Two Consultants Forecast Site Selection Trends for 2017
January 9, 2017
(Episode 9 of “The Project: Inside Corporate Location Decisions”)
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So what does 2017 look like in terms of site location decisions? How will the Trump Presidency impact corporate decision-making? And will new minimum wage increases in states like New York, California and Colorado change the landscape at all?
“The Project” sits down with Kathy Mussio, Managing Partner with Atlas Insight and Brett Bayduss, Executive Vice President of the Site Selection Group for their perspective on the year ahead. They share interesting answers to some difficult questions in the first podcast of the new year.
Patience Fairbrother (DCI): So welcome to 2017 and a new year of “The Project Podcast.” I’m going behind the scenes of North America’s top location decisions.
Andy Levine (DCI): To kick off the year, we sat down with two site selection consultants who are at the top of their game. We asked them to take a look at the year ahead, what trends are they seeing in the site selection profession. Are they optimistic about 2017 and how do they think the Trump Presidency is going to impact corporate location decisions? They shared some interesting answers to some difficult questions.
So, welcome to this special episode of “The Project: Inside Corporate Location Decisions.” I’m Andy Levine of Development Counselors International.
Patience: And I’m Patience Fairbrother, also with DCI, and Andy’s co-host of “The Project.” Our usual approach is to bring you a new story of a corporate location decision. But we decided to mix things up this week and sit down with two respected site selection consultants for their take on the year ahead.
Andy: Kathy Mussio is a Managing Partner with Atlas Insight. She has worked in the site selection industry for over 25 years. She also loves horseback riding and ice hockey.
Patience: Just not at the same time, right?
Andy: That’s right, yes. She is a good friend of DCI, and we’re delighted that she could join us today.
Patience: Brett Bayduss is an Executive Vice-president with the Site Selection Group. The company is based out of Dallas, but Brett manages the company’s office out of New York City. He’s completed over 400 site selection projects during the course of his career.
Andy: It’s great to have Brett join us as well. Now, here is their perspective on the year ahead. Well, it’s good to have both of you guys with us here today. We’re doing this remotely so you’re on your home offices. The first questions, I wanna start out with…and maybe we’ll start out this one with you, Kathy. I just wanna get a sense of a barometer. Can you give us a sense of 2016, and how it was from a business perspective, from the perspective of both of your firms?
Kathy Mussio (Atlas Insight): Sure. Well, first of all, thanks, Andy. I’m sure I speak for Brett, in saying that, I think we’re both looking forward to answering some questions and sharing some thoughts here on the podcast.
So 2016 has been very active for us. And from what we’ve heard, anecdotally, from our peer firms, it seems like it’s been a good year for everyone. What has been interesting is that activity did not slow down at the end of the year. If anything, it may have intensified. And I’m not sure that I call it a trend yet. Since very recently, during an end-of-the-year meeting, we just have with one of our global manufacturing clients.
They’re actually holding off anything major in the U.S. until it’s determined what this new administration is gonna do with respect to tax rates, carry interest, repatriation. So, for them, they’re just putting the brakes on for now.
As far as project types, it’s been across the board, manufacturing, tech. We did a couple regional headquarters, shared service centers. Interestingly, we haven’t done as many data centers in the past year as we had done in the previous years. But that could simply be a fluke based on our particular clients’ needs in 2016.
As far as size of projects, it’s been everything from these large, green-fields facilities to the more typical smaller expansions. Whereby one of our clients will ask us to help them choose between several options and several states within their existing footprints.
Andy: It sounds like Atlas has had a great year.
Andy: Brett, why don’t you do the same in terms of just, sort of, painting a picture of how things look at the Site Selection Group?
Brett Bayduss(Site Selection Group): Yeah, no. And I agree with a lot of what Kathy is saying. So 2016 was a really active year for our firm. You know, we kind of have roots in the call center back office, a lot of the white-collar-related jobs and projects.
But we, by design, have tried to really increase our industrial manufacturing distribution side of our business. And that really have won the best years of the firm’s history. So, you know, that was great overall for the company, and we’re seeing that, kind of, moving forward into 2017. And to Kathy’s point of…you know, typically, you kind of look at the last week or two of the year, and sometimes, there could be some slow down, but we’ve been very active. We have, you know, three projects that are closing this week, and then we have about three projects that are just kicking off going into 2017. So, you know, I think, looking forward to 2017, it seems like it’ll be very similar to what we saw for 2016, and, you know, we’re excited about what’s ahead.
