Hot Cities

usinesses commonly cite five main reasons for moving, according to Sharon K. Ward, an economic development consultant for Pennsylvania Power & Light Inc., a utility company in Allentown, Pennsylvania, and co-author with her husband, William Gary Ward, of the Company Relocation Handbook (Oasis Press). These are labor and work-force issues, the desire to reach new markets, the need to upgrade facilities or equipment, a desire to lower costs or increase cash flow, and considerations about the quality of life. For different businesses and at different times, certain concerns are more important than others, Ward notes. But just about all moves can be attributed to some combination of these issues.

Chief among current reasons for relocation is the need for a suitable work force. Unemployment rates are lower than they've been in decades, and the shortage of workers in some occupations, especially those requiring technical expertise, is acute. For firms that need specialized employees, it may be well worth it to relocate to an area where they can easily find these kinds of employees.

The need to reach new markets is another prime consideration. Luigi Salvaneschi, a former executive with KFC, McDonald's and Blockbuster Video, and author of Location, Location, Location (Oasis Press), says a location that taps a new market can instantly revitalize many businesses. "People should relocate if they see no growth and no future where they are," he says. "It's a matter of life and death."

When a company finds itself in outmoded or undersized facilities, that's another reason to look at moving. Most businesses start in a small facility, such as the founder's garage, then move to bigger quarters in the same city, says L. Clinton Hoch, director of location advisory services for DCG Corplan Consulting LLC, a site selection consultancy in West Orange, New Jersey. Later, the business outgrows that location or begins to find fault with its facilities, services, utilities, infrastructure or other features. "Usually only after [a business owner] goes through those three stages is he or she ready to make a move out of the original metropolitan area," says Hoch.

Cost is a concern in any business decision, and a move can cure--or create--many cost issues. For starters, the cost of living varies widely among cities. In Little Rock, Arkansas, for example, the cost of living is 13 percent below the national average. At the other end of the spectrum, New York City's costs are more than twice the U.S. average. Theoretically, a move from Manhattan to Little Rock could yield significant savings.

But costs involve more than living expenses, cautions Hoch, and differences in geographic costs have leveled out in recent years. Often, companies find themselves forced to compromise between staying close to target markets and choosing the lowest-cost facility. That's one reason for the exodus of employees from central cities to nearby suburbs, which, according to the U.S. Census Bureau, resulted in 3 million people leaving the cities, while the suburbs gained 2.8 million in one recent year.

Other financial incentives further complicate cost issues. Large companies seeking to build semiconductor factories or auto plants often land well-publicized tax concessions worth billions of dollars. Ward, a former research and marketing director for the Committee for Economic Growth, a private organization that markets the Wilkes-Barre area of Pennsylvania to businesses, points out that small companies rarely receive such perks because incentives are based on the number of jobs the business will create. However, an entrepreneur may be able to tap a cash-flow windfall by selling a building or land that has appreciated in value, then purchasing or renting lower-cost space.

An even more intangible entity is the quality of life. Companies evaluating relocation often look at recreational opportunities, education facilities, crime rates, health care, climate and similar factors when evaluating a city's quality of life. That's another reason deteriorating inner cities are losing businesses, as companies seek an improved quality of life elsewhere. "Maybe it's an unhealthy or unsafe area to live in," notes Ward. "Or, it may be hard to recruit workers because of [the location]."

This article was originally published in the October 1999 print edition of Entrepreneur with the headline: Hot Cities.