Discuss deindustrialization and its consequences and the relationship on ‘local Economic Development Strategies (II)’. ?Identify what you think are the key issues and develop a readable a

https://doi.org/10.1177/0891242419897128

Economic Development Quarterly 2020, Vol. 34(1) 78 –84 © The Author(s) 2019 Article reuse guidelines: sagepub.com/journals-permissions DOI: 10.1177/0891242419897128 journals.sagepub.com/home/edq

Commentary

In 1919, Felix Fantus moved his furniture factory from Chicago to Monticello, Illinois. Struck by the absence of available data on prospective locations, Fantus drew on his own experience to assist other firm owners engaged in the relocation of their facilities and in the process gave birth to the location consulting industry. Since that time, site selection consultants have come to play an increasingly important role in facilitating corporate location decisions. Their job is essen- tially one of serving as an intermediary between firms that contract their services and communities seeking to attract cor- porate investment. Yet exactly what role consultants play, their overall significance in the universe of corporate location decisions, and the extent to which they actually manipulate, or shape, rather than simply respond to the economic geogra- phy landscape are questions that remain to be answered. For Thomas (2011), “The rise of site location consultants has had a profound effect on bargaining between companies and gov- ernments . . . they (consultants) have specialized knowledge, they provide information to investors and help coordinate their behavior” (p. 1590). The value added by consultants to corporate clients is reasonably clear, and elsewhere we have drawn from information economics and game theory to inter- pret their role and the value added by intermediaries in the location decision (Phelps & Wood, 2018b). Our goal in this commentary is to consider the mediation of investment and the location consultant’s role within that from the perspective of the various local, city, and state economic development organizations (EDOs) in the United States that seek to attract corporate investment. The contribution is one part of an

ongoing research project examining the mediation of inward investment (Phelps & Wood, 2018a, 2018b). Our commen- tary is in three major sections. The first provides an introduc- tion to the location consulting industry and sets a framework for thinking about its intermediary role. The second draws on recent interviews with EDOs in three U.S. states to illustrate their assessment of the value added by site selection consul- tants to the practice of attracting investment and recruiting industry. In the third section, we suggest that by virtue of their intermediary role consultants can shape the environment within which local economic development is practiced and, by way of conclusion, we suggest that, while location consul- tants create a range of efficiencies in the work of industrial recruitment, their presence serves to magnify the highly asymmetric relationship between capital and the communities in which it comes to rest.

Site Selection Consultants as Intermediaries

Site selection consultants can be seen as intermediaries in what Thomas (2000) terms a “market for capital” or what

897128 EDQXXX10.1177/0891242419897128Economic Development QuarterlyWood and Phelps article-commentary2019

1University of Kentucky, Lexington, KY, USA 2The University of Melbourne, Victoria, Australia

Corresponding Author: Andrew M. Wood, Department of Geography, University of Kentucky, 857 Patterson Office Tower, Lexington, KY 40506-0027, USA. Email: [email protected]

Mediating Local Economic Development: The Place of Site Selection Consultants in Industrial Recruitment

Andrew M. Wood1 and Nicholas A. Phelps2

Abstract The local economic development practice of attracting industry, investment, and employment is a long-standing one in the United States. Yet the manner in which this investment is mediated has always been shrouded in mystery. The mediation of investment and the particular role of site selection consultants in facilitating corporate location decisions is the principal focus of this commentary. The authors draw on a series of recent interviews to illustrate how economic development organizations view the role of site selection consultants and their contribution to the practice of industrial recruitment. The authors conclude that, while location consultants bring certain welcome efficiencies to the practice of industrial recruitment, their presence also raises important questions concerning interplace competition for mobile investment and the general landscape of local economic development in the United States.