Andy: What I’m hearing from both of you is 2016 was a good year, but you’re also very optimistic about the year ahead. Let’s dive into the year ahead. What trends are you seeing in terms of either the types of projects or the types of companies? Is it a mix of very large and small companies, mid-sized companies that you’re working with? Any particular trends that you’re seeing overall as you start to look at activity in 2017? Brett, why don’t we start this one with you?
Brett: Yeah, you know, we still have a similar, a kind of, I think, diversification of our projects between, the white-collar projects and even within those type of companies. We have a lot of the smaller firms, but we also are working with a lot of the larger companies. You know, I don’t know if there’s a specific trend just in terms of size or type of project.
One thing that…and Kathy and I have had some side conversations about this, which I think might be a little more unique to some of our projects that we’re seeing. We have about three or four projects where they’ve had us involved very early in the process. So when they’re still just making the business decision of, “Should we do something? Should we, you know, move operations? Should we grow, expand, where?”
They haven’t committed to doing the full site selection, but we’ve helped them, kind of, build the case study. And so their lead time on that of actually being operational may not be until 2018.
But we’ve kind of started the process very early. They’ve gotten us involved very early, which is a little more unique than just getting us the… You know, somebody coming to our door and saying, “We’re ready to move forward. We want an operation up and running in the next two to three months.” So, you know, I don’t know if that’s unique to just some of the companies we’re working with or if that’s an ongoing trend. But we’ve definitely been involved much earlier in the process with some companies.
Andy: So, Kathy, I know one of your concerns, and you shared this with me previously, has been the U.S. labor market, and in particular, a growing skills gap that you are seeing. Give us a sense of the challenge that you’re seeing in this area.
Kathy: Well, it has been and it is still about proving out that there’s labor availability. And not just the initial staffing, but being able to be forward looking and feel comfortable that a location will be able to have this reliable stream of applicants to eventually backfill some of the positions that leave. You know, labor shortages, we’re all reading about them, hearing about them. Labor shortages are especially true right now for manufactures. Think about the baby boomers. So the baby boomers are retiring. The average age of a high school, manufacturing worker right now is 55 years old. So skilled labor is definitely an issue now, but it is really gonna be in crisis soon.
So if you think about it, today, there are about half a million, open manufacturing positions. So 500,000, half a million open manufacturing positions. And then in the next 7 to 10 years, the forecast is that there are gonna be about 2 million open manufacturing positions. So when you think about that, 2 million positions that companies are gonna have trouble filling. I mean, that to me is incredible.
Andy: So let’s take a moment to pick up on the minimum wage thing that has been enacted by a number of states. There are actually 14 states that enacted new minimum wage requirements near ahead. New York, California, Colorado are the ones that most frequently come to mind. And I’m wondering are you hearing from companies that have operations in those states or other states that have enacted a minimum wage requirement? And they’re starting to rethink either their expansion plans or just looking at their overall operations there?
Kathy: Well, the minimum wage is really an interesting topic, and it’s obviously quite a divided viewpoint on this. So on the surface, it sounds good, right? You raise the minimum wage so that people are gonna have more discretionary income to spend. But, unfortunately, it’s potentially one of the most problematic things for many of our businesses.
Let’s look at your typical manufacturer as an example. A manufacturer probably pays 9 to 11 an hour for a material handler, let’s say. So that’s a material handler. If you have to pay 15 now for that material handler, so what happens to the operator A, who was making 13 to 14? They have to slide up accordingly. And what happens to the technician, who is making 17 or 18, whose pay also needs to be slid up? It’s not just the lower-scale paid people that would have to have the pay increases. It’s right on up the skills and positions. So, with wages, typically, being one of the largest costs that a company has, operational costs, products could go up 25%, 30%, 40% because this is gonna cost them that much more to produce. And then that increase in costs can be passed along in higher costs of goods to purchase.
So, let me give you a real-life example. We have one northeast site selection project, which just launched specifically related to this. And we actually have another project, which is likely to launch in the next month for this very same reason. In both of these cases, the minimum wage has been increased in the state they currently operate in. And both companies are considering moves to states which they believe will not pass the minimum wage, or at least not one as high. And so that way, they can remain price competitive, and in one case, they said to me, where they can even remain in business.
Brett: I mean, we have a number of examples that are very similar. So we have a project right now that had, you know, Colorado shortlisted and it still is shortlisted. But, you know, with that pending minimum wage increase up to \$12 an hour in that state, it’s now opened up the door to some other locations that they wanna consider.
Because although they were gonna pay a wage that was gonna be a very good wage, above-market wage for the location that they’re considering. That now that wage is basically just gonna be what minimum wage is. And so, for them to be able to really be able go somewhere, find the value proposition, get the, you know, kind of qualified skillset that they’re looking for, they’re gonna have to look at other United States. So, it’s, kind of, opened the door to getting a further shortlist enough for consideration.
