Cities with MSAs (Metropolitan Statistical Area) ranging from 250,000 to one million people, are finding they can compete with the mega-population centers by being more responsive, attracting a quality labor force, and providing a "best of both worlds" atmosphere.

These emerging cities are using their agility to their advantage.

"Cost differences and the labor market are what often causes a company to look at second- and even third-tier cities," says Gene DePrez of Price Waterhouse. "They see that the Charlottes and the Phoenixes are tightening."

DePrez, national director of Global Location Strategies for Price Waterhouse in New York, says while labor and operating costs usually rank No. 1 and 2, other criteria will vary wildly from company to company.

"Accessibility to international flights, as well as domestic flights, could rank high," DePrez says. "Or if it is manufacturing, then it could be accessibility to suppliers, or accessibility to highways and railroads."

What he ranks low in importance are taxes and incentives.

"Those tend to be down on the list. They may be used to help differentiate between the top two or three finalists," DePrez says. "But it's not a good idea to base a decision just on incentives, since those are short-term gains."

Key industries for smaller populations
Fred Hernandez, president of Site Advisors, a site location consulting firm based in Boulder, Colo., says, "Corporate relocation is defined by where you can find the types of people you need. A lot of cities just don't have the ability to ramp up to a 1,000-person call center."

But that certainly is not stopping growth in the smaller markets.

"The second-tier markets are hot for a lot of reasons," says Hernandez. "They are attracting a lot of information-based businesses, such as software, systems design, database warehousing, and back office operations."

Kate McEnroe, of Kate McEnroe Consulting in Atlanta, agrees that industries attracted to these cities often focus on service and software.

"There's an industry that you won't find a SIC code for, but it's what I call the 'Whole Customer Service Function,'" McEnroe says. "It's your call centers and tele-centers that service customers or provide technical support. Those are very active."

Other industries looking for the elusive labor market include software and Internet companies, paging and cellular phone businesses, and telemarketing.

Labor market leads the charge
For the immediate future, the labor market will be a major -- if not the major -- driving force in determining whether a company locates in a smaller metro area. And to complicate matters further, top money is not always the issue.

For example, Sun Micro Systems is building a facility that will employ 4,000 to 5,000 workers in Broomfield, Colo., near Boulder. "Sun Micro Systems knew they could attract the type of people because of the lifestyle," Hernandez says.

But even having a lot of bodies to fill a shift is sometimes not enough.

"An area must demonstrate it has a quality work force," DePrez emphasizes. "Often this comes through available spousal employment -- such as found on a military base or a college. This could be anywhere there are a lot of people coming and going."

He said communities that can show a large base of early retirees may fare well, as well as those showing a high underemployment population.

"We also look for major layoffs and downsizing," DePrez says. "Layoffs are painful, but it also provides the availability for another player to come in."

Labor seems to be tight, regardless of the population.

"The labor-intensive industries are very active right now. If they're needing lots of employees, they're feeling less than thrilled about the labor situation," McEnroe says. "Particularly at the lower end of the range (250,000 MSA), it can impede a company's ability to recruit nationally."

Labor alternatives
Sometimes even the second-tier cities can't fill the labor or the low-cost bill. So Hernandez says many companies are turning to global markets to take care of the labor shortage in the United States.

As an example, he said India is becoming a major source for software programming.

He also cited an example of one company complaining that their best Australian people were being "poached" by the firm's California division.

Other variables
Dennis Donovan, senior managing director with The Wadley-Donovan Group, Morristown, N.J., says towns emerge for varying reasons.

For example, Charleston, W.Va., has attracted a lot of call centers because it is a high underemployment area. Scranton/Wilkes-Barre, Pa. is a hot Mid-Atlantic distribution point, yet not too far away from New York. Gainesville, Fla., is serving as "kind of an alternative to Jacksonville," Donovan says, while Appleton, Wis., still has a strong labor market.