Keywords location consulting, industrial recruitment, site selection

Wood and Phelps 79

we might also term a market in locations—mediating between a demand for sites emanating from firms and a supply of sites or locations from communities. Information economics (Alchian & Demsetz, 1972; Arrow, 1984) sug- gests that intermediaries arise as a response to market imperfections and that their presence helps economize on the information costs associated with market transactions. Intermediaries can supply missing or incomplete informa- tion or reduce information asymmetries between the parties involved. Such arguments are commonly mobilized in both the academic and policy-facing literatures concerning investment promotion (see, e.g., Harding & Javorcik, 2011; Multilateral Investment Guarantee Agency, 2000; United Nations Conference on Trade and Development, 1997). Casson (1997) identified five different generic roles for intermediaries in bearing information costs (Table 1). The efficiencies or cost savings can be associated with search, specification, negotiation, completion, and enforcement costs. In the case of firms looking for a suitable investment site, location consultants clearly serve to reduce the “search” costs involved. They are experts in this field and draw on that expertise to provide advice in return for a con- sultancy fee. Yet, as we have suggested elsewhere (Phelps & Wood, 2018b), reducing the costs associated with the product search is not their only contribution. Consultants can also generate efficiencies in the “specification” of proj- ects through their role in using location as a means to focus corporate strategy. The “negotiation” of the investment, not least around questions of incentives and subsidies attached to the transaction, captures a third set of information cost efficiencies. Last, consultants can play an indirect role regarding “enforcement.” In this instance, the cost savings are more generic and arise through establishing expecta- tions that can then serve to shape the general business cli- mate within which economic development takes place (Phelps & Wood, 2018b).

While the practice of site selection or location consult- ing in the United States is nearly a century old, an exact measure of the extent and significance of the industry remains elusive. In the absence of any central record of cor- porate location and relocation decisions, the total popula- tion of investment projects is simply not known.

Furthermore, we have no record of the number or propor- tion of those decisions in which consultants have been engaged. In short, the proportion of all decisions attended to by consultants—or what consultants themselves term their “market share”—is not known. Major investments, particularly those of a greenfield nature, draw considerable media and academic attention. Witness the recent frenzy surrounding Amazon’s selection of a second head office site; however, the majority of new projects and relocations are simply part of the natural economic rhythm of business expansion and decline. Yet despite the absence of exact numbers, there is good reason to suggest that, in the aggre- gate, location consultants play a significant cumulative role in assisting and enabling corporate location and relocation decisions. As early as 1960, the single largest site selection consultancy—Fantus Factory Locating Service—had already been involved in 1,800 separate plant (re)location decisions, involving over 1 million jobs, which for refer- ence was equivalent to between 1 of every 16 to 17 factory jobs in the United States at that time (Bedingfield, 1960). By 1985, Fantus acknowledged having consulted in over 6,000 location and relocation decisions and the firm contin- ued to take on projects in the decade prior to its acquisition by Deloitte in 1996 (LeRoy, 2005). On this basis alone, this one single company—albeit the industry leader—may have been involved in corporate relocations involving roughly one quarter of the total stock of employment in the United States by the mid-1980s.

Today, there are many more site selection and location consultants serving corporate clients. The relatively low bar- riers to entry in the field make it difficult to register exactly how many firms and practices are currently active in the United States. Given their link to prospective investments, EDOs are keenly aware of location consultants and practices. One of our EDO interviewees held a list of 800 to 900 site selection consultants, although they focused their attention on just 50 of them. A second gave a corresponding figure of 300 to 400 consultants of “some substance” of which 100 or so were seen to “make a difference.” The figure of 400 con- sultants broadly corresponds to records maintained by Development Counsellors International (DCI), a marketing firm with close ties to the location consulting industry. DCI

Table 1. Site Selection Consultants as Bearers of Information Costs.

Search Specification Negotiation Completion Enforcement

Tangible: Collation and analysis of quantitative information

Tangible: Site certification Intangible: Collation and analysis of qualitative information

Integration: Overcoming of disciplinary fragmentation in business case

Recognizing and realizing location as a focusing prism of business strategy

Negotiation of incentives

No significant role

Indirect: Communication of investment promotion best practice

Indirect: Production of proprietary rankings or indexes

Source. Phelps and Wood (2018b).

80 Economic Development Quarterly 34(1)

records estimate that some 40% of all investment projects in the United States involve site selection consultants in one fashion or another.

The Value Added by Site Selection Consultants to Industrial Recruitment

In an early (1955) exposition of the site selection process and the role of the consultant within it, Lev Yaseen (1955) of Fantus suggested that

An amazing paradox exists in the field of industrial development. Manufacturers are eager to receive data and communities are desperately anxious to present it, yet, parallel as their interests may be, conflicts and misunderstandings seem to continually arise. (p. 157, italics in original)

As indicated above and reported elsewhere (Phelps & Wood, 2018b), site selectors can play a crucial role in reducing the information costs to corporate clients incurred in the process of making a location decision. Given their prominence in the field, the question of exactly what contribution location con- sultants make to communities seeking to attract industry and investment is an important and urgent one. In short, what difference do location consultants make to the practice of recruiting industry and investment?

