hen Hurricane Katrina struck the Gulf Coast in 2005, it hit cleaning product manufacturer and retailer Oreck Corp.
particularly hard, causing $4 million in damages and ruining $4 million in inventory at the company's plant in Long Beach, Miss., and its headquarters in New Orleans.
"Fortunately for us, we'd turned on a business continuity plan," said Tom Oreck, president and CEO, in a talk at the Tennessee Governor's Conference on Economic Development in September. "We moved computer tapes to Boulder [Colo.]; call centers to Arizona and Colorado, and shut down everything and protected assets the best we could. I left New Orleans with my family for Houston with three days of clothes. Needless to say, I needed a bigger bag."
Now the company has a bigger portfolio, thanks to a new manufacturing operation in Cookeville, Tenn., halfway between Nashville and Knoxville on I-40. Located in a 310,000-sq.-ft. (28,800-sq.-m.) building purchased from TRW Vehicle Safety Systems, Inc., the plant will employ over 100 people, and this summer welcomed 23 injection molding presses to its shop floor. The company also has opened a distribution facility, a separate new commercial distribution operation and a 150-person call center in the community, in addition to bringing some back-office work to Nashville.
Initially called "complementary" to the Long Beach, Miss., plant, Cookeville now is taking over, says Oreck in an interview. Though the company reopened its Gulf Coast operations 10 days after the hurricane, the long-term situation was not sustainable. A deal is now in play for the former manufacturing complex, says Oreck, whose company has made sure every Gulf Coast employee was well on the way to a new job before cutting them loose from payroll, after nearly a third had lost their homes and possessions in the cataclysm.
In more general terms, it comes down to cutting costs or adding value, says Oreck.
"Looking to cut costs? You can't beat taking manufacturing overseas," he says. "There's no way to win on pursuing cost savings in the U.S. today. That could change, but that's the way it is."
So value it is, as the company seeks to constantly do better and do more as it turns customers into "zealots" for Oreck products. But one cost in particular was behind the move to Cookeville.
"Insurance costs nearly doubled for nearly one third of the coverage," says Oreck of the Long Beach location. "A year and a half after the storm, we were carrying risk not appropriate for the business." Adding to the difficulty was a labor force shortage: "People moved away and didn't come back," he says.
Speed and Experience
With the help of McCallum Sweeney's Mark Sweeney, the company's team of HR and manufacturing leaders, executives and an equity partner expert looked over sites in Kentucky, Illinois, the Carolinas and Tennessee, driven by the need to leave the coast and to become better situated for product distribution. But people issues became the main driver, he says.
"Cookeville turned out to be a consolidation of a lot of important factors that worked for us," says Oreck. "One was we were fortunate to find a world-class facility. More important was the world class work force – the work ethic is astonishing."
Also helping is what Oreck terms the "aggressively welcoming atmosphere" conjured by local and state economic developers, chambers of commerce, business leaders and elected officials – "They couldn't have worked harder to make this happen for us," he says. He says it wasn't any one thing that tipped the scales in Cookeville's favor,
"but in many ways I think that's as it should be. Really good decisions come about because the overall weight of the factors moves you in a direction. That's what this was."
"The timing could not have been more fortuitous, because we had this TRW facility in Cookeville, similar skill sets, a work force they're happy with and an attractive physical plant," says Matt Kisber, Tennessee's commissioner of economic and community development. Putting an equally attractive incentives package on the table was the next step, he says, an effort helped by the recent redesign of some of the state's job training and infrastructure incentive programs. But it was improvisation that got the job done.
"As we negotiate the final agreement, that's when stickier issues present themselves," says Kisber. "Every time Mark [Sweeney] called us, we were able to say, 'Give us a little bit of time, and we think we can resolve this in a satisfactory manner.' At the end of the day, it was not 'Here are the programs, find a way to fit in.' It was 'Here are your needs, we'll find ways to assist with those needs.' "
The filling of the TRW facility is by no means indicative of a faltering automotive niche in Cookeville: Concurrent with the Oreck decision, automotive torque converter remanufacturer Dacco, in Cookeville since 1972, has announced a 70-job expansion.
How to Make It Happen
Kisber says the same focus on work force and listening to corporate leaders' needs lies behind the July decision by Eastman Chemical Co.
to invest more than $1.3 billion over the next five years in its technology, infrastructure and production capabilities at its Kingsport complex in eastern Tennessee, where the company has been a strong presence since 1920. Central to "Project Reinvest" is a partnership between Eastman and Northeast State Technical Community College to develop curricula and implement training programs for mechanics, lab analysts and chemical operators. The state is contributing $1 million toward that component.
"This initiative is one of the most sweeping capital reinvestments in the history of our company," said Brian Ferguson, Eastman chairman and CEO.