And, you know, Kathy mentioned, she has a client in the northeast. We have one that’s almost identical to what she just described. They’re, you know, a New-York-City-based company, and they just can’t compete with the minimum wage increases, and so now they’re looking in Florida. And, you know, that a 200, 250 job number, which although that may not seem large with some of these, other projects that are going on, but if you take…
You know, you just heard from Kathy and myself of similar examples. And if you take…you know, I’m sure there’s a bunch of other consultants that might have similar-size projects, and that, all of a sudden, becomes a pretty significant employment number across the board. That’s a really big issue for a lot of our clients.
And, you know, we have a filtering process that I know a lot of consultants will use as they, kind of, start a project to narrow down the list of locations. And cost is always one of the main drivers of that filter. And minimum wage or future minimum wage increases in states has now become a very critical part of that initial filter process. That eliminates a lot of locations right off the bat.
And especially, you know, when you look at the Mountain, Pacific Time Zone, you take out California, Washington, Oregon, Arizona, Colorado. I mean there’s only a few states that are left. And then within those states, there’s only few markets that will have the population basic and support some of these sizable-looking operations.
Andy: Let’s switch gears for a moment, guys. So we are about 30 days away from the start of Donald Trump’s Presidency. Obviously, it’s big, it’s on the news. A major part of the campaign, of course, has been the “keep jobs in America.” I’m interested in both of your perspectives on, sort of, what a Donald Trump presidency can mean to the site selection industry. Kathy, you wanna kick us off?
Kathy: Sure. Well, first let me say that the opinions expressed here are my own opinions and not that of Atlas Insight as a whole. I think my business partner would want me to say that.
Here’s what I think. I think everyone would agree that businesses certainly want and need certainty, and businesses tend to do better when there is certainty. So we have some clients who are comfortable the taxes will go down and assume that regulations will also be relaxed. So they are actually considering much larger projects than they may be otherwise would have.
But at our company, 65% to 70% of our client base are manufacturers, and these, you know, “jobs” that are being promised to be brought back, the majority of those jobs are never coming back. I mean, I hate to sound so doom and gloom, but these jobs are gone due to technology, due to automation. These manufacturers are not looking to go backwards to the 1950s where there’s less automation, and so it’s more workers, more manual manufacturing.
It’s the nature of progress. The bulk of the decline in manufacturing jobs isn’t due to these lower wages in countries where the job is migrating there. Maybe some. But the bulk of the decline is due to technology. It’s due to productivity’s gains. It’s due to automation. You know, now, you need less manufacturing workers to get more at output.
And, you know, in the Industrial Revolution, there were workers that lost jobs with the advent of steam-powered machines. It’s not as though you could stop the Industrial Revolution. It’s the nature of progress.
Andy: And if Donald Trump feels he can reverse that trend, his head is in the sand. Am I hearing you correctly?
Kathy: Well, you know, I don’t even know what to say to that.
Andy: Okay, okay. Fair enough. Brett, I know a lot of your work is more in the white collar area, as you’ve said earlier in the podcast. Any, sort of, overview comments on the Trump Presidency and the impact on site selection? Maybe not so much in manufacturing, but a little bit more in the white collar area.
Brett: And I’m gonna answer this as honestly as I can. And unfortunately, it’s probably gonna sound like I’m on the fence with it. But the truth really is, is I just don’t know because, you know, we’ve had… I really felt that there would be a lot more…we’d be seeing a lot more impact from, you know, even through the election, of projects, either stalling or see if something… You know, maybe projects would be more expedited. And, you know, really, our projects have kind of remained consistent of what we’re seeing.
The one trend that we have seen, and this is gonna go, you know, kind of outside my traditional wheelhouse on more of the manufacturing jobs. But what we have seen with some of those companies, because there’s so much pressure to still have U.S.-based development and product development. We’re seeing some groups that are ,kind of…they might be doing the bulk of the manufacturing, you know, either in Mexico or overseas, but they’re still putting that last piece or that kind of “Made in America” stamp that’s being done locally in the U.S.
So in a way, so they’re still saying, “Yes, the product is developed here,” but, you know, is it still the full A to Z components of the whole product that’s being developed? You know, that part isn’t…or I don’t know how much of that is really happening. But we are seeing more pressure to, at least, have certain components to be, you know, kind of processed and manufactured in the U.S., just to get that final stamp of “Made in the U.S.”
Andy: So one of the major planks of Donald Trump’s plan has been a major corporate tax decrease. What sort of impact do you see this potentially having on corporate location decisions in the year ahead? Will this perhaps accelerate and we’ll see more activity as a result of this?
