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Workers Far Afield

Relocating to cut costs and to be closer to high-quality labor and suppliers.
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Chances are, your company is where it is because that's where you first got the idea for your business. Or it's where your first customers were. Those were actually good reasons at the time, but they may not be now. You may now be too distant from your enlarged customer base or too far from suppliers. Worse yet, you may be constrained by a local shortage of skilled or affordable workers.

Solution: relocate part of your business. Most business owners assume that strategy makes sense only for big companies with large labor forces. But small companies can