SB&D's Ten Top 10s 2006

Top 10 Stories from 2005

By Mike Randle

Hurricane Katrina

Hurricane Katrina has been called the worst disaster, natural or manmade, in U.S. history. Some will argue that point. September 11, 2001, was no doubt a disaster that shook the entire frame of the country and much of the world.

The economic damage of both unfortunate events cannot be compared to anything in generations. Katrina's economic effect is still being tallied. In regards to 9/11, you can talk to economic developers throughout the South, whether they work in rural Oklahoma, the busy metros of Florida or the mid-markets of North Carolina and you will hear the same refrain: "The company was doing well until 9/11, then it went belly-up." Of course, 9/11 didn't even occur in the South.

Yet, the physical damage of 9/11 was measured in acres. The physical damage of Katrina is being measured in tens of thousands of square miles, 21,000 of which are in Louisiana alone. Here are some numbers concerning Katrina's damage that you may not have heard about. In Louisiana, 81,000 businesses were affected by hurricanes Katrina and Rita. In the three Gulf Coast counties of Mississippi -- Hancock, Harrison and Jackson -- 55,000 homes were destroyed. In the history of those three counties, the peak home building year in any given year saw 1,500 new homes built. Mississippi officials claim that figure will increase in the three hardest hit counties to 4,500 new homes built this year, less than 10 percent of what was destroyed.

Needless to say, the challenges created by the 2005 hurricane season, particularly those found in New Orleans and on the Mississippi Gulf Coast, are huge. They will remain that way for years to come. It will be interesting to see how special economic development initiatives from the federal level, such as the Gulf Opportunity Zone Act (Go Zone), affect the overall recovery effort. While we all know there's plenty of blame to go around regarding the response to the disaster on all levels, it's never too late to make up for that poor response.

It was impossible for anyone to forget the images of 9/11 and that certainly helped keep the recovery effort on the front burner. I realize 9/11 was a different disaster altogether, but I will never forget the images of Katrina as well. For the sake of that recovery effort, I sincerely hope the powers that be don't forget those images either.

BRAC

It's impossible to list here the winners and losers in the South regarding the Base Realignment and Closure decisions made by the Department of Defense in 2005. If we did attempt to put our arms around that in this short column it would be an injustice to many communities and more than one Southern state. But there's no denying BRAC was one of the biggest stories of 2005. Yet, when all of the recommendations for closures and realignments made by DOD in 2005 are finally completed in 2011, significant economic development structures that are in place in the South today will be changed forever, some good, some bad.

Manufacturing tops Service for the First Time Since 1996

While the numbers came from 2004 and we haven't published numbers from 2005 yet (the SB&D 100 comes out in the next issue), we did report last year that manufacturing topped the service sector in the South in corporate announcements with 200 jobs or more for the first time in eight years. It should be noted that prior to 1996, the manufacturing sector dominated all job-making sectors in the South, including the service sector, since agriculture lost its grip on the No. 1 spot in the South. That, by the way, was in about 1934.

The fact that for years now the manufacturing sector has lost its luster in the U.S., it was big news that the old-line commerce came back so strong in the South in 2004. We've written many times that the doom and gloom economists who maintain manufacturing is gone and gone forever in this country are right and wrong at the same time. They are right that manufacturing will continue to decline in high-cost regions of the U.S., such as the Northeast and West, specifically California. They are wrong when it comes to manufacturing in the South. Sure, low-wage manufacturing jobs will continue to be lost in the region. But the South is the lowest-cost place in the largest consumer nation in the world to operate a manufacturing business. That being the case, don't be surprised if the manufacturing sector tops the service industry in big job deals again in coming years.

Large Corporate Headquarter Relocations to the South Continue

Thousands of companies have moved their headquarters to the American South over the years. Ninety-nine percent of them, however, you wouldn't know who they were. Yet, in recent years more and more signature corporate names have decided to make the unthinkable move and relocate their headquarters to the South.

Two years after the oil crisis of 1973, Exxon relocated its world headquarters from New Jersey to the Dallas/Fort Worth metro market of Irving. The national media took notice of Exxon's relocation to the South in 1975, questioning the economic sanity of one of the world's largest companies. To leave the New York area, they wrote, would certainly make it difficult for Exxon to conduct business with executives from around the world. It took another 16 years before another Fortune 500 company relocated its corporate headquarters to the South and that was UPS in 1991 when it decided to pick up stakes and relocate its headquarters from Greenwich, Conn. to Atlanta.

Only a small handful of major corporations left their long-time headquarter homes in the Northeast, Midwest and West and settled in the South in the 1990s. The go-go '90s saw record profits and opportunities for many major, mid and small businesses alike. Since relocating a headquarters from one region of the country to another is primarily motivated by costs, headquarter migration to the South wasn't really an issue in the 1990s. After all, when you're making money hand-over-fist, even stockholders couldn't care less if the operating costs of the company's headquarters in Los Angeles, San Francisco or Manhattan is double that of Atlanta, Nashville, Tampa Bay or Charlotte.

