Michigan, Midwest Set Fast-Track Pace in 1997’s Record U.S. Race for Corporate Facilities

Let the good times roll.

That ancient war cry is a particularly appropriate touchstone in analyzing 1997’s U.S. corporate location patterns. Economic good times earmarked rolled expansively through Main Street, Wall Street and corporate board rooms alike.

In fact, 1997’s annual Site Selection scoreboard tallied a record 10,571 U.S. facility and expansion announcements. That’s a striking 32 percent increase over 1996’s previous record, and it brings SS‘s totals for the last three years to 25,000-plus new U.S. facilities and expansions.

“The U.S. economy is in remarkable shape,” says Martin Zimmerman, Ford Motor director of corporate economics. “Good times for so long on Main Street and Wall Street is rare, perhaps the only time in history.”

1997’s record-setting U.S. corporate facility clip clearly reflects America’s economic juggernaut: six consecutive years of steady growth, stable prices and low unemployment.
“Business investment and productivity are being significantly impacted by the computer-chip revolution, with economic conditions as good as in our lifetime,” says Temple University economics professor William Dunkelberg.

1997’s Unconventional Wisdom

Last year’s good times rolled most conspicuously in Michigan, winner of 1997’s Site Selection Governor’s Cup.

1997 saw Michigan claim the No. 1 U.S. college football team and football’s Heisman trophy. But while those are ironclad crowd-pleasers, what the SS Governor’s Cup signals will provide far more enduring benefits.

Even do-it-all Heisman winner Charles Woodson would be hard-pressed to outdo Michigan’s Governor’s Cup showing. Its 1,285 announced new facilities and expansions ranked No. 1 in 1997’s overall facility totals; and with 278 projects, it ranked No. 1 in new manufacturing. Detroit also swept U.S. metro honors: No. 1 in total facilities and in new manufacturing.

1997’s SS tally also pointedly debunks what several years ago passed for conventional facility location wisdom. The refrains are familiar:

The old U.S. location hot spots were ice cold, the thinking went. Rust Belt-based firms would scurry en masse to the Sun Belt. And with potent information technology, business facilities would scatter to low-cost location backwaters. Finally, with many U.S. giants downsizing and Asia’s economies surging, America’s economy, particularly manufacturing, was doomed, some observers insisted. The U.S. work-force’s dim future lay largely in low-paying services.
Rubbish. That’s how that logic stands up beside 1997’s facility location facts. Change, as usual, unfolded unpredictably, with corporate location patterns and strategies defying conventional wisdom.

‘Midwest Miracle’ Maintains

Consider these other highlights from SS‘s 1997 location analyses:

• The “Midwest miracle” strongly colors 1997’s overall facility totals: Close behind Michigan was Ohio, with 1,202 projects, joined by Illinois at No. 8. and Indiana at No. 9. The Sun Belt stayed hot, though. Texas, California and North Carolina (’96’s No. 1) respectively ranked Nos. 3-5, joined by fellow “Sunshine Boys” Florida (7) and South Carolina (10). But at No. 6 is resurgent New York, an established bastion some location analysts consigned to oblivion.

• With 3,327 facilities in only four states, the U.S. East North Central is ’97’s hands-down regional leader, well above the nine-state South Atlantic’s 2,224.

• Ohio tops both SS long-term tallies, ranking No. 1 in the three-year analyses for totals facilities and new manufacturing.

• Ohio is also 1997’s runaway leader in landing international firms, with 187 projects, followed by No. 2 South Carolina’s 103 and Michigan’s 75. With international players rushing in to tap the surging U.S. economy, 1997 saw 415 non-U.S. corporate projects, a 62 percent annual increase. “The U.S. is international competition’s best playing field,” says Gunter Koningsdorf, an economic development official in Baden-W?rttemberg, Germany, home to major global location players like Mercedes-Benz and Porsche.

• North Carolina ranks No. 1 in two of SS‘s 1997 proportional analyses, which neutralize population and size advantages. Nevada and Ohio garnered the other two No. 1s.

• SS-polled executives anticipate continued bullish global facility expansion in 1998.
  

The U.S. Manufacturing Surge

In addition to Michigan, two other states topped 200 new manufacturing projects: California with 219 and Ohio with 217. In 1996, no state landed 200 new manufacturing projects.

That, though, was only part of manufacturing’s robust role, accounting for well over half of ’97’s U.S. record. In fact, 1997’s 6,043 manufacturing projects is another new SS annual record, topping 1996’s tally by 23 percent.

Obviously, U.S. manufacturing’s vital signs are far more vigorous than many imagined a few years ago.

“[U.S.] real estate is hot, and the industrial market is very active, [with] rates increasing,” says Louise Root, a principal in Coopers & Lybrand’s (C&L) Corporate Real Estate Advisory Group.

1997’s record SS scoreboard underscores manufacturing’s key role in U.S. new plant and equipment (NPE) spending. Annual NPE expenditures have soared recently by 18 percent, say Census Bureau and Commerce Dept. reports, with U.S. manufacturing accounting for one-third, exceeding service sector spending by 50 percent.

Last year’s record manufacturing totals explain much of that NPE spending surge. Overcapacity is prevalent in many markets (European auto overcapacity is near 40 percent, some analysts say). But the SS-tallied expansion of U.S. manufacturing capacity may deflate wage increase pressures. “It’s good, slow growth, not the overheated kind that points to shortages or capacity constraints,” says Daryl Delano, Cahners Economics director.

Sharp increases in NPE spending on technological innovations also paved the way for 1997’s boom in manufacturing facilities. Cutting-edge just-in-time systems, for example, have sharply reduced the inventory buildups that once created slowdowns and layoffs.

Familiarity Breeds Expansion

Another major trend in 1997’s new facilities record was expanding existing operations.

U.S. manufacturing expansions, for example, comprise 36 percent of 1997’s total facilities, an expansive drift apparent in last year’s top 10 states. Manufacturing expansions accounted for 57 percent of 1997 overall totals in South Carolina, 48 percent in Indiana, 46 percent in both Michigan and Texas, and 44 percent in New York.

Those figures demystify doomsayers’ predictions of the death of established location strongholds. In corporate real estate, familiarity, it seems, breeds expansion. Many firms opted for stability and predictability, SS‘s totals indicate, clustering in centers offering in-place support infrastructure, work-force availability and potential corporate synergies. Michigan, for example, offers its critical auto industry a staggering 11,000-plus industry suppliers.

1997’s top 10 states “are thriving through expansion of huge existing bases, particularly in big, established industrial states like Ohio, Michigan and Illinois,” says Will Hearn, Moran, Stahl & Boyer senior consultant.

Expand-at-home strategies also seemingly stanched the predicted site selection stampede to Podunkville, USA. Of 1997’s U.S. facilities, 80 percent opted for metro-area locations. “U.S. cities and suburbs’ re-evolution as conglomerations of small towns . . . are preferred by more and more U.S. businesses,” says Coopers and Lybrand’s 1998 Emerging Trends in Real Estate.

Nonetheless, many of 1997’s top states have successfully nurtured expansions in small and mid-sized areas, promoting their lower labor costs and muted union activism. 1997, for example, saw Alliant Techsystems siting its $56 million plant in Hondo, Texas (pop: 7,000) and Frontier Spinning Mills locating a new $20 million plant in Sanford, N.C. (pop: 22,000).

Listed below are the top 10 finishers from Site Selection‘s analysis of its exclusive New Plant database. For more information on the New Plant database, call Tim Venable at 1-770-446-6996 (USA), or inquire online at http://www.sitenet.com.
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