Why Businesses Decide to Relocate & Should You?

Recent research suggests 20% of businesses have considered relocating in the near future. Relocation is a natural next step for emerging businesses hoping to optimize operations, cut costs, and access new markets. 

Over 60% of businesses cited cost reduction as a primary motivator for relocation. Meanwhile, others relocate due to proximity to customers and suppliers. 

Post COVID-19 and the subsequent rise in remote work, an increasing number of businesses are reevaluating their office space needs. Initially, many predicted that office spaces would be completely or mostly abandoned, with a 2020 Fortune/Deloitte CEO survey stating that 76% of CEOs expect a reduced need for office space. However, the reality has proven to be less drastic. 

The US Bureau of Labor Statistics states that only 5.5% of private-sector businesses are actively downsizing their office space. Interestingly, remote work modules are now a major factor in relocation decisions.

Beyond office spaces, relocation can be an even more pivotal decision in the manufacturing and industrial sectors. Many manufacturers operate offshores, but rising labor costs, high transport costs, and expensive production downtime in distant locations make offshore production less profitable. 

If your manufacturing company is considering a relocation, the decision doesn’t need to be stressful or complicated. Scout Cities can be an invaluable ally in the process, helping you find the most profitable location for your new facility. Our platform includes a wide set of tools and resources designed to empower you with data-driven insights.

In this guide, we’ll dive deeper into the reasons behind business relocations and whether the decision is right for your company. 

Reasons for Relocation

Here are some quick reasons that may motivate or in some cases, even force companies to relocate.

Expansion Needs

As businesses grow, they often need more space to accommodate their increasing workforce and production. This growth leads to a need for relocation if the current facility is no longer suitable or if the business needs to be closer to its target market or talent pool.

A 2021 study by Balbontin and Hensher found that the presence of other businesses in a cluster can be a significant factor in a business's decision to relocate. It allows for collaboration and potentially more efficient operations.

Simply put, businesses are more likely to relocate to areas where they can benefit from being part of a community of similar businesses. Communities with more businesses in a cluster have more space to accommodate larger facilities. For instance, Texas and California are home to the largest industrial facilities in the country.

Labor Market Dynamics

The labor market dynamics of a region also impact a business's decision to relocate. Most manufacturers focus on three main factors: the availability of skilled workers, labor costs, and the potential impact on employee retention. 

Research shows businesses are more likely to relocate to areas with a strong talent pool to ensure they have the necessary resources to support their growth. For instance, a manufacturer may choose to relocate to California, home to 13% of the entire US manufacturing workforce. 

Relocation can also positively or negatively affect the labor market in the new location. It may create more job opportunities for local workers, increasing the area’s employment rates and economic growth. In other cases, it can put pressure on the local labor market if there aren’t enough skilled production workers to fulfill the needs of the relocating company.

Economic Incentives

When looking for the ideal location for their new facilities, businesses prioritize the availability of economic incentives. Most companies relocate to cut operational costs, especially during economic decline. Relocating expands the business's market reach and improves revenue. 

Other than the revenue potential, businesses also relocate due to the various economic incentives offered by certain states. For instance, Nevada offers tax abatements for businesses that create manufacturing jobs and invest in the state, such as the Workforce Innovation for the New Nevada (WINN) program and Silver State Works. 

Meanwhile, South Dakota does not have a corporate or personal income tax, making it an enticing location for many businesses. Texas offers property tax exemptions and sales tax refunds for businesses that meet the criteria.

Supply Chain Optimization

The choice of relocation is also heavily influenced by the supply chain and logistics. Relocating closer to key suppliers can greatly reduce transportation costs and lead times. 

According to a study by the Aberdeen Group, companies that optimize supplier proximity reduce logistics costs by an average of 20%. This is especially true for businesses with high shipping volumes or time-sensitive goods.

A strategic relocation to somewhere with access to major transportation hubs like ports, airports, and rail lines can also improve supply chain efficiency. 