"This is a true example of how having an entrepreneur CEO as governor makes a difference in strategies," Kisber explains. "The governor has focused on healthcare, and as part of discussions went to Bentonville, Arkansas, and met with Lee Scott, CEO of Wal-Mart. The governor asked Lee Scott what some of his biggest obstacles in growing business were. He said one was finding, at the store level, qualified individuals to run the HR and management functions. The governor asked, 'If your community college system had a curriculum that offered what your stores need, would you hire people with that background?' And Lee Scott said, 'Absolutely.' "
Bredesen talked to other companies about the concept, and was getting plenty of positive feedback to the idea of gearing higher education course work toward the employment needs of a community.
The Bully Pulpit
Enter Brian Ferguson, whose company will see a large percentage of its work force retire in the near future. He wanted to see the state further support the Northeast State program, so that people would be trained on the front end and could go right into jobs with Eastman. He got it.
"It takes the bully pulpit of the governor to make it work," says Kisber, when it comes to getting "the bureaucracy of the higher education community in line with what the business community needs." He says the Wal-Mart curriculum now is in development, and that discussions about similar programs have taken place with nearly every large, longtime employer in the state.
Oreck aims to be one of that number. It is one of several family-driven U.S. manufacturers that have fought to keep as much manufacturing as possible in the U.S. Tom Oreck also serves on the board of another such company, New York-based Cutco Knives. He says there are reasons besides having it in their DNA for companies to consider U.S. locations.
"For us, it's a matter of maximizing flexibility and nimbleness," he says. "Manufacturing overseas, those are things that get lost. There are lower costs, but higher inventories, and very likely the wrong inventory. To meet market opportunities that present themselves is much more difficult to do overseas. Recently I had to deal with one of our customers on a large deal, and if we had not been able to move quickly we would not have been able to get that order."
Moving product quickly is also helping the company realize significant cost savings in distribution. But the people are what Oreck keeps talking about.
"For the first 50 jobs we opened up, there were 800 applicants, and all of them were outstanding, many with 20 to 30 years of manufacturing experience," Oreck told his Tennessee audience. "That part of the fit is particularly important."
'Highest and Best Use'
Becomes Higher and Better
Several Oreck executives – including Tom Oreck himself – have liked the fit enough to move to Nashville from New Orleans in recent months. But he is quick to say that the company's headquarters still remain in Louisiana.
If it did come to Tennessee, it certainly would not be alone, as the state has attracted 30 corporate headquarters since
The Nissan Americas headquarters is nearing completion in Franklin, Tenn., directly adjacent to a new I-65 interchange that opened in September.
Gov. Phil Bredesen came to office in early 2003.
That milestone was reached in August, when Verizon Wireless
committed to build a $54-million state headquarters complex in the HQ magnet of Franklin, 20 minutes south of Nashville on I-65. The 180,000-sq.-ft. (16,722-sq.-m.) headquarters will rise on one of the few remaining greenfield parcels in Franklin, in Duke Realty's Aspen Grove Corporate Center, which has also welcomed into spec space a 121,000-sq.-ft. (11,241-sq.-m.) headquarters project from Mars Petcare
in recent months. The Verizon facility will welcome the company's existing 550 Nashville-area employees in addition to adding some 700 new positions by the time it's fully operational in 2008.
Verizon already operates a 1,000-person call center in Murfreesboro, on Nashville's southeast periphery. In September, just down I-65 in Huntsville, the company opened a 152,000-sq.-ft. (14,21-sq.-m.) Alabama state headquarters and call center that currently houses 350 employees but will grow to 1,500 by 2008.
Visit Franklin and you'll see your share of red dirt and cranes, alongside some of the most manicured commercial and retail development in the state. The new I-65 interchange that opened in September is no less fancy. From its pedestrian walkways one can get a perfect view of the nearly completed Nissan Americas
' North American headquarters, one of Site Selection
's Top Deals of 2005
"It's everything it was expected to be," says Pat Emery, senior vice president, Tennessee, for Crescent Resources, the developer of the Nissan facility. Various suppliers have leased space from Crescent at multiple developments in the metro area.
Pat Emery, senior vice president, Tennessee Crescent Resources LLC
He says Crescent, Nissan, Skanska and the City of Franklin have worked well together to get the road network in place. Meetings have been taking place among the parties every two weeks until recently.
Supportive "town center"-style development is also coming into place adjacent to the headquarters, with pedestrian bridges connecting it all together and 428 multifamily units going in nearby that Emery says could provide rental housing for employees and long-term guests.