To provide a provisional answer to that question, we use empirical materials drawn from 13 extended interviews with representatives of 10 different local and state EDOs in Ohio, Kentucky, and Alabama. While all three states are keen to attract foreign and domestic investment, their position within the overall landscape of economic development in the United States is different. Ohio has a long history of manufacturing and, while continuing to attract investment, it has also been a major source of mobile investments leaving the state for both domestic and foreign locations. Alabama has been a major recent destination for inward investment of both domestic and foreign origin, while Kentucky lies in a somewhat inter- mediate position between the two. The observations that fol- low from our work with EDOs are ordered in terms of the typical sequence in which EDOs engage in industrial recruit- ment before we draw broader conclusions regarding the role of location consultants in shaping the environment within which industrial recruitment takes place.

While firms are engaged in the search for potential sites, EDOs are commonly charged with identifying potential corporate investors or what the industry terms “prospects.” Once suitable prospects have been identified, the goal switches to one of attracting them. The production and tar- geting of marketing and promotional materials is one major and long-standing component of industrial recruitment and has now generated a substantial academic literature (Eisinger, 1988). Our concern here is not one of gauging whether location consultants help in finding prospects but

rather in how the involvement of location consultants might alter the dynamics of the interaction with prospects. In all three states, our interviewees without exception highlighted the attractiveness of prospects that come to their attention through a location consultant rather than from alternative sources, including direct enquiries from companies. Perhaps most notable here is that the major draw of consul- tants is very much related to the work involved in attracting investment rather than in either the nature of the prospects or the likelihood of landing them. As one Alabama inter- viewee put it:

I can’t say how much we appreciate consultants. When a consultant is involved you get a structure to the process that makes it so much easier to be responsive, makes it easier to provide information in a way that is comparable . . . it is not an open-ended “tell us everything you know about your community.” . . . A consultant, at the end, will know what’s going to be relevant and what’s going to be decisive.

The comparability of information is key to the location con- sultant’s intermediary role, and we would suggest that it is just as crucial to location decisions in federal contexts such as the United States as it is to global location searches involv- ing multiple countries (Phelps & Wood, 2018a, 2018b). The issue of comparability was repeatedly emphasized by inter- viewees. Furthermore, the filtering role of the consultant as intermediary ensures that the interests of economic develop- ment professionals and the organizations for which they work are locked into a complementary relationship with the broker:

Part of the relationship between consultants and economic development organizations is how well the two manage to work together. A consultant that works with a state or economic development group and finds that the numbers that they are getting don’t jive with reality or the sites that they are being presented with on further investigation don’t have the qualities that were advertised. . . . Consultants, their job is not to find sites, it is to eliminate sites. Consultants will eliminate places that are difficult to work with. They will eliminate places that will overly manipulate their answers to questions that don’t serve the consultant’s customers well. (Ohio interviewee)

Here one aspect of the consultant’s role is to eliminate the “noise” generated by multiple EDOs seeking to attract the prospect. Furthermore, there is a keen incentive to provide accurate and appropriate information. Elsewhere we have reported on the basis on which consultants conduct their trade and build their business (Phelps & Wood, 2018b). One clear advantage to the location consultant is their regular and accumulated experience of the site selection process, which the typical corporate executive might encounter only rarely (Schmenner, 1982). Thus, for another, Ohio interviewee:

Wood and Phelps 81

We find sometimes that projects that are run through professional consultants are a little more smooth, I would say. These are obviously pros in the industry. They know exactly what are red flags and what are opportunities. . . . If I’m a professional site selection consultant . . . I have likely sited dozens of projects all over the world. If I am just an engineer or a real estate professional who works for company ABC, I may know an awful lot about our company . . . and where I need to be in relation to our customers and raw materials, but I may not know the tricks of the trade when it comes to picking the most appropriate site.

Here the “tricks of the trade” warrant appreciation on both sides of the corporate client/consultant—EDO market for location. This is partly, no doubt, to avoid the reputational damage to both firms and communities that can attend to conspicuous failures of location decision making.

