An MD&DI March 1997 Column
In today's rapidly growing medical device marketplace, many expanding companies are searching for better locations. Manufacturing and nonmanufacturing organizations tend to approach location decisions in a similar way, but the factors that are important to each tend to differ. Five essential factors for all OEMs' site selection checklist are: availability of labor force, cost of doing business, regulatory environment, transportation network, and community attitude and assistance.
Many cities have organized site selection/business development agencies to establish relationships with companies looking to relocate. The cities that have organized their public and private sectors to plan for future growth and development have a distinct advantage in the high-stakes competition of luring new business to their community. OEMs should identify the communities that are willing to help them through the relocation period.
As Dan Fitzgerald, a senior business development representative at the Colorado Office of Business Development in Denver, explains, "Many companies begin their search by developing a matrix of their needs, weighing each according to its importance. Industries and companies within industries are often distinguished by their needs. Over the years, economic development organizations have developed in-depth and detailed answers to all of the frequently asked questions." The following discussion focuses on five site selection criteria that apply to medical device companies seeking to relocate or start a business in a new territory, and on the questions companies should ask as they map out a site selection strategy.
LABOR FORCE AVAILABILITY
A highly skilled, well-educated, and growing workforce is an essential consideration for a new business location. Commonly asked questions are: What is the skill level of the region's labor pool? What is the average wage rate? Statistics are available to provide firms with accurate state rankings for percentage of residents with college degrees and the number of adults who have completed high school. Specific statistics on biotechnology, medicine, and other industry-related educational backgrounds are usually available from state agencies.
Certain states recognize that specific job training for a new or existing workforce is crucial to the success of a company's relocation or expansion. Specific, quality job training that meets industry standards reduces the need for additional training once new employees are on the job, which saves the company time and money. When selecting a site, firms should look for states that will assist in training new or current workers in long-term, permanent technical jobs, or that provide short-term, job-specific training designed to fit the company's needs. Quality training programs provide a trained workforce that matches specific job skill requirements so that workers are ready to work as soon as the business opens its doors.
States will frequently have requirements and restrictions on their training programs. It is common for states to require companies to hire the trainees, pay them specific wages, and provide them with specific benefits packages. By researching a prospective region's job training programs a company can find answers to many of its specific work force questions.
COST OF DOING BUSINESS
Each medical device company has to assess how much it will cost to operate its business on a daily basis. An important area to research is utility costs, especially electricity. Such issues usually focus on the following: availability of electricity to the site, availability of temporary power during construction, regional generating sources, hookup fees, and cost per kilowatt hour.
"For the medical device industry, it is essential to compare power costs of potential sites. When there is a large and continuous demand for electricity, regions that charge $0.03 per kilowatt are obviously better than regions that charge $0.13 per kilowatt," says Bob Cooper, president of the Spokane Area Economic Development Council.
An area's central location, proximity to natural resources, moderate climate, and generating capacities can allow local utilities to provide an ample and reliable supply of electricity, natural gas, and water at competitive prices. Certain areas are served by municipally owned electric generators, or their own water and sewer operation, which can significantly lower utility costs and make an area a more desirable site.
Additionally, labor costs and productivity can vary from state to state and may significantly influence day-to-day expenses. Site selection agencies encourage businesses to research the specifics of a targeted state's workers' compensation laws. Sometimes workers' compensation laws and rates can change dramatically from year to year. In 1995, Colorado experienced an average rate decrease of 9.6% that saved businesses over $70 million.
Other important issues are the cost and availability of buildings. Are buildings available for immediate occupancy? What are the lease rates?
REGULATORY AND TAX ENVIRONMENT
The tax environment can vary significantly from state to state and region to region. Device companies need to investigate the state, county, and city tax structures, because some areas provide more competitive business tax structures than others. When selecting a site, businesses should seek those areas that have tax structures designed to reward investment and innovation.
Corporate income tax, unitary taxation, sales and use taxes, unemployment tax, workers' compensation, property taxes, and inventory taxes are factors that should be researched. For medical device companies whose annual gross income exceeds $11 million, severance taxes may apply. Another variable companies should consider when comparing potential sites is tax credit incentives. Some states offer investment and enterprise zone tax credits, as well as sales tax exemptions.
For device companies that clean parts and assemblies, or use chemicals or gases in quantity, it is necessary to be aware of local environmental regulations. A coordinated permitting process can help new companies address environmental laws. In Colorado, for example, the Department of Public Health and Environment administers the environmental protection programs, emphasizing pollution prevention in partnership with the business community. The department is responsible for coordinating permitting functions among the major programs--wastewater and storm water, air quality, and hazardous waste and solid waste. Other states have similar departments that assist companies by serving as the key point of contact, providing accurate and timely information regarding permitting and regulatory requirements.
As the medical device industry becomes more global, it is increasingly important for firms to be part of a transportation system that can move people and materials both locally and throughout the world. Companies should investigate the accessibility of the region's interstate highway system, railroad networks, and airport. A convenient and continually developing transportation infrastructure in proximity to major trade corridors, and offering access to major markets as well as to product suppliers, is critical to companies attempting to streamline their supply chain.
The kind of product a company manufactures is an important factor when exploring a region's transportation network. According to Cooper, "Due to the light weight of most medical products, medical device companies have few transportation restrictions." In the medical device industry, proximity to a major international airport is often the most important transportation consideration, allowing next-day delivery of products around the globe.
Fierce competition exists among states to attract businesses and economic growth within their borders, resulting in better business environments for relocating companies. A key component of thorough and successful site selection is the ability to research and recognize which regions offer the best relocation package. Regions that help navigate the permitting and regulatory process; have a highly skilled, flexible workforce; provide workforce training; find buildings or building sites and arrange for loan financing; and identify potential customers, vendors, suppliers, and distributors are the regions that should make a company's site selection short list.
In Minnesota, for example, the Department of Trade and Economic Development works to stimulate growth in the state's health-care and medical product industries through a Health-Care Industry Development Program and a Site Location Program. These programs assist businesses that are interested in expanding or relocating to Minnesota by helping to identify potential sites and acting as liaisons between businesses and local and state government.
Economic development and site selection agencies are reaching out to businesses that are seeking a new location by developing unique incentive packages. Locating these regions is a good starting point for companies involved in site selection.
The availability of a productive, well-trained labor force tops the site selection priority list and is followed by a region's cost of doing business, its regulatory and tax environment, transportation network, and willingness to provide assistance to facilitate a move. Although each company is unique and will have other considerations on its list, these five criteria provide a solid foundation for companies in the medical device industry.
Once these basic criteria are established, companies can focus on case-specific issues and quality of life considerations before making a final site selection decision.