"We have an easy 10-year supply of office, retail and dense residential in this Cool Springs area," says Emery of Cool Springs in general. "That can be higher depending on the density. There are a lot more parking decks and garages coming into the market. The suburban look is changing into an urban/suburban look, which can intensify the amount of development that can go on.
Verizon Wireless executives, economic developers and elected officials this fall celebrated the groundbreaking for the company's $54-million regional headquarters in the Cool Springs submarket south of Nashville on I-65.
If that happens, and you build a third more, you could easily extend development based on historical absorptions to 20 years worth of product."
The Cool Springs market includes medical, insurance and publishing concerns, but could be considered as spawned by the growth of HCA, which was originally lured to Nashville during Gov. Bredesen's tenure as mayor of that city from 1991 to 1999. Before that, he himself was at the helm of a healthcare services company – HealthAmerica Corp. – he created from whole cloth in 1980, and which grew to be a Nashville-based giant employing 6,000 before being sold in 1986.
In fact, the healthcare momentum simply continues: 70,209 sq. ft. (6,522 sq. m.) of the campus of Primus Financial, owned by the Ford Motor Land Development Corp., was leased in summer 2006 by medical transcription technology provider Spheris
. Around the corner, near the fast-rising Nissan Americas headquarters along the Interstate, Boyle Investment Co., based in Memphis, has developed a headquarters for Community Healthcare
, and is constructing another 100,000 sq. ft. (9,290 sq. m.) for the headquarters of Podiatry Insurance Corp. of America
. And Highwoods has handled yet another project in that niche from Healthways Inc.
"Highest and best use just kept growing," says Coleman Aycock, senior leasing representative for Duke Realty Corp., of the Cool Springs area's maturation. The Verizon project he helped finalize illustrates that evolution, sitting as it does in a former warehouse district, alongside the same railroad tracks that serve the currently retooling Saturn plant in nearby Spring Hill. In fact, the road the parcel sits alongside was a cul-de-sac not very long ago.
"Verizon wanted to confirm that Duke Drive went through, so that there were three points of access," he says. "That's important for any company with 1,300 employees."
But the amenities of the location were obvious, as they have been to so many.
"We're out of dirt," says Aycock of the area's surge in development. "If you can find a site, you'd better buy it." Duke has approval for more space at Aspen Grove III, and has snapped up two other sites. The hills and slopes at one of those sites are substantial, but that's okay, says Aycock. They'll just fill the holes with the dirt from other development sites in Cool Springs.
A Snapshot from a
Site Selection Shutterbug
The regional economic development picture fostered by the Tennessee Department of Economic and Community Development and the Nashville-area's Partnership 2010 has been "pretty phenomenal," he says, with several peripheral communities benefiting and a new resurgence of infill development in the city proper.
"The reality is," Emery says, "economic development takes the user where the user wants to go."
Representing those users all over the world is what Memphis-based site selection consultant Mike Mullis does every day, logging 300 days of travel a year as he and his 13 colleagues evaluate some 1,200 sites annually. A former industrial recruiter for the state, he is in a prime position to conduct a SWOT analysis for Tennessee, as he did for an audience at the governor's conference in Nashville in September.
"We've talked about tax reform, and lost several governors over it," he said. "Sooner or later, we'll have to deal with it." So too must economic developers deal with the state's comparative worker's comp costs, now ranked 33rd in the nation: "It's getting much better, but is still a problem," Mullis said, describing the challenge as more systemic than cost-related, having to do with the way judgments were made.
Mullis described the state's logistics and energy attributes as positive and its transportation system as phenomenal.
At his annual economic development powwow in Nashville in the fall of 2007, Tennessee Gov. Phil Bredesen talked up his Rural Opportunity Initiative and the need to spread prosperity from the metro areas into the countryside.
He said the short-line rail opportunity is big, given the quadrupled rail demand over the past five years: "It's commodity movement, not fuel prices" driving that demand, he said.
He evinced some concern about Tennessee population growth that is projected to be just below the national average through 2012, with some areas negative. Ameliorating that concern is the state's positive work-force image, helped by its right-to-work status and 6-percent unionization rate. He also pointed out the need to connect education systems to a community's business image.
"If you have a strong public education system, use it, and integrate that superintendent," he said. "We visit those schools, we go into the classroom, we watch for discipline and education standards."
As for government factors and permitting, Mullis scores the Volunteer State as very positive: "ECD brings everybody to the table," he said. "What I particularly like is having a meeting where the assistant commissioner comes to help us analyze ways to reduce costs, not how much we can be taxed."
That said, "one day I'll help the commissioner convince the legislature we need more money for deal closing. Philosophically, aspects of negotiations are important to companies. One is the cost of real estate, which is very important. That cost has to be controlled. I've seen so many deals lost when the real estate was not controlled, when the deal was in hand but the deal could not be made."