From the corporate side, the location decision is most often a complex one in which site selection consultants can play an important role in assisting clients specify their business needs and translate them into locational options. From the standpoint of those working in EDOs, the site selection process—commonly experienced as a stream of initial requests for information (RFIs)—is altogether more routine. Even so, location consultants are seen to bring further efficiencies to the work of recruitment: “consul- tants, they do these types of projects every day—it’s much more direct. From a transactional point of view, it’s easier on us a lot of times because you’re talking peer-to-peer” (Ohio interviewee). The same interviewee elaborated further:

part of the benefit of working with site selectors . . . we look at site-selector leads in a slightly different bucket than company- direct leads, which are all over the spectrum in terms of the authenticity of the opportunity and what’s driving this.

The routinized and streamlined nature of the work involved in responding to consultant-led prospects plays to the view that consultants are objective about the location search. This has long been emphasized by companies like Fantus and the more recently created professional body of location consul- tants, the Site Selectors Guild. As a Kentucky interviewee put it:

The value that they bring to this narrative I think is that they’re very much agnostic to where they go. . . . We value the site selection consultants in the process because we believe they are very data driven, they are very analytical, and we think that we have a good product to sell. . . . If you deal with a company directly, sometimes the decisions are not based on data, they are based on a number of things.

An Alabama-based interviewee highlighted the same issue, noting the professionalism commonly brought to the corpo- rate location decision by consultants:

When you have a consultant involved you like to think in that case that just pure individual personalities can’t really swing the decision on a project and that you are competing based on the merits of your community, workforce, and what you have to offer. When you are just working with a company, there may not be a consultant involved, things are looked at more informally, sometimes that works for you, sometimes it doesn’t.

The objective nature of the consultant-led search extends to the issue of steering prospective investors to particular sites in communities. As an Ohio-based interviewee indicated,

at the end of the day, the market works—right? If Jobs Ohio tries to steer somebody to one market at the expense of another and it’s not the best alternative, then Nashville might win or Dallas might win and that would be bad for everyone.

While consultants bring a generally standardized and pre- dictable set of demands to which EDOs respond, their involvement can at the very same time serve to obfuscate the decision-making process:

When a site selector brings us something, there’s a curtain there that we have to get through in order to get to that company, the decision maker. . . . It’s nice to have a company reach out to you directly. . . . Sometimes the value of service and personality and storytelling and painting the right kind of picture are a whole lot easier when you are dealing directly with the decision maker than a site selector. It’s a more competitive process [when dealing with a site selection consultant]. (Kentucky interviewee)

In mediating between firm and location, the consultant effec- tively distances the prospect from prospective sites. Yet con- sultant-led projects have a further built-in advantage that enhances the power of their brokerage role. Interviewees indicated that the presence of a consultant could be inter- preted as confidence that the community was on a short list of potential locations and that many states and cities are likely to have already been eliminated from the search. Here, however, the power relationship is an intriguing one. EDOs and the communities they represent rely on a relationship and reputation developed with location consultants and on their ability to adjust the calculations based on tangible fac- tors at the margin of the site location decision:

For the community, it is certainly huge when a site selector is familiar with you and is able to include you in the mix when you otherwise may not make the cut. . . . There are definitely a lot of projects that smaller communities would otherwise not have been a part of if there hadn’t been a consultant involved. (Alabama interviewee)

It is not without irony perhaps, that upper-tier—ostensibly statewide EDOs—were commonly seen as a less preferred source of industrial prospects by local EDOs. Here the con- sensus was that several sites, cities, and even states would

82 Economic Development Quarterly 34(1)

still be in competition for the investment. As we have sug- gested elsewhere (Phelps & Wood, 2018b), the places, loca- tions, and communities that are the subject of site searches are unique. Accordingly, their properties are not entirely codifiable in the form of simple metrics and measures. In examining the intricacies of the location decision, it is clear that it is the uniqueness or the intangible aspects of place that both site selectors and EDOs seek to leverage in their respec- tive roles as market intermediaries.

