1998's Business Climate Rankings: The Playing Field Levels

Location, location, location, goes the old site selection saw. Call it Freud does business location — geography as destiny.

There’s no such thing as destiny, though, in today’s business climates. With enough blood, sweat, tears and funding, business climates are resoundingly malleable.

1998’s Site Selection business climate rankings underscore that point. Seldom have our rankings revealed such pronounced geographic diversity.

Things weren’t supposed to work out quite this way. Not long ago, many location pundits would’ve scoffed at the business climate prospects of states like Ohio, Michigan and New York. The business world was pulling up stakes en masse and heading for the Sun Belt — or at least that’s the page of the knee-jerk hymnal from which the analysts’ choir was singing.

And the sun certainly did shine brightly on those areas in 1998’s Site Selection business climate rankings, just as it has in recent years. Perennial business location powerhouse North Carolina repeated at No. 1, joined in the top 10 by Sun Belt contemporaries Texas (No. 4 overall, No. 1 in executives’ rankings), Georgia (No. 5), South Carolina (No. 7), Arizona (No. 9) and Florida (No. 10)

Yet 1998’s SS business climate rankings also feature a host of once-written-off states, so-called “Rust Belt” areas that faced a declining future leading to dead-end status as location ghost towns. Or so the pundits said.

The facts, though, differ, and rather pointedly. 1998’s top 10 alone features Ohio (No. 2), Michigan (No. 3) and New York (No. 6), one-time traditional business strongholds that are yet again business strongholds.

Indeed, 1998’s business climate rankings reveal a strong sense of parity. Many states have worked hard and changed not only their business location totals, but executives’ perceptions of their business climates. That echoes another site selection aphorism: Perception becomes reality, which may be the 1990s’ most enduring true clich? — and one that leads businesses straight to their chosen locations, locations, locations.

Methodology Promotes Parity

Parity has always been an essential part of Site Selection‘s business climate rankings, with a methodology unapologetically weighted toward leveling the playing field.

States are ranked on five criteria, four of them totals for new facilities and expansions taken from Site Selection‘s New Plant database, the industry’s most comprehensive business location storehouse. Those four criteria are: total new facilities in the most recent SS annual tally (1997, in this case); total new facilities over a three-year span (1995-97); total new facilities per 1 million residents; and total facilities per 1,000 sq. miles (2,600 sq. km.).

Obviously, those four criteria are designed to assure that one-year flashes in the pan or states’ sheer size don’t skew rankings.
The fifth rankings factor is an annual poll of top corporate real estate executives, who add the crucial perception element. Those executives are key site selection players for firms with broad U.S. and international operations, giving them an experience-based view of business climate performance.

Given that methodology, though, 1998’s rankings still show inordinate balance.

Here’s a more detailed look at 1998’s business climate scorecard.

Regional Leveling

The regional breakdown: Breaking down the top 25 states by rough geographic groupings reveals far greater balance than previous years’ rankings.

The Southeast came on strong again, with all nine states in the top 25 (North Carolina, Georgia, South Carolina, Florida, Virginia, Kentucky, Tennessee, Maryland and Alabama, in ranking order) and four of the top 10 (North Carolina, Georgia, South Carolina and Florida).

But the Midwest also fared extremely well, with seven of the top 25 (Ohio, Michigan, Illinois, Indiana, Iowa, Minnesota and Wisconsin) and two top 10 states (Ohio and Michigan).

The Southwest took home inordinate honors, with five of the top 25 (Texas, Arizona, Nevada, Oklahoma and Colorado) and two of the top 10 (Texas and Arizona).

And for the first time in recent years, the Northeast claimed three of the top 25 slots (New York, Pennsylvania and New Jersey), while No. 7 California is the lone Pacific region representative.

The big movers: Several states made major upward moves in 1998, including: New York (from 14th to sixth); South Carolina (13th to seventh); Illinois (16th to 11th) and Nevada (25th to 16th). And three states unranked in 1997’s top 25 cracked 1998’s list: Minnesota (No. 18), Maryland (No. 19) and New Jersey (No. 25).
Again, those rising states are from widely disparate U.S. regions. There’s no geographic monopoly, it seems, in improving business climates.

Canada and the Quebec Question

Canada’s top provincial business climates are three of the nation’s economic linchpins: Ontario, British Columbia and Quebec, respectively ranking Nos. 1-3.

The Canadian rankings, though, were compiled before August’s decision by Canada’s Supreme Court on Quebec’s move to secede. Both the constitution and international law prohibit Quebec’s unilateral secession, the Court ruled, though the province can still attempt to negotiate separation with the national government. The ruling may erode moderates’ support for Quebec’s separatism, some analysts feel.

If that proves to be true, the perception of Quebec’s business climate would likely improve — as would that of a Canada that seemed destined to keep all its business attractions intact.

Changing Global Climates

That same anything-can-happen (and probably will) trend earmarks Site Selection‘s 1998 world business climate rankings.

Significantly, 1998’s global rankings (which are based solely on corporate real estate executives’ voting) were compiled before Russia’s mid-August economic meltdown.

Russia isn’t a huge player in the US$38 trillion world economy, with a national economy now roughly equal to the Netherlands. And after an early rash of expectations following its embrace of free-market principles, Russia hasn’t figured substantially in many multinationals’ expansion plans, particularly after the USSR’s dissolution. In fact, Russia didn’t make 1998’s top 30 business climates even before the ruble turned to rubble.

Nonetheless, Russia’s collapse has had a substantial impact on world stock markets and free-market inclinations. Its fate could play a major role in reshaping global business climates.

Given that 1998’s global rankings were completed before Russia’s upheaval, the top-rated business climates hold no major surprises. The United States, the UK, Singapore, Ireland and Australia hold down the respective top five spots (see accompanying chart).
Movements further down the list, though, reflect some of the global economy’s major changes.

1998’s global business climate rankings certainly mirror Asia’s currency crisis. Free-market bellwether Hong Kong fell from No. 3 to No. 7, while Japan tumbled all the way from 19th to 27th. And Indonesia’s unrest knocked it all the way out of 1998’s top 30 global business climates.

On the other hand, there are Spain and Portugal. Their abilities to make tough Phase I Euro adoption targets were originally questioned by some observers. But the two nations did make the Euro’s initial 11-nation cut and fared well in 1998’s global business climate rankings, with Portugal ranking No. 9 and Spain No. 13.
Asia’s currency woes have prompted many firms to look to other growth markets for expansion, with South America ranking high on that list. That location strategy is reflected by the strong showings of No. 13 Argentina and No. 18 Brazil, both members of the increasingly influential Mercosur trade bloc in South America’s Southern Cone.

That, though, is only 1998’s tally. With all the global changes underfoot, 1999’s rankings could shuffle substantially. Then again, that’s what business climates are all about.
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