Just how important are financial incentives to companies about to make a final decision on expansion or relocation sites?
For some time now, conventional wisdom has been that, despite all the hoopla surrounding them, incentives actually have little impact on the actual location choice. In fact, many in the site location business have often referred to incentives as being much like an after-dinner cigar -- an appropriate way to finish the evening (or a location search) but, if skipped, totally irrelevant to our overall evaluation of the meal.
In other words, we probably wouldn't turn it down if offered, but its absence would not cause us to think less of the meal, nor would its presence make us feel like the food was any better.
I'm not so sure that's true anymore, if in fact it ever was true.
Every time I get a chance to talk to senior executives of companies engaged in site location searches, I ask them if they ever initiate discussions about incentives. To a person, the answer is always yes. When I ask which types of incentives, in particular, they tend to focus on, the answer is usually: everything in play.
Why would we expect it to be otherwise?
After all, moving a company or setting up a new manufacturing facility involves a tremendous capital investment, not to mention the risk involved.
Why shouldn't a company see if it can get the local government orutilityto offset some ofthosecosts? It doesn't mean that the company is greedy, or that it's got its head deep in the trough of corporate welfare.
No, it's a perfectly rational decision made during the course of a rational process based upon that company's business needs and future plans.
| Perhaps a more accurate way to look at incentives is more as a dowry, designed to attract and cement a long-term relationship. |
If a company is about to invest millions of dollars -- as well as creating dozens or hundreds of jobs -- in a community, a partnership of sorts has been formed. At this point, both parties need each other. The community wants the economic activity, the jobs and the new tax revenue, while the company would like to defray some of the major expense it is about the make in that community.
Perhaps a more accurate way to look at incentives is more as a dowry, designed to attract and cement a long-term relationship.
Is the company simply being greedy? Certainly not. While it may be in business to make a product that satisfies customer demand, it stays in business by making a profit. If it doesn't, it'll eventually close its doors and all of the economic activity, tax revenues and jobs disappear. That's why the dollars and cents in incentives are really important.
Incentives are all part of the overall financial calculation that will determine if a particular location is viable.
No matter how generous, they won't cause a company to choose a location that does not make sound business sense, but incentives can make the difference between several locations that are otherwise equal.
So go ahead and ask ... and don't feel ashamed.
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