax system was reformed several years ago, with a fairer and lower margins tax plus a host of exemptions and reductions that reward good business practices. Nevada is in the Tax Foundation’s top five, and

10/08/16 9:04 PM

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

Highly ranked states tend to balance “their advantages in different ways.

doesn’t believe in franchise or unitary taxes either. Business Incentives Programs It’s challenging to compare apples-to-apples when reviewing the advantages of different states, and business incentives are among the reasons. Every state is eager to land job-creating investment, and each state has its own way of sweetening the deal, with incentives that reflect local strengths as well as development aspirations and priorities. Site consultants speak favorably of South Carolina,

HOT

with a long list of business incentives, some of them statutory and some discretionary. Move a corporate headquarters there and you can earn a generous credit of up to 20 percent that can be applied against corporate income taxes or license fees. Conduct research and your tax burden decreases. Create jobs and you’ll be rewarded with incentives. Tourism infrastructure projects can earn incentives, and businesses that use state port facilities can earn a credit if they increase their port usage. Louisiana also has a long and diverse list of

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AREA DEVELOPMENT | Q3/2016

Business Environment

Competitive Labor Environment Texas Georgia North Carolina

1 2 3

South Carolina Alabama Tennessee Florida

4 5 6 7

Mississippi Idaho

7T 9

Utah

Economic Development Policies

Labor Climate

possibilities, including incentives that encourage angel investment, technology commercialization, rehabilitation of existing structures, and even the creation of motion pictures, theatrical productions, and sound recordings. New Jersey’s incentives encourage everything from green energy to innovation, and there are numerous programs that aim to give growing businesses easier access to the capital they need. As is the case in most places, job creation is a primary goal, and various New Jersey incentives are tied directly to success in this regard — there are credits that can deliver thousands of dollars per job. Access to Capital and Project Funding You can’t grow anything — a flower, a child, or a business — without feeding it. Site consultants know that emerging or expanding companies

2016 Top States Commentary By Bradley Migdal,

10 states (Northern Indiana being

Senior Managing Director,

the only exception) developers

their local units of government

Business Incentives Practice,

and users can build 365 days of the

great flexibility when it comes

Cushman & Wakefield, Inc.

year. Winter weather conditions

to incentives, enabling them

typically do not halt construction,

to aggressively attract new

Oftentimes, it all boils down to

and the permitting processes are

development. In the South, local

the basics. In Area Development’s

ranked the most favorable in the

governments traditionally have

30th Annual Corporate Survey,

country.

been aggressive in incorporating

83.7 percent of the executives

incentives into every deal. They

responded that available buildings

Cushman & Wakefield, as of Q2

find real above-the-line costs that

were either important (48 percent)

2016, there are 4.0 billion square

can ease the pain for users and

or very important (35.7 percent)

feet of industrial inventory in

developers, such as property tax

in making a location decision.

the South region (6.9 percent

abatements, sales tax abatements,

Available buildings, along with

vacancy), with 83.1 million square

site preparation grants, and

available land, occupancy/

feet under construction and 38.3

free land. Additionally, power

construction costs, and expedited

million square feet delivered.

companies play a bigger role in

government permitting, were all

Still, the national commercial real

economic development down

rated as important in making a

estate market continues to lack

South — offering discounted

location decision by more than 70

high-quality product, and states

power and sometimes even

percent of respondents.

and communities that can deliver

infrastructure credits. Because at

a building quickly — or get one

the end of the day, if the facilities

the “sunshine states” continue

out of the ground for the lowest

and labor are present and costs

to lead the pack. There is a high

cost — are going to win the

are competitive, businesses will

probability that in nine of the top

businesses.

come.

That is why it is no surprise that

According to research from

Fortunately, some states afford

AREA DEVELOPMENT

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

Emerging companies need ready â&#x20AC;&#x153;access to capital for their projects. Leading Workforce Development Programs Georgia Louisiana South Carolina

1 2 3

Tennessee Alabama Florida North Carolina

4 5 6 7

Indiana Michigan

8 8T

California

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need ready access to capital and funding for their projects, and are likely to want locations where that funding isnâ&#x20AC;&#x2122;t scarce. The economic woes of the past decade have changed the funding landscape, and the best states from this perspective tend to be those that have existing clusters of fast-growing business as well as state programs that either provide or facilitate funding. This is one of the many areas where Texas excels, for a host of reasons. One of the programs that gets a lot of attention is the Texas Enterprise Fund, a generous pot of stimulus for economic development projects. Its awards include cash grants and have been as high as $50 million. But there are plenty of other programs on the list, too, such as the Certified Capital Company program that facilitates private, government-sponsored venture capital availability, and the Capital Access Program that aims to reduce funding barriers for growing

16/08/16 11:24 PM

AREA DEVELOPMENT | Q3/2016

factors are among â&#x20AC;&#x153;theWorkforce-related most critical considerations.

Cooperative & Responsive State Government Georgia South Carolina Louisiana

1 2 3

Tennessee Florida Ohio Indiana

4 4T 6 7

Texas Alabama

8 8T

North Carolina

companies that have trouble lining up conventional funding. California and New York rank highly, too, thanks in part to their major concentrations of financial-sector activity as well as tech-related venture investment. Add in these statesâ&#x20AC;&#x2122; governmentsponsored financial assistance and loan programs, and the capital picture gets even brighter. Competitive Labor Environment Surveys of location professionals typically list workforce-related factors among the most critical considerations. Companies need to know that there will be enough qualified workers to fill the jobs, and that those workers are available for a

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for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

Favorable Regulatory Environment

Speed of Permitting

Texas Georgia South Carolina

1 2 3

South Carolina Georgia Alabama

1 2 3

Tennessee Louisiana Alabama Florida

4 5 6 7

Tennessee Texas Indiana Louisiana

4 5 6 7

Indiana Arizona

8 9

Mississippi Florida

8 9

Mississippi

Kentucky

reasonable cost. Sounds simple enough, but the ability to fulfill those needs depends a lot on the characteristics of the existing workforce, clusters of specific skills, wage rates and how much those rates are influenced by organized labor, how high pay must be to help workers afford the local cost of living, and whether the quality of life is the right match for those workers who may need to be attracted from somewhere else. A wild card that helps ease some of the above challenges is workforce development (more on that below). One labor-related attribute shared by all of the states at the top of the competitive labor environment list is right-to-work status. All are states whose laws ensure that workers aren’t required to support a union to work at any given workplace. These states also tend to have large workforces with already diverse skillsets. North Carolina, for example, has a manufacturing workforce exceeding 450,000, the biggest in the Southeast. A number of Southern States on this list have strong automotive manufacturing sectors, including Alabama and Tennessee. Meanwhile, North Carolina has a large active-military population, which means it always has a big group of potential workers coming off active duty — that tends to be a young and well-trained group with a

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Business Environment

Economic Development Policies

Labor Climate

2016 Top States Commentary By Andy Mace,

exhibits significant strengths

than nine positions. Nevada’s

Managing Director,

that companies and consultants

rise seems warranted given its

Cushman & Wakefield Strategic

value: workforce development

substantial, high-profile project

Consulting

competency; low overall operating

announcements by Faraday

costs; favorable transportation

Future, Tesla, and Hyperloop One.

infrastructure; lower union

Based on Cushman & Wakefield’s

Top States for Doing Business

presence (all are right-to-work);

experience in Nevada while

rankings provide a useful backdrop

strong state and local economic

supporting Faraday Future’s

to inform corporate location

development agencies; and

location search, it may soon

decisions, especially given the

competitive incentive programs.

achieve a top-10 ranking given

complex and highly competitive

These states continually compete

its close proximity to California,

nature of states’ economic

against one another to attract

cost structure and incentives

development efforts. Beyond

business and challenge each other

competitiveness, effectiveness of

the survey results, it is essential

to maintain or improve capabilities.

its state economic development

Area Development’s annual

to evaluate potential locations

While I agree with the overall results, I was surprised to see

requirements and objectives. By

California in 13th place on the

conducting in-depth comparative

list. For select industries and

location analysis that includes

operations, California is the

differentiation at the sub-state

right place to locate. Several

further in the rankings than all

level, companies will be better

of its cities are tremendous job

other states. Pennsylvania fell

positioned to make meaningful

generators. However, it is difficult

21 positions and tied seven other

site selection decisions, maximize

to understand its rating for

states for the fewest points tallied,

profit, and achieve overall success.

overall business attractiveness

and Illinois dropped 17 positions

over Kentucky, Arizona, Arkansas,

to land at number 30. What do

rankings — Ohio dropped out of

Oklahoma, or Iowa. Roughly 70

these two states have in common

the top 10 and was replaced by

percent of the points California

that could have influenced their

Mississippi — the southern, mostly

received are in one category:

precipitous drop? Perhaps it

southeastern, states continue to

access to capital. For established

is the protracted, challenging

dominate the top-10 positions

companies, this factor is weighted

process their new governors

in Area Development’s 2016

rather lightly in a location search.

faced transitioning into office and

Besides some re-ordering of the

rankings. These results are not surprising because they are based on consultants’ perceptions and

organization, and improved

based on a company’s unique

workforce development. STATES FALLING FARTHEST Illinois and Pennsylvania fell

passing annual budgets. While A STATE ON THE RISE WITH

these developments do generate

A FUTURE IN THE TOP 10?

business-attractiveness concern,

Nevada’s ranking rose 16

both states possess marquee

experiences, which do not

positions this year, landing at

cities and can be the right fit for

change dramatically each

12th place from 28th in 2015.

certain facilities. Pennsylvania,

year, and because the top-

While Delaware jumped from

for example, contains excellent

performing states generally place

48th to 28th (tied with Idaho) on

locations for distribution-center

significant emphasis on economic

the list, Nevada is the only state

clients to reach customers in the

development. Each top-10 state

in the top 20 to move up more

eastern U.S.

AREA DEVELOPMENT

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

AREA0604.indd 1

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Business Environment

initiatives is the establishment of the Alabama Aviation Training Center, which is helping Airbus assemble a workforce for its aircraft assembly facility in Mobile. Cooperative & Responsive State Government One of the best ways to welcome new and expanding business is to simply put out the welcome mat. The attitudes of state and local officials can go a long way toward facilitating economic development, or discouraging it. Growing companies would much rather choose locations where the state government is cooperative and responsive. The site consultants surveyed put Georgia

Labor Climate

Economic Development Policies

atop this list, too. Its Department of Economic Development takes a broadly integrated approach to marketing the state and rolling out the red carpet, aligning a wide range of services, departments, and initiatives relating to the workforce, global trade, innovation, tourism, and other areas. South Carolina, #2 on this list, also is consistently ranked among the most business-friendly states, from its tax structure to its support of innovation to its incentives encouraging growth. Texas has long declared that it’s “Open for Business,” backing up the slogan with a healthy list of services for companies seeking a place to do business. Indiana’s legislative sessions regularly include efforts to build upon a

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for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

2016 Top States Commentary By Josh Bays,

each of these states’

out. It is undeniable

Principal, Site

commitment to

that the perception

Selection Group LLC

long-term economic

of Indiana’s business

development, I firmly

climate has been

believe that the vast

elevated by recent

results of Area

majority of the Top

policy changes the

Development’s Top

States for Doing

state’s leadership

States for Doing

Business have one

has advocated, the

Business survey

severely underrated

least of which is

strongly support the

(at least to the casual

passing right-to-

conventional wisdom

industry follower)

work legislation. I

that the Southeast

asset in common:

believe Kentucky,

is the most

the strong support

Ohio, and Missouri

competitive region

of well-organized

would greatly

of the country for

and well-funded

benefit from

business investment.

power companies.

following suit.

The latest

Furthermore,

Whether it be

ADVANCING BUSINESSES

With the assets

Site Selection

Duke Energy, the

North Carolina has

Group’s recent

different divisions

at its disposal, I

project experience,

of the Southern

anticipate it rising

especially for

Company, Tennessee

up the rankings in

production and

Valley Authority, or

the years to come.

distribution-oriented

Santee Cooper and

The state’s efforts to

projects, further

the Power Team,

stabilize and improve

validates this theme.

these competitive

its economic

states are supported

incentives offerings

for these states’

by utility companies

along with passing

successes is their

that often have

comprehensive

more marketing and

tax reform

economic

project management

should continue

development

resources than the

to contribute

programming. With

state economic

to its growth. If

few exceptions, the

development

policymakers can

states scoring best

agencies themselves.

keep sensitive

in this survey tend

In addition, these

political issues

to have the most

utilities can play a

from negatively

robust and capable

positive role shaping

influencing the

state-level economic

a state’s business

state’s external

development

environment.

image, North

One major reason

platforms. Although

At the edge of

From nanochemicals enabling the ﬁrst synthetic organ transplant to the world’s most advanced warships, Mississippians can customize your product. Just ask Nissan, Toyota, Hybrid Plastics, Huntington Ingalls, GE Aviation or many of the other industry leading manufacturers located in the state. Mississippi has the productive workers and customized training programs, both for new and existing industries. Mississippi’s research universities have a strong reputation for partnering with industry to move innovation from concept to reality. The business advantages are clear. Choose Mississippi.

MISSISSIPPI

ADVANCED mississippi.org/advanced

Carolina will be as

these state-level

the top-10, two

competitive as any

efforts demonstrate

other states stand

state in the country.

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business climate already widely recognized as friendly. Favorable General Regulatory Environment There’s no better way to pull back the welcome mat than to enact stifling regulations and requirements. Some states do just fine economically, despite reputations for high regulation. The states atop this list, on the other hand, actively work to tip the scales in the other direction and facilitate business location and expansion through a more favorable regulatory environment. Texas, for example, has focused a lot of attention on making its legal system fairer for the business community, enacting major packages of reforms

MOST IMPROVED ECONOMIC DEVELOPMENT POLICIES Most Improved Economic Development Policies Indiana Ohio

1 1T

South Carolina Georgia Michigan

3 4 5

Alabama Tennessee

6 7

New Mexico North Carolina Arizona

8 9 9T

IN THE COMPETITIVE WORLD of economic development, if you’re not moving forward quickly, you may as well be moving backward. State economic development policies can make all the difference in helping determine where the next big project will land. Such policies may include incentives to seal the deal or legislation to reduce taxes. They may be initiatives to help overcome

AREA DEVELOPMENT

potential challenges such as shortages of skilled workers or business costs that are just a little too high. Our panel of consultants weighed in on which states have been working the hardest to tip the scales and improve their economic development policies. Neighboring Indiana and Ohio tied for the top spot. Indiana has made a number of moves in recent years to improve upon its business-friendly reputation. For example, 2014 legislation is resulting in a gradual reduction of the corporate income tax rate — this past summer it dropped from 6.5 percent to 6.25 percent, and it’ll keep dropping by a quarter percent every year through 2020. In 2021, it’ll settle in at 4.9 percent. The financial institutions tax rate is also heading south, a little at a time. The legislation, signed two years after Indiana joined the ranks of right-to-work states, also gave counties new leeway in creating tax breaks for businesses.

at least three times since the early 2000s. Tort reforms protect large and small businesses alike from frivolous claims and suits, trying to rein in damages, end court-shopping, and allow judges to send packing those plaintiffs whose suits have no merit. Tennessee, too, boasts a pro-business regulatory environment, having devoted a lot of effort to reforming tort and workers’ compensation laws. Arizona has undertaken a variety of measures to streamline regulation and reduce red tape, including changes that simplify tax collection and eliminate requirements for multiple tax licenses, tax returns, and tax audits.

