Effects of Pandemic on the Economic Development World
Determining the location of a company’s next facility or assessing whether to move existing operations have always been high-stakes, complex decisions for management teams. But these decisions have become even more challenging since the COVID-19 pandemic injected unprecedented elements of uncertainty into the economic environment – and everyday life.
By creating supply chain, workforce, and health policy disruptions, the pandemic has significantly affected the way companies think about where they are located. In addition to longer-term strategic decisions about the company’s roadmap for growth, businesses now face short-term, tactical decisions that must take into account rapidly evolving and highly uncertain operational factors. These include the available workforce, COVID vaccination rates/case counts, and an evolving landscape of state and local incentives. Just as importantly, the pandemic is causing businesses to think differently about the element of timing: While relocation may ultimately be a wise strategy, when is the best time to move?
Taken together, these factors present companies with a set of complex questions that can substantially affect their long-term success or failure. Drawing from his experience guiding companies through relocation and expansion decisions, Mark Mitchell, newly named president of KSM’s site selection and incentive consulting practice, KSM Location Advisors, addresses several of the most critical impacts the pandemic has had on economic development and business location decisions.
Q: How has the pandemic affected the workforce, supply chains, and economic outlook in region(s) companies might be considering for expansion or relocation?
A: It’s no secret that the pandemic has had a dramatic impact on the U.S. workforce. According to the Bureau of Labor Statistics, approximately 4.4 million Americans quit their jobs in September 2021 – the highest rate of resignations during the pandemic to-date – leaving huge numbers of unfilled jobs in the service sector and other areas of the U.S. economy.
With that in mind, companies that are considering relocation should first determine whether a potential location will have a sufficient workforce to support their operation. Large-scale operations and those that require a workforce with specialized training should be particularly careful to ensure that they’ll have a reasonable labor pool from which to recruit employees. In the age of COVID, companies should also consider case counts and vaccination rates in each potential location, as well as the degree of vaccine resistance among potential employees and customers.
While these pandemic-specific questions are highly relevant today, they shouldn’t distract companies from evaluating critical longer-term questions about each potential location’s demographics and economic viability. For example, what is an area’s population, and how does that population break down among various age groups that may or may not match with a company’s recruitment needs? What is an area’s average educational level, and how many skilled workers are available if needed? How diverse is an area, and how difficult will it be for a company to recruit a diverse workforce?
If an area appears to offer a large pool of unskilled labor, companies should consider what training programs and incentives are available within a particular community, such as those at junior colleges or trade schools. Alternatively, a company may determine that it’s in the company’s interest to train its workforce internally.
In making demographic determinations, companies should also bear in mind the long-term trends in these data. While a location may appear to meet a company’s recruitment needs at a certain time, that might not be the case five or 10 years in the future. In that sense, looking at regional migration patterns may be very helpful in determining whether a potential location will offer a sustainable workforce over the long-term.
Q: How have state and local incentive packages been affected by the pandemic?
A: State and local governments often offer complex packages of tax breaks and other economic incentives as an enticement for companies to relocate. While these incentives may seem broadly attractive, companies should be very careful to read the fine print and make sure that their decision to relocate is not based on a misunderstanding of the degree to which any single incentive program will ultimately benefit the business.
Instead, companies should consider several key questions. For example:
- What are the specific incentives, and how long will they last according to current legislation?
- Do a state’s incentives apply differently to various corporate structures?
- What clawbacks or other limitations might be embedded in a state’s programs?
- How much will the incentives add to a company’s bottom line when taking into account the overall tax, labor, and cost environment?
In response to the pandemic, many states and municipalities have increased their incentive programs for companies and workers who relocate to a particular area. And the issue of remote workers can make these questions even more complex, as some states have adopted new policies that count remote workers as state residents even if their company’s headquarters is located out-of-state. Companies should be very careful to determine how remote workers will be classified, how they may qualify for incentives, and what state and local tax exposure they may have.
Ultimately, we believe that companies should not view incentive programs alone as a sufficient reason to relocate. Such programs may be temporary and not nearly as beneficial as they first appear. Put in proper perspective, companies should view incentive programs as an operating bonus in a location that already meets their fundamental needs as a business.
Q: When is the right time to move or expand?
A: Once a company has made the decision to move or expand, it must consider timing. In some cases, the pandemic, along with its impact on local supply chains, workforces, and economic activity, may accelerate a company’s need to relocate or expand facilities in a new location. In other instances, the pandemic might be causing companies to delay making major strategic decisions until some of the uncertainties related to reopening and vaccination policies settle. In today’s economic climate, companies may be closely watching inflation – particularly in terms of wages, energy, and input costs – to see how it is playing out in various locations under consideration.
With so many complex factors to consider, companies may be understandably overwhelmed, or they may simply need guidance on specific aspects of expansion or relocation. For help making an informed, prudent decision – one that takes into account near-term uncertainty and long-term trends – reach out to your KSM advisor or complete this form.
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