Facilities Siting: The Right Considerations Lead to the Right Choice

by Foley & Lardner LLP

According to the research, manufacturers are on the move. The questions and considerations listed below are a great starting point for any company opening or relocating a manufacturing facility.

Is the right support infrastructure in place?

  • Transportation – Will railroads, airports, seaports, or interstate highways be needed for the plant?
  • Utilities – Some of our clients have incurred substantial costs to upgrade the community’s existing infrastructure to handle their new plants’ demands. Examples include augmenting local sanitation, wastewater, or storm water discharge capabilities.

What about the labor force?

  • Union/Right to Work – Employers seeking less expensive labor often consider locating in a “right-to-work” state. Our clients often choose to locate in “right-to-work” states to enjoy increased flexibility in wages, staffing, and operating methods.
  • Requisite Skills – Generally speaking, cities and regions’ laborers differ in relative levels of education and types of skills. If the labor force does not possess the requisite candidates, could training or education bridge the gap?
  • Training –To encourage companies to hire and train their citizens, some state and local governments may offer training grants and tax incentives. Further, many states now actively incent community colleges and universities to discount or develop specific training programs. Many states also provide active workforce boards which help companies locate and recruit employees with suitable skills.

Will the location benefit your supply chain?

  • Proximity to Natural Resources – Transportation and storage costs can often be reduced if essential production materials are nearby.
  • Proximity to Customers/Suppliers – In addition to cost-savings, companies may be able to achieve agility and efficiency through business practices like just-in-time inventory.

Is the regulatory climate a good fit?

  • Zoning/Permitting – Permits may be required for construction, operation, water usage, waste water discharge permits, air quality control, and emissions etc.. Companies must also consider if they will need or be subject to easements for access roads or utilities.
  • Environmental – Potential uses may be restricted by environmental considerations. Even if not prohibited, permits may be required or impact fees assessed for certain activities, like carbon emission or wetland mitigation. On the other hand, redeveloping contaminated sites can often yield significant government incentives.

Will you receive government incentives?

  • Federal – Some countries offer federal tax and financial incentives for companies developing new manufacturing plants. In the U.S., community development block grants, tax-free bonds, and investment tax credits are often available, and U.S. tax deductions may be available for green, LEED-certified, or other energy-efficient plants.
  • State/Local – Many U.S. states offer incentives for manufacturers to operate in enterprise zones or special economic zones. Additionally, tax breaks or discounted financing may be available for the construction of a plant and the purchase of other fixtures and equipment.

What are the systemic risks?

  • Economy and Currency – The stability of a country’s economy and currency significantly impact the continuity of operations and the cost of importing/exporting materials and products.
  • The Regulatory Process – While U.S. jurisdictions provide fair and open regulatory processes, a company should become familiar with a country’s regulatory process before opening a facility. Some foreign regulatory processes may encourage or require companies to take actions that run afoul of U.S. laws, like the Foreign Corrupt Practices Act.
  • Barriers to Trade – Some country’s use tariffs or other measures to protect resident businesses. Companies should consider whether these would be a boon or a bane, depending on their customers’ locations.

Of course, each company is different; considerations may vary. Just remember, the location of a manufacturing facility could provide a competitive advantage, so choose wisely.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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