Like Indiana, Ohio operates on a balanced budget with a healthy surplus for a rainy day, and that kind of fiscal responsibility translates into high credit ratings for both states. Ohio claims the lowest tax burden on new investment in the Midwest, and among the lowest tax burdens nationwide for both new and mature businesses. The state also welcomes new industry with a broad range of economic development grants, loans, and tax credits. Third-place South Carolina has emerged as a manufacturing powerhouse, and an even bigger economic development winner. New and expanding businesses invested more than $4 billion last year and created more than 17,000 jobs, and the state boosted its exports for the sixth straight year, topping $30 billion. Helping the state thrive is an already positive tax environment and business-friendly climate. Among its newest economic development ideas is the S.C. Innovation Hub, an online

portal giving tech-sector individuals and businesses a platform to connect with one another and access resources. Just because Georgia has topped the Top States list for multiple years, that doesn’t mean the Peach State is sitting still. Its brandnew WorkSource Georgia is intended to align the resources of the state’s workforce system, with the hopes of making it all the easier for job creators to connect with job seekers. It’s this kind of continual improvement that landed Georgia fourth on the “most improved” list. Michigan (5th for most improved economic development policies) continues to hone its business-friendly reputation. With regard to taxes, for example, the state has a simple, 6 percent corporate tax, but the elimination of industrial personal property taxes is expected to save small businesses hundreds of millions of dollars by 2020.

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

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Business Environment

Speed of Permitting When it comes to business-unfriendly practices that cause red lights in the location or expansion process, slow permitting is among the worst offenders. With all the talk of â&#x20AC;&#x153;shovel-readyâ&#x20AC;? sites and easily adaptable existing spaces ready for businesses that need to move quickly, speediness isnâ&#x20AC;&#x2122;t possible unless the permitting lights are green. Consultants say that no state turns those lights green any better than South Carolina. The stateâ&#x20AC;&#x2122;s proactive approach toward easing regulatory slowdowns got a boost a dozen years ago when it created a Small Business Regulatory Review Committee, a collection of volunteer business owners who review the regulatory situation and, if needed,

Labor Climate

Economic Development Policies

order economic impact studies and flexibility analyses. Mississippi works to streamline permitting (and the whole economic development process) by taking a team approach. Collaborations between state and local economic development officials are intended to ease the process, including the site choice and the workforce developmentâ&#x20AC;Śand the speedy permitting that makes it all possible. Kentucky also ranked among the top 10 for its speed of permitting. Itâ&#x20AC;&#x2122;s Build-Ready site program ensures companies that site due diligence has been performed and permits are in place, helping a business to get up and running quickly. Further, the state has put in place a new Red Tape Reduction initiative to streamline the regulatory process.

â&#x20AC;˘

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38 AREA0540.indd AREA DEVELOPMENT 1

Cape Coral Economic Development Office t ecodev@capecoral.net www.bizcapecoral.com

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com 12/02/16 6:10 PM

SPONSORS ALABAMA

AIDT AIDT, Alabama’s primary workforce training program, arms the state’s workforce with the specific skills needed for new and expanding industry. Since 1971, the program has played a critical role in preparing Alabama’s workforce and in building industry in the state. Ed Castile, Director AIDT One Technology Court Montgomery, AL 36116 334-242-4158 • Fax: 334-242-0299 info@aidt.edu www.aidt.edu

FLORIDA

City of Cape Coral EDO Cape Coral, Florida, consistently ranks among the top-10 areas for business start-ups. The largest city in Southwest Florida, Cape Coral is known for its attractive waterfront, competitive cost of living, and rapidly growing commercial base. The Economic Development Office provides assistance for business relocations and expansions to Cape Coral. Visit www. bizcapecoral.com to learn why this tropical city is the ideal fit for your business. Dana Brunett, Manager, Economic Development 1015 Cultural Park Blvd. Cape Coral, FL 33990 866-573-3089 or 239-574-0444 ecodev@capecoral.net www.bizcapecoral.com

Enterprise Florida From a talented workforce to a strategic geographic location, Florida has the breathing room businesses need to grow. Freedom from high taxes and prohibitive regulations make Florida the #1 tax climate in the Southeast and 2nd best state for business in the U.S. Learn how Florida can help your business thrive. Paul Marttila, Senior VP, Business Development Enterprise Florida 800 N. Magnolia Ave., Ste. 1100 Orlando, FL 32803 1-877-YES-Florida Fax: 407-956-5599 pmarttila@enterpriseflorida.com https://www.enterpriseflorida.com/ thefutureishere/ Greater Fort Lauderdale Alliance Greater Fort Lauderdale offers “Life. Less Taxing” to more than 200 corporate, international, and regional headquarters including AutoNation, Citrix, DHL, Emerson, Microsoft, and Ultimate Software through a cost-competitive business climate and no state personal income tax, combined with robust domestic and international air and seaports and exceptional quality of life. David Coddington, Vice President - Business Development Greater Fort Lauderdale Alliance 110 East Broward Blvd., Suite 1990 Fort Lauderdale, FL 33301 954-627-0123 dcoddington@gflalliance.org www.lesstaxing.com

GEORGIA

Georgia Department of Economic Development The Georgia Department of Economic Development (GDEcD) is the state’s sales and marketing arm, the lead agency for attracting new business investment, encouraging the expansion of existing industry and small businesses, aligning workforce education and training with in-demand jobs, locating new markets for Georgia products, attracting tourists to Georgia, and promoting the state as a destination for arts and location for film, music, and digital entertainment projects, as well as planning and mobilizing state resources for economic development. Tom Croteau, Deputy Commissioner, Global Commerce Georgia Department of Economic Development 75 Fifth Street, N.W., Ste. 1200 Atlanta, GA 30308 404-962-4000 communications@georgia.org www.Georgia.org Georgia Quick Start Georgia Quick Start, the nation’s oldest and most successful work force training organization, provides comprehensive, customized training — free of charge — to qualified companies locating or expanding in Georgia to ensure the highest quality work force required for business success.

Greenspoint District Strategically Positioned Minutes from air and sea ports Exceptional utilities and broadband infrastructure Diverse industry presence The Woodlands

Houston, Texas

New development and redevelopment options

Bush

Intercontinental

Airport

290

AREA0607.indd 1

OAD

TOLL R

SAM HOUSTON PARKWAY

HARDY

249

Downtown Port of Houston

281.874.2131 www.greenspoint.org

10/08/16 9:10 PM

AREA DEVELOPMENT | Q3/2016

FACILITY PLANNING

Companies Heading Back Downtown In order to lure tech-savvy millennials, many companies that years ago moved out to the suburbs are heading back to downtowns that offer the lifestyle this generation of employees desires. By Dale Buss

he digitization of business has been flipping the economy on its head, and here’s one of the latest topsy-turvy developments: Downtowns are, relatively suddenly, landing corporate headquarters and expansions again. That’s because company chieftains now must lure the tech-savvy millennials who are more attracted to downtown working and living than any generation in the last century. Every few weeks brings news of a major American corporation turning its back on a headquarters location in a leafy suburb and deciding to plant — or re-plant — its increasingly digital brain trust downtown. Free from the cost and logistics burdens of having to put a traditional manufacturing plant in the central city, they’re joining rosters of software startups that have ensconced themselves in downtown locales as they began to create tech-centered ecosystems. The trend represents a stunning reversal from the post-World War II period during which major American corporations — almost en masse — decamped from their historic urban locations for low-slung new headquarters outside of town.

AREA DEVELOPMENT

These new moves to establish downtown digital operations hubs include high-profile gambits by Fortune 500 companies such as General Electric, McDonald’s, Weyerhaeuser, the recently spun off Chemours division of DuPont, and the Cadillac division of General Motors. But some mid-market companies are doing the same thing. And the downtowns involved aren’t just those in North America’s biggest cities. Economic development interests in urban centers of various sizes across the United States and Canada have a golden opportunity to remake themselves to succeed in the new technological era. “Part of it is that cities are more attractive places to live than they were 30 years ago and are more willing to provide tax incentives, and young people want to be there,” David J. Collis, a professor of corporate strategy at Harvard Business School, told The New York Times.1 No doubt this phenomenon, in turn, has become a major driver of a documented overall renaissance in the core business districts of several major Northeast and Midwest post-industrial cities as well as a contributor to the vitality of many newer economies in the Sun Belt. For example, Albuquerque and Santa Fe, New Mexico, are in the midst of a push to revitalize and fill out their downtowns, and a centerpiece of the effort is to entice and encourage corporate investment in citycore operations that can employ many members of the state’s considerable digital workforce. “We’ve got one of the largest concentrations of Ph.Ds. per capita in the country,” New Mexico Governor Susana Martinez told Area Development. “Developing that asset is a cornerstone of our efforts to grow and diversify the economy, and our downtown initiatives account for one of the best ways to do that.”

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FACILITY PLANNING

“The Sea of Ideas” While the trend has been incipient for a while, it was GE that put a headline on it when the 124-year-old industrial and technology icon stunned the status quo by announcing earlier this year that it is transferring its corporate headquarters — and a few thousand jobs — to downtown Boston from its leafy suburban Connecticut home in Fairfield. GE was pushing the state for tax cuts regarding the 68 arboreal acres the company had occupied since 1974. But the real reason for the move was that the company requires better access and appeal to thousands of young digital mavens, as CEO Jeffrey Immelt accelerates his plans to transform the company from a heavy-manufacturing behemoth to a software-driven technology giant of the future. And there was no better place to find these workers than downtown Boston. “I want to be in the sea of ideas so paranoia reigns supreme,” Immelt said when explaining GE’s motives to Boston’s business leaders earlier this year. “To look out the window and see deer running across …I don’t care about that.”2 So GE accepted as much as $25 million in property-tax relief from Boston as well as up to $120 million in infrastructure grants and $5 million for an innovation center from the state of Massachusetts. GE itself plans to spend up to $100 million for the new headquarters, including land-acquisition costs, where it plans to employ about 800 people when it opens in 2018, in addition to the 5,000 people GE already employs in Massachusetts. And as Immelt promised his new friends in Boston, “I don’t think this is the last investment that we make, either in Boston or in [Massachusetts]. I think once we get up and going, there will be more things that happen here.”

“

ty headsets, and launching mobile-payment systems. “This world-class environment [in downtown Chicago] will continue to drive business momentum by getting us even closer to customers, encouraging innovation, and ensuring great talent is excited about where they work,” McDonald’s CEO Steve Easterbrook said in explaining McDonald’s plans.3 For similar reasons, Weyerhaeuser, the paper giant, recently sold its exurban-Seattle corporate campus along Interstate 5, covering 425 acres and nearly 811,000 square feet of office, lab, and industrial space, for about $70 million. Weyerhaeuser had moved from Tacoma to the sprawling new campus in 1971. It sold the complex so the company — one of the Pacific Northwest’s oldest — could move into a new building in downtown Seattle this summer, two years after announcing the move. “Companies are migrating to the city because they perceive the need to attract talent,” Stuart Lichter, president of IRG, the Los Angeles-based institutional investor that specializes in revitalizing old corporate campuses, told The Seattle Times. But, Lichter noted, “The dichotomy between what you can lease a suburban building and downtown building for has never been this wide.”4

COMPANIES MUST LURE THE TECH-SAVVY MILLENNIALS WHO ARE MORE ATTRACTED TO DOWNTOWN WORKING AND LIVING THAN ANY GENERATION IN THE LAST CENTURY.

World-Class Environments In June, McDonald’s pulled its own stunner by announcing that it will move its headquarters from suburban Oak Brook, Illinois, to the trendy West Loop neighborhood of downtown Chicago by 2018. After “growing up” downtown between 1955 and 1971, McDonald’s had bolted for the suburbs in 1971 and never looked back — until disruption by forces ranging from digital technology to healthier-eating consumers overturned its business model and forced the fast-food leader to re-evaluate everything. After all, new digital applications arguably are as important in McDonald’s new competitive arena as new better-foryou menu items. In just the last several months, McDonald’s has made software-based moves including accelerating development of its Create Your Taste food-customization program, installing Samsung Galaxy tablets in its restaurants across the UK, experimenting with Happy Meal boxes in Sweden that could be converted into cardboard virtual-reali-

AREA DEVELOPMENT

Staying Downtown

When the newly merged DuPont and Dow Chemical decided to split up their joint operations in new ways, the emergent company spun off Chemours as an industrial-chemical subsidiary, and there was broad speculation in Delaware that it would follow DuPont to the suburbs. But Chemours announced that, instead, it’s staying in Wilmington, most likely in the century-old headquarters it inherited form DuPont after the spinoff. The decision was facilitated by the state’s decision to offer a $7.9 million package of grants, as well as the state’s move to overhaul its corporate tax code to sacrifice revenue, making it easier for Chemours to decide to stay put. “We are going through a change in our workforce, and we wanted to be where we could attract millennials,” Mark Vergnano, Chemours CEO, told The New York Times. “This is a group that likes to be in an urban setting, with access to public transportation. They don’t want to be confined to a building with a cafeteria or be next door to a shopping center.”

Changing a Company’s Image Cadillac’s move into spacious new quarters in Manhattan has been a bit different than the other companies’ moves because it switched cities to do so. Two years ago, the new brain trust of GM’s luxury brand determined that the only way to reverse the slide in perceptions of Cadillac vis-à-vis

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the German competition was to make a physical break with the traditional, stodgy approach represented by the automotive behemoth and its beehive assemblage of personnel in Renaissance Center, a relatively isolated cement citadel on the riverfront in downtown Detroit. So Cadillac CEO Johan Nysschen got to set up a new headquarters, along with sales and marketing, human resources, and some other functions in one of the trendiest locales in the world — New York City — where it could recruit millennials who not only live but also understand the chic urban sensibilities and luxury-lifestyle brands that Cadillac wanted to use to reshape the brand. The jury remains out on whether this is the tonic that Cadillac needed to transform its brand, because the company is still overhauling its product lineup. But Cadillac executives believe they have achieved the initial objective of recruiting the kind of digitally savvy and culturally progressive workforce that they wanted.