Shaping the Landscape of Economic Development

We have suggested in our previous work that site selection consultants view their role not simply as one of directly assisting in corporate location decisions but also in con- structing or shaping the general environment within which those decisions are made. One important aspect of this is the role they play in providing advice and guidance to EDOs regarding their “product” (i.e., their community and sites) and the manner in which it is presented. As one loca- tion consultant noted regarding communicating “best practices”:

We are like little bumble bees going from flower to flower. If we find one area that is doing something that really impresses us, usually we will go to another state or another area and say “have you looked at what Ohio is doing in terms of funding their economic development organization?” . . . and that will make the other states or areas sit up and take notice . . . so we basically help other people understand what the competitive nature of the business is. (Phelps & Wood, 2018b)

While consultants bring efficiencies to the site search for prospective locations, they are also an important conduit for changes in that very same process in which EDOs are engaged. In this respect, their role is significantly broader than the everyday practice of recruiting industry. As one Kentucky interviewee put it:

The other thing that consultants do is . . . they make our process better too. At the end of the site visit, they come in and we’ll ask them “is there anything we could do better?” They will say “make sure you have better maps” or whatever it is. . . . We have been doing this a long time and we think we do it very well, but it is always good to have that feedback to keep improving and making ourselves look even better.

For another Kentucky interviewee, feedback from consul- tants was as follows:

Probably the best source of information we can get. It hurts to come in second. . . . If we come in second, third, or even last we will ask either the company or the consultant or someone to give us a debrief on what we could have done to make ourselves

more competitive . . . any information we can glean from the prospect is valuable to us because it makes us more marketable to the next prospect.

While elaborating on this educational effect, the same inter- viewee made note of a qualitatively different contribution made by site selectors, namely the advocacy role they might play and the gravitas attached to their voice as compared with that of public officials or EDO staff.

Besides bringing companies, they educate us. (We are) land constrained because of the horse farms and there is a faction of our community that says “we don’t need anything but horse farms. We’re happy with what we have.” But there’s a bigger faction of our community that says “we need jobs.” . . . We know, we are trying so hard to land these projects . . . but we don’t have anywhere to put them. . . . If I have [consultant x] stand up in front of the City Council and say, “I haven’t been here in over 8 years because I know you have no product,” they are educating people who hear from us every day.

This reputational effect is sufficient for EDOs to recognize the need to gain credibility with what are deemed to be nota- ble site selection consultants. As one Ohio interviewee put it:

You want those site selection consultants to have a favorable view of the geography of your region, county, town, whatever, and the assets there to keep you in mind for future potential projects and also for the world of site selection consultants to know that you as an economic development agency and as a region have a good infrastructure in place to address any of the needs they may have.

This same “demonstration effect” is commonly exerted by EDOs themselves on their local counterparts when seeking to present a common approach or voice to prospective inves- tors. As one Ohio interviewee put it:

A very, very, very large piece of our mission is to educate and develop the relationship with folks in the community, our partners, members of economic development teams in the public sector. As you can imagine, in the public sector you’re dealing with elected officials, some of which have been around for a long time, others might have just joined the effort because they just got voted in so there’s a range of experience.

The positive role that location consultants play for their cli- ents—in reducing information costs and adding value—is firmly rooted in mobilizing knowledge. That knowledge clearly extends to the work undertaken by EDOs in seeking to attract investment. As an Ohio interviewee put it:

It does help . . . any time you respond to and help a consultant. What they are brokering is knowledge about community. The more they can know, the more successful they are. And ultimately the success of the company and the community is

Wood and Phelps 83

what everyone wants. We don’t want a company here that is not a good fit.

It is perhaps not surprising that the EDO professionals we interviewed went to some length to reach out to location con- sultants, often extending their activities beyond simple cour- tesy calls and distribution e-mails to include invitations to community familiarization visits. Furthermore, EDOs are increasingly engaged with consultants in conferences and organized meetings that are ultimately designed to generate leads, expand their professional networks, and increase the business intelligence of EDO representatives and their orga- nizations. Such activities reflect the considerable power of the location consulting industry in shaping the environment within which economic development is practiced.

Conclusion

In the United States, location consultants have come to play an ever more important intermediary role between corpora- tions and communities seeking to attract inward investment. This competition for capital investment has been at the cen- ter of economic development practice for quite some time (Markusen, 2007). Yet, as intermediaries, location consul- tants are part of a market that is highly asymmetric in nature. The number of potential locations that fit the needs of pro- spective corporate investors far outweighs the limited num- ber

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