A World Bank report found that a 10% improvement in transportation infrastructure can lead to a 1% increase in GDP. This translates to faster delivery times, lower shipping costs, and improved customer satisfaction.

Regulatory Environment

Businesses may choose to relocate to change their regulatory environment for several reasons: tax optimization, political stability, and, most importantly, cost reduction,

The regulatory environment significantly impacts a company's operating costs. That includes compliance costs, taxes, labor laws, and environmental regulations. 

According to a 2022 study by the National Association of Manufacturers, regulatory costs for US manufacturers add up to $50,000 per employee per year. Relocating to a more favorable regulatory environment can help cut these costs in the long run.

Compliance burdens also hinder many manufacturing operations. According to a 2020 report, countries with less burdensome regulations tend to have higher innovation and economic growth levels.

Evaluating Your Current Location

Operational Costs

First, analyze your current expenses, including rent, utilities, labor, taxes, and transportation. Are these costs sustainable and competitive with those in other locations? 

For example, California's average industrial electricity rate is 21.34 cents per kilowatt-hour – significantly higher than the national average of 8.06 cents per kilowatt-hour. 

If your business is energy-intensive, relocating to a state with lower electricity rates, such as Utah, could cut operating costs.

Logistical Challenges

Next, assess the efficiency of your supply chain and distribution networks. Are you dealing with delays, high transportation costs, or difficulties accessing raw materials? 

Research shows that the average cost of trucking is over $2 per mile. If your business relies heavily on trucking, relocating closer to suppliers or customers could reduce transportation costs.

Labor Quality and Availability

Evaluate the skills and availability of your workforce. Is there a shortage of skilled labor in your area? Are wage rates competitive? 

The US Bureau of Labor Statistics states that the median hourly wage for manufacturing workers varies greatly across states – $18.44 in Texas, $21.62 in California, and so on. 

Relocating to an area with a lower labor cost, such as Cleveland, Tennessee ($16.88/hr), could help your business save on payroll expenses. Tennessee also employs 21,470 workers in the production industry every year, increasing labor availability. 

Scalability

Next, consider whether your current location can accommodate your future growth plans. 

Is there enough space for expansion? Will the zoning restrictions of your current location limit your growth? 

For instance, Texas has certain zoning regulations that give local governments broad authority over land use. That includes regulating groundwater pumping, building use, population density, building size, and historic preservation. These laws restrict a business's ability to expand vertically or in certain directions due to zoning limitations.

If your business is growing rapidly, relocating to a new location, such as Georgia, with more available space and fewer restrictions, could be the key to long-term success. 

Regulatory Environment

Lastly, examine the impact of local regulations and tax obligations on your business. Are burdensome regulations or high taxes hindering your profitability? 

Corporate income tax rates in the US vary significantly across states, from 1% in Arkansas to 8.8% in California. According to the Tax Foundation, Alaska, Nevada, and South Dakota have 0% corporate income tax – relocating to one of these states can improve your bottom line.

Signs It’s Time to Consider Relocating

Constantly Over-Capacity Production Facilities

If your production lines often run at or near-maximum capacity, it might be a sign that your current location is no longer working for your business. 

According to a 2023 survey, 53% of manufacturers reported operating at 80% capacity or higher. Such overburdened facilities can lead to bottlenecks, increased downtime, and potential safety hazards. 

Meanwhile, a larger facility in a new location could provide the space needed to accommodate future growth.

Increasing Costs That Offset Growth

If rising operational costs – rent, utilities, taxes, and wages – are eating into your profits, it's time to reassess your current location. For instance, metropolitans like New York City have higher hourly wages at $28.79. Meanwhile, states in the Eastern US have lower hourly wages: $21.43 in South Carolina, $18.25 in Kentucky, and $20 in Georgia. You may consider moving to an Eastern state if wages are the top of your concerns. 

