Business Location Decision-Making and the Cities: Bringing Companies Back

Natalie Cohen
Natalie Cohen President - National Municipal Research

May 1, 2000

Corporations are changing the way they make decisions about where they locate and where they relocate. These
decisions have serious implications for cities as they try to position themselves in a changing competitive environment.

Aided by advances in telecommunication and transportation infrastructure, today’s executive can successfully coordinate many corporate functions in a multitude of locations. Manufacturing may take place in a developing country, where labor is cheap and electric utilities and water resources have become reliable. Back office operations may be located in a small U.S. city where real estate and labor costs are low and the labor force is well-educated and articulate. Executive management may be located in pared-down headquarters in a high-rent large city with an international airport and attractive lifestyle amenities.

Sophisticated software enables today’s location decision-maker to sort through a vast array of information about global labor markets, housing costs, transportation, specialized services, tax structures and tax subsidies when choosing a location. Over the last fifteen years, improved information and technological advances have moved the location decisionmaking process to the center of corporate strategic planning.

These advances have carried businesses away from central cities and intensified local officials’ competition for businesses. Yet there is often a mismatch between the actions of public officials and the business community. In fact, business executives contend that public officials frequently do not understand business operations and what motivates location and re-location decisions.

To better understand business decisions about location in today’s changing economy, this paper looks at the following questions:

  • What are the major trends propelling business relocation?
  • What aspects of business are most closely tied to the location decision?
  • How are location decisions made?

These queries were presented to corporate site selection managers, planning and location consultants, economic development specialists, and academics that study corporate location. Trade literature, “white papers,” and major consulting firms’ industry reports were also part of the research. The answers to these questions helped shape the second part of the paper, which looks at policy implications, including the most critical barriers preventing decision-makers from choosing urban locations and actions that policy makers can take to remove these barriers and attract more companies to the cities.