Mike Randle, Editor

If Your Facility is Large, Cut Your Operating Costs Now by Relocating

We are now well into a third year of a less than robust economy. Even though optimism is up, you don't operate your large corporate office or plant on optimism. Your facility and the employees it houses are supported by well earned cash. What better time then than now to hold onto more of that cash? Do the unthinkable. Move!

A relocation of your large facility or headquarters to a region like the American South, where wages can be half of what you're paying say in California, Washington, Colorado, Illinois or the Northeast, is most likely a task you have considered, but not seriously. Yet, as a result of more than two years of a stick-in-the-mud economy, more corporate and industrial relocations have been made to the South than at any time in recent memory. The reason? Economic conditions have forced many companies to find every possible way to cut costs. A move to the South, while difficult in the near term, is a major long term cost cutting move.

Philip Morris USA just did it. They are moving their corporate headquarters from New York City to the former Reynolds Metals corporate complex near Richmond, Va. The new headquarters will create 450 jobs and Philip Morris will invest millions in the move. It's safe to say Henrico County, where the headquarters will be located, the City of Richmond as well as the State of Virginia are doing everything they can to assist Philip Morris with the move. That includes tens of millions of dollars in assistance.

Philip Morris had been courted by Richmond officials for years without success. So why did the company make the move in 2003 after years of telling Virginia's Capital City "no?" I would surmize that an economic environment like we have today makes the South look a whole lot more inviting to Philip Morris than what it looked like during the bubble years. I mean, who cares if you're spending double what it costs to operate in the South if the money barrels keep rolling in by the truck load? Of course, times change.

Fortune 500 company Newell Rubbermaid is moving its corporate headquarters to the Atlanta area from Ilinois. And in the spring quarter, Boeing officials announced they were moving the company's Future Combat Systems division (550 jobs) from California to St. Louis. Also in the spring quarter, Fidelity National Financial became the poster child of the bite-the-bullet-cost-cutting move. Citing significantly lower costs, Fidelity announced a relocation of its headquarters from Santa Barbara, Calif. to Jacksonville, Fla. Fidelity's Chairman, William Foley, said the folks he wanted to hire at the 500-employee headquarter operation in Santa Barbara couldn't afford to live there.

Headquarter relocations are not the only red-flag indicators that the South is becoming a haven for cost cutters. The biggest red-flag unfurled in the spring quarter when it was confirmed that Ford Motor Co. officials site searched Georgia and Texas. It has been decades since a domestic automaker has opened a plant in the American South (Daimler/Chrysler did announce a new assembly plant in Savannah, Ga. over the winter).

If Ford becomes the maverick of the big three and chooses this region for its latest assembly plant, GM will not be far behind. Why are the domestics site searching the South in 2003, when they have been so loyal to generations of workers in the Great Lakes? Their current business model, which includes most of their manufacturing punch located outside the South, is not competing well with foreign automakers who have most of their North American assembly facilities in the South. Add, of course, the current economic conditions that are forcing the domestics to cut costs.

And then there's the rumor that Lockheed-Martin is considering relocating its Colorado-based plant that may indeed be the most high-tech manufacturing facility in the U.S. Lockheed-Martin, it's been reported, is considering moving the plant to Alabama or Florida. The plant employs over 11,000.

We've published case studies before in SB&D concerning operating costs in the South vs. the West, Midwest and Northeast. The latest can be found on www.sb-d.com (look under features and scroll all the way to the bottom and click "Save $4 Million to $8 Million in the South"). That study shows how much on average you're going to save in the first five years of operating a 100-employee manufacturing business out of a 100,000-square-foot facility in the South compared to the other three regions. The study adds up payroll, taxes, cost of the facility, workers' comp and unemployment insurance for that particular business in the four U.S. regions. Our tally shows that you'll save $4 million to $8 million (depending on which of the three regions the South is compared to) if the plant is located in the South as opposed to any of the other three regions.

So if you can save up to $8 million in five years for a 100-employee operation, how much can you save for an 11,000-employee operation, such as the previously mentioned Lockheed Martin facility? We can't absolutely answer that since we have not done any case studies focusing on deals that large. But it's safe to say that after five years, Lockheed Martin would easily save hundreds of millions (about $300 to $400M in our estimation) if that large facility was operating in the South as opposed to Colorado.

Add to those hundreds of millions about $100 million in incentives a relocation of that size might garner and you're looking right at half-a-billion dollars. Would you move your large plant from California, Washington, Colorado, Illinois or the Northeast to the South for $500 million?

Now you see why, in 2003, there are some whopper relocations going down in the American South. If you want to cut costs, move to the South.