★ Chapter Two ★
Site Location 101: How Companies Decide Where to Expand or Relocate
[As a businessman] I never made an investment decision based on the Tax Code . . . [I]f you are giving money away I will take it. If you want to give me inducements for something I am going to do anyway, I will take it. But good business people do not do things because of inducements, they do it because they can see that they are going to be able to earn the cost of capital out of their own intelligence and organization of resources.
— Paul O’Neill, former CEO of Alcoa and President George W. Bush’s first Secretary of the Treasury
How companies decide where to expand or relocate is not rocket science. Their decision-making process is driven by
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Titanium widgets require a lot of electricity, so they need a place with cheap (probably hydro) power. Software widgets require a lot of code writers, so they’ll go to a city with similar companies, a labor market with code writers. Commodity widgets are low-margin, so they need a place where labor is cheap. Chemical widgets require a lot of oil, so they need to be in an oil patch, or on the coast where imports arrive. Paper widgets need to be near forests and fresh water. Fresh-caught widgets get put on ice and delivered rapidly to customers, so that widget-packing plant needs to be close to a freight airport hub.2 You get the idea. Companies base their decisions on business basics—aﬀordable supply of key inputs and proximity to suppliers and customers. Key inputs vary and so do linkages. Boeing built up in the Seattle area because of the cheap hydro power from the Bonneville Power Administration for its complex metallurgy. Food processing companies locate facilities close to the farms and ranches that supply them and close to interstate highways and railheads to get product to market. Emerging high-technology companies need engineering schools and venture capital; Silicon Valley had both. Financial wheeler-dealers thrive on gossip and face-to-face meetings, so New York’s Wall Street zoomed in the 1980s and 1990s. Lobbyists want