Cities Reaping Benefits Not every city is getting the dramatic invasion of a marquee corporate headquarters. Some have been assembling smaller hauls of digitally needy employers offering jobs in the dozens or hundreds and, collectively, nudging the downtown in the same direction. In Toronto, for instance, Google and some other flagship digital companies employ hundreds of madly typing millennials. Montreal’s downtown has become something of a paradise for video-game companies, thanks to the massive gaming specialty of Concordia University. And in Albuquerque, N.M., an initiative called Innovate ABQ is a hub for research and innovation activities and programs throughout the region. Founded on the grounds of a seven-acre former Baptist church, Innovate ABQ “is a cityand state-driven initiative, along with the University of New Mexico, to establish incubators and centers of entrepreneurship in the downtown corridor” of the state’s largest city, Governor Martinez notes. The state is chock full of knowledge workers thanks in part to the presence of federal research centers such as the Los Alamos National Research Laboratory, so the idea for Innovate ABQ is to create “an integrated work, live, and play community for the state that is multi-dimensional” and snags those home-grown knowledge workers, among others. Martinez also spearheaded creation of a bipartisan “jobs package” designed to recruit new businesses to the state, which included new tax credits for tech companies that reward home-grown innovations. “We start out with a lot of tech jobs,” Gov. Martinez says. The new downtown programs “are a way to diversify our economy so that we solidify and expand our base of knowledge workers and accelerate the growth of our digital economy even more.” ■ 1

http://www.nytimes.com/2016/08/02/business/economy/why-corporate-america-is-leaving-thesuburbs-for-the-city.html?_r=0 https://www.bostonglobe.com/business/2016/06/12/general-electric-focuses-tech-its-talent-hunt/ cEnHWS6LToRDatkAZujSyI/story.html 3 http://www.chicagotribune.com/business/ct-mcdonalds-chicago-headquarters-0614-biz20160609-story.html 4 http://www.seattletimes.com/business/real-estate/weyerhaeusers-federal-way-campus-sold/ 2

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COVER STORY

echnology is driving the speed of business — and business is trying to keep up. From the latest microelectronic systems on a chip to 3D printing to robotics to wearables, technology is transforming how we do business, and even how we conduct our personal lives. Advanced technology is the key to making every industry competitive. The science responsible for these discoveries — chemistry, physics, electronics, photonics — is often remarkably interconnected. For example, a change in atomic structure at the nanoscale can give a poorly conductive material electrical properties that can take electronics design in a totally different direction. Or, plastics can be engineered to be as heatand chemical-resistant as metal, thereby allowing the replacement of heavy, expensive metal parts with plastic in automotive and aerospace applications, where weight is a critical design factor. Technology and its processes are more connected than ever, thanks to the Internet of Things (IoT). We are just beginning to understand the enormity of how we can use “big data” to improve operational efficiencies, product quality, speed to market, and cost controls. This capability levels the playing field with low-cost countries, which is why the U.S. government is investing so heavily in science and technology for manufacturing. Through its new manufacturing innovation institutes, the Obama Administration has created collaborative partnerships among some of the country’s best scientists and researchers in academia, industry, and government to make groundbreaking discoveries in key fields such as photonics, electronics, information and computer technology (ICT), digital media, and robotics.

Photonics

TRANSFORM LIVES and BUSINESSES 44

AREA DEVELOPMENT

Photonics is the science and application of light. Advanced manufacturing sectors that depend on photonics include electronics, ICT, defense, energy, as well as healthcare. According to SPIE, an international photonics organization, annual sales in the global photonics market are roughly $185 billion. This market experienced 15 percent growth from 2012 to 2014, with sales driven by lasers for manufacturing operations (machining, welding), wearable devices, and healthcare applications. The use of photonics in medical equipment, as well as for treatment therapies, is the fastest-growing segment of the industry — growing at a projected com-

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pound annual growth rate (CAGR) of 7.4 percent from 2014 to 2020. Interesting applications include using laser light to destroy cancer cells and laser-based tools to identify serious conditions such as Alzheimer’s disease and tuberculosis. Another fast-growing photonics segment is “wearables,” especially devices that monitor personal health indicators such as blood pressure and heart rate. Photonics technology built into wearables also allows the measurement of chemical compositions of body fluids noninvasively (for example, determining blood glucose levels by analyzing human sweat).

VR will continue to innovate rapidly with advances in processor technologies, screen resolutions, and content.

Electronics The Consumer Electronics Association reported that retail revenues for the consumer electronics industry in 2015 grew at a rate of about 2.4 percent and totaled $285 billion. Growth was largely driven by the high demand for several rapidly advancing product categories, including 3D printers, 4K ultra–high-definition (UHD) televisions, connected home technologies, drones, health and fitness products, home robots, and smart wearables. A popular research topic in wearables is flexible electronics that provide better contact with skin and the natural curves of the human body — providing more reliable data and a more comfortable fit. “As a result, stretchable electronics is a rapidly developing field,” says Rob Shepherd, an assistant professor of mechanical and aerospace engineering at Cornell University,

whose research group has developed an electronic skin that can be stretched nearly six times its original size without breaking its connection. Other wearable-related discoveries continue to come at a rapid pace, such as new inks that can be printed on textiles in a single step to form highly conductive and stretchable wireless connections for capturing health data.

Digital Media Digital media is a broad field that includes audio/visual media contents that are distributed directly over the Internet, including digital video content such as music, video, games, and e-publications. The U.S. digital media market is valued at roughly $600 billion for 2016. Photonics, electronics, and advanced micro-manufacturing techniques all play key roles in digital media products and services. One especially hot market segment is virtual reality (VR), which Deloitte Global predicts will have its first billion-dollar year in 2016. About $700 million of that will be in hardware sales, with the remainder in content — largely for video games, but also the continuing development of consumer-level 360-degree action cameras for amateur virtual-reality activities. VR will continue to innovate rapidly with advances in processor technologies, screen resolutions, and content. The year 2016 should be a successful one for digital media, especially as VR technologies reach a critical mass of functionality, reliability, ease of use, and affordability. Movie studios, television stations,

AREA DEVELOPMENT | Q3/2016

and news organizations are working with VR developers and vendors to bring more content to market — especially immersive experiences that can be accessed in the privacy of the home, including live events.

Information and Computer Technology (ICT) ICT includes telecommunication devices and applications, computer and network hardware and software, and satellite systems. End-users have high expectations for speed, and telecom providers are responding. For example, recent testing by Verizon of its 5G (fifth-generation) technology peaked at speeds of 10 Gbps, with commercial deployment possible by 2017 — transmission that is far faster than Google Fiber Internet speeds. Once available, this kind of access will rapidly transform the ICT world, including the scale at which the IoT will be used. The huge amount of IoT data that will result will require advances in storage and analytical systems, taking data analysis fields such as statistics, data mining, and predictive analytics to a new level. The cloud also continues to gain in popularity — both for software-as-a-service and data storage. Security improvements continue to make the cloud a safer place. An emerging technology called Network Function Virtualization (NFV), which improves security and provides a virtualized infrastructure for next-generation cloud services, can also be used by telecommunications companies to enhance their standard communication services.

Robotics Advances in sensor technology and the IoT will increase the demand for automation and robotics. According to a recent research report on the service robotics industry by Markets and Markets, the service robotics market is estimated to reach $18 billion by 2020, at a CAGR of 17.36 percent between 2015 and 2020. In addition, Boston Consulting Group reports that robots currently handle only about 10 percent of manufacturing tasks; this number is expected to increase to 25 percent by 2025. Not only will robots become smarter, they will also become more affordable. Increased automation in the workplace could cut labor costs by an average of 16 percent across the world’s 25 largest goods-exporting nations — 22 percent in the U.S. alone — enhancing global U.S. competitiveness. Because future U.S. manufacturing success depends on maximizing efficiency and controlling costs, the federal government established the Robots in Manufacturing Environments Manufacturing Innovation Institute, which will focus on building U.S. leadership in smart collaborative robotics, where advanced robots work alongside humans. This capability would transform U.S. manufacturing sectors by improving the reliable and efficient production of high-quality, customized products.

Technology of the Future Nanotechnology and additive manufacturing/3D print-

AREA DEVELOPMENT

ing are game-changers when it comes to accomplishing the extraordinary in manufacturing performance and output. For example, engineers can build highly functional nano-scale machines (1–100 nanometer range) and computers. Material functions and properties can be changed by manipulating atomic structure at the nanoscale, creating the potential to improve many next-generation technologies in unforeseen ways. These advances will speed up computer chips, increase the resolution of medical-imaging devices, and make electronics more energy efficient. Nanomaterials are also critical to development of smaller and more advanced sensors — the key to machine-to-machine communication and the IoT. Every machine in the future will be smart and provide machine data in real time, allowing operators to optimize productivity. According to a 2015 study by Deloitte Global and the Council on Competitiveness, 4.9 billion devices were connected in 2015; that number is expected to increase to 25 billion by 2025. This also means more powerful data-crunching programs must be developed to identify process control and performance improvements. In June, President Obama announced the new Clean Energy Smart Manufacturing Innovation Institute, which brings together a consortium of nearly 200 partners from across academia, industry, and nonprofits to spur advances in smart sensors and digital process controls with the goal of radically improving the efficiency of U.S. advanced manufacturing. By accelerating the development and adoption of advanced sensors, data analytics, and controls in manufacturing, and significantly reducing their cost, U.S. advanced manufacturing will be much more competitive on the global stage. Achieving this scale of success will require advanced expertise and research and development in electronics, photonics, robotics, ICT, and video displays. “Smart manufacturing is a key information technology approach to unlocking energy efficiency in manufacturing,” comments Energy Secretary Ernest Moniz in a September 2015 press release. “These technologies will make industries more competitive with intelligent communications systems, real-time energy savings, and increased energy productivity. Energyintensive industries, such as steelmaking, could see a 10 to 20 percent reduction in the cost of production, making products such as solar panels and chemical materials, such as plastics, as well as the cars and other products they go into, more affordable for American consumers.” ■

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SUPPLY CHAIN/LOGISTICS

Intermodal Continues to Revolutionize Logistics and Industrial Real Estate Strategies Growing intermodal volumes are promoting investments by port authorities in inland ports and by railroads in logistics centers. By Walter Kemmsies, Managing Director, Economist and Chief Strategist, JLL’s U.S. Ports, Airports and Global Infrastructure Group (PAGI); and Ali Rezvani, Moffatt & Nichol’s Commercial Services Group

n October 2014, Rich Thompson and Keith Stauber from JLL pointed out that “a looming capacity shortage in the trucking industry — coupled with rail’s high efficiency — is causing logistics suppliers and transportation providers to turn their focus to intermodal solutions.”1 Railroads have stepped up and are impacting the supply chain logistics landscape. This is visible in several visible ways: • Intermodal rail carload movements have grown faster than other types of rail freight movements, partly due to growing container/trailer volumes and partly due to declining coal shipments. • East Coast ports’ share of international container volumes, imports in particular, have increased, supported by East Coast railroads. This may force West Coast ports and railroads to rethink their strategies, as this trend may be extended due to the Panama Canal expansion to accommodate larger ships. • Investments in inland logistics centers, such as the Logistics Park in Kansas City, are increasing. The most recent announcement came from the Georgia Ports Authority regarding its Appalachian Regional Port to be located in Northwest Georgia.

Growing Intermodal Volumes Intermodal rail volumes have grown faster than other types of rail carload freight. Intermodal rail volumes consist of international containers carried on vessels, domestic containers, and containers on trailers driven onto railcars. International containers come in 20-, 40-, and 45-foot lengths, while domestic containers drayed on truck trailers are 53 feet long. At major container port gateways, cargo

owners often transfer the contents of international containers to domestic containers — called transloading — at facilities near the container ports. Transloading the contents of three 40-foot international containers to two domestic 53-foot containers reduces the cost of shipping imported goods to inland locations by a third, less the cost of the transloading activity. Intermodal railcar movements include both cargo with domestic and international origins. However, intermodal volumes have grown in line with imported container volumes at U.S. ports. Non-intermodal carloads have been trending down. The downward trend in non-intermodal carloads is primarily due to declining coal shipments. Natural gas prices have declined and, along with increasingly restrictive environmental regulations that negatively impact the demand

AREA DEVELOPMENT | Q3/2016

for coal as a fuel for electricity production, have resulted in declining coal shipments. Until a few years ago, coal was over half of the volumes hauled by railroads and the largest source of revenues and profits. Intermodal volumes have therefore become more important to railroads.

Which Ports Are Seeing Increased Activity? The benefits from growing intermodal shipments have not been uniform between U.S. coasts. Imported international container volumes handled by U.S. ports peaked in 2008 when the Great Recession began and did not recover to that level until 2014. East Coast ports recovered faster than West Coast ports, and the ports of Los Angeles and Long Beach have not yet seen their volumes recover to the pre-recession level. Some of this is due to the fact that compared to East Coast ports, West Coast ports are more oriented toward trade with China, Japan, and Korea and to commodities where demand is driven by residential real estate activity. Given that U.S. residential real estate market activity remains well below the peak levels seen before the recession, it is not surprising that West Coast port volumes are still below their previous peak levels. This is also evident in rail volumes. Intermodal volumes from the West Coast ports to inland destinations greater than 1,500 miles away have declined, while those from the

East Coast ports will hold on to their gains now that the third set of locks at the Panama Canal are operational.

â&#x20AC;&#x153;

East Coast ports have increased. Both East Coast ports and railroads have gained share of imported container volumes and, in particular, gained share of volumes imported to the Midwest. (See charts focusing on ports in the four corners of Seattle/Tacoma, Los Angeles/Long Beach, Savannah/ Charleston, and New York/New Jersey.

Effects of Panama Canal Expansion It is likely that East Coast ports will hold on to their gains now that the third set of locks at the Panama Canal are operational. These larger locks will allow container vessels

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Indexed Infrastructure Expenditure By Type 140 130 120 Indexed Highway

120

Indexed Freight Rail Indexed Water Transportation

110 90 80 70 60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: American Association of Railroads, U.S. Department of Transportation, Bureau of Economic Analysis, Moffatt & Nichol

of up to 12,500 TEU capacity to cross between the oceans, compared to 4,500 TEU capacity vessels prior to the June 26 opening. East Coast ports have been investing in terminal upgrades and clearing navigation channels for larger vessels. It is, however, too soon to predict that East Coast ports will continue to gain share of U.S. container volumes. Ocean carriers are increasingly deploying vessels that are too large to fit through the larger locks recently opened at the Panama Canal.2 Long Beach and Los Angeles will be able to handle vessels with capacity greater than 18,000 TEUs. Larger vessels have lower per container average costs and this would improve the cost competitiveness of West Coast ports.

Railroad Investment Railroads have also been investing in infrastructure, averaging about $25 billion per year over the last several years, according to the American Association of Railroads. This includes rolling stock and improvements to their networks such as double-tracking so as to improve two-way directional traffic capacity. As railroad investment has increased over the last 20 years, investment in highways and waterways, mostly by the public sector, has been decreasing. One has to be careful in interpreting the data â&#x20AC;&#x201D; while there has been a decline in inland waterway systems, investments by ports have been increasing. However, the message is clear: railroads are investing and their efforts are supporting the movement of freight via U.S. ports.