Difficulty in Hiring or Retaining Skilled Labor

If you're struggling to attract and retain skilled workers, it could be a sign that your current location is not competitive in various terms. That includes wages, talent pool, or quality of life.

For instance, as the US Bureau of Labor Statistics states, Alaska and New Mexico only employ 120 production workers yearly. Meanwhile, the states with the highest production industry employment include:

• California: 36,650 
• Georgia: 23,900 
• Tennessee: 21,470
• North Carolina: 12,620
• Texas: 10,640

A 2023 survey revealed that 69% of employers are struggling to fill open positions. Most of these employers are concentrated in the Western US. Relocating to a region with a larger pool of skilled labor could help you attract and retain top talent in the manufacturing industry. 

Supply Chain Recurrent Issues

A 2022 survey revealed that 75% of companies dealt with major supply chain disruptions in the past year. These disruptions, often caused by natural disasters, geopolitical events, and supplier bankruptcies, can lead to:

• Production delays
• Increased costs
• Lost sales

Plus, unpredictable supplier lead times can make it difficult for manufacturers to forecast inventory needs and meet customer demand. In fact, 45% of companies have experienced inventory shortages in the past year. These shortages can lead to backorders and dissatisfied customers.

Reaching the Limits of Local Market Saturation or Incentives

It’s also possible that your business has saturated the local market or the incentives that initially attracted you to the area are expiring. If that’s the case, it might be time to explore new opportunities. 

Some states offer generous tax breaks and incentives to attract businesses, such as Texas, with its property tax exemptions and sales tax refunds. Still, these may have time limits or strict eligibility requirements. When looking for a new location, make sure the incentives will benefit your business in the long run.

How to Decide if Relocation is Right for Your Business

Cost-Benefit Analysis

A comprehensive cost-benefit analysis before relocating can uncover invaluable data. This involves quantifying both the direct and indirect costs associated with the move, as well as the potential financial benefits of the relocation.

Direct costs include real estate, moving, and employee relocation. For instance, the average cost of relocating a single employee is $16,833. Meanwhile, indirect costs include lost productivity during the transition, potential disruptions to supply chains, and the need for new permits or licenses.

Lastly, assess the potential savings you will get after you’ve relocated. That may include lower operating costs, such as taxes, labor, and utilities. For instance, electricity prices in Texas can be as low as 6.46 cents per kilowatt-hour compared to the national average of 7.91 cents per kilowatt-hour. 

You’ll also have access to new markets and better production efficiency, which can lead to major cost savings. If these financial benefits are sustainable for your business, a relocation may be necessary.  

Long-Term Strategic Fit

The immediate financial implications are crucial, but ensuring the new location is a long-term strategic fit is even more important. How will it align with your future business goals?

Make sure the new location offers access to a more beneficial market than your previous one. Businesses in major metropolitan areas tend to perform better, with a 20% higher productivity rate than those in smaller cities. Other than that, the labor market should also be more expensive than the last one. 

Keep in mind that the American Society of Civil Engineers gave the US infrastructure a C- grade. You must pay close attention to the quality of roads, bridges, and utilities – they affect the performance of your facility in the long run. Texas, Ohio, and Indiana are just a few examples of states with good infrastructure. 

Lastly, does the new location’s regulatory environment align with your future business goals? Around 53% of manufacturers are burdened with regulatory restrictions. 

Stakeholder Impact

Lastly, consider how relocation will affect your stakeholders. Will the relocation disrupt your existing customer base or open up new markets? 

Relocation can temporarily disrupt customer service regardless of how beneficial the new location is. That’s especially true if the move is long-distance or affects the time zones. In fact, 32% of customers would stop doing business with a brand they loved after just one bad experience, so the decision to relocate has to be very well thought out. 

Relocation can also impact your employees – 58% would consider relocating for their job if the company offered a relocation package. However, 42% cited concerns about the cost of living, disruption to family life, and career advancement opportunities in the new location.