The latest economic downturn of 2001 gave new meaning to the phrase "operating costs." It didn't matter what level or sector it came from -- from the smallest manufacturing facility in the rural South to the largest corporate headquarters in Manhattan -- companies were on the move searching for lower cost environments in which to do business.

From 2002-2004, major corporations began targeting the South for headquarter relocations like never before in U.S. business history. Marquee names such as Philip Morris, Fidelity National, Newell Rubbermaid, Louisiana Pacific, DHL, and Asurion all moved their headquarters to the South from outside the region during that time. In almost each case, the CEO of the company cited operating costs as the primary reason behind the move.

The big-name corporate headquarter shuffle to the South continued in 2005, making it one of the top 10 stories of the year. International Paper announced in 2005 it is moving its headquarters from Connecticut to Memphis and Nissan became the world's first major automaker to relocate its headquarters to the South. Nissan is moving to Nashville from the Los Angeles area and Nissan CEO Carlos Ghosn said that operating costs were paramount in the decision. While Nissan is the first automaker to call the Southern Automotive Corridor its headquarter home, we bet it won't be the last. Eight other Asian automakers currently operate their North American headquarters in California and we reported in mid-2005 that Audi is considering moving its North American headquarters from Michigan to the South. Volvo, Mercedes-Benz and BMW operate their North American headquarters out of New Jersey and of course Ford, GM and DaimlerChrysler have their headquarters in Michigan.

It's early in 2006 and the South has already chalked up another major corporate headquarter relocation. In late February, MeadWestvaco Corporation announced its plans to relocate several operations to the South, including its U.S. headquarters to Richmond, Va. MeadWestvaco's headquarters is currently in Stamford, Conn.

You can read more about headquarter relocations to the South over the years in this edition by turning to the category "The South's Ten Top Headquarter Relocation Markets."

Auto Assembly Plant Closures

In 2005 there were 23 major automotive assembly plants operating in the Southern Auto Corridor (www.SouthernAutoCorridor.com). That figure will drop in coming years as Ford and GM announced the closure of at least five assembly plants in the South. Those plants are located in Doraville and Hapeville, Ga., Oklahoma City, Okla., St. Louis, Mo. and Baltimore, Md. The Baltimore plant was closed last year.

Interestingly, GM and Ford spread the pain of plant closures almost evenly throughout Midwest, the South, Canada and Mexico. But that fact is little consolation for workers in the aforementioned Southern markets that will eventually lose their jobs. When the plants slated for closure build their last cars and trucks (all should be closed by 2008), the total number of domestic plants in the Southern Auto Corridor will be reduced from 15 to 10. Currently there are seven foreign-owned assembly plants operating in the South with another, Toyota in San Antonio that will open later this year. If Kia announces its first U.S. assembly plant in the South this year, as it's expected to do, the total number of foreign plants will grow to nine, just one away from the domestic total after the announced closures.

Kia's Site Search

As we've reminded you several times, Southern Business & Development predicted two years ago that Korean automaker Kia would pick Meridian, Miss., in the spring of 2006 for its first U.S. assembly plant. In early November of 2005 that looked like a solid pick as officials with the automaker publicly stated that Meridian was the front running site. But in November something happened to change Kia's mind about Meridian. Kia officials stated the Meridian area's labor shed wasn't large enough. We reported on SouthernAutoCorridor.com in early December that Kia officials had actually preferred a site near Jackson in Pelahatchie. Of course Nissan operates a large assembly plant near Jackson, so it was a no-brainer when Mississippi officials wouldn't do the Pelahatchie deal. We also reported that Mississippi offered a $200 million package to Kia to build at the Meridian site. But it would cost Kia $250 million to build its plant in Meridian, leaving a $50 million tab for the Korean automaker.

And here it is spring of 2006, the quarter we predicted two years ago the Korean automaker would make its decision. That decision was made and Kia has chosen a greenfield site in West Point, Ga. The site is certainly a convenient one for Kia, in that it is only 80 miles via Interstate from the Hyundai plant in Montgomery. The West Point location will give Kia certain cost and quality control advantages few new assembly plants have ever enjoyed. After nearly two years of looking, it's apparent to us that Kia made a sound decision in picking West Georgia.

What makes the Kia site search one of the Top 10 stories of 2005 is the simple reason that it's the latest automaker to call the Southern Automotive Corridor home. No economic development project even comes close to what automotive assembly plants produce when it comes to advancing a multi-county region or entire state economy. They are the Holy Grail of economic development projects and Kia is simply the "soup of the day."

But add to that all of the speculation about Kia and even some of the difficulties economic development officials in the South have had with the Korean automaker and it easily ranks as one of our top 10 stories for 2005 in the South.