Industrial Real Estate Trends Growth in international container volume trade is stressing the freight movement supply chain. Increasing congestion issues have accompanied the recovery and the sustained growth of container volumes at U.S. ports. Navigation channels have been deepened to accommodate larger vessels. Bridges restricting air draft of the larger vessels are being raised. Terminals are investing in larger ship-to-shore cranes and reinforcing quay walls to hold the larger and heavier

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FacilityLocations.com

Find the Right Location for Your Next Business Site, Facility or Headquarters FacilityLocations is a GIS map-driven, online economic development directory used to research potential locations during the business re-location or expansion process.

Discover Search and identify potential site and facility locations within big, easy-to-navigate, GIS-driven maps

Research Drill-down into location profile pages: • Google Streetview and Bing Bird’s Eye Imagery • Heat Maps and Data Layers • Downloadable Point-and-Click Radius Demographics Reports • Available Property Listings and Key RE Assets

Connect A directory with 5000+ listings including: • Local and Regional Economic Development Contacts • Port Authority Contacts • Utility Contacts • Foreign Trade Zone Contacts • Foreign Inward Investment Contacts If you are an economic development agency and want to have an enhanced listing with a location profile on FacilityLocations.com, please contact Dennis Shea at 800.735.2732 x 208 or dshea@areadevelopment.com

Seattle/Tacoma

700,000 600,000

500,000

400,000

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500,000

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100,000

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2,000,000

2,000 1,500

2,500 2,000

3,000 2,500

4,000 3,000

2,500 2,000

3,000 2,500

4,000 3,000

Charleston/Savannah

1,600,00

1,800,000

140,000

1,600,000

120,000

1,400,000

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300,000 200,000

200,000

1,000,000 800,000

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Distance (Miles) 07

freight movement equipment. However, there has been little progress in increasing roadway capacity. Growing volumes of containers on larger ships are creating congestion issues. It is not surprising that railroads are seeing growing intermodal volumes since they are an increasingly important alternative to trucks due to roadway congestion and chronic truck driver shortages. These factors are also evident in industrial real estate trends. According to JLL research, in the second quarter of 2016: • Nationwide net absorption and construction in most markets was in line, keeping pace as new deliveries came online. • Total net absorption increased by 18.9 percent from the previous quarter, posting 62 million square feet (compared

New York/New Jersey

600,000

2,000 1,500

to 52.3 million square feet). • Overall vacancy fell by 20 basis points to 6 percent. Port authorities have also responded to freight movement issues and real estate trends by investing in inland ports in Georgia and South Carolina. And railroads have been supporting investments in logistics centers served by rail and truck such as the Logistics Park in Kansas City. ■ 1 2

http://www.areadevelopment.com/logisticsInfrastructure/Q3-2014/inland-ports-revolutionize-supplychain-logistics-272611.shtml http://www.us.jll.com/united-states/en-us/research/7241/us-panama-canal-the-x-factors-summer2016-jll

Dr. Kemmsies can be contacted at walter.kemmsies@am.jll.com; Dr. Rezvani can be contacted at ARezvani@moffattnichol.com.

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

CANADA

Annual 2016

Minister’s Message: Canada’s Competitive Advantage Looking to Canada to Satisfy Your Workforce Needs A Leader in FDI Attractiveness The “Northern Secret” of Canada’s Cities Revealed Connecting to the World from Canada www.locationcanada.com

Feel free to judge us by the companies we keep. Join industry-leading businesses like Canon Canada, Coca-Cola, Rogers Communications, Air Canada and Loblaw who call Brampton home. A young, educated, highly skilled and multicultural workforce. A strong economy. World-class transportation corridors to major markets. Room to grow. Need we say more?

Discover why weâ&#x20AC;&#x2122;re the best business decision youâ&#x20AC;&#x2122;ll ever make. peoplepoweredeconomy.ca

Brampton, Ontario, Canada

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CANADA MESSAGE FROM CANADA’S MINISTER OF INTERNATIONAL TRADE

As Canada’s Minister of International Trade, it gives me great pleasure to welcome readers of the 2016 edition of Location Canada. There has never been a better time to invest in Canada. Our country offers investors an attractive business environment, abundant human and natural resources, and vibrant, connected communities with the highest quality of life among 60 countries. Canada’s real competitive advantage is its people. Canada offers businesses the most educated talent pool among OECD countries. Canadians are also global citizens with connections to the rest of the world. Together, Canadians have created a stable and inclusive democracy with world-class clusters of innovation and government as a supporting partner. Canada’s dynamism is reflected in our economy. Forbes, Bloomberg and the Economist Intelligence Unit all rate Canada as the best country in the G20 to do business. According to KPMG’s 2016 Competitive Alternatives, overall business costs in Canada are 14.6 percent lower than the U.S. KPMG also concluded that the federal government’s commitment to driving investment in transportation, climate mitigation, and social infrastructure will continue to make Canada an attractive investment location. In addition, Canada’s total business tax rate is the second-lowest in the G20. It should come as no surprise that a survey of more than 4,000 business decision-makers ranked Canada as the best country in the world to headquarter a company.

Furthermore, Canada’s economy is highly integrated into the North American economy and benefits from the region’s cross-border supply chains. In 2018, we will celebrate the 25th anniversary of the North American Free Trade Agreement (NAFTA) with the U.S. and Mexico. Since NAFTA entered into force, Canada has added trade agreements in Central and South America, Asia, and Europe, and our Comprehensive Economic and Trade Agreement (CETA) with the European Union is expected to enter into force in early 2017. CETA is one of the most ambitious and progressive trade agreements ever concluded by either Canada or the EU. When it comes into force, Canada will have free-trade agreements with more than 40 countries with nearly 1.2 billion consumers and a combined GDP of almost US$39 trillion, making Canada an ideal base for any company. Canada is open for business. With our solid banking system, deep and highly skilled talent pool, innovative entrepreneurs, low taxes, easy access to markets, generous support for research and development, and strong commitment to free and open trade, Canada should be your preferred destination for investment. A key part of my mandate is to make Canada an even better place to invest. This includes working to facilitate access to the services foreign investors need to make investing in Canada more attractive. I invite you to learn more about Canada’s competitive advantages within these pages and on our Invest in Canada website.

The Honourable Chrystia Freeland MINISTER OF INTERNATIONAL TRADE 2016 53

CANADA CONTENTS Business Environment of the G-7 Countries, Rank For Forecast Period 2016–2020 1st 2nd 3rd

Rank

4th 5th 6th 7th

Canada

U.S.

U.K.

Germany

France

Japan

Italy

Source: The Economist Intelligence Unit, May 2016

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61, 69

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53 Minister’s Letter

61, 69

FEATURES

56 Canada: A Leader in FDI Attractiveness

Canada’s new federal government is expected to build on the nation’s already enviable position for foreign direct investment, which is enhanced by numerous tax and other financialincentives.

62 The “Northern Secret” of

Canada’s Cities Revealed

Advanced technology companies are drawn by Canada’s overall cost and other advantages, while recognizing the synergism found in its urban centers. Published by:

54 LOCATION CANADA

Winnipeg: Say YES! to Winnipeg

64 Looking to Canada to

vince@yeswinnipeg.com www. economicdevelopmentwinnipeg.com

The solution to the high-skills talent gap is closer than you think.

ONTARIO

Satisfy Your Workforce Needs

52, 70

Brampton — A People-Powered Economy

67 Connecting to the

World from Canada

Canada’s logistics infrastructure and trade connections can be quite beneficial to foreign investors and shippers.

edo@brampton.ca PeoplePoweredEconomy.ca

66, 72

Quinte Economic Development Commission chris@quintedevelopment.com www.quintedevelopment.com

55, 71 400 Post Ave. • Westbury, NY • 11590 516-338-0900 www.areadevelopment.com

lmagyar@cityofwoodstock.ca www.cometothecrossroads.com

Industry is at a Crossroads. It’s called Woodstock, Ontario, Canada.

On highways 401 and 403, at the junction NE "@M@CH@M /@BHƥB @MC "@M@CH@M -@SHNM@K Q@HK RDQUHBD Ŕ @S SGD KNFHRSHB@K BQNRRQN@CR NE -NQSG America – Woodstock sees enough business to know how much – and how rapidly – our world is changing. At the intersections of industry and agriculture, productivity and sustainability, and the last economy and the next one, here’s a place that doesn’t just support how business is done today – here’s a place that also supports how business will be done tomorrow. 519-539-2382 x2115 information@cityofwoodstock.ca cometothecrossroads.com

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14/07/15 9:35 PM

CANADA CANADA: A LEADER IN FDI ATTRACTIVENESS Canada’s new federal government is expected to build on the nation’s already enviable position for foreign direct investment, which is enhanced by numerous tax and other financial incentives. By HOWARD SILVERMAN, President & CEO; and MARC BEAUCHAMP, Vice President & Partner;

The CAI Global Group

Business Environment of the G-7 Countries, Rank For Forecast Period 2016–2020 1st

CANADIAN TAX ENVIRONMENT As in the past, Canada encompasses the lowest total

56 LOCATION CANADA

3rd 4th

Rank

anada remains a favorable destination for foreign direct investors. In comparison to its G-7 counterparts — the United States, Germany, United Kingdom, Japan, France, and Italy — Canada ranks first for its business environment for the forecast period 2016–2020, according to the Economist Intelligence Unit. Additionally, Canada’s infrastructure investment index, which measures the potential for investment and growth in economic infrastructure, is the best in the G-7. The ease of which a corporation can establish itself in Canada in comparison to the other G-7 members is astonishing. According to the World Bank Group, it requires 1.5 days to establish a business in Canada, while the OECD average entails 8.2 days. This is primarily due to the low level of Canadian procedural requirements — two in Canada versus five as an OECD average. In addition to the low regulatory processes, Canada possesses the lowest business costs. According to KPMG’s annual “Competitive Alternatives” study, Canada, once again, ranks first with the highest percentage cost advantage relative to its neighbor to the south — the United States. In fact, Canada dominated in the digital, research and development, manufacturing, and corporate services industries. When breaking down the manufacturing industry, Canada encompasses the lowest cost in all the sub-categories in manufacturing: aerospace, agri-food, automotive, chemicals, electronics, green energy, medical devices, metal components, pharmaceuticals, plastics, precision manufacturing, and telecommunications.

2nd

5th 6th 7th

Canada

U.S.

U.K.

Germany

France

Japan

Italy

Source: The Economist Intelligence Unit, May 2016

corporate tax rate in the G-7, at 21.1 percent, with the UK and the U.S. following at 32 percent and 43.9 percent, respectively, according to PricewaterhouseCoopers’ “Paying Taxes 2016” report. In addition to the low corporate tax rate, Canada possesses several tax credits that are beneficial to corporations entering or expanding within the country, as follows: SR&ED: One of the primary tax credits is the Scientific Research and Experimental Development (SR&ED) credit. This credit has dual benefits as it allows corporations to deduct the eligible expenditures from income for tax purposes; additionally, it provides an investment tax credit, ITC, which enables a corporation to reduce their income tax payable. If the claimant is a CCPC, Canadian-controlled private corporation, it can obtain 35 percent of the SR&ED expenditures as a 100 percent qualified refundable ITC, up to a maximum of $3 million. If the expenditures are not SR&ED qualified, the rate drops to 15 percent. All other corporations, nonCCPC, can obtain a non-refundable ITC at a rate of 15

percent, which can be utilized to minimize the tax payable.

“

The ease of which a corporation can establish itself in Canada in comparison to the other G-7 members is astonishing.

Regulation 102 New Certification Tax Waiver: Many multinational corporations desire to send employees for work into Canada. However, due to the additional income tax consequences, not all employers are willing to do this. Employment income earned by non-residents in Canada is taxable at the same rate and regulation as that earned by residents employed in Canada. Regulation 102 allows for the exemption of such taxes to be paid by non-residents on the condition of a tax treaty being present between Canada and the non-resident’s country of residence. In the past, the employer had to submit an application for each non-resident employee. However, as of January 2016, the Canada Revenue Agency has created a new certification tax waiver permitting the employer to submit one application for all of its non-resident employees, thus easing the process for foreign companies to send their skilled labor to Canada to work and train at their Canadian subsidiaries. The limitations to the tax waiver are as follows: U.S. residents who expect to earn no more than $10,000 or residents of a country with a tax treaty with Canada who expect to earn no more than $5,000. Additionally, the employee can only be employed up to 45 days in Canada and can only remain in the country up to 90 days in order to qualify for Regulation 102.

Additionally, the holiday permits companies to be tax exempt from contributions to the HSF, Health Service Fund, for the portion of employee salaries allocated toward the investment project.

PROVINCIAL ATTRACTION The Canadian federal and provincial governments have always been strongly supportive in the growth of the business community. Whether to expand a local business or attract foreign corporations to establish themselves in Canada, the governments have often provided financial assistance in the form of grants, loans, and tax benefits in order to grow the economy. The largest provinces in Canada by population are Ontario, Quebec, and British Columbia. Naturally, these provinces also attract the greatest proportion of FDI, and they also offer attractive incentives for business growth.

“

Quebec’s Large Investment Tax Holiday: As the name states, the tax holiday can be granted for large investments projects within the province of Quebec. Such projects consist of $100 million in investment within the industries of manufacturing, wholesale trade, warehousing and storage, and data processing and hosting. The tax holiday lasts throughout 15 years and may not exceed 15 percent of the total eligible investment expenditures. The benefit created by the program permits companies to be exempt on future income taxes generated due to the profits from the investment project.

Ontario: In 2015, Ontario launched the Jobs and Prosperity Fund (JPF). The duration of the fund is 10 years and its resource value is $2.7 billion. The JPF encompasses three streams of business: new economy, food and beverage growth, and strategic partnerships. The new economy stream concentrates on investment projects valued at a minimum of $10 million in eligible costs within the key sectors of advanced manufacturing, life sciences, forestry, and technologies. The food and beverage growth stream is tailored to companies in food, beverage, and bioproduct production with projects totaling a minimum of $5 million in eligible costs. The third stream, strategic partnerships, concentrates on partnerships within the key sectors listed in the new economy stream with projects totaling a minimum of $10 million. The JPF emphasizes projects that entail the following three criteria: incremental productivity, incremental exports, and innovation. Furthermore, the 2016 Ontario budget included the Business Growth Initiative, which will commit $400 million over the next five years. The initiative focuses on growing small and medium-sized businesses, while helping them to compete in international markets. It will also be highly Continued on page 60 2016 57

The Canadian FDI Forum 1st EDITION

Canada’s Competitiveness in Attracting and Retaining FDI The Omni King Edward Hotel, Toronto October 30 - November 1, 2016

PLAN TO ATTEND The Canadian FDI Forum is a limited seat boutique-style conference that provides Canadian EDOs at all levels and in all jurisdictions valuable insights and understanding of the current environment that makes Canada attractive for FDI. Area Development’s Consultants Forum, in cooperation with the CAI Global Group, is pleased to introduce the first Canadian FDI Forum whose program focuses on the key FDI investor interests and how Canada can best attract and expand FDI to jurisdictions within each province. This Forum provides Canadian EDOs with an opportunity to

hear the perspectives on the current investment criteria and how they affect the global site selection process. The program’s site selectors, industry leaders, site consultants, and location experts will provide delegates with information on best practices in their pursuit of foreign direct investment mandates.