Mullis was glad to see the new Rural Opportunity Initiative (with the not-so-subtle acronym "ROI") providing grants and loans from the state to smaller communities. Bredesen echoed those thoughts in a speech later that day, as he described a significant revenue surplus in 2006.
"But the reality is that growth was not level, and came from about 12 counties in the state, mostly around Nashville, Knoxville, Memphis and Chattanooga," he said. "Rural communities pose more of a challenge."
Added to the arsenal is a new pool of venture capital for businesses in rural areas, with more than $1 million appropriated from ECD leveraging more than $10 million from the private sector.
Aerospace Testing Alliance Test Engineers Danny Haddon and James Cossey inspect the Rolls-Royce Trent 1000 engine in the Aeropropulsion Systems Test Facility at Arnold Engineering Development Center at Arnold Air Force Base, Tenn., prior to testing.
Photo by David Housch
Participating banks can get credits against excise and franchise taxes for participating in the funds.
"Something we can't forget is that Tennessee is an agricultural state, with 84,000 farms, the fourth largest number in the United States," Bredesen told his audience in Nashville. "Rural economic development is substantially agricultural development. While it's vital to bring industry to these areas, there is $2.5 billion in farm income in our state, and every farm dollar rolls over six or seven times in a community."
Thus the state is offering $26 million in loans to farmers looking to diversify. While animal health, farmer's markets and tourism are part of that picture, so too is the bio-energy opportunity sweeping Tennessee as well as the rest of the nation. Joe Gaines, assistant agriculture commissioner and co-chair of an alternative fuels working group comprising six state departments, told conference attendees that the acreage devoted to corn in the state grew by 100,000 acres (40,470 hectares) between 2004 and 2007.
Of the $4 million appropriated for alternative fuel development, $1.5 million is going toward development of "green islands" where drivers can purchase E85 or B20 biodiesel. Another $1 million is supporting feedstock processing and field research via 14 grants. All of that is taking place in parallel to the University of Tennessee Biofuels Initiative, which has $72 million to conduct research and commercialize production of cellulosic ethanol.
In September, UT announced it would build a $40-million "grassoline" plant in partnership with cellulosic biofuel firm Mascoma Corp., in the Niles Ferry Industrial Park in Monroe County, southwest of Knoxville. The project follows the June announcement by the U.S. Dept. of Energy that it had awarded the nearby Oak Ridge National Laboratory $125 million to build a Bioenergy Science Center to address fundamental science and technological challenges to cellulosic ethanol production.
Diane Mulloy, president of Milagro Biofuels
of Memphis, oversaw the launch of her company's plant nearly one year ago, and said that even though feedstock prices have almost doubled since that time, "We're thrilled that farmers are making more money." Fittingly, the plant is located in an historic cotton oil plant.
"We had a hard winter because people hadn't switched over" to biodiesel, she said. "Now we're sold out every week. The city and county in Memphis have helped with their leadership on clean air, and have made the community aware of the benefits of biofuels."
One more benefit is now extant: As of Sept. 1, 2007, a biodiesel producers incentive awards 20 cents per gallon when the fuel is sold to an in-state distributor.
"We have made a decision to build two more plants in this state," said Mulloy. "We're looking in middle Tennessee and eastern Tennessee, have already begun that process, and hope to sign contracts for two more five- to seven-million-gallon plants by the end of the year.
"Rather than have a large facility, my hope is to do small community biodiesel facilities," Mulloy explained. "One of the largest expenses is moving product. Until there's blending at the racks, I think it's going to require small plants. Communities willing to make the commitment like [Shelby County] Mayor [A.C.] Wharton did, those are the communities we're looking to get near."
Asked about the true economic impact of a biorefinery, Mulloy said cleaner air is among the benefits, something especially pertinent for non-attainment zones. Her company's plant will employ 15 at maximum production.
Dr. James Byford, dean of the college of agriculture and applied science at UT-Martin, is on the board of an ethanol company constructing a 100-million-gallon, $170-million plant in western Tennessee, which he says will employ up to 50 people. "The ripple effect is strong" when it involves local farmers, he said. That point was reinforced by Dr. Kelly Tiler, director of external operations, office of bioenergy prorgrams, UT Biofuels Initiative.
"In the state right now, we consume about 4 billion gallons of fuel a year, and almost all of that money will go not only out of the state but out of the country," she said. "To the extent that we're replacing what's already consumed and all that money stays in the state, that's a tremendous economic impact."
Site Selection Online – The magazine of Corporate Real Estate Strategy and Area Economic Development.
©2007 Conway Data, Inc. All rights reserved. SiteNet data is from many sources and not warranted to be accurate or current.