Future Focus: On the Move

By Jennifer Schramm Oct 1, 2013

October Cover

Several factors may be influencing where businesses choose to operate, including global economic shifts, fuel and transportation costs, and the search for communities with solid economies and infrastructures. But above all else, the need for a skilled and well-educated workforce seems to be the top driver of business location trends.

Internationally in the past decade, businesses were investing heavily in India, China and other countries with developing economies. But recently, growth in these economies has been slightly tempered. The IBM Institute for Business value’s 2012 Global Location Trends report found that companies have reacted to economic uncertainty by optimizing their current operations rather than expanding further internationally. This has resulted in a noticeable drop in foreign direct investments.

Some manufacturers have shifted operations back to their home countries in response to lower production costs of goods and services made at home and rising foreign labor costs. Higher fuel costs could also encourage more businesses to focus on operations that are closer to their main customers.

In the U.S., cities are re-emerging from a recession that has greatly altered the economic landscape. Many cities with once-thriving industries have been forced to regroup and diversify. Virtually all of the largest U.S. metropolitan areas are striving to attract business investments.

However, they face challenges, according to the Society for Human Resource Management’s Metro Economic Outlook reports. Sunbelt cities such as Phoenix are still recovering from the housing crash and are now seeking to vary their economic profiles. Many Northeastern cities are looking for ways to reignite manufacturing.

A common theme with all local efforts to attract new businesses is the search for ways to improve the local skills base.

Results from the most recent Atlas Corporate Relocation Survey show that overall relocation activity is still fairly slow because of relatively weak economic conditions. Yet the top factor that corporations cite as a driver of relocation has remained the same as before the recession: the importance of qualified talent. Nearly half the companies cited this as a top reason for relocation.

Cities and regions that are able to build up a skilled and educated workforce to meet the needs of business will be at an advantage.

In the U.S., Gallup has forecast that the West North Central, Mountain and Pacific regions are likely to be the best areas to live in 20 years from now. The strengths that Gallup predicts will attract residents—strong economies, good health and vibrant communities—are also likely to attract businesses. And many of the actions communities are taking to better position themselves involve local businesses. These include wellness programs in schools and workplaces and investments in infrastructure.

But more than anything else, communities that want to encourage business investment will need to work with educators to improve the skills and education of their workforce. Today, the search for qualified talent is the main driver of business location decisions, but it is likely to be even more important in the future.

Jennifer Schramm is manager of the Workplace Trends and Forecasting program at SHRM.

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