Having worked with a number of technology companies over the years, we have discovered there is a list of key issues that impact their site selection decisions. It is important for communities and states to understand what those key issues are so they will be prepared for opportunities to attract tech firms because the locations that are best positioned to attract and retain technology workers are likely to be the winners in the 21st century economy.
The No. 1 issue for technology companies is human capital. People and their brain power is what will ultimately drive the success or failure of businesses of all types, but particularly technology companies. The money spent in support of human capital is usually the No. 1 operating cost for a technology company, unless a facility is capital investment intensive, with a small number of jobs (e.g., a data center).
As a result of the importance of human capital, it is critical for communities to have the right environment to attract and retain technology talent. Creating a welcoming environment for a diverse group of people is key. In addition, having an excellent mix of amenities is also important. However, these things cannot offset a poor business climate, an inadequate labor pool or lack of meaningful economic development incentives to support businesses.
In terms of economic development incentives, it is important for local and state governmental entities to have programs in place that focus on headcount and associated payroll. As an example, you might have a situation where a technology company is creating 100 new jobs with an average annual salary of $70,000, but investing only $1 million in personal property purchases. Property tax and/or investment tax credits will not be of much benefit to this type of project, but payroll tax credits or refunds will be very meaningful.
Business climate issues for technology companies tend to be somewhat different than those of other types of industries that may be more capital investment driven or that produce and sell physical products. Many technology businesses are privately held and set-up as LLCs or partnerships. Based on this fact, personal income tax rates become more important than corporate income tax rates. In addition, labor costs and quality are more important given the reliance on human capital. If a location has great labor, but is too expensive, it can cause a business to be less competitive in its industry sector.
Certain types of infrastructure also play a vital role in location decisions made by technology companies. Telecommunications infrastructure is key, especially when products or services are being delivered via the Internet. If a project involves a data center component, electric infrastructure/cost/redundancy becomes more important. Also, transportation infrastructure is important, but in a different way than most people think in terms of economic development. For technology companies, transportation is usually not a concern for moving product, but rather to get employees to and from work. Transportation infrastructure can be a challenge when employees have long commutes as it affects maximization of productivity. Public transportation, bike routes, good roads and parking are vital infrastructure issues for technology companies.
At the end of the day, there is not an easy way to attract and retain technology companies in a community or state. It is hard work and requires a focus on several key issues. Site selection for these types of businesses balance quantitative and qualitative factors. Communities and states cannot position themselves overnight, but rather need to focus on a long-term process. By positioning themselves for technology company opportunities and aggressively pursuing strategic opportunities to win projects, communities and states can position themselves for success.
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