Best Practices That Attract FDI

This Forum presents an outstanding roster of speakers and panelists to discuss Canada’s advantages in policy, taxation, select markets, and workforce among other factors that can make your location an optimal choice for industrial and technology FDI.

Corporate Panelists: Winpak BackOffice Associates Ericsson Canada GSK Pharma Canada Bridgestone Consultants & Thought Leadership: Lawrence National Centre for Policy and Management Fisher & Phillips (former Toyota Motors North America) Werner Enterprises Cushman & Wakefield Site Selection Group The CAI Global Group Provincial Panelists: Opportunities New Brunswick Investissement Québec Ontario Ministry of Economic Development and Growth (More Speakers to be Announced)

For more information contact: Marc Beauchamp Vice President and Partner CAI Global Group 615 René-Lévesque Blvd. West, Suite 1120 Montréal (Quebec) H3B 1P5 T: 514.982.0095, ext. 224 • F: 514.982.0096 m.beauchamp@caiglobal.com

The CAI Global Group is a consulting firm offering expertise in investment projects including financial incentives, site selection, and business strategies on the retention, expansion, and attraction of investment projects for multinational, national, and domestic companies. CAI offers economic development strategies based on the in-depth knowledge and hands-on experience of what investors are looking for in choosing an investment location for greenfield investments or reinvestment. 58

AREA DEVELOPMENT

Dennis Shea President/Publisher

Area Development Magazine The Consultants Forum 400 Post Ave, Westbury, NY 11590 T: 800.735.2732 ext. 208 • F: 516.338.0100 d s h e a @ a re a d e v e l o p m e n t . c o m

Area Development is considered the leading publication covering corporate site selection and relocation. Providing content since 1965, Area Development provides insight into the key factors, issues, and criteria that affect a successful location decision. The Consultants Forum has produced more than 50 events focused on the best practices for economic development when dealing with the corporate site selection process, trends, and policies.

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

Program (as of August 12)

National Perspectives on Canadian FDI Policy Sunday 5:00 PM 6:00 PM 7:00 PM Monday 7:30 AM 8:30 AM 9:00 AM 9:45 AM 10:00 AM 11:00 AM 11:45 AM 1:15 PM 2:00 PM 3:15 PM 3:30 PM 4:30 PM 5:15 PM 6:00 PM 7:00 PM Tuesday 7:30 AM 8:30 AM 8:45 AM 9:30 AM 10:15 AM 10:45 AM 11:30 AM 1:00 PM 2:00 PM

Platinum

Registration Speaker and Sponsor Private Reception Opening Reception and Networking Dinner Networking Breakfast Opening Remarks Current FDI status and trends in Canada and beyond Networking Refreshment Break Canada’ global competitiveness for North American investment The U.S. experience in supply chain development and reshoring: what’s in it for Canada? Networking Luncheon Survey Review: Area Development’s First Annual Canadian Corporate and Consultants Survey Site Selectors’ Panel: A U.S. site selector’s perspective on Canada as an investment location Networking Refreshment Break Canadian executives of foreign multinationals on selling Canada to their U.S. and international investors Breakout roundtable sessions with panel executives and speakers End of Day One Networking Reception On the Town Dining - A free evening Speakers & Sponsors Dinner Networking Breakfast Welcome to Day Two - Opening remarks Economic development officials panel discussion on workforce development Economic Gardening: An affordable way of retaining and increasing foreign investment Networking Refreshment Break Ask Anything Q&A Closing Remarks Networking Luncheon Conference Closes

SPONSORS Gold

Silver

To Register: http://www.areadevelopment.com/consultantsforum/

AREA DEVELOPMENT | Q3/2016

CANADA Canada: A Leader in FDI Attractiveness Continued from page 57

10 9

Number of Procedures*

8 7 6

6 5

4 3

2 1 0

Canada

U.K.

France

Italy

OECD Average

U.S.

Japan

Source: Doing Business in 2016 – The World Bank Group, 2015 * A procedure is defined as any interaction of the company founder with external parties (government agencies, lawyers, auditors, notaries, etc.)

Infrastructure* Investment Index — G-7 Ranking 1st 2nd 3rd

Rank

4th 5th 6th 7th

Canada

U.S.

U.K.

Japan

Germany

France

Italy

Source: Global Infrastructure Investment Index, ARCADIS NV Consulting, May 2016 * Economic infrastructure is the core internal facility of a country that makes business activity possible, such as communication, transportation, distribution, finance, and energy supply.

driven by innovation and modernizing the regulatory system in order to ease the barriers to growth. Quebec: In 2015, the Quebec government stated its plan to invest $1.5 billion in the Maritime Strategy Program and $1.3 billion in the Plan Nord Strategy Program. In January 2016, Investissement Quebec, the provincial investment organization, updated the ESSOR program. This program is jointly controlled by Investissement Quebec and the Ministry of Economics, Science and Innovation. The program focuses on capital asset projects with expenditures over $250,000 and can provide an interest-free loan up to 50 percent of the eligible project costs.

60 LOCATION CANADA

Germany

The 2016–2019 Quebec Strategic Plan also outlined new, attractive investment incentives. The province plans on providing financing options to companies valued at $967 million, $1.021 billion, and $1.068 billion in years one, two, and three, respectively. British Columbia: Besides its logistical advantage to Asia, British Columbia provides several tax benefits for corporate investors. The International Business Activity (IBA) program refunds all income taxes paid on income that was earned on eligible international business activities. The province also exempts any provincial sales tax on the purchase of eligible machinery and equipment. Additionally, importation of innovative and technologically superior machinery and equipment is not subject to tariffs or duties. The province has been concentrating on investing in research and technological innovation. Some $415 million was invested in research infrastructure under the British Columbia Knowledge Development Fund; $152.5 million was invested in a world-class DNA research project; and $40.5 million was invested in the Centre for Digital Media.

FEDERAL SUPPORT The year 2016 began with a new federal government. As with all new governments, budgets are created and programs are later initiated to carry out the budgetary promises. To date, the budget has a strong stance on innovation and environmental benefits for the economy. The federal government is investing $2 billion over two years in the Low Carbon Economy Fund to support the reduction of greenhouse gas emissions. It also plans on investing $800 million over four years in support of innovation. No new specific program has been publicized to date; however, it will be interesting to see what programs become available in order to grow Canada’s already favorable FDI position. ••

Winnipeg

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18/08/16 9:14 PM

CANADA THE “NORTHERN SECRET” OF CANADA’S CITIES REVEALED Advanced technology companies are drawn by Canada’s overall cost and other advantages, while recognizing the synergism found in its urban centers. By MICHAEL DARCH, President, Consider Canada City Alliance Inc.

CANADA’S OVERALL COST ADVANTAGES When it comes to the cost of doing business, Canada’s value proposition shines. Canada offers a 14.6 percent cost advantage overall to the U.S. according to KPMG’s Competitive Alternatives 2016 report. In knowledge-based services, Canada’s cost advantage is even more pronounced; R&D costs are 27.7 percent less expensive and digital services delivery is 26 percent cheaper than the U.S. baseline, beating every other country in the G7 by 5 percent–15 percent.1 Zooming out to the G20, Forbes rates Canada number one in the top-10 countries for business. And in a world of growing fiscal uncertainties, the financial infrastructure buttressing the cost advantages of Canadian cities is also rock solid. The World Economic Forum declared Canada’s banking system to be the soundest in the world for the eighth consecutive year running.2 Canada is also the most tax-competitive country in the G7, where total business tax costs are a very meaningful 46 percent lower than those in the U.S. In

62 LOCATION CANADA

he success of large U.S. suburban innovation centers like San Jose and Raleigh-Durham has created a hot-house effect of sky-high prices for rent and housing, extended commute times between disparate corporate campuses and research parks, and bidding wars on both talent and emerging companies. So while it’s easy to follow the path most travelled, there’s a northern secret being shared by global facility and workforce planning managers. Companies like Boeing, GE Aviation, Google, and Ubisoft are investing in Canada’s top 11 cities — Toronto, Montreal, Vancouver, Ottawa, Calgary, Waterloo Region, Quebec City, Winnipeg, London, Halifax, and Saskatoon. Let’s find out why.

Prime Minister Justin Trudeau helps to open the Google offices in the Waterloo region.

fact, KPMG rates Toronto, Vancouver, and Montreal the top three cities for tax competitiveness among 51 major international cities with populations of two million or more. SUPPORTING ECOSYSTEMS IN CANADA’S CITIES A Financial Times article entitled “Cities Not Countries are the Keys to Tomorrow’s Economies”3 underlined the importance of cities. It states, “To make wise decisions, investors and policymakers need to view the world not so much as a collection of countries but a network of cities…City economies now matter far more than national ones.” Globally recognized Canadian prosperity experts like Richard Florida and Don Tapscott underscore the point that Canada’s traditional strengths in resources and agriculture are bolstered by city-based educational institutions, business ecosystems, and valueadded innovation.4 5 Let’s begin with education. Canada offers the most educated talent pool among OECD countries, with 54 percent of individuals aged 25–64 having attained tertiary level education, compared to 45 percent in the U.S. In an age of increasing globalization, these highly educated Canadians are linguistically diverse, with one out of five Canadians speaking one of over

200 languages in addition to the national languages of English and/or French. The Canadian emphasis on education is long-term. In the “Learn Canada 2020” declaration, provincial ministers of education underlined “the direct link between a well-educated population and a vibrant knowledge-based economy in the 21st century; a socially progressive, sustainable society; and enhanced personal growth opportunities for all Canadians.”6 As to urbanization, Canada is known as a large and sparsely populated country, but many sophisticated location managers don’t realize that its vast land mass shelters a highly urbanized workforce concentrated along the country’s southern border with the U.S. Nearly 81 percent of the population is urban, making Canada surprisingly more city-centric than countries like the UK, Mexico, Taiwan, Germany and, remarkably, even China and India.7 Toronto, Canada’s largest city, is projected to be the 52nd most populous city in the world by 2020.8 Therefore, one could reasonably expect big-city problems, from pollution to transportation issues. Yet Toronto’s 2.6 million residents (there are 6.05 million in the Greater Toronto Area) celebrate The Economist’s ranking in the top five best places to live in the world. Vancouver and Calgary join Toronto on that prestigious list, making Canada the world’s dominant country in the rankings of the world’s top five cities.9 Another insight into Canada’s urban success stories is its ability to span its vast geography with what the Brookings Institution refers to as “networking assets,” or the relationships between entities — individuals, firms, and institutions — that have the potential to generate, sharpen, and accelerate the advancement of ideas. According to Brookings, strong ties occur between these assets when people or firms with a working or professional history that have higher levels of trust are willing to share more detailed information, and are more apt to participate in joint problem-solving.10 Let’s look more closely at some of the companies that have found success in Canada’s cities. SOME SUCCESS STORIES Global game developer Ubisoft started investing in Montreal in 1997. The company’s outlook for 2020 foresees $373 million in additional Canadian investment and 500 new jobs. According to Francis Baillet, Ubisoft’s vice president of Corporate Affairs, “Other regions offer one or more of these key success factors, but Greater Montreal stands out because it has succeeded in combining them into a socio-economic model that is closely aligned with our needs.”11 While Ubisoft’s Montreal operation holds the

63 LOCATION CANADA

distinction of being the world’s single-largest game development studio, the company has discovered the advantages of Canada’s urban centers and branched out into Toronto and Quebec City. Last October, the company expanded into a fourth urban center with the acquisition of mobile gaming specialist Longtail Studios Halifax, with plans for another 40-plus staff in that location.12 Google is another multi-city Canadian expansion success story. It was first drawn to the Waterloo Region’s famed institution for technology excellence with a 2007 purchase of a company there called Reqwireless. The University of Waterloo is now “one of our top three recruiting universities for Google as a whole, worldwide,” according to Steve Woods, the company’s senior engineering director in Canada. More than 350 engineers work on Google products in a 185,000-squarefoot office. Google now has several offices in other Canadian cities including Toronto and Montreal, and other leading tech companies have followed its lead on discovering the advantages of Canada’s cities. Apple has announced it will open a 22,000-square-foot space in Ottawa, and LinkedIn, Amazon, Facebook, and Salesforce all also call one or more Canadian locations home. More traditional industries have also found specific attributes in Canadian cities — Boeing and GE Aviation in Winnipeg, for example. Boeing has just completed a 150,000-square-foot expansion of its Murray Park Road site in Winnipeg. The building primarily houses additional work for the 737 MAX and the 787 Dreamliner. “This expansion, which is about the size of 12 Olympic swimming pools, ensures our Winnipeg site has the space and technology needed to build complex composite parts,” says Kim Westenskow, general manager of Boeing Winnipeg. “Placing this work in Winnipeg takes advantage of the local team’s design and manufacturing expertise. We’re very proud to be a top Winnipeg employer with a strong commitment to our local workforce and to the community at large.” “Winnipeg provides all of the benefits and advantages expected in large metropolitan centers,” confirms Daniel Verreault, GE Aviation’s Canadian director. Last year his company announced a $26 million investment into an existing $54 million aviation engine testing, research, and development center, with all upgrades expected to be completed by the fall of 2017. From jet engines and aerospace components to advanced software and digital entertainment, and much more, the northern secret of Canadian cities is one worth exploring. Continued on page 72

2016 63

CANADA LOOKING TO CANADA TO SATISFY YOUR WORKFORCE NEEDS The solution to the high-skills talent gap is closer than you think. By STEPHEN THOMPSON, Senior Economic Officer, Ontario International Trade and Investment

ith the growing importance of a high-skills workforce, companies are feeling the pressure to tap into the brightest and savviest talent before their competitors. Adding to this pressure is the fact that it is no longer only typical technology companies that are seeking engineers, data analysts, and the like. Technology is disrupting every industry — in fact, in a 2016 PwC survey, 78 percent of U.S. CEOs expressed concern about the speed of technological change in their industry.1 Today, automakers are competing with technology companies like Apple and Google for the best autonomous vehicle technologies. Traditional defense contractors are competing with Silicon Valley giants and startups to advance in-demand technology ranging from data management to precision navigation and cybersecurity. Automation and big data are disrupting what we used to know about supply chain management and logistics. The rate at which the competition is plucking up high-skills talent is startling. The 2016 State of the CIO survey found that 49 percent of chief information officers expect to experience IT skills shortages through the rest of 2016.2 Also, the Harvey Nash/KPMG CIO Survey 2015 discovered that nearly six out of 10 CIOs believe skills shortages will prevent their organizations from keeping up with the speed of change. This represents a one third increase from just three years ago.3 To succeed going forward, companies need to seek talent that is not just smart, but nimble and prepared for the next technological disruption. For this, companies need only to look to Canada. It is consistently ranked by publications, such as Forbes, as one of the best countries for business, and has led all G-7 countries in economic growth over the past decade (2006–2015).4 Not only is Canada close to the U.S. geographically,