Brett: You know, I don’t know if this will necessarily create more projects. I don’t think that this is a negative thing. I think it’s positive when you have lower taxes. I mean, you know, we’ve never had, a company say that they were gonna choose a location or do a project because they wanted higher taxes. So I think, you know, it’s always companies are looking to operate as low cost as possible, and this is another way of them having the ability to do that.
I think, it’s gonna be interesting how the companies reinvest this, you know, the savings. You know, is it gonna be through investment in technology, which can increase their products? Is it gonna be, you know, the reinvestment into the human capital and their talent base?
You know, I think, overall, this would be a good thing. I don’t know how much it’s gonna get a company that maybe was on the fence to then decide, “Okay, well, we’re gonna make decisions because of, you know, the tax decrease.” .
Because, you know, at the end of the day, there’s still, you know, labor costs and the labor availability is what’s driving a lot of these. So tax and corporate tax is a component to that. But, you know, companies are still looking at the bigger picture of why and how they’re gonna do their projects and their expansions. But I still think, overall, you know, it’s positive and it’s gonna have some good impact to a lot companies.
Andy: Kathy, your perspective on the proposed corporate tax decrease by Donald Trump.
Kathy: Well, hey, I think that’s great. I mean, as a business owner and as a small business owner, I’ll tell you that lowering corporate taxes, at least, and in fact, lowering to what has been proposed, we as a small business will be more likely to accelerate growth plans. Because a good portion of that tax savings is gonna be reinvested into the business. So I don’t know. I don’t know for a fact, but I would think it’s a good thing for all businesses. But I know personally that it would be a good thing for small businesses.
Patience: As a final set of questions, Andy asked our two consultants to look beyond the year ahead and understand their perspective on 2018 and beyond.
Brett: We look at what 2017 is setting up to be, which hopefully will continue to be a good year. But, you know, after the 2018, 2019, and, you know, beyond, those are still….there’s a lot of questions of what it’s gonna look like.
And I think that’s where we’re gonna really see the impact of the election and the presidency, and all the…you know, of the companies that would now be starting projects.
And that’s something that we just wouldn’t know. I mean, would they have started projects if Trump wasn’t President and will we see a slow down? You know, that part, we’ll know the answer to. But it will be interesting to see really what’s gonna happen in 2019, 2020 because that’s gonna be the real gauge of where the impact is gonna be.
I do think we live in an uncertain world, and I think that there’s a lot of factors. It’s not just the U.S. that is having, you know, the uncertainty. And when you’re looking on a global basis, this is all gonna impact, you know, projects across the board. You know, if I was looking into the crystal ball, we’re gonna probably ride, the 2017, maybe the 2018 wave. And then, you know, we might be in for some real changes of what we’ve been used to over the last couple of years.
Andy: Well, Brett, I’m hearing you say 2017, 2018 looks rosy. Twenty-nineteen, 2020, it’s a foggier picture to you. Am I hearing you correctly, Brett?
Brett: Yeah. We just don’t know. And like I said, I think a lot of it is we’re still riding the wave of things that were already in motion before all of, you know, the changes, and… You know, the next couple of years are gonna be when we’re seeing. You know, will there be slow downs, will there be projects that didn’t start or aren’t starting? So I do think that there is uncertainty of, you know, getting beyond just the next two years. That’ll be the true gauge.
Andy: Kathy, just a quick, final word in terms of do you see a similar situation. You know, optimistic, rosy for the next two years, then question marks.
Kathy: Yeah, I agree completely with Brett. I mean, the next ’17, certainly ’18 is gonna ride ’17, and things are really going gang busters right now. It’s just uncertainty. I mean, if the policies that are being proposed, if all of them got enacted, I have no idea what that would mean. It’s not gonna change the face of U.S. and business and companies. It would change the face of the whole global economy. So I just don’t know.
Andy: Okay. Well, and I think that’s a good way to end it. You know, none of us pretend to be soothsayers here. But I think you’ve presented a really good picture of what 2017 is gonna look like, and I’m glad it’s an optimistic outlook overall.
So that is a wrap on this special episode of “The Project: Inside Corporate Location Decisions.”
Patience: A very special thank you to Kathy Mussio and Brett Bayduss for taking the time to do this podcast. We actually had some difficulty with this one so we had to record this a second time.
Andy: “The Project” is sponsored by DCI. We are the leader in marketing places and have served over 450 different cities, states, regions, and countries. You can learn more about us at aboutdci.com.
Patience: It’s a new year, and we are hard at work on new episodes of “The Project.” Keep tuning in, and every other Monday, we’ll have a new episode of “The Project” for you. We hope you will keep listening. There are many more projects to come.