Volvo is taking steps to re-establish its brand in the U.S. and turn around sluggish sales here that have dropped by more than half since 2004. Building a $500 million factory in the U.S., where some of its chief European rivals already have a manufacturing foothold, is part of the strategy.
The Sweden-based, Chinese-owned automaker revealed Monday its intentions to build a manufacturing facility in the U.S. In an interview with Bloomberg News, Volvo’s head of manufacturing and purchasing, Lars Wrebo, said the company is in discussions with three U.S. states and will choose the location within the next two months.
It’s the type of facility virtually any politician would love to see located in his or her state — and which any politician would be happy to claim credit for landing. With three locations still in the running (the Financial Times reported in January that the Carolinas and Kentucky are the likely finalists), Wrebo told Bloomberg that workforce training — and government collaboration to deliver it — will weigh heavily in the decision.
As Maine lawmakers this spring consider a tax cut and reform proposal that Gov. Paul LePage is selling to them as a package of changes that can attract job creators to Maine, it’s worth exploring a few realities about job creation in light of Volvo’s expansion announcement:
— Volvo is in the late stages of an involved site selection process in which taxes matter little. When a large business seeks the best location for an expansion, it’ll often hire a site selection consultant to narrow down the choices. The first cut of locations that might meet basic labor, location and cost requirements quickly narrows down to about 15, writes Greg LeRoy in his 2005 book “The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation.”
“In the facility location process, taxes are not relatively important when compared with other cost factors such as labor, transportation and utility and occupancy costs,” Robert Ady, a veteran site selection consultant who died in 2012, told LeRoy.
State and local taxes typically make up a negligible portion of total business costs (so tax rate reductions cut out a tiny chunk of those negligible costs), and tax subsidies local officials offer to draw in businesses barely factor into client-consultant site selection discussions.
In fact, available tax subsidies generally don’t even factor into site selection conversations until the very end, LeRoy writes.
At that point, the consultant starts talking with local economic development officials to determine what each of the final three to five prospective locations has to offer — and potentially to play one location’s offer against another. “Chances are the company has already pretty much decided where it wants to go,” LeRoy writes. “In fact, it may have made its mind up before the consultant even went on site.”
— So, what are businesses looking for? The revelation that workforce training capacity will factor heavily into Volvo’s ultimate location decision matches up well with what site selection experts say their clients need. In November 2013, “existing workforce skills” came out on top in Site Selection magazine’s annual survey asking those consultants what matters most in site selection. The following year, in November 2014, “existing workforce skills” took third place on the list behind “transportation infrastructure” and “ease of permitting and regulatory procedures.” On one key workforce measure, labor supply, Maine ranks low — 36th, according to Forbes’ most recent “Best States for Business” rankings.
— Most job creation happens within state borders. Although announcements like Volvo’s, which could bring hundreds of jobs to one place at one time, generate lots of job creation buzz, projects like Volvo’s aren’t behind the bulk of states’ job gains. Homegrown job growth — from new businesses starting and existing businesses expanding — is overwhelmingly more likely to be responsible, according to a 2010 analysis by the Public Policy Institute of California.
— The bottom line? As LeRoy puts it, “Subsidies cannot make a bad place a good place. Good places are competitive because they have the long-term business basics that a company needs to produce supply to meet demand.”
That would seem to be a call for state policies that develop Maine — and its people — into something that sets it apart. Instead, in Maine this spring, the policy focus is on a tax reform package that could prove a negligible factor in job creation and won’t make up for the state’s small — and shrinking — workforce.