Dean Barber

South Carolina’s Winning Hand

In Corporate Site Selection and Economic Development on June 7, 2015 at 10:22 pm

In our desire to make the right decisions, sometimes we turn to others who have gone before us for answers.

We want to hear of their journey, of their experiences.

In business as in life, getting information from those who are in a position to know, those who have truly walked the walk, can be a hugely valuable undertaking.

For that very reason, if I am focusing on community on behalf of a corporate client for location analysis, I will want to talk to existing companies there.

I will want to learn what their experiences have been, good and bad.

Whether it is a review, testimonial or a reference, learning what others believe to be true is a powerful driver for business. It is why employers ask for references from potential employees and why my wife reads Yelp reviews before we venture into a restaurant.

And believe it or not, a good review may have been what tipped the Volvo project in favor of South Carolina over rival Georgia.

The Boss Pays a Visit

You see, Volvo’s head honcho for North America made it a point to visit with BMW, which has been operating an assembly plant in South Carolina’s Upstate region for years.

“You always want to avoid reinventing the wheel,” said Lex Kerssemakers, President and CEO of Volvo Cars North America, in an interview with The State, the newspaper based in Columbia, S.C.

“If they had a good experience that would make a big difference in our decision process. They have been there for years so they know exactly how it works in South Carolina.”

Indeed, BMW does know how things work in South Carolina as the German automaker is now in midst of its fifth expansion in Greer, spending $1 billion in the process.

By 2016, BMW, employing 8,000 workers, will be able to produce up to 450,000 vehicles a year, up from 300,000 that it produced last year.

Volvo’s footprint in the Palmetto State will be considerably smaller. The Swedish/Chinese automaker says it will build its $500 million plant in Berkeley County near Charleston, employing about 2,000 people.

We know that Volvo visited the Port at Charleston (where BMWs are shipped out primarily to Europe) several times to get a better understanding of how it worked. And I would not be surprised if South Carolina’s emphasis with apprenticeship programs (much more common in Europe) may have given it another edge.

One Win Begets Another

Now I can tell you from experience that had Mercedes-Benz not chosen Alabama in the late 1990s for an assembly plant near Tuscaloosa, it is highly doubtful that Honda would have built an assembly plant in Lincoln, Ala.

And were it not for Mercedes and Honda’s presence in Alabama, I don’t believe Hyundai would have built an assembly plant near Montgomery. One win begets another.

Whether they consciously do it or not, companies reference and even sometimes follow each other, whether they will admit it or not. It’s often why industry clusters start to take shape.

And even if no formal discussions take place, companies will take note of and even study the experiences of their competition.

So it is not surprising that Kerssemakers would have wanted to hear firsthand from BMW and learn what it had experienced in South Carolina.

And being that Volvo was considering a site near Charleston, BMW probably figured out that Volvo would not be competing for the same labor pool. So why not give them the low down?

And so they did, and in doing so, BMW became an ace in South Carolina’s hand.

Kerssemakers and company also had to be well aware that Daimler AG announced in March that it will build a $500 million facility in North Charleston to build Sprinter vans.

Again, one win begets another. Funny how that works.

South Carolina’s Incentive Package

Press reports are pegging the incentives package for Volvo at more than $200 million, with $123 million financed through economic development bonds. In other words, the state is going to borrow the money to pay for the incentive package.

While the deal is going to happen, the notion of borrowing doesn’t sit well with some state lawmakers, because with borrowing comes interest to the tune of millions.

They contend the state would do better to use $70 million of an anticipated surplus to settle its obligations instead of borrowing the money as proposed by Gov. Nikki Haley.

Gov. Haley says financing much of the incentive package through bonds is a better way, because Volvo does not want to become part of a political debate.

Well, Earth to Volvo, there is always going to be some debate or grumbling about incentives, even in pro-business South Carolina. But rest assured, this deal is solid. The politicos won’t muck it up.

And Good Things Will Happen as a Result

A study by College of Charleston economist Frank Hefner shows the Volvo plant will generate $11.3 million in annual state and local taxes as construction winds down in 2017.

At full production of 100,000 vehicles per year, no later than 2024, the plant will generate nearly $72.4 million in annual taxes. That would double if Volvo builds a second production line at the site, which will depend on market conditions.

Speaking in Tongues

A few weeks ago, I was in New York to meet with Michigan Gov. Rick Snyder and a group of economic developers from his state.

I was one of a number of consultants in attendance, and during one our sessions, we (the consultants) were asked what other states impressed us the most.

Georgia got the biggest nod of approval. That didn’t surprise me, but it certainly wasn’t the first state that came to my mind. (Actually, the most improved state is Michigan.)

I offered up South Carolina, and some of those New York/New Jersey-based consultants looked at me as if I were speaking in tongues. I looked right back at them thinking, “What?”

And couple weeks later, Volvo announced that it was going to South Carolina, leaving Georgia as the bride’s maid.

Now I knew, (I although I don’t have the numbers to prove it), that South Carolina has been winning just as often as it has been losing to Georgia of late when the two go head to head on sizable recruitment projects.

If fact, local economic developers in Georgia last year told me how South Carolina was playing hardball, adding fuel to the fire of the “Beast of the Southeast” moniker proclaimed by Bobby Hitt, South Carolina’s secretary of commerce.

When you’re one a roll, you’re on a roll, and much of that, I credit to governors who have the power to set the tone for economic development in their states.

Nikki Haley, like Rick Snyder, is a good ‘un, another ace in the hand.

With Malice Toward None

When working with or for a company, I try to do my best to clear the deck and start anew — wiping away any preconceived ideas and notions that I may have of a place.

Oh sure, there are places with better business climates than others. South Carolina and Georgia both generally have favorable business climates.

But preconceived notions can get in the way of determining better locations based on the specific needs and wants of a client company.

So when consultants are asked what states are best, as was the case a few weeks ago when meeting with Michigan economic developers, I am hard pressed to give an answer that sounds halfway intelligent.

“Please tell us, oh wise guru consultants, who is hot and who is not. Who pray tell could we – your humble and modest servants — learn from?” (Our Michigan friends did not phrase it like that.)

But my immediate thought was, “Heck, most states could probably learn from you. You got Rick Snyder. Michigan is on a tear right now.”

Another Reality

Still, many if not most economic developers are obsessed with this idea of how their home places are perceived by others. Or how they compare to their competition.

And I believe it is a contributing reason why some economic development groups will spend an ungodly amount of money on branding campaigns that don’t mean manure to a tree.

But perception as reality, and I get that because I once was an economic developer. And I wanted people to like my place, at least better than some other places.

But let me tell you of another reality. I had a conversation this past week with a senior executive with a manufacturing company who said that core business reasons – not incentives, not image, not branding, not hoopla – would dictate where his company builds a future plant.

It was clear from our conversation that he was focused on the tangible, that which can be recorded, measured and analyzed. The facts on the ground in a specific region of the country was what mattered most. All else was pretty much superfluous.

And that was music to my ears. I hope we’ll be able help him.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Plano, Texas. He can be reached at dbarber@barberadvisors.com or at 972-767-9518. If you liked what you read here, invite him to speak at your next meeting.

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