Agriculture Reference
In-Depth Information
Location
Manufacturing fi rms in the U.S. typically build more than 3,000 new plants each year and
expand 7,500 others. The decision to locate a plant is a strategic decision that will have a
lasting impact on issues such as operating costs, the price at which goods and services can
be offered, and a company's ability to compete in the marketplace. A classic example is the
beef meat packing industry. In the 1960s, meat packers were located in major railway cities
where live cattle were shipped and high wages were paid. As well, the packing plants were
old, multi-story buildings that did not operate at full capacity because of inconsistent supply.
Meat packers new to the industry saw the opportunity to reduce costs and increase produc-
tivity by locating processing plants near cattle production feedlots and employing low-skilled
operators in highly mechanized plants.
Another example—have you ever wondered why White Castle locates its eating estab-
lishments near manufacturing plants? White Castle's strategy is to segment the market and
cater specifi cally to a target population of blue-collar workers and away from other com-
petitors such as McDonald's. These two examples illustrate how important inputs (cattle and
labor) and customers are to the success of a fi rm. Thus, location of the plant is a strategic
choice, and many factors that infl uence choice of location should be considered when making
these decisions. The following sections outline current location trends in the U.S. followed
by factors that affect location decisions.
Signifi cant U.S. trends
Geographic diversity, locating plants in nonunion states, and the competition among states
to develop industries are three of the more important trends currently affecting plant loca-
tion. Industries were once concentrated in certain geographic regions. For example, most
automobile manufacturing was once in Michigan. Today, geography and distance are becom-
ing less relevant for many location decisions. Why? Both transportation and communication
technologies have improved dramatically. Telecommunications (voice and data) are ena-
bling business fi rms to conduct business across the globe. Also, wage differentials between
regions of the United States are gradually disappearing; e.g., in 2010, production workers in
the south earned around 80 percent of what workers in the northeast.
A second trend is that more service and manufacturing fi rms are relocating to the nonun-
ion states, many of which are in the south. Many fi rms are moving operations to the south,
because of lower relative labor costs, less unionism, and a perceived stronger work ethic. Of
course, a milder climate is also a factor, as is a population shift towards the south (as baby
boomers are retiring); e.g., dairy farming has shifted to the Sunbelt states of Texas, New
Mexico, Idaho, and California. Today, more milk is produced in California than in
Wisconsin.
The third U.S. trend is that state and local governments are enticing fi rms to locate in their
areas by offering generous
tax and incentive packages
. These economic development
packages may include items such as special loans for machinery and equipment, state match-
ing funds, state-sponsored employee hiring and training programs, and tax exemptions on
corporate property, or excise taxes. Governments offer these incentives since bringing busi-
ness to the town, county or state may help boost the economy in the long run. However, there
is a concern that the state incentives promote wasteful competition among units of govern-
ment, as they later struggle to provide for infrastructure, schools, etc. to support the new
plants and their employees.