Additionally, a 2022 study found that companies that offer comprehensive relocation packages can benefit from a 25% lower turnover rate among relocating employees than those that don't.

Lastly, relocation affects suppliers positively and negatively. Relocating closer to suppliers can reduce transportation costs and lead times while moving further away could have the opposite effect. 

Planning Your Relocation

Initial Research

Thorough research is crucial in the initial phase of relocation planning. Scout Cities provides access to comprehensive city profiles and data on potential locations. Scout’s information is verified by various sources, including government agencies, economic development organizations, and industry reports. 

You’ll get insights on factors such as:

• Economic data: GDP growth, unemployment rates, industry clusters, and average wages.
• Infrastructure: Transportation networks, utilities, and available real estate.
• Incentives: Tax breaks, grants, or other financial incentives offered by states and local governments.
• Quality of life: Education, healthcare, housing costs, and cultural attractions.

These data-driven insights can help you narrow down your options and identify all the pros and cons of potential locations.

Site Visits and Local Engagements

Beyond online research, site visits are crucial for gaining firsthand experience of the potential locations. At least 95% of site selectors consider it a critical aspect of their decision-making process. 

During site visits, your company can:

• Physically inspect transportation networks, utilities, and available real estate.
• Meet with local officials to discuss zoning regulations, permitting processes, and available incentives.
• Gain insights into the local business environment, workforce availability, and community dynamics.

Professional Consultations

Lastly, relocation can be complex in many ways – legally, financially, and logistically. Hiring professional relocation services to help navigate these complexities can lead to a more informed decision. 

A 2023 study found that 70% of companies that used professional relocation services reported a successful relocation. These experts can help you:

• Understand local tax laws and optimize your tax strategies accordingly.
• Identify suitable properties and negotiate lease or purchase agreements.
• Plan and execute the physical move of equipment, inventory, and personnel.
• Adhere to local regulations and get access to the necessary permits.

Scout can help you get started by booking a consultation here.

Next Steps After Deciding to Move

Communications Strategy

After you’ve made the decision to relocate, it’s time to build a well-structured communication strategy. Staying transparent and notifying all stakeholders about the relocation on time guarantees a smooth transition.

The first step is communicating the move to your employees to avoid anxiety and uncertainty and maintain productivity during the transition. That includes sharing the rationale behind the move, outlining the timeline, and addressing concerns.

The next step is to inform customers, suppliers, partners, and other external stakeholders about the move well in advance. Being straightforward about the relocation timeline and potential service disruptions will prevent rifts in your supplier relationships and customer churn.

Logistics and Timeline

By planning a clear timeline, you may be able to minimize disruptions and make the transition as smooth as possible. It won’t be completely hassle-free – 62% of businesses still face some level of downtime during a relocation. You can avoid being part of the majority by:

• Creating a realistic timeline with key milestones for each phase of the relocation process.
• Decluttering inventory levels to avoid excess stock or shortages during the move.
• Finding a safe and timely way to transport all equipment, machinery, and other assets.
• Making sure all IT systems, communication networks, and other infrastructure are operational at the new location before the move.

Integration into the New Location

Finally, the first step to ensuring your facility’s success in the new location is integrating into the surrounding communities. Businesses that actively engage with their new communities enjoy a 15% higher growth rate than those that don't. 

Integrating into a new community can look different for every business and industry. For instance, a manufacturing company may build relationships with local suppliers, distributors, manufacturers' associations, and economic development organizations. 

You’ll also spend time adapting to local safety standards, environmental regulations, and workforce expectations. 

Conclusion

The decision to relocate is a careful, research-intensive one. Businesses must weigh various factors before they make the move – labor availability, tax incentives, infrastructure, regulatory environments, and so on. 

Relocation isn’t just about finding a new address; it’s about putting your business in the right environment to thrive. Scout Cities supports your journey with data-driven insights to narrow down your choices and find the perfect new location.

Visit Scout to view comprehensive city profiles and start your relocation process.