2013 Regional Report: Southeast

A state-by-state look at what the Southeast has to offer businesses.

Kentucky, No. 29, boasts two international airports, two top air-cargo hubs and third place in the country’s total air cargo shipment rankings. Extensive air, rail, maritime and roadway connections bolster the state’s position as a top transportation and logistics hub. Kentucky spends roughly $324 per capita to attract companies, and oil, gas, mining and agriculture business are top beneficiaries. Years of state and regional investments have strengthened the community-college system and other technical and workforce training, much of it supporting advanced manufacturing skills and mindsets. It is the only Southeast state without right-to-work legislation.

Mississippi, ranked No. 32, has the smallest budget in the Southeast for incentives. Recent arrivals include SiliCorr ($76 million), Stion and Virdia (both $75 million). Tax rates—both personal and corporate—cap out at 5 percent. Cluster formation in recent years include: aerospace and aviation, health care, automotive, shipbuilding, energy, agribusiness and advanced manufacturing.

Airbus Comes to Alabama

Airbus’s decision to build a $600 million manufacturing and assembly plant in Mobile, Alabama, makes little sense in P&L terms. The company will ship components across the ocean to Mobile, pay local workers to assemble them into jets and then reship them back. While non-unionized U.S. labor costs will be lower, any benefits will be wiped away by shipping costs.

Lowering costs, clearly, was not the reason parent company EADS made the investment. It’s all about being close to the customer—U.S. commercial airlines and, potentially, military procurement bosses. With a foothold in the market of archrival Boeing, Airbus now sees itself as better positioned to compete in the U.S., a key market where its share lingers around 30 percent. Over the long term, Airbus plans to increase the percentage of local parts, scoring local points and reducing its costs, as well.

The roots of the Mobile deal are in Paris, where in June 2011 Alabama Governor Robert Bentley scheduled a meeting with EADS chief Tom Enders. EADS had just lost a $35 billion Defense contract, after Boeing had successfully challenged the deal on the grounds of unfair subsidies. Although Airbus had picked out a site in Mobile in preparation for executing the contract, the two men had never met. When they sat down two years ago in Paris, apparently there was much to discuss. When the conversation ended, the governor had committed, in principle, to offer significant accommodations; the CEO had committed to reviving his plan to manufacture jets in Alabama.

Ultimately, Alabama agreed to provide $158 million in financial and logistical support in exchange for a promise to hire 1,000 Alabamians. The deal was not hard to sell at home. Explaining it in Europe was a different matter. “The perception at Airbus, as you can imagine, was skeptical,” recounts Allan McArtor, who founded Legend Airlines in Texas and held a series of Washington posts before being appointed executive chairman of Airbus Americas. “For Europeans without much experience in America, Alabama was something they knew about from movies, if at all. Perceptions were decades old. Many didn’t realize what industrial and technological capabilities exist in the Southeast.”

The New Incentives Game

The first thing to know about incentives is: they’re the last things you should discuss. “Incentives are relative to final-stage relocation negotiations,” says Gregory Burkart, managing director of the Detroit office Duff & Phelps, a financial advisory firm. Burkart, a specialist in structuring and negotiating government-sponsored economic development incentive packages, suggests focusing your search on availability and cost of labor. Don’t bring up subsidies, grants or other forms of government give-backs until you’ve narrowed your choices down to two or three finalists.

Your costs will typically entail real estate, utilities, transportation, architects, building services, professional fees, labor and more; government negotiators, on the other hand, are concerned primarily with job generation. “The more jobs you bring to the table and the more the jobs pay, the more value the deal will have to the officials across the table,” says Burkart. “That’s your leverage.”

While cash incentives are often discussed first, they also become headline fodder and are politically risky. Increasingly, cash incentives are deployed as closing-round deal sweeteners budgeted to the “governor’s discretionary fund.” For years, cash grants were often effectively traded for job-creation commitments. In the face of public backlash in situations where those commitments were not honored, government negotiators now seek to avoid cash deals. Executives who press for cash may find their best bet is a loan with a forgiveness covenant pegged to new jobs.

Many other incentives are available—some listed publicly, some stored in the memory bank of the government negotiating team. Often, incentive programs are renamed from year to year in an effort to avoid backlash from soured deals. The most advantageous incentive packages, from the executive’s point of view, are generally those negotiated across multiple levels of government.

Look into—and ask your negotiating partner to do the same—what subsidies, grants, loans, refunds or waivers might be available on other levels, including federal, county, municipal, industrial development authority, port authority or business/industrial zoning authority. When it comes to negotiating incentives, don’t wait for offers. Ask for what you want.


MORE LIKE THIS

  • Get the CEO Briefing

    Sign up today to get weekly access to the latest issues affecting CEOs in every industry
  • upcoming events

    Roundtable

    Strategic Planning Workshop

    1:00 - 5:00 pm

    Over 70% of Executives Surveyed Agree: Many Strategic Planning Efforts Lack Systematic Approach Tips for Enhancing Your Strategic Planning Process

    Executives expressed frustration with their current strategic planning process. Issues include:

    1. Lack of systematic approach (70%)
    2. Laundry lists without prioritization (68%)
    3. Decisions based on personalities rather than facts and information (65%)

     

    Steve Rutan and Denise Harrison have put together an afternoon workshop that will provide the tools you need to address these concerns.  They have worked with hundreds of executives to develop a systematic approach that will enable your team to make better decisions during strategic planning.  Steve and Denise will walk you through exercises for prioritizing your lists and steps that will reset and reinvigorate your process.  This will be a hands-on workshop that will enable you to think about your business as you use the tools that are being presented.  If you are ready for a Strategic Planning tune-up, select this workshop in your registration form.  The additional fee of $695 will be added to your total.

    To sign up, select this option in your registration form. Additional fee of $695 will be added to your total.

    New York, NY: ​​​Chief Executive's Corporate Citizenship Awards 2017

    Women in Leadership Seminar and Peer Discussion

    2:00 - 5:00 pm

    Female leaders face the same issues all leaders do, but they often face additional challenges too. In this peer session, we will facilitate a discussion of best practices and how to overcome common barriers to help women leaders be more effective within and outside their organizations. 

    Limited space available.

    To sign up, select this option in your registration form. Additional fee of $495 will be added to your total.

    Golf Outing

    10:30 - 5:00 pm
    General’s Retreat at Hermitage Golf Course
    Sponsored by UBS

    General’s Retreat, built in 1986 with architect Gary Roger Baird, has been voted the “Best Golf Course in Nashville” and is a “must play” when visiting the Nashville, Tennessee area. With the beautiful setting along the Cumberland River, golfers of all capabilities will thoroughly enjoy the golf, scenery and hospitality.

    The golf outing fee includes transportation to and from the hotel, greens/cart fees, use of practice facilities, and boxed lunch. The bus will leave the hotel at 10:30 am for a noon shotgun start and return to the hotel after the cocktail reception following the completion of the round.

    To sign up, select this option in your registration form. Additional fee of $295 will be added to your total.