Findings from a recent survey conducted by Sikich, a global company specializing in technology-enabled professional services, revealed that more than one in 10 manufacturing executives moved their companies to a lower cost location over the past three years. Among this population, it would appear relocation is not a core business strategy. Should it be?
If done thoughtfully, relocation to a business-friendly region can add a competitive edge and result in cost savings for manufacturers. But for a relocation to effect improved financial stability and operational efficiencies, cost savings cannot be the only consideration.
Considerations Before Relocating
Manufacturing leaders understand that business sites play a crucial role in operations. Factors like customer distribution, the capabilities of the facilities, the size of the workforce and the broader impact on the region tie into a manufacturing company’s overall strategy.
When considering whether relocating is a smart financial move, companies need a comprehensive approach. This involves examining real estate costs, taxes, labor expenses and potential incentives or grants. By optimizing incentives and talent pools within their region, manufacturers can potentially cut operational expenses and strengthen their competitive edge without having to move to cheaper areas.
However, if a company is contemplating relocation or finds that its current location lacks advantageous business incentives, tax breaks or a strong talent pool, there may be significant incentives elsewhere, such reductions in property taxes, to encourage relocation.
When relocation is an option, it can reap hefty tax savings and business incentives. It’s evident that labor costs and inflation continue to challenge businesses in manufacturing, and customer demand doesn’t appear to be slowing down. A cost-effective expansion can combat these challenges and allow operational efficiencies to flourish.
The Advantages of Relocating or Expanding
To maximize return on investment, manufacturers need to consider options for expansion projects through relocating to a business-friendly state that provides tax breaks, business incentives and training grants to new or expanding businesses. Many states in the Midwest, for example, extend tax breaks and incentives to attract companies and their associated jobs, as growth in their state means an economic boost that benefits all parties. Compared to high-cost areas
such as California and New York, businesses can find lower-cost real estate and taxes.
Simply performing necessary operational duties such as hiring more staff or investing in talent through training can result in tax credits and cost savings in some states and regions.
Take Action
Before relocating to another state, manufacturing and distribution business owners must conduct thorough research with a site selection professional, compiling data on the area’s talent pool, facility options, state and local grants and tax breaks, and state incentives. If a business can relocate without significant impact on production, the customer base and the employee population, the move may be met with countless business benefits.
So while Sikich’s survey findings uncovered that just nine percent of manufacturers are considering moving facilities this year, it’s likely that this number will climb as labor costs, inflation and competition rise each year. T&ID
Jenny Massey, CRE is director of the site selection and business incentives practice at Sikich, which helps companies minimize risk and maximize return from relocation and expansion projects. Her expertise spans site selection and incentive procurement for businesses across technology, aerospace, logistics, life sciences, professional services, advanced manufacturing and agbioscience industries. Sikich conducts a manufacturing and distribution pulse survey multiple times throughout the year with executives from across sectors and the nation to gather real-time competitive intel on industry trends and business strategies. Recent findings include data collected in February 2024, and are available at www.sikich.com/industries/manufacturing/manufacturing-industry-pulse.
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