Chips are Good to Go

Ten years ago every state in the South was giddy about the prediction that dozens of semiconductor plants would open throughout the region. Entire economic development recruiting philosophies in several Southern states were changed in order to land those deals. Of course, you can count on one hand the number of new chip plants that were built in the region in the mid-to-late-1990s.

The South wins most of its battles with other U.S. regions in almost all industry sectors. But if there ever was an industry that the South has not competed well against other U.S. regions it's the computer chip industry. These days it's rare when New York beats the South in the recruitment of any business. The same is true with Arizona and California. But all three of those states have won out over the South when it comes to new semiconductor facilities. But there's some light appearing.

In 2005, Micron Technologies announced it would invest $1.2 billion to expand its Manassas, Va. facility, creating almost 900 new jobs. Also last year, Texas Instruments broke ground on a new $3 billion semiconductor manufacturing plant in Richardson, Tex. While it's not official, Korean electronics giant Samsung is very close to announcing a new chip plant in Austin. That investment is expected to top $4 billion. So, 2005 was one of the best years for the semiconductor industry in the South in the last decade. That's a big story, one that made our top 10.

The Ongoing Saga of the Scripps Institute in South Florida

If you go to www.BioIndustrySouth.com, the Web site we own and operate that focuses on the South's life science industry, you'll notice something missing. For all practical purposes, we have stopped writing about the ongoing issues concerning the Scripps Research Institute project that was first announced in Palm Beach County, Fla. in the fall of 2003.

Scripps is the largest life sciences deal ever announced in the South. The California-based non-profit planned on building a huge research and development campus, complete with housing, on a 1,900-acre site in western Palm Beach County. The deal was projected to create as many as 50,000 direct and indirect jobs. Environmentalists stopped Scripps from building on the site called Mecca Farms. Since that site was eliminated, it has been difficult to follow the direction the project is taking. And that's the reason we have essentially quit writing about it. The news surrounding it is so fluid, by the time we publish something, even on a source as immediate as the Internet, things change direction with Scripps and make us look somewhat foolish.

While we have proceeded with caution regarding the reporting on Scripps, we certainly haven't stopped our research. Folks close to the project continue to tell us it will eventually be built. It won't be built with the original magnitude they say, but it will be built in South Florida. It should be noted that scientists working with Scripps are currently working in South Florida. We won't go into detail because where they may or may not be working seems to change every time the wind blows. Let's just say the Scripps saga continues to be a top 10 story, as it was last year. But unless the project moves forward more than it has, you won't see it make our top 100 stories next year.

Southern States Work Together in Landing Projects

When a revolutionary idea is launched in economic development, we've found it's almost always the product of proactive minds. Those ideas, unfortunately, are hard to find. Most economic development initiatives seem to hinge on reactionary behavior. Maybe that's because politicians have their hands in it. After all, with almost all politicians the time clock is always running. That clock is called term limits.

At any rate and before we get too far off the subject, we thought one of the top 10 stories of the year centered on the cooperation we saw among states in the South in landing large economic development projects. Why is that so unusual? Look, economic development and the landing of major job, investment, energy and tax-generating projects are about as competitive as it gets. The fight for jobs among states in this country makes the Super Bowl, the World Series and the American Idol competitions look like shuffle board games played by 80-year-old seniors on Tuesday mornings in St. Pete, Fla. Well, the fight for jobs among states may not be that competitive.

To give you an example of how nasty the fight for jobs can be, in the early 1990s I recall an advertisement purchased by the state of Arizona in the largest daily newspaper in Los Angeles. The ad, by the way, was published shortly after the people of California had endured many fires, mudslides and a major earthquake. The art on the full-page ad featured a very large bug. The headline read, "What's next, Locusts?" The subhead read something like "move your business to Arizona."

Last year we saw Alabama economic development officials work with Mississippi and Florida dealmakers to try and secure Korean automaker Kia to a site in Mississippi or a site in Florida. Let's repeat that. Alabama worked with adjoining states to land a project in one of those states, not Alabama. From what we gathered, Alabama also had (has) some money on the table for Kia locating in Mississippi or Florida (of course that deal is still in play). Also, Maryland and Virginia are now working together to land large life sciences projects. What's next, dogs and cats sleeping together, Al Franken with his own show on Fox and Democrats and Republicans working together in a fair and proactive way in an effort to really tackle our nation's challenges, all without pointing a single finger?

The War in Iraq

This is the first time we have put the three-year-old war in our top 10 stories category. We're not making a political statement with its inclusion. We won't go into detail about what we feel is right or wrong with the war. And we refuse to discuss the economic development implications of the war and how they relate to the South and this country. We simply want you to remember that war, like natural disasters and the recovery that follows should not be something that we, the American people, should ever forget about, not even for one day.

We will write this, however. There's a huge and glaring divide between choosing to go to war in an effort to change the political landscape of a different culture or another country and taking care of your own in this country.