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U.S. manufacturers already face cost, quality, and supply chain pressures from global competitors, so making sure to pick the right location is imperative to their overall success. But finding a suitable location can be a struggle. Sometimes the best opportunity for the business to thrive is to make a strategic move that is more operationally and economically favorable. This can circumvent some of the challenges with growth, profitability, and market share. Not every manufacturing company is able to take advantage of every opportunity so we’ll outline the top 5 benefits to making a move and the manufacturers most likely to reap the rewards.
1. Access to Favorable Economic Climates
The foremost advantage of interstate relocation is the potential to operate in a more favorable economic environment. Different states offer varying tax incentives, subsidies, and grants, particularly for manufacturing industries. For instance, states like Texas and Florida have no state income tax, which can significantly reduce operating costs.
For example, An electronic goods manufacturer is located in Santa Clara with revenues of $1B, resulting in earnings of $912M after tax. It can instantly increase profit retention with a move to San Antonio or Seguin, Texas just through the state income tax which would result in an additional $88M being retained.
In addition to financial benefits, some states have more business-friendly regulations, making it easier for manufacturers to thrive.
What types of manufacturers can benefit the most from an interstate move?
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Automotive
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Aerospace Components
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Electronic Goods Producers
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Pharmaceutical Companies
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Chemical Manufacturers
2. Proximity to Supply Chains and Markets
Relocating closer to key suppliers or target markets can drastically cut transportation and logistics costs. This proximity enhances supply chain efficiency, reducing lead times and improving customer satisfaction. For example, a move to the Midwest might benefit manufacturers reliant on agricultural products due to the region's abundant resources.
A real life example of this is Secure Semiconductor Manufacturing, LLC (SSM) who built a new facility in Coffey County, KS to ensure they can supply EMP Shields with capacitors, boards, etc. based on EMP’s announcement that they would be building out their own facilities in the same area.
Consider that on average the cost sheet for logistics & supply chain tally up to 10% of business cost.1
1 PWC Supply Chain Costs Article, https://www.pwc.com/us/en/services/trust-solutions/private-company-services/library/supply-chain-costs.html
If the business was operating at $1B and optimizes supply chain & logistics through a move that reduces it by 1⁄4. The savings is $25M. This doesn’t include the tax incentives, subsidies as well as other opportunities to increase profit through operations optimizations.
Companies that most benefit from this type of proximity based move are:
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Food and Beverage Processors
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Agricultural Equipment Manufacturers
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Textile Producers
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Consumer Goods Manufacturers
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Machinery and Equipment Producers
3. Access to Skilled Lower Cost Workforce
Many EDOs - economic development organizations - will collaborate with local schools to support building out a talent pipeline in an effort to ensure the labor force skills match the needs & demand of your business. This is why for many manufacturers the talent pool available in a region can be a driving factor for relocation. Making a move to an area with a high concentration of technical colleges and universities often has a more skilled workforce, which is crucial for industries requiring specialized skills. Regions known for a particular manufacturing sector often have a workforce trained in that field, offering businesses a competitive edge in recruitment. For example, Illinois has some of the strictest electrical code requirements, so there are over 48 electrical trade schools located in the state.
Who gains the most from Skilled Labor access?
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High-Tech Equipment Manufacturers
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Biotechnology Firms
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Advanced Materials Producers
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Renewable Energy Equipment Manufacturers
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Precision Instrument Makers
4. Enhanced Quality of Life and Lower Cost of Living
The quality of life in a state can impact employee satisfaction and retention. States with a lower cost of living, good schools, and ample recreational opportunities can be more attractive to current and potential employees. For instance, a move to a state with a lower cost of living can make salary packages more appealing without increasing business expenses.
Labor moves to where better opportunities present themselves as is evident when looking at the migration reports.
If you are in one of these manufacturing verticals moving supports reduced labor costs:
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Consumer Electronics Manufacturers
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Medical Device Producers
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Automotive Parts Suppliers
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Furniture Manufacturers
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Clothing and Apparel Producers
5. Infrastructure and Technological Advancements
States investing in advanced manufacturing technologies, renewable energy, and robust transportation networks offer a conducive environment for growth. For example, states with major ports can be attractive for manufacturers with a significant volume of exports. In addition to this, many of these states have qualified for federal incentives which they pass on to
businesses that are establishing jobs with a focus on favorable emerging technologies. A great example of this is the recent solar incentives resulting in increased jobs in California & Nevada where they took advantage of solar plant development & federal renewable energy incentives to build new energy plants across both sunshiney states.
Many manufacturers can benefit from infrastructure & technology, however those with advanced needs such as:
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Shipbuilding and Repair Companies
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Rail Equipment Manufacturers
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Aerospace and Defense Contractors
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Electronics and Computer Manufacturers
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Pharmaceutical and Medical Supplies Producers,
have the most to gain from relocating based on technology availability.
Making the Right Decision Isn’t Simple, But It’s Worth the Work
There are a lot of factors to consider. Factors like tax structures, labor laws, environmental regulations, and local industry presence should definitely be a part of analyzing where to relocate. This decision is not just about cost savings; it's about positioning the company for long-term growth and sustainability.
Interstate relocation offers several opportunities for mid-size manufacturers, but it's not a decision to be taken lightly. It requires a deep understanding of the business's unique needs, thorough research of potential locations, and a strategic approach to leverage the benefits fully. For manufacturers ready to embark on this journey, the rewards can be substantial, setting the stage for a new era of growth and innovation.