"It's the image that a town has -- the perception of the area. It's an area where any professional association could announce their next meeting, and people would want to go there," Donovan says. "It's that type of place that will do well."

He says reputation is a primary factor in national recruiting.

"This is a key factor for high-tech companies."

Donovan says many of his clients look for "relief locations," which he termed as site selections that are within a two-hour drive of the headquarters.

"They may want to relocate an existing division, or start a satellite operation, so they go just outside their area to a relief location. It is still close to headquarters, yet they'll have lower labor expenses, and lower operating costs." Often cities with a MSA population of 250,000 to one million are a perfect fit for this criteria.

Naming names

"A lot of people would look at that and say, 'You're crazy,' but I feel fairly confident about that," McEnroe says. "It has one of the highest unemployment rates for a city its size. Some may say the education factor is not so hot, but at least there is some availability of a labor force."

She named Oklahoma City as a good location that has emerged, and still has some potential left.

"It has a decent airport and population, yet they are not overwhelmed by it all. It also has an available labor force at a reasonable price, plus they have some incentives," McEnroe says. One of those incentives, for qualified employers, is a 3 to 5 percent rebate on payroll back to the company.

She listed a half-dozen cities that have already emerged, including Salt Lake City, Greensboro, Jacksonville, Las Vegas, Tucson, Nashville and Omaha.

"Most of us (within the relocation industry) would say 'that's old news,'" she says of her list. "When it finally reaches the total, total masses, it's not cool anymore."

Hernandez's list of emerging cities includes Boulder, Richmond, Va. and the Raleigh-Durham area in North Carolina.

Special cities, special programs
Tom Ticknor, president of Ticknor & Associates, Chicago, cited a couple of programs that show how second-tier cities can stand out from the crowd.

"In Grand Rapids (Mich.), they've set up some good manufacturing councils. They have a broad-based network, steering committees, and users groups to set up work practices, improve performance, and help with training."

Ticknor pointed to Greensboro, where a model consortium has been established between the public schools, vo-techs and manufacturers. The groups have banded together to form training programs and scholarships, and have been so successful, that they have attracted interest from Japan and across the United States.

"These types of cities are big enough to accomplish these kinds of programs," Ticknor says, "yet small enough to pull it off, which you probably couldn't do in a metro Chicago or L.A."

Competing with the big boys
Any size city can compete with the huge MSAs -- they just need to exercise excellent customer service and demonstrate quick responsiveness.

Speed might mean that spec buildings are available for quick occupancy, or that existing buildings can be easily converted.

He said telecommunications capabilities are important for second-tier cities, although most have them. But if there is something particularly sophisticated, such as a military base, that is a great plus.

McEnroe says cities in the 500,000 to one million MSA range are really hot now, since they have the best of both worlds.

For instance, the smaller cities may have:

• A good highway system, yet not the congestion

• Good government services, yet not overwhelming taxes

• A solid, yet manageable, transportation system

• Less restrictive environmental regulations

• A lower crime rate, and overall lower cost of doing business

• A financial community that is large enough, yet still accessible

• Quality of life that still attracts the top management personnel

"They have the decent airports and transportation, and all the urban amenities, yet they still have some of the lower costs," McEnroe says.

Incentives are often no different than what their larger cousins dangle in front of prospects. They include training dollars, recruiting money, tax abatements, and financial assistance. And the stakes seemingly are getting higher and higher.

"Now you can find free buildings, free land -- and straight out cash," Hernandez says. "They say, 'Bring us 1,000 jobs, and we'll write out a check with X-amount, and so many zeros behind it.'"

Summary
Just like the small point guard that can literally rumble under the arms of the giant center in basketball, sometimes the nimbleness of a smaller city can work to its advantage. Government layers are fewer, leaders are more accessible, and for the aggressive ones, there is a hunger that continually searches for more and better jobs for the people in the community.

What the second-tier cities don't have in numbers, they can make up for in flexibility, responsiveness, and outstanding customer service. And in the process, they are blurring the line between them and major metropolitan areas.