64 LOCATION CANADA

The University of Toronto’s Creative Destruction Lab gives students the opportunity to work alongside successful venture entrepreneurs.

but it is also familiar in culture and infrastructure. In addition, Canada continues to bolster its talent through further investments in education. So far, the results are impressive: Canada has the highest availability of qualified engineers in its labor force among G-7 countries, according to a survey conducted by the International Institute for Management Development (IMD). Canada’s largest province, Ontario, boasts the most highly educated talent pool among the Organization for Economic Cooperation and Development (OECD), with 67 percent of its adults having attained a postsecondary-level education, such as a college degree. This is significantly higher than the U.S. (44 percent), UK (45 percent), Germany (36 percent), and Japan (47 percent).5 CANADA: A FAMILIAR FACE AS COMPANIES BRACE FOR THE UNFAMILIAR Today, it is not enough to be book-smart — technology has drastically changed the traditional role

Qualified Engineers Availability Index 8.5 8.25 8.0

7.82

7.81

7.80

index

The University of of engineers. Now, they 7.5 Waterloo’s cooperative not only need to have learning model blends traditional technical 7.0 academic and practical skills, but they must 6.77 experience with an also (1) anticipate 6.5 6.34 impressive conversion new technological 6.27 rate post-graduation: advancements and adapt 6.0 approximately 20,000 quickly, and (2) have students are placed with interpersonal skills to about 6,500 employers understand organizational 5.5 each year.9 Engineering needs and communicate Canada France U.S. Italy Japan U.K. Germany technical information to a students alternate their Source: IMD, Rank among 61 economies considered in the World Competitiveness Yearbook 2016 non-technology audience. academic terms with In its survey, PwC professional experiences reported that 75 percent (e.g., four- to five-month of engineers say that stints at companies). a skilled, educated, and adaptable workforce should Unsurprisingly, the school has produced entrepreneurs be a priority for businesses.6 Advanced programs typically associated with Silicon Valley — e.g., the founders of OpenText, Instacart, messaging app Kik, and within Canada‘s universities — such as at Simon Fraser BlackBerry. University and the University of Toronto — conduct innovative, global research and regularly collaborate with TRIED AND TRUE private industry to commercialize these technological With these educational structures in place, major advancements. By doing so, students are groomed to have an entrepreneurial mindset within the confines multinational companies are flocking to Canada to take of a safe and nurturing place that allows them to advantage of this steady stream of talent. freely test their ideas. This forward-thinking outlook Recently, automaker General Motors (GM) announced is encouraged throughout Canada’s educational it would employ approximately 700 engineers in its system. It may be the reason why Canada ranks first Oshawa, Ontario, engineering center to advance overall for “entrepreneurial abilities” in the Global its autonomous and alternative-fuel vehicles. In the Entrepreneurship Development Institute (GEDI)’s 2015 increasingly competitive and crowded market of Global Entrepreneurship Index (GEI).7 high-tech automobiles, even the auto industry is now competing against Silicon Valley for the best talent. A fitting example of Canada’s collaborative advanced To that end, GM’s CEO Mary Barra recently cited programs is the University of Toronto’s Creative the University of Waterloo as one of the best sources Destruction Lab (CDL), which was created by the for math and science graduates. In fact, the university’s university in 2012. CDL, which has quickly become one graduates are the second most frequently hired in of the fastest-growing venture labs in the world, gives Silicon Valley, according to a 2015 report by Compass.10 students the opportunity to work alongside successful venture entrepreneurs to learn how to evaluate, manage, Though companies face a tightening labor market of and even finance tech startups, using experiential skilled workers, GM’s investment demonstrates that learning methods.8 the best science, technology, engineering, and math (STEM) talent still resides in the United States’ northern To answer the need for skillsets critical to early neighbor. career development, the University of Waterloo’s In addition, Microsoft announced a new engineering Professional Development program (WatPD) is center in Vancouver, British Columbia, called the designed to help students navigate the connections Microsoft Canada Excellence Centre (MCEC). This between the workplace, academic courses, and their new center will employ more than 750 people, the career path. While in the academic setting, students majority fulfilling the company’s need for developers. In are simultaneously prepared for the workforce. 2016 65

CANADA

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addition to access to talent, the company also cited Vancouver’s proximity to its headquarters in Washington, which allows easier collaboration for major projects. This is a significant advantage for companies to outsource its high-skills talent to a region within close proximity, versus overseas. The ability to be able to access a top-tier talent base outside of the usual suspects, like Silicon Valley, and maintain a collaborative environment is truly an advantage to investing in Canada. Adding to the roster of powerhouses moving to Canada is General Electric (GE). GE Power will move its gas-engine plant from Wisconsin to Welland, Ontario, which is slated to begin production by early 2018. The Niagara-Welland region, home to Niagara College, not only gives GE access to engineers but also technologists and other skilled workers necessary to carry out its cutting-edge data science and analytics functions. At the time of the announcement, Heiner Markhoff, head of GE Power’s water and distributed-power business, mentioned that the region “provides a collaborative community environment that will attract talented employees.” Moreover, the region provides the unique advantage of being a 30-minute drive from the U.S. border — a key driver of GE’s decision to invest in the region.

Not only is Canada close to the U.S. geographically, but it is also familiar in culture and infrastructure.

LOOKING TO CANADA TO SATISFY YOUR WORKFORCE NEEDS

DON’T FORGET TO LOOK UP You might be surprised to learn that all three of these announcements were made in the span of one month. Perhaps, then, it will be less of a surprise when we continue to see more multinational companies leveraging Canada’s impressive talent base. Nearly 90 percent of those responding to Area Development’s 12th annual Consultants Survey revealed that labor is the reason their clients are moving their businesses to other countries.11 This trend is here to stay, and Canada is here to help. In an age where disruption is the new norm, companies shouldn’t have to sacrifice accessibility and reliability in order to access smart and savvy talent. One needs only to look up. ••

“ 1

http://www.strategyand.pwc.com/perspectives/2016-technology-industry-trends http://core0.staticworld.net/assets/2016/02/08/state_of_the_cio_just_the_facts.pdf http://www.harveynash.com/group/mediacentre/Harvey_Nash_CIO_Survey_2015.pdf 4 http://www.forbes.com/pictures/mli45femig/7-canada/#1a207fc86a26 5 OECD, 2015. 6 https://www.pwc.com/gx/en/ceo-survey/2016/landing-page/pwc-19th-annual-global-ceo-survey.pdf 7 Global Entrepreneurship Development Institute (GEDI)’s 2015 Global Entrepreneurship Index (GEI). 8 http://www.rotman.utoronto.ca/Degrees/MastersPrograms/MBAPrograms/FullTimeMBA/Program/ CreativeDestructionLab.aspx 9 http://www.wsj.com/articles/why-silicon-valley-recruiters-are-flocking-to-ontario-1462385408 10 http://blog.compass.co/waterloo-the-david-vs-goliath-of-startup-ecosystems/ 11 http://www.areadevelopment.com/Corporate-Consultants-Survey-Results/Q1-2016/consultantsreveal-client-site-selection-facility-plans-8262.shtml 2 3

THE BAY OF QUINTE

Y INDUSTRY DEVELOPS HERE A Canadian logistics and manufacturing hub, the region is home to many multinational companies. With a central location between Toronto and Montreal, the Bay of Quinte’s access to major Canadian and U.S. markets lowers your ongoing operational costs and makes it easy to access the world! Start up is minimal due to the low cost investment ready land and available buildings, zero development charges and fast tracked development processes. Quinte Economic Development Commission’s experienced team provides confidential project support to reach your goals. LEARN ABOUT BUSINESS IN THE BAY OF QUINTE 1 866 961 7990

QUINTEDEVELOPMENT.COM

Representing the communities of Belleville, Quinte West and Brighton

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CANADA CONNECTING TO THE WORLD FROM CANADA Canada’s logistics infrastructure and trade connections can be quite beneficial to foreign investors and shippers. By BILL LUTTRELL , Senior Locations Strategist, Werner Global Logistics, Werner Enterprises

anada is the second-largest country in the world in terms of land, encompassing close to 10 million square miles. Needless to say, it has abundant natural resources and attracts substantial capital projects. Yet Canada’s 10 provinces and three territories hold a comparatively small population of 36.3 million people. Canada is a developed country and a member of OECD and has become the 11th-largest economy in the world. It is strategically located between the Pacific and Atlantic oceans, and its ports are closer to Asia and Europe than the ports serving the lower 48 states of its southern neighbor — the United States, which has the largest economy in the world. Canada also has a world-class highway system and is home to two Class I railroads. Yet, overall freight movement is highly concentrated along the southern border, as more than 80 percent of Canada’s population lives within a 200-mile distance from the Canadian/U.S. border. Just over 61 percent of the population live in the provinces of Ontario and Quebec, which lie directly above the center of the U.S. population, which is geographically separated by the Great Lakes. It is no wonder that both countries are each other’s largest trade and investment partners. As logistics has grown to be one of the most important criteria for both foreign direct investment (FDI) as well as international trade decisions, it is worthwhile to take a closer look at logistics in Canada in terms of external global forces and competitiveness and internal infrastructure. GLOBAL FORCES AND COMPETITIVENESS Canada is a natural resource based economy. Approximately 58 percent of Canada’s exports are commodities, particularly coal, oil and gas, potash, and

iron and ore. Lumber, agriculture, fishing, and fertilizers are also major exports. The latest global recession started in 2008 and the developed OECD countries were hit the hardest. Commodity prices soared, which helped Canada. Trade and investment (FDI) shifted to the emerging countries (ECs), most of which had significant natural resources. Financing flowed in, and many of these countries borrowed heavily to take advantage of the surging commodity prices. This was referred to as the “Super Commodities Era.” By 2014 the Super Commodities Era was over, as the volume of world trade could not keep pace with GDP growth. Commodity prices collapsed very quickly. The economies of most countries that were major exporters of commodities were hard hit, and the global trade volume has tumbled along with commodity pricing. Oil-producing countries were hurt the most, with prices 60 percent below what they were just three years ago. So much commodity capacity has been on the global market that it is only now that commodity pricing is 2016 67

CANADA believed to be hitting the “lower trough.” While the commodities downturn has slowed the Canadian economy to a sluggish level, capacity utilization rates in the non-commodity industries are high. This is good news; one rule of thumb in plant investment circles is when capacity utilization rates approach 80 percent, there is real pressure to build or create new capacity — new plants and facilities. However, one should keep in mind that in today’s globalized world, adding capacity does not necessarily mean the new capacity will be built at home, it can be built overseas. To make matters worse, global social and political unrest is making the world — and as a consequence global investment (FDI) — a bit riskier. FDI flows have responded to this risk by shifting attention back to a much safer arena with FDI now focusing more on developed OECD countries and developing Asia. Again, this may be to Canada’s benefit as it is a stable, developed OECD country and well positioned with investment and trade with Asia. This is welcome news as Canada’s unemployment rate still hovers around 7 percent. CANADA’S PORTS/AIRPORTS The easternmost provinces in Canada are not very densely populated. However, a major port is located in Halifax, Nova Scotia, and is the deepest of all of the ports located in North America. Halifax is a state-of-theart port and handles containers, bulk, break-bulk, Ro/Ro cargo, and freight. It is rail-served by Canadian Northern (CN). Almost half of its cargo is to/from Asia via the Suez Canal. Major industries in the provinces of Nova Scotia, Prince Edward Island (PEI), Newfoundland & Labrador, and New Brunswick include forestry, mining, and fishing. Moving westward, the provinces of Quebec and Ontario together comprise the largest industrial area of Canada, accounting for the majority of freight movement, including more than 80 percent of truck freight movement. The freight corridor running from Detroit, Mich., through Windsor, Ottawa, and Toronto (Ontario), and on to Quebec City is the busiest corridor in Canada. The Toronto to Quebec City portion is superhigh density. Likewise the corridor running from Toronto and Hamilton (Ontario) and down to Buffalo, N.Y., is a main freight corridor. Quebec province industries include utilities, forestry, mining, and aerospace, while Ontario province industries include automotive, manufacturing, and high tech. The Port of Toronto is the main port on the St. Lawrence Seaway. It has several container terminals as well as bulk, break-bulk, grain terminals, and an oil/liquid terminal. Montreal is served by both CN and CP (Canadian

68 LOCATION CANADA

Pacific) railways. From Montreal, CN dips down south to Detroit and Chicago, goes west to Kansas City, Mo., and continues south to Memphis and New Orleans. Western Canada is made up of four provinces along the southern border. Manitoba, Saskatchewan, Alberta, and British Columbia provinces’ industries include livestock, grains, agricultural equipment, oil and gas, potash, mining, and manufacturing. Winnipeg (Manitoba) serves as a gateway to the U.S. Midwest via highway and rail for both CN, which goes south to Duluth, Minn., and Chicago, and CP, which goes south to Minneapolis-St. Paul, Minn., Kansas City, Mo., and Chicago. Saskatoon (Saskatchewan) is a regional agricultural hub. Edmonton and Calgary (Alberta) are major players in the oil and gas industry and have intermodal rail terminals. Vancouver (British Columbia) is a port city on the Pacific Ocean above Seattle, Wash. The Port Metro Vancouver is a state-of-the-art port that handles roughly 50 percent of all container traffic for Canada. The port can handle the super Post-Panamax ships, has Ro/Ro service, large bulk and break-bulk terminals, and oil and liquids terminals, and is served by both CN and CP. Further north in British Columbia is Prince Rupert Port — also a state-of-the-art port with five world-class terminals. This natural deepwater port is served by CN railroad. Canada is home to numerous international airports including Quebec, Montreal, Toronto, Calgary, Edmonton, Vancouver, and Winnipeg, among others. International air cargo is serviced by these airports as well. Likewise, Canada has one the most extensive pipeline networks in the world. RAIL & TRUCKING Rail is king in Canada and is used widely due to the very long distances involved in freight movement. Declining shipping demand has hampered growth at both CP and CN, where shipping revenue and carload volume have dropped, including coal, crude oil, and grain. However, the railroads have been able to trim expenses and are poised to be in rather good shape when pricing and volume improves and predicted for 2017, when non-energy–related export growth should lead a recovery led by a lower Canadian dollar. Intermodal is widely available; however, trailer-onflatcar service (TOFC) — also historically referred to as piggyback — is available in the U.S. but is not available in Canada. The volatility of the Canadian dollar (CND) caused by the large swing in commodities influenced trucking freight as well. When the CND was stronger than the Continued on page 72

WINNIPEG: Say YES! to Winnipeg OF ALL URBAN MUNICIPALITIES ANALYZED

in KPMG’s Competitive Alternatives (2016) report, Winnipeg, Manitoba, Canada, has the lowest business costs of any city in Western Canada — and it’s also lower than every U.S. city examined. One of Canada’s most diversified and stable economies, Winnipeg’s central North American location offers significant business advantages and investment opportunities. One hour from the U.S. border, Winnipeg is situated at the hub of four key trade gateways reaching across Canada, into the U.S. and Mexico, to Europe and Asia. Within a 24-hour drive, Winnipegbased businesses can access a population exceeding 100 million. Some of Canada’s largest transport companies are headquartered here, collectively providing over 1,000 local for-hire rigs. Winnipeg is also one of only two Canadian cities served by three Class 1 rail carriers and boasts an award-winning and world-class airport, which processes among the highest percentage of dedicated air cargo flights of any Canadian airport.

The Intelligent Community Forum named Winnipeg one of the world’s Top7 Intelligent Communities in 2016, MoneySense magazine considers Winnipeg one of the three best places to live among Canada’s large cities, and KPMG reports that Winnipeg is the No.1 most cost-effective locale for aerospace manufacturing among all major metropolitan areas in the U.S. and Canada. And in its biennial American Cities of the Future 2015/16 rankings, fDi Magazine ranks Winnipeg the leader in business friendliness among midsized cities in the North American midwest.

Vince Barletta, Leader YES! Winnipeg

(an initiative within Economic Development Winnipeg Inc.)

Suite 300-259 Portage Avenue Winnipeg, Manitoba, Canada R3B 2A9 +1-204-954-1997 • Fax: +1-204-942-4043 vince@yeswinnipeg.com www.economicdevelopment winnipeg.com

CentrePort Canada — North America’s Largest Tri-Modal Inland Port

CENTREPORT CANADA INC. is a tri-modal inland port and foreign-trade zone (FTZ) located in the heart of the continent in Winnipeg, Canada, and at the hub of international trade gateways moving in all geographical directions. Many high-profile companies call CentrePort home: Boeing Canada, Magellan, MacDon, GE Aviation, Paterson GlobalFoods, Bison Transport, and North West Company. As Canada’s only tri-modal inland port and FTZ, significant investments are under way including the new CentrePort Rail Park, which will provide prime co-location opportunities for rail-intensive businesses. In addition to providing access to Winnipeg’s three Class I railways (CN, CP, and BNSF), CentrePort is a major international trucking hub and features a 24/7 worldwide cargo airport.

employee healthcare is paid by the government, and energy costs are the lowest in North America. These advantages have helped attract nearly 50 new companies to CentrePort’s 20,000-acre footprint — industrial land that is ideal for any size of development including manufacturing and assembly, warehousing and distribution, agribusiness, food processing and packaging, and transportation-related logistics.

Diane Gray, President and CEO CentrePort Canada Inc. Suite 100-259 Portage Avenue Winnipeg, MB, Canada R3B 2A9 204-784-1300 • Fax: 204-784-1308

DGray@CentrePort.ca

w w w. C e n t r e P o r t C a n a d a . c a

CentrePort also offers big-city advantages such as abundant, skilled labor, industry-focused training programs and incentives, and competitive wages (15–25 percent lower than Ontario and Western Canada). There are other savings as well — combined corporate taxes are 33 percent lower in Canada than the U.S., 2016 69

BRAMPTON — A People-Powered Economy

Experience what a people-powered economy can do for you. It all begins at P e o p l e P o w e r e d E c o n o m y. c a WITH A POPULATION OVER 600,000, Brampton is the ninth-largest city in Canada and the third-largest in the Greater Toronto Area (GTA). Brampton is the second-fastest-growing city in Canada, averaging growth of 4.2 percent per year (or 18,000 new residents per year). With a median age of 34.7, this young, educated, and multicultural workforce of 171,000 strong continues to grow with residents representing more than 209 different cultures and speaking more than 89 languages.

Sohail Saeed, Director Economic Development & Tourism City of Brampton Economic Development Office 2 Wellington Street West Brampton, ON, Canada L6Y 4R2 905-874-2650 • 888-381-BRAM edo@brampton.ca

P e o p l e P o w e r e d E c o n o m y. c a Adjacent to Canada’s largest airport, Toronto Pearson International, Brampton is home to the largest intermodal railway terminal in Canada and has immediate access to an extensive network of transcontinental highways. At the center of Canada’s major transportation corridors and located near the U.S. border, Brampton is within a day’s drive of 158 million consumers. Brampton has a successful, diversified economy and is home to more than 8,700 businesses. Seventy-two percent of Brampton’s economic base is comprised of service-producing companies and 28 percent is comprised of goods-producing companies. With all that Brampton has to offer, it’s no wonder companies like Medtronic, Canon Canada, Coca-Cola Bottling Company, and Loblaw are headquartered here.

Awards/Designations • Brampton has been included in the Top 10 Mid-Sized American Cities of the Future 2015/2016 — Overall winner for FDI strategy — and included in the Top 10 in Mid-Sized American Cities for Connectivity and Business Friendliness • AAA credit rating designated by Standard & Poor’s • Designated by the World Health Organization as an International Safe City 70 LOCATION CANADA

City of Woodstock, Ontario The Crossroads of Business

interchange, while the Bysham Park Business Community is located just off Highway 2, approximately five kilometers from the Highway 2/401 interchange. A third business park, CommerceWay, opened in 2005 and is located along the north side of Highway 401. The fourth and newest, North East Business Park, is located less than one mile from the Toyota Motor Manufacturing plant. Industrial land prices range from $65,000 to $100,000 per acre, depending upon proximity to the Highway 401/403 corridor. All of our business parks are fully serviced.

THE CITY OF WOODSTOCK IS A DYNAMIC AND GROWING COMMUNITY of 40,000 located in the heart of southwestern Ontario at the crossroads of super highways 401 and 403. The city’s progressive actions have made it a leader in the region for conservation, environmental initiatives, and long-term commitment to managed growth. Woodstock has roots in both agriculture and manufacturing, as the recognized dairy capital of Canada and as home to Toyota’s second Canadian manufacturing facility. With a skilled workforce, affordable housing, and a new community hospital, Woodstock truly is a growing city with a lot of rural, small-town charm. In Woodstock, just-in-time delivery is a part of daily life. With an excellent supply of serviced and zoned industrial land, the community is eager to meet the needs of new and expanding businesses. Woodstock is capable of servicing a 100-acre industrial site for large-scale manufacturers.

Woodstock also maintains a business-friendly environment through such policies as no development charges on industrial construction. Our people know how to work hard and they have attained the skills to ensure the success of well over 140 manufacturers who make Woodstock their home. Combine all this with a relaxed lifestyle and real affordability and you’ll see why Woodstock continues to attract more than its share of new business. If you want to know more about Woodstock, visit our website at w w w. c o m e t o t h e c r o s s r o a d s . c o m

or call us at 519-539-2382, ext. 2115.

Len Magyar,

Development Commissioner City of Woodstock 500 Dundas Street, P.O. Box 1539 Woodstock, ON N4S 0A7 519-539-2382, ext. 2112 lmagyar@cityofwoodstock.ca www.cometothecrossroads.com

The City of Woodstock owns and maintains four industrial business parks, all located in close proximity to the Highway 401/403 interchange. The Pattullo Ridge Business Park is located at the Highway 59/401 2016 71

QUINTE Economic Development Commission THE BAY OF QUINTE REGION, a Canadian logistics and manufacturing hub, is home to multinational companies and innovative SMEs. Located between Toronto and Montreal and along highway 401, the Bay of Quinte’s access to major Canadian and U.S. markets lowers your ongoing operational costs and makes it easy to run worldwide logistics. Our low-cost investment-ready land and available buildings, zero development charges, and a fast tracked development process lower your startup costs. Procter & Gamble, Nestle, McKesson, and Kellogg have achieved success in the Bay of Quinte region.

Chris King, CEO Quinte Economic Development Commission P.O. Box 610 284B Wallbridge Loyalist Rd. Belleville, Ontario, Canada K8N 5B3 613-961-7990 • Toll Free: 1-866-961-7990 Fax: 613-961-7998

chris@quintedevelopment.com www.quintedevelopment.com

Let Quinte Economic Development Commission’s experienced team provide confidential project support and assist you in meeting your start-up goals. The Quinte Economic Development Commission represents the Bay of Quinte Region in Ontario, Canada, consisting of the City of Belleville, the City of Quinte West, and the Municipality of Brighton.

The “Northern Secret” of Canada’s Cities Revealed

Connecting to the World from Canada

Continued from page 63

Continued from page 68

Michael Darch is the founding president of the Consider Canada City Alliance Inc., which was started in 2007 with seven cities and expanded to the current 11 cities. On a national basis, its member cities represent 52.5 percent of Canada’s population, 56.8 percent of its GDP and, most importantly, 63.8 percent of GDP growth.13 Its mandate recognizes the fact that businesses choose cities rather than countries. ••

1 http://www.international.gc.ca/investors-investisseurs/assets/pdfs/download/Infographics.pdf 2 http://www.international.gc.ca/investors-investisseurs/assets/pdfs/download/Infographics.pdf 3 http://www.ft.com/cms/s/2/0221bb6e-cb9d-11e3-8ccf-00144feabdc0. html?siteedition=uk 4 http://martinprosperity.org/content/canadas-urban-competitiveness-agenda/ 5 https://www.thestar.com/news/canada/2016/05/06/how-toronto-can-become-a-globalcentre-for-innovation.html 6 http://www.statcan.gc.ca/pub/81-599-x/81-599-x2009003-eng.htm 7 https://en.wikipedia.org/wiki/Urbanization_by_country 8 http://www.citymayors.com/statistics/urban_2020_1.html 9 http://www.economist.com/blogs/graphicdetail/2015/08/daily-chart-5 10 http://www.brookings.edu/about/programs/metro/innovation-districts 11 http://www.montrealinternational.com/en/about-us/testimonials/makes-ubisoft-montreal-winner/ 12 http://considercanada.com/members-news/2015/10/20/ubisoft-acquires-halifax-basedlongtail-studios?rq=ubisoft 13 http://considercanada.com/blog/2016/6/20/cities-hold-the-key-to-strengthening-canadaseconomy

72 LOCATION CANADA

U.S. dollar a few years ago, shipping volume increased going north, as Canadian consumer demand was higher. Today, the opposite is occurring, there is a great increase in southbound shipping volumes as U.S. exports become more expensive to Canadians. The counter effect is that freight lanes and their volumes and pricing all follow suit. Head-haul lanes and back-haul lanes switch places as well, meaning it is now cheaper to ship to the U.S. from Canada than it is to ship from the U.S. to Canada. Investors and shippers into Canada must plan for occasional swings in the commodity and FOREX pricing by as much as 20 percent to 25 percent either way. IN SUM The Canadian market from a logistics standpoint is indeed beneficial — depending, of course, on the purpose of the investment or trade. Rules and regulations are only slightly different between the U.S. and Canadian marketplaces, for example. The physical logistics infrastructure of Canada is in very good condition and trade/investment opportunities continue to attract businesses. More important is for investors and shippers to do their due diligence and have a close understanding of the landing costs as various external economic conditions influence the marketplace — the same as would hold true with any other country. ••

FACILITY PLANNING

Adaptive Reuse and Infill Projects Change the Urban Landscape Although there are some challenges to adaptive reuse and infill projects, they can help to develop creative office space in historic, vibrant metro areas, while boosting ROI and environmental sustainability, and catering to the local community and talent pool. By Michael McCormick, President and CEO, McCormick Construction

Element LA office campus, West Los Angeles, which is home to video game publisher Riot Games Inc.

mid the rising demand for commercial properties, promising higher profitability and returns, owners and developers of land sites and existing structures alike are increasingly turning to adaptive reuse and urban infill concepts in their effort to boost the efficiency, profitability, and overall market value of their assets. Undeveloped and underdeveloped land within densely built-up areas, as well as abandoned properties, is meeting stronger demands from investors and developers as yielding better ROIs compared to new construction outside of traditionally buoyant city districts. In commercial property development, adaptive reuse and urban infill methods are becoming increasingly widespread, helping to meet the needs of regional submarket demands for office space while promoting a strong ROI on the investor/ developer side. Creative offices in prime historic and downtown locations are currently very desirable for many companies due to transit convenience, considerations of company image and prestige, and aesthetics and atmosphere of city centers, catering to creative workforce aspirations. The challenges with adaptive reuse and infill office space development oftentimes involve creating a modern, sustainable, and upgraded facility that meets a broad range of needs for potential

tenants. Adaptive reuse and infill redevelopment concepts offer a wide variety of economic and environmental benefits for urban communities, in addition to property investors and developers. Yet, although opening exciting new redevelopment opportunities, bringing dramatic positive changes into city planning and economic and environmental sustainability, adaptive reuse and urban infill projects might pose several challenges to an investor or developer. City planning and zoning regulations, potential historical significance of certain properties, the ever-changing regulations concerning the use of certain construction materials, safety regulations, and lingering project feasibility issues might cause delays and disruptions at various stages of project development. In order to address all the implications of adaptive reuse and infill projects properly, while adequately assessing all the up- and downsides, an investor or developer might consider several key points.

Challenges Facing Adaptive Reuse and Urban Infill Contractors Depending on property size, type, location, local laws, regulations, and the environmental situation, developers might encounter a complex combination of challenges to the construction process. The adaptive reuse and infill apAREA DEVELOPMENT | Q3/2016

The proposed redevelopment must not interfere with the historic legacy and aesthetics of the property. proaches are both highly cost-efficient strategies for “filling in the gaps” in densely built areas, such as historic city centers and adjacent districts. Reuse and infill projects are, however, subject to municipal regulations and concerns of the local community. There is a range of potential requirements that the developer might be facing when embarking on such projects. First of all, the local municipality and community might demand that the project does not negatively impact the already existing adjacent structures, with likely considerations including such issues as lighting, overall appeal of the neighborhood’s architectural design, and fire safety regulations. Additional concerns might include access to transit, traffic, and project parking demands. Addressing the community needs, the developer might need to conduct thorough research of the location and nearby infrastructure to determine potential costs of the project. There are also requirements that new infill or adaptive reuse projects comply with the historical authenticity of the community, and not affect any on-site or adjacent historic structure in any way. A comprehensive study on the neighborhood’s history and demographics might provide clues for architectural solutions. For example, few communities would appreciate a skyscraper of glass and concrete in the midst of their Mediterranean-style architectural composition. Undeveloped land and underdeveloped land in such areas are, more often than not, “brownfields” that were potentially contaminated by industrial waste or hazardous materials decades ago, thus requiring land-recycling techniques to be employed before any development project could commence. “Brownfield” land use might require a potentially costly decontamination effort affecting project ROI and construction timelines; however, the process has its benefits, including ecosystem preservation and restoration, promoting sustainability practices. Additionally, recent regulations might hinder the reuse of certain existing on-site structures. For instance, some older structures might contain lead, or be insufficiently quakeresistant, thus requiring seismic retrofitting.

AREA DEVELOPMENT

Strategies to Successfully Convert Obsolete Structures into Thriving, Innovative Properties Given that adaptive reuse and infill projects are often aimed at reducing development costs and are motivated by earning a healthy ROI, several considerations must be taken into account prior to the development process: • Capitalize on market trends: Historic manufacturing and warehousing facilities allow for adaptive redevelopment into trendy and in-demand creative office space with an industrial feel, posing significant interest to the creative workforce. The heritage, authenticity, and industrial aesthetic of such office space add market value to the property after the redevelopment is complete. • Look on the demand side: Any project converting old abandoned structures or developing “brownfields” must meet the local market-determined demand for office space. • Develop for a purpose: Adaptive reuse projects are more likely to succeed being not only environmentally friendly, but also economically feasible, bringing new jobs and services to the local economy, while minimizing the project’s carbon footprint. The urban living environment can be greatly improved by reusing vintage structures, especially in transportation hubs due to ease of access. • Achieve a long-term savings benefit from upgrades: Cost savings that accrue from reuse of an existing building can be used to invest in highly efficient and environmentally friendly HVAC systems, which can also create long-term savings in operating costs. • Keep the project timeline in mind: Unlike other new developments, reuse and infill projects often require a shorter amount of time to deliver new product to the market as developing property in current redevelopment zones or by reusing existing structures that require minimal entitlement work. As such, the overall construction timeline is also shortened, and project time efficiency is generally regarded as boosting ROI.

Finding the Right Balance The point of adaptive reuse is combining historical authenticity of the once-abandoned or underutilized property with modern-day commercial feasibility and innovative “new consumer” appeal, rooted in technology, entertainment, and lifestyle. Redevelopment should reflect the lifestyle tendencies and identity of the local community and be distinguishable among the similar type of projects in the area by employing a coherent and holistic approach, appealing to the needs of the local business landscape. The proposed redevelopment must not interfere with the historic legacy and aesthetics of the property. The replacement of obsolete and hazardous to contemporary standards construction materials, such as asbestos and lead, is deemed necessary ensuring enhanced ergonomics and safety. Notwithstanding increasing restoration costs, such measures would entail compliance with present-day health regula-

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

tions, while echoing the original concept, thus catering to the local lifestyle and aesthetic eclecticism.

Case Study: The Element LA Creative Office Campus When redeveloping the Element LA creative office campus in West Los Angeles from a post-WWII era manufacturing facility, originally built in 1949, into an innovative office campus, McCormick Construction focused on addressing every aspect of the adaptive reuse process and the associated challenges. The comprehensive renovation project, requiring compliance with governmental regulation, community needs, and culturally motivated considerations, was completed in April 2015, with adjustments undertaken both on- and off-site. Aside from having preserved the building’s original historic architecture, keeping the vibe of the triumphant post-WWII economic expansion and socio-cultural breakthroughs, McCormick combined the vintage features with advanced technology on site. As with most adaptive reuse projects, the campus was not up to current code at the start of construction so each building had to be stripped down to its shell and all electrical systems had to be updated to meet the needs of a creative office environment. As the campus is located in the prime area of “Silicon Beach,” Los Angeles’ technology and media hub, with convenient access to transportation via LA Metro’s Expo line connecting Santa Monica to downtown Los Angeles,

as well as the 10 and 405 freeways, the local aesthetics and lifestyle tendencies were taken into account. McCormick updated the structure’s electrical systems, conducted a seismic retrofit, and converted the interiors from one mass facility to a multi-tenant space with open floor plans, thus achieving compliance with current regulations. Now, the property’s interior and exterior flexibility promotes creativity and cooperation with cozy courtyards and patios, retractable walls, and pop-out entryways, boosting the property’s appeal among young, educated, creative, and tech-savvy millennials. The now-renovated Element LA creative campus includes five buildings, occupying roughly 12 acres, totaling more than 300,000 square feet, and is LEED Gold certified.

In Sum For adaptive reuse and infill projects, developing creative office space in historic, vibrant metropolitan areas allows for higher ROI, boosts economic and environmental sustainability of the property, and caters to the local communities and talent pool. Attractive from the profitability viewpoint, adaptive reuse and infill concepts face only a handful of challenges to their successful implementation in commercial property development. Successful completion of reuse and infill projects dramatically changes the urban community landscape from the desolate waste of de-industrialization into the thriving information and technology hubs of the post-modern economy. ■

Find the Right Location for Your Next Project. FacilityLocations is a GIS map-driven, online economic development directory used to research potential locations during the business re-location or expansion process.

FacilityLocations.com AREA DEVELOPMENT | Q3/2016

Mexico MEXICO’S ECONOMY IS WELL-POSITIONED FOR SUCCESS ECIAL INVESTMENT REPORT SPECIAL INVESTMENT REPORT SPECIAL INVESTMENT REPO Y MOST REPORTS, Mexico’s economy is doing well. Although there were some rough spots, Mexico’s overall economic performance in 2015 was solid, with promising projections for 2016 and 2017. The Mexican economy experienced an annual rate of growth of 2.5 percent during 2015, which helped keep the unemployment rate low (about 4.2 percent in January 2016). Over the first three months of 2016 the Mexican economy grew at a rate of 2.6 percent. Further, according to A.T. Kearney, GDP growth is expected to average 2.6 percent over the next three years, thanks to an expanding middle class, a robust manufacturing sector, and proximity to the U.S. market. Even with low oil prices, the Organization for Economic Co-operation and Development (OECD) expects Mexico’s GDP growth to reach 3 percent in 2017, reflecting the positive impact of new government reforms. Much of this economic growth is anchored by manufacturing. Exports account for more than 30 percent of the country’s economic output, and overall trade as a percentage of GDP now exceeds 60 percent, outpacing even China. Exports from Mexico totaled US$380.8 billion in 2015, with about 84 percent of these products shipped to North American Free Trade Agreement (NAFTA) partners, the United States and Canada. In addition to its economic performance, good business climate, and increased trade, Mexico’s new political reforms and improved government stability are making it more attractive to foreign investors, especially manufacturing companies. According to the United Nations Conference on Trade and Development (UNCTAD), Mexico ranks 10th in the world for FDI investment. FDI inflows in 2015 totaled about US$21.5 billion. The 2016 A.T. Kearney Foreign Direct Investment Confidence Index ranks Mexico 18th in the world, with most of its investors being industrial firms headquartered in the Americas. The Mexican government is committed to increasing foreign direct investment (FDI) inflows in key sectors by breaking up cartels, reducing corruption, and improving competition. The current administration of Enrique Nieto Peña hopes to attract US$150 billion in new FDI over its six-year term, with $30 billion of that targeted for 2016, especially in the automotive, medical device, aerospace, and electronics industries.

A SOLID

ECONOMIC

PERFORMANCE AND A

PRO-BUSINESS CLIMATE —

ENHANCED

BY POLITICAL REFORMS AND IMPROVED GOVERNMENT STABILITY — ARE HELPING TO ATTRACT FDI TO MEXICO.

Manufacturing-Driven Manufacturing accounts for about one third of Mexico’s total economic output. Seven of the top-10 exporting groups are manufactured products. (See accompanying chart.) Factors that make Mexico ideal for manufacturing are its strategic location between North and South America, political stability, shipping infrastructure, and lower labor costs with higher productivity/quality compared to other low-cost countries, especially China. Mexico’s many free-trade agreements (FTAs) with more than 40 countries, and incentive programs with others, make it an attractive location for foreign investors to set up manufacturing operations. “The benefits that Mexico offers to manufacturers include competitive wages, growth prospects thanks to an open-trade philosophy, reliable infrastructure, proximity to the U.S., an educated workforce, and a growing supplier base,” notes Doug Donahue, vice president of Business Development for Entrada Group, which helps NKPM, a logistics provider for Honda and other suppliers, in Bajio Industrial Park, Guanajuato manufacturers locate in Mexico. By Mark Crawford

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“These factors combine to make Mexico a location any manufacturer seeking growth has to consider.”

Key Industry Clusters

Mexico’s Top-10 Exports Products

U.S. Dollar Amount

% of Total Exports

Vehicles

$90.4 billion

23.7%

Electronic equipment

$81.2 billion

21.3%

and most sophisticated cluster is in Guadalajara, home to more than 400 manufacturers that employ about 50,000 workers — sometimes called the Silicon Valley of Mexico. Eight of the top 10 contract electronic manufacturers have operations in Guadalajara. In fact, Guadalajara’s high-tech industry — led by electronics — provides 60 percent of the state of Jalisco’s total exports.

Machines, engines, pumps $58.9 billion 15.5% > Automotive: The top Oil $22.8 billion 6.0% manufacturing indusMedical, technical equipment $15.2 billion 4.0% try in Mexico is autoFurniture, lighting, signs $9.9 billion 2.6% motive. Mexico became the world’s seventhPlastics $8.3 billion 2.2% largest auto producer Gems, precious metals, coins $7.1 billion 1.9% in 2015. It now proIron or steel products $5.7 billion 1.5% duces more vehicles Vegetables $5.6 billion 1.5% than Brazil and is projected to be the world’s Manufacturing accounts for about one third of Mexico’s total economic > Aerospace: Although fifth-largest vehicle output. Seven of the top-10 exporting groups are manufactured products. producer by 2020. More it is still a relatively than three-quarters of small industry, aerothe vehicles are exported to the U.S. and Canada. Mexico space is emerging as a growth area for high-value prois also a top supplier of automotive parts to the U.S. As duction. Mexico’s aerospace industry has grown from a result, Mexico’s automotive sector has attracted steady 100 manufacturers in 2004 to over 300 in 2016; major U.S. foreign investment. players with operations in Mexico include Gulfstream For example, FDI from European and Asian car manuAerospace/General Dynamics, General Electric, Textron, facturers includes recent investments from Nissan and and Honeywell. Other nations with an aerospace presence Volkswagen — whose global delivery center in Mexico is in Mexico include France (Safran Group), Canada (Bomthe company’s largest production site outside its German bardier Aerospace), the Netherlands (Fokker), and Spain headquarters. (Aernnova). A significant engine-component cluster is lo“In all, some US$15 billion of additional investment in cated around Guaymas, in the state of Sonora. automotive capacity is anticipated before the end of the Research and development is also happening in Mexdecade,” reports Deloitte in its May 2015 report entitled ico. For example, Boeing, Aeromexico, and the Mexican “Competitiveness: Catching the Next Wave, Mexico.” government are working together to develop sustainable biofuels to protect the environment and reduce costs. > Electronics: Electronics is another major manufacturing “Boeing and Aeromexico and other key stakeholders are collaborating to move Mexico’s sustainable aviation industry in Mexico, which began with the foreign-owned biofuel industry forward,” says Marc Allen, president of maquiladoras that developed along the U.S. border deBoeing International. “Sustainable jet fuel will play a criticades ago. Electronics manufacturing operations have adcal role in reducing aviation’s carbon emissions and will vanced considerably since then in terms of size, technolbring a new and innovative industry to Mexico.” ogy, and supply chain sophistication. Electronics clusters are located close to the manufac> Oil and gas: Perhaps the greatest political triumph for turing industries they serve — for example, a northwest the Enrique Nieto Peña administration is the reform procluster supplies parts for nearby automotive and aerospace facilities; to the northeast, electronics manufacturgram that will allow foreign companies to explore for oil ers serve computer and appliance companies. The largest in Mexico — the first time this has happened since 1938.

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MEXICO MEXICO MEXICO

This creates open competition with government-owned Petróleos Mexicanos (Pemex), which should stimulate considerable foreign investment. However, the current low oil prices have made oil and gas companies reluctant to invest capital until the industry improves. Lear, a leader in automotive seating and electrical systems, in Ramos Arizpe Industrial Park, Coahuila In 2015, foreign investors did win several bids on exgovernment falters on enforcing reforms and other ecoploration lands, including Italian national oil company nomic initiatives, including anti-corruption measures. And, Eni and several consortia led by oil companies from with manufacturing creating one third of the country’s Argentina, the Netherlands, Canada, and the United GDP, it is important for the government to invest in critical States. Oil and gas companies are also highly interested infrastructure, such as transportation and border crossings, in the potential for shale gas across Mexico. Also, when to support its growing manufacturing sectors and to attract oil prices turn around and exploration ramps up, sigmore FDI. Also, the lack of key infrastructure and adequate nificant FDI will likely be spent on pipeline improvewater in prime oil-and-gas exploration areas could discourments, oil storage, and other refining infrastructure. age energy-investing in these territories. “As Mexico begins to break up longstanding mo> Telecommunications: Growth in this sector has been nopolies and push forward with a number of significant hampered in the past by poor coverage, not enough modreforms, “it will continue to open its economy more ern infrastructure, and only a few key players, creating fully to global trade and competition,” states Deloitte in a cartel structure for telecommunications and television conclusion. “There are a number of opportunities that broadcasting as well. For example, one company, América suggest the country’s competitive future should Móvil, controlled 70 percent of the mobile phone market be bright.” • and 80 percent of the nation’s fixed lines. Reforms passed in 2014, however, have reduced the influence of these controlling companies, which is attracting foreign companies into this emergent marketplace. For example, U.S. firm AT&T recently acquired two Mexican telecom companies SPONSORS — Iusacell for $2.5 billion in November 2014 and Nextel AMISTAD INDUSTRIAL DEVELOPERS Mexico for $1.9 billion in 2015. AMISTAD is a premier industrial development firm with a presence in strategic locations throughout Mexico. AMISTAD A Promising Future industrial parks are master-planned with the highest regard Reforms to major markets, improved labor laws, and for the environment and strictest requirements of the global concerted efforts to reduce corruption and crime have companies they serve. AMISTAD’s portfolio of services accelerated foreign interest in investing in Mexico. In includes design and engineering, construction, start-up management, and logistics. fact, according to Deloitte, “Mexico’s medium-term growth could average 4.5 percent per year, up from a Raul Barksdale - Sales Marketing projected 3.1 percent real annual growth rate for 2015Amistad Industrial Developers 2034, if the government can deliver its broad reform 2409 Veterans Blvd. Ste. 5 initiatives.” Further, if the Trans-Pacific Partnership is Del Rio, TX 78840 enacted, it could foster even greater foreign investment, 1-800-994-9596 “raising Mexico’s longer-term growth rate by close to 1 Fax: 830-774-2646 percentage point.” info@amistadmexico.com Momentum will quickly stall, however, if the Mexican w w w. a m i s t a d m e x i c o . c o m

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YO U S E E A N I N DU S T R I A L PA R K . We see four decades of helping global companies establish successful operations across mexico.

FOUR DECADES BUILDING THROUGHOUT MEXICO

From site selection, engineering and design to construction, Amistad’s decades of experience is infused in every project. Our seasoned team of professionals has worked with hundreds of companies from around the world to establish manufacturing operations throughout Mexico. Amistad’s collaborative culture combined with a consistent and reliable track record of superb craftsmanship has built our business. A long line of referrals and repeat business is what deﬁnes our success! To schedule a site tour of different industrial locations in Mexico, call 800-994-9596 or email us at info@amistadmexico.com.

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amistadmexico.com

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