Trends in Site Selection:A Location Strategist’s Perspective

City of Madison Economic Development Commission

July 27, 2004

Darin M. Buelow

City of Madison EDC

Today’s Theme

• Madison – A Forbes 2004 Best Place

• Why (or why not) Madison for a business location?

Outline

• A quick profile of Deloitte’s Site Selection practice

• The location selection process

• Trends driving location decisions

• “Best practices” in business attraction

City of Madison EDC

Darin Buelow

• Senior Manager with Deloitte Consulting’s Fantus group, based in Chicago

• 13 years development experience, including site selection, due diligence, negotiation, location strategy, and construction services

• Corporate clients include: Best Buy, HP, UBE Automotive, Sherwin-Williams, ThyssenKrupp, Cintas, Suzuki, Schwan, Kohler, Pitt Plastics, Radio Flyer, Volkswagen

• Negotiated over $100M in incentives across dozens of projects

• Economic development clients include: State of Iowa, State of Washington, Cape Breton (Nova Scotia), Lake County (IL), Altoona-Blair County (PA), LaPorte County (IN)

City of Madison EDC

Deloitte’s Fantus Group

• The first and largest specialized location strategy consulting practice

• Began in 1919

• Many thousands of engagements

• Dedicated practices in Chicago, LA, New York, San Francisco, Atlanta, and Brussels

• Focus on facility and location strategy, site selection, economic development, real estate portfolio structuring/management, and real estate operations.

City of Madison EDC

Client base across industry and facility type

City of Madison EDC

Recent Field Experience…

Counties (since 1993) where recent field evaluations, due diligence, negotiations, and employer interviews have been conducted by Deloitte Consulting’s Fantus Group.

City of Madison EDC

Fantus typically conducts between 100 and 200 engagements annually

• An ever-evolving mix including:

• Manufacturing – our traditional “bread and butter,” especially for Midwest practice and during industry growth cycles

• HQ/Call Centers/Shared Service – strongest in the Midwest and West Coast practices; increasingly global

• Distribution/Warehouse – strongest in Midwest; focused on large, big-box retailers and consumer products companies

• Technology – emphasis on bio-med; many projects international; strong base in West Coast practices

• Public Sector/Economic Development – State, local, and international

The Location Selection Process

City of Madison EDC

OrganizationalOrganizationalGoalsGoals

OrganizationalOrganizationalGoalsGoals

Consolidation

Merger/Acquisition

Market Access/Dynamics

Business Re-engineering

Reposition Corporate Culture/Image

Leadership Issues

Consolidation

Merger/Acquisition

Market Access/Dynamics

Business Re-engineering

Reposition Corporate Culture/Image

Leadership Issues

Capacity Constraints

Cost Containment

Lease Expiration

Talent Development

Tight Labor Markets

Union Issues

Changing Product Mix

Capacity Constraints

Cost Containment

Lease Expiration

Talent Development

Tight Labor Markets

Union Issues

Changing Product Mix

TACTICALTACTICAL STRATEGICSTRATEGIC

Why do companies consider new locations?

City of Madison EDC

Location decisions can be very troublesome for companies…

• Long-term and significant allocation of major capital and human resources

• Occur infrequently — internal skills are rare or rusty

• Huge commitment of resources over a short period of time

• High degree of uncertainty and risk

• Emotionally charged and politically sensitive

City of Madison EDC

Who are the “Consultants”?

• A wide range of companies have specialized site selection practices

• The Big 4: Deloitte Consulting - Fantus, KPMG, E&Y, PWC

• Engineering and construction firms: Fluor Daniel, Lockwood Greene

• Large real estate brokerage firms: JLL, Grubb & Ellis, CB Richard Ellis, Staubach

• The boutiques:

• smaller, specialized companies of 1-5 experienced consultants

• spin-offs of the other firms and ex-ED professionals

• Assorted others: general management consulting, HR consulting, logistics consulting, architecture firms, etc.

City of Madison EDC

And why should anyone pay attention to them?

• They lead an increasing number of location studies

• Location “influencers” are believed to be involved in nearly half of all major site selections

• Tend to manage larger projects and companies that produce significant economic impact

• Have many repeat clients

• MOST know what they are doing and can manage a project to a successful conclusion

City of Madison EDC

Typical Site Selection Process

project drivers

success factors

project specifications

search area

Implementation Implementation Negotiations Negotiations Due Diligence Due Diligence Screening ScreeningStrategyStrategy

countries/regions/states

fatal flaw analysis

compare costs and conditions

identify 6-10 top areas

field investigations

verify screening and process-drill down

identify specific opportunities and risks

best 3-5 community/site options

risk analysis

real estate

incentives

transition planning

facilities plan

vendor selection

construction ramp-up

City of Madison EDC

1. Access to customers2. Stable social/political environment3. Ease of doing business4. Reliability/quality of other utilities5. Ability to hire tech professionals6. Ability to hire management staff7. Level of corruption8. Cost of labor9. Ability to hire skilled laborers

10. Crime & safety11. National taxes12. Cost of utilities13. Roads14. Avail/quality - university/tech training15. Local taxes

1. Access to customers2. Stable social/political environment3. Ease of doing business4. Reliability/quality of other utilities5. Ability to hire tech professionals6. Ability to hire management staff7. Level of corruption8. Cost of labor9. Ability to hire skilled laborers

10. Crime & safety11. National taxes12. Cost of utilities13. Roads14. Avail/quality - university/tech training15. Local taxes

Factors that are most critical to a corporate global location decision

16. Access to raw materials17. Available land – all services in place18. Air service19. Labor relations/unionization20. Access to suppliers21. Preferential trade agreements22. Available building/space – all services23. Cost of shipping (freight cost)24. Labor regulations25. Cost of real estate26. Access to finance27. Ports28. Healthcare29. Ability to hire general laborers30. Availability of grants/incentives

16. Access to raw materials17. Available land – all services in place18. Air service19. Labor relations/unionization20. Access to suppliers21. Preferential trade agreements22. Available building/space – all services23. Cost of shipping (freight cost)24. Labor regulations25. Cost of real estate26. Access to finance27. Ports28. Healthcare29. Ability to hire general laborers30. Availability of grants/incentives

City of Madison EDC

Location Process Drivers

• Domestically, costs are the key factor for the majority of competitive projects

• Some companies screen strictly on costs to narrow the field

• Often very focused on costs early in the engagement, but may lower the bar once trade-offs are understood

• A threshold screen

• “…eliminate all areas with wages over 10% above the regional/national averages”

• Performance-based solutions are key for some talent and market driven projects

• Screen almost entirely on non-cost, operational factors such availability of technical talent, access to a specific customer, etc.

City of Madison EDC

The location selection process generally takes 6-8 months for large projects

Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

2002 2003

Site Selection Tasks

•Definition and specifications

•Phase I location strategy

•Select finalist state(s)/areas (by client)

•Phase II location due diligence (2-3 areas)

•Executive tour (2 areas)

•Select finalist community/site

•Real estate acquisition

•Incentive negotiations

• Announcement

•Zoning/permitting issues

• Break ground

• Site preparation

• Begin construction

•Facility design & layout

•Shipper relationships/suppliers sourcingstrategy

•Vendor selection/relationship

•General contractor selection

•Human resources relocation and recruitingstrategy

Ongoing Tasks (Can be done in parallel)

(Dec 5)

Trends Driving Location Decisions

City of Madison EDC

Trends in Site Selection

•Cost reduction

•Globalization

•Functional Trends and Issues

City of Madison EDC

job reductionsjob reductions real estate consolidation and real estate consolidation and

dispositiondisposition severing lower value functions severing lower value functions

from corefrom core relocations to lower cost relocations to lower cost

environmentsenvironments expanded search areasexpanded search areas

multi-country searches, not just multi-country searches, not just multi-statemulti-state

focused off-shore, particularly for focused off-shore, particularly for labor intensive operationslabor intensive operations AsiaAsia Mexico, Central America and Mexico, Central America and

BrazilBrazil E. EuropeE. Europe

JVs and outsourcingJVs and outsourcing

job reductionsjob reductions real estate consolidation and real estate consolidation and

dispositiondisposition severing lower value functions severing lower value functions

from corefrom core relocations to lower cost relocations to lower cost

environmentsenvironments expanded search areasexpanded search areas

multi-country searches, not just multi-country searches, not just multi-statemulti-state

focused off-shore, particularly for focused off-shore, particularly for labor intensive operationslabor intensive operations AsiaAsia Mexico, Central America and Mexico, Central America and

BrazilBrazil E. EuropeE. Europe

JVs and outsourcingJVs and outsourcing

actions / impacts

intense pressure to reduce costsintense pressure to reduce costs pre and post economic downturnpre and post economic downturn

consolidation, relocation, and consolidation, relocation, and rationalization of operationsrationalization of operations

increasing global competitionincreasing global competition products and servicesproducts and services factors of productionfactors of production

intense pressure to reduce costsintense pressure to reduce costs pre and post economic downturnpre and post economic downturn

consolidation, relocation, and consolidation, relocation, and rationalization of operationsrationalization of operations

increasing global competitionincreasing global competition products and servicesproducts and services factors of productionfactors of production

issues / trends

Cost reduction continues to bea corporate imperative…Cost reduction continues to bea corporate imperative…

City of Madison EDC

Globalization and Offshoring

foreign direct investment (FDI) foreign direct investment (FDI) more likely, even for mid-sized more likely, even for mid-sized companiescompanies contract manufacturing contract manufacturing JV/outsourceJV/outsource greenfieldgreenfield

mitigation of FDI risk through mitigation of FDI risk through country/city selection (political, country/city selection (political, labor, human, natural disaster labor, human, natural disaster etc.)etc.)

mobile income tax strategiesmobile income tax strategies

foreign direct investment (FDI) foreign direct investment (FDI) more likely, even for mid-sized more likely, even for mid-sized companiescompanies contract manufacturing contract manufacturing JV/outsourceJV/outsource greenfieldgreenfield

mitigation of FDI risk through mitigation of FDI risk through country/city selection (political, country/city selection (political, labor, human, natural disaster labor, human, natural disaster etc.)etc.)

mobile income tax strategiesmobile income tax strategies

actions / impacts

increasing need to compete increasing need to compete globally globally create/improve market accesscreate/improve market access reduce costreduce cost create/improve access to source create/improve access to source

materialsmaterials labor availabilitylabor availability

barriers to entry fallbarriers to entry fall technology enables globalizationtechnology enables globalization risk a growing concernrisk a growing concern global taxationglobal taxation

increasing need to compete increasing need to compete globally globally create/improve market accesscreate/improve market access reduce costreduce cost create/improve access to source create/improve access to source

materialsmaterials labor availabilitylabor availability

barriers to entry fallbarriers to entry fall technology enables globalizationtechnology enables globalization risk a growing concernrisk a growing concern global taxationglobal taxation

issues / trends

City of Madison EDC

Who is Madison Competing With?

• The usual suspects:•Other Wisconsin communities/counties

•Illinois, Minnesota, Michigan, Iowa

•Tier 1 U.S. R&D Centers: Boston, San Diego, San Jose, Research Triangle, Atlanta, Front Range, etc.

•Mexico (manufacturing)

• The unusual suspects:•China

•India

•Central America (CAFTA)

>10,000

4,000 – 5,000

2,000 – 4,000

1,000 – 2,000

500 – 1,000

300 – 500

100 – 300

0 – 100

>10,000

4,000 – 5,000

2,000 – 4,000

1,000 – 2,000

500 – 1,000

300 – 500

100 – 300

0 – 100

FDI Total Value(US$ million)

Year 2002 Foreign Direct Investment (FDI) by ProvinceYear 2002 Foreign Direct Investment (FDI) by Province

Heilongjiang

Jilin

Liaoning

Hebei

Beijing

Tianjin

Inner Mongolia

Shandong

Jiangsu

Shanghai

Zhejiang

Fujian

GuangdongGuangxi

Hainan

HunanJiangxi

AnhuiHubei

Henan

Guizhou

Yunnan

SichuanChongqing

Gansu

Ningxia

Shaanxi

Shanxi

Qinghai

Xinjiang

Tibet

City of Madison EDC

China’s Advantage in Costs and Skills

Commercial Environment Labor Force

Relative to the rest of ASEAN, China offers low cost labor at a reasonable skill level

Relative to the rest of ASEAN, China offers low cost labor at a reasonable skill level

-10

-5

0

5

10

15

20

25

30

1 2 3 4 5 6 7 8 9 10 11 12Skills

Co

sts

Japan

China

South Korea

Australia

Hong Kong

Taiwan

India

Singapore

Philippines

Malaysia

Thailand

Indonesia

US$

150,000100,000

50,000 25,000

Source: EIU, IMD

City of Madison EDC

“The Sky is Falling”….!!!

Is everything moving offshore? No.

1. Food manufacturing

2. High cube to weight ratio products (e.g., tissue)

3. Distribution

4. Defense, Homeland Security

5. Critical time-to-market products (e.g., Tier 1 automotive)

6. Small or specialized manufacturing

7. Entrepreneurial enterprise

8. High water content product manufacturing (e.g., Windex)

9. Healthcare related industries

10. R&D requiring unique linkages to universities

City of Madison EDC

Manufacturers face intense global cost competition

US companies focused offshore, US companies focused offshore, particularly for labor intensive particularly for labor intensive operationsoperations

non-US companies also looking non-US companies also looking offshore, but…offshore, but… heightened focus on Mexico and heightened focus on Mexico and

Canada to serve North AmericaCanada to serve North America areas with abundant technical areas with abundant technical

and skilled production labor will and skilled production labor will thrivethrive

need for advanced training, need for advanced training, training partnershipstraining partnerships

US companies focused offshore, US companies focused offshore, particularly for labor intensive particularly for labor intensive operationsoperations

non-US companies also looking non-US companies also looking offshore, but…offshore, but… heightened focus on Mexico and heightened focus on Mexico and

Canada to serve North AmericaCanada to serve North America areas with abundant technical areas with abundant technical

and skilled production labor will and skilled production labor will thrivethrive

need for advanced training, need for advanced training, training partnershipstraining partnerships

actions / impacts

exodus of US labor intensive exodus of US labor intensive industryindustry shedding lower skilled operationsshedding lower skilled operations still struggling with higher and still struggling with higher and

technical skilled labor availabilitytechnical skilled labor availability wage pressureswage pressures

US wages increasingly highUS wages increasingly high need for global positioningneed for global positioning

new markets/customersnew markets/customers global JIT suppliersglobal JIT suppliers

outsourcingoutsourcing

exodus of US labor intensive exodus of US labor intensive industryindustry shedding lower skilled operationsshedding lower skilled operations still struggling with higher and still struggling with higher and

technical skilled labor availabilitytechnical skilled labor availability wage pressureswage pressures

US wages increasingly highUS wages increasingly high need for global positioningneed for global positioning

new markets/customersnew markets/customers global JIT suppliersglobal JIT suppliers

outsourcingoutsourcing

issues / trends

City of Madison EDC

Typical Location Criteria: Manufacturing Projects

Critical

Co

stC

on

dit

ion

s

• Skilled labor supply/talent pool• Labor quality• Labor relations• Market access (suppliers &

customers)• Real estate quality and availability• Utility capacity/quality

• Labor• Freight• Power • Gas/Fuel (processors)

Important

• Real estate• Taxes• Incentives• Other Utility costs

• Transportation infrastructure/ service

• Semi-/unskilled labor pool• Industrial training• Regulations• Quality of Life

City of Madison EDC

Distribution centers areoptimizing their global networks

less handling, more automation, less handling, more automation, improved inventory management, improved inventory management, higher number of turnshigher number of turns

focus on all costs (e.g., labor, focus on all costs (e.g., labor, taxes, utilities), not just freighttaxes, utilities), not just freight

rationalizing vendors, strategic rationalizing vendors, strategic sourcing – supplier capabilitiessourcing – supplier capabilities

outsourcing (3PL & 4PL)outsourcing (3PL & 4PL) regional focus (globally and regional focus (globally and

within U.S.)within U.S.) fewer, larger facilitiesfewer, larger facilities hub and spokehub and spoke

superior transportation superior transportation infrastructure and capabilities by infrastructure and capabilities by key modeskey modes

less handling, more automation, less handling, more automation, improved inventory management, improved inventory management, higher number of turnshigher number of turns

focus on all costs (e.g., labor, focus on all costs (e.g., labor, taxes, utilities), not just freighttaxes, utilities), not just freight

rationalizing vendors, strategic rationalizing vendors, strategic sourcing – supplier capabilitiessourcing – supplier capabilities

outsourcing (3PL & 4PL)outsourcing (3PL & 4PL) regional focus (globally and regional focus (globally and

within U.S.)within U.S.) fewer, larger facilitiesfewer, larger facilities hub and spokehub and spoke

superior transportation superior transportation infrastructure and capabilities by infrastructure and capabilities by key modeskey modes

actions / impacts

concurrent focus on cost and concurrent focus on cost and customer servicecustomer service

need to improve efficiency and need to improve efficiency and lower cost through the entire lower cost through the entire supply chain and physical supply chain and physical networknetwork

global sourcing and networksglobal sourcing and networks consolidation / rationalizationconsolidation / rationalization

of current networkof current network with acquisitionswith acquisitions

concurrent focus on cost and concurrent focus on cost and customer servicecustomer service

need to improve efficiency and need to improve efficiency and lower cost through the entire lower cost through the entire supply chain and physical supply chain and physical networknetwork

global sourcing and networksglobal sourcing and networks consolidation / rationalizationconsolidation / rationalization

of current networkof current network with acquisitionswith acquisitions

issues / trends

City of Madison EDC

Typical Location Criteria: Distribution Center Projects

Critical

Co

stC

on

dit

ion

s • Semi-/unskilled labor pool• Highway access• Market access (suppliers &

customers)• Real estate quality and availability

• Labor• Freight (inbound, outbound)• Real Estate

Important

• Taxes (property, inventory)• Incentives

• Transportation services• Water pressure (mega-DC)• Labor relations• Industrial training• Regulations

City of Madison EDC

Shared services/contact centers arecost and customer service focused…

shared services centersshared services centers large regional centerslarge regional centers Americas, Asia/Oceania, EMEAAmericas, Asia/Oceania, EMEA locations with broad financial skills locations with broad financial skills

and multi-lingualand multi-lingual diversification of riskdiversification of risk

customer contact centerscustomer contact centers outsourcing waveoutsourcing wave 33rdrd and 4th tier US locations and low- and 4th tier US locations and low-

cost offshore locationscost offshore locations multiple operations to cover time zone multiple operations to cover time zone

and maintain reasonable sizeand maintain reasonable size low-risk, technology-capable locations low-risk, technology-capable locations

(phone, internet etc.)(phone, internet etc.)

shared services centersshared services centers large regional centerslarge regional centers Americas, Asia/Oceania, EMEAAmericas, Asia/Oceania, EMEA locations with broad financial skills locations with broad financial skills

and multi-lingualand multi-lingual diversification of riskdiversification of risk

customer contact centerscustomer contact centers outsourcing waveoutsourcing wave 33rdrd and 4th tier US locations and low- and 4th tier US locations and low-

cost offshore locationscost offshore locations multiple operations to cover time zone multiple operations to cover time zone

and maintain reasonable sizeand maintain reasonable size low-risk, technology-capable locations low-risk, technology-capable locations

(phone, internet etc.)(phone, internet etc.)

actions / impacts

consolidation, rationalization and consolidation, rationalization and relocationrelocation

operating costs (labor, labor, operating costs (labor, labor, labor)labor)

customer needs and geographic customer needs and geographic coverage drive deployment – coverage drive deployment – globallyglobally

re-engineering process and re-engineering process and technology enabled technology enabled greater mobilitygreater mobility

skill requirements skill requirements both higher and lowerboth higher and lower

data and call volume data and call volume managementmanagement

consolidation, rationalization and consolidation, rationalization and relocationrelocation

operating costs (labor, labor, operating costs (labor, labor, labor)labor)

customer needs and geographic customer needs and geographic coverage drive deployment – coverage drive deployment – globallyglobally

re-engineering process and re-engineering process and technology enabled technology enabled greater mobilitygreater mobility

skill requirements skill requirements both higher and lowerboth higher and lower

data and call volume data and call volume managementmanagement

issues / trends

City of Madison EDC

Typical Location Criteria:Shared Service and Call Center Projects

Critical

Co

stC

on

dit

ion

s

• Labor availability• Labor quality• Telecom infrastructure• Real estate availability

• Labor costs• Real estate costs

Important

• Corporate Taxes• Telecom• Incentives (call centers)

• Quality of life• Training• Management labor pool• Business services• Labor regulations• Air service• Power service

City of Madison EDC

Technology companies no longerfocus on “growth at any cost”

exodus of labor intense operations to exodus of labor intense operations to low cost countrieslow cost countries overseas outsourcing to reduce costs assembly operations focus on low-cost

countries multi-country R&D efforts

paying more attention to labor, freight, taxes, and utility costs

focus on the ability to effectively recruit scientific, engineering, technical, and skilled production talent critical mass of existing local talent access to top universities and programs

exodus of labor intense operations to exodus of labor intense operations to low cost countrieslow cost countries overseas outsourcing to reduce costs assembly operations focus on low-cost

countries multi-country R&D efforts

paying more attention to labor, freight, taxes, and utility costs

focus on the ability to effectively recruit scientific, engineering, technical, and skilled production talent critical mass of existing local talent access to top universities and programs

actions / impacts

consolidation and downsizingconsolidation and downsizing increased FDIincreased FDI new production operations more new production operations more

focused on traditional locational focused on traditional locational measuresmeasures

still driven by talent and the still driven by talent and the environment in which to attract themenvironment in which to attract them

cluster in regions with a substantial scientific, technical and/or academic presence and eminence

consolidation and downsizingconsolidation and downsizing increased FDIincreased FDI new production operations more new production operations more

focused on traditional locational focused on traditional locational measuresmeasures

still driven by talent and the still driven by talent and the environment in which to attract themenvironment in which to attract them

cluster in regions with a substantial scientific, technical and/or academic presence and eminence

issues / trends

City of Madison EDC

Typical Location Criteria:Technology Projects

CriticalCritical

Co

stC

on

dit

ion

s

• Technical skilled labor pool• Quality of life• Labor quality• Training• University presence• Real estate quality• Power & telecom capacity/quality

Important

• Labor (labor intensive)• Logistics• Real estate• Utilities (Power-California)• Taxes• Incentives

• Transportation access• Technical support services• Semi-/unskilled labor• Air service

City of Madison EDC

The competition for technology projects…

Media Del ReyMedia Del Rey Silicon HollowSilicon Hollow

Silicon ForestSilicon Forest

Silicon Gulch/ Silicon Hills

Silicon Gulch/ Silicon Hills

Silicon VillageSilicon Village

Silicon VineyardSilicon Vineyard

Silicon GulchSilicon Gulch

Silicon ValleySilicon Valley

Multimedia GulchMultimedia Gulch

Silicon IslandSilicon Island

Silicon BeachSilicon Beach

Digital CoastDigital Coast

Silicon DesertSilicon Desert

Cyberchella ValleyCyberchella Valley

Silicon MesaSilicon Mesa

Silicon CitySilicon City

Silicon PrairieSilicon Prairie

Telecom CorridorTelecom Corridor

Silicon FreewaySilicon Freeway

Biotech BeachBiotech Beach Silicon BayouSilicon Bayou

Silicon BeachSilicon Beach

Silicon SwampSilicon Swamp

Telecom ValleyTelecom Valley

Silicon TriangleSilicon Triangle

Silicon RiverSilicon River

Automation AlleyAutomation Alley

Silicon Tundra/ Silicon Valley NorthSilicon Tundra/ Silicon Valley North

WebPortWebPort

Silicon IslandSilicon Island

Silicon AlleySilicon Alley

Silicon Valley ForgeSilicon Valley Forge

Philicon ValleyPhilicon Valley

Silicon HollerSilicon Holler

Silicon MountainSilicon Mountain

Silicon SeaboardSilicon Seaboard

Silicon Dominion/ Silicon PlantationSilicon Dominion/ Silicon Plantation

E-CoastE-Coast

Cyber DistrictCyber District

Silicon HillSilicon Hill

Silicon NecklaceSilicon Necklace

Silicon SandbarDot CommonwealthSilicon Mountain

Silicon SandbarDot CommonwealthSilicon Mountain

Silicon SnowbankSilicon Snowbank

Silicon PlainsSilicon Plains

Silicon GlacierSilicon Glacier

Silicon OrchardSilicon Orchard

Silicon IslandSilicon Rain ForestSilicon IslandSilicon Rain Forest

City of Madison EDC

Biotech / Biopharma is Growing…

• Sales of biopharmaceuticals grew from $8 billion in 1993 to $22.3 billion in 2000 – small compared to the pharmaceutical industry: $400 billion (2002)

• The future looks bright, with an estimated 371 biotech-based drugs in development. At the end of 2002, approximately 122 biotech-based drugs were in Phase III trials or awaiting approval in the United States.

• The top 10 biopharmaceutical companies accounted for 64.7% of the segment’s global sales in 2002. Of those, six companies had sales of $1 billion or more 2002: Amgen, Genentech, Serono, Chiron, Biogen, and Genzyme Corp.

City of Madison EDC

Competition for Biotech / Biopharma Investment

• Clinical development (R&D) locations vs. manufacturing locations

• Top cluster locations include:• Boston

• San Francisco

• San Diego

• Long Island – Princeton – Philadelphia corridor

• Los Angeles / Thousand Oaks

• Washington – Baltimore corridor

• Raleigh-Durham

• Seattle

• International manufacturing candidate locations include:• Singapore

• Switzerland

• Puerto Rico

• Ireland

City of Madison EDC

Headquarters examining redeployment at a steady pace

evaluating joint deployment with evaluating joint deployment with existing operations:existing operations: shared serviceshared service regional HQregional HQ R&DR&D

Taxes and incentives seem to be more Taxes and incentives seem to be more compelling to the C-suite than compelling to the C-suite than operational issuesoperational issues

evaluating joint deployment with evaluating joint deployment with existing operations:existing operations: shared serviceshared service regional HQregional HQ R&DR&D

Taxes and incentives seem to be more Taxes and incentives seem to be more compelling to the C-suite than compelling to the C-suite than operational issuesoperational issues

actions / impacts

corporate and personal tax issuescorporate and personal tax issues rationalizing deployment of global vs. rationalizing deployment of global vs.

national HQnational HQ More willing to consider relocation More willing to consider relocation

from “granddad’s” hometownfrom “granddad’s” hometown imageimage customer/operational accesscustomer/operational access ease of doing business (regulations)ease of doing business (regulations) politicspolitics

corporate and personal tax issuescorporate and personal tax issues rationalizing deployment of global vs. rationalizing deployment of global vs.

national HQnational HQ More willing to consider relocation More willing to consider relocation

from “granddad’s” hometownfrom “granddad’s” hometown imageimage customer/operational accesscustomer/operational access ease of doing business (regulations)ease of doing business (regulations) politicspolitics

issues / trends

City of Madison EDC

Typical Location Criteria:Headquarters Projects

CriticalCritical

Co

stC

ost

Co

nd

itio

ns

• Quality of life• Image (area, site)• Professional/technical labor supply• Real estate quality• Air service (global reach)• Quality of local education• Telecommunications

• Real estate (Class A)• Corporate Taxes• Incentives• Personal Taxes

• Climate• Higher education/University• Training• Business services• Lodging and restaurants• Access to customers• Diversity

Important

“Best Practices” in Business Attraction

City of Madison EDC

Economic Development Perspectives

Cost reduction, consolidation of operations, shifting focus on global investment, and strained capital markets have combined to reduce the number of prospects and projects in nearly every industry:

Then… Now…

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1998 1999 2000 2001 2002

U.S. Facility Location Announcements

Source: Site Selection Magazine

City of Madison EDC

What are Leading Economic Development Agencies Doing to Stay Competitive?

• Understand the “Hooks” that attract business investment

• Develop an Economic Development Strategy: Vision – Reality – Mission

• Market wisely

• Get prepared on all fronts

• Data/information, sites, training, incentives, infrastructure

• Focus on meaningful targets

• Build coalitions to help in the effort

• Be organized and industry-knowledgeable

City of Madison EDC

What are the “Hooks” That Draw Prospects to Communities?

• Past successes

• Favorable infrastructure / geography

• Available real estate

• Favorable statistics

• Deep / unique labor skills

• Low operating costs

• Incentives

• Strong E.D. strategies

• Aggressive marketing

• Market access / business synergies

City of Madison EDC

Hard $

Soft $

One-Time Ongoing

• Property tax abatement (real, personal, inventory)

• Reduced property assessment

• Reduced rent

• Reduced utility rates

• Utility tax exemptions

• FTZ designation

• Corporate income tax credits (subject to actual liability)

• Low-interest loans/financing

• Customized training (instruction, travel, wages)

• Cash grant

• Land cost write-down

• Sales/use tax exemptions

• Site improvements (grading, utility extensions, etc.)

• Free soil/environmentaltests

• Zoning/covenant variances

• Expedited permitting

• Relocation assistance

• Hiring assistance (recruiting, advertising, testing, screening)

• Temporary space

• Power reliability improvements

4 3

2 1

Incentive “Hooks”

City of Madison EDC

E.D. Strategy “Hooks”

• Targeted industries

• Regional cooperation / co-opetition

• Leadership

• The E.D. strategic plan

• Companies have strategic plans; these are tracked by analysts (Wall St.)

• Corporations expect communities to also maintain a strategic plan; these are tracked by people like Deloitte

City of Madison EDC

Strategy drives success

• Economic development strategy is key

• Formulate a Vision – Understand your Reality – Develop your Mission

Mission

How do you turn the Vision into

Reality?

Vision

What do you want

to be?

Reality

Where are younow?

(Assessment)

City of Madison EDC

Our Perspective on Madison’s Competitive Position

• Substantial and continued successes in the areas of biotech and other high-technology R&D

• Solid track record of incubation and support of entrepreneurial growth (WARF, some venture capital)

• Healthy local economic indicators for residents: housing growth, low unemployment, etc.

• Well-known as a great place to live and raise a family

City of Madison EDC

Our Perspective on Madison’s Competitive Position

But,

• Evolution towards service industries and R&D is continuing – functional diversification

• Distinct disadvantage in several key indicators and cost metrics: labor availability, labor cost, tax, etc.

• The competition regularly out-markets Madison

• Not as well-known as a business location, certainly not perceived to be on par with Tier 1 R&D locations

•Wisconsin ranked 27 in Milkin Institute’s 2004 State Technology and Science Index, down from 25 in 2002

•Massachusetts and California ranked #1 & 2

City of Madison EDC

Concluding Thoughts

•The challenge is before you

•The stakes are high – for all involved

•The competition is tremendous

•Proactive, not reactive strategies tend to win investment

•Play to Madison’s strengths

•Corporate retention is key

•Address development needs

©2004 Deloitte Consulting LLP. All rights reserved.A member firm ofDeloitte Touche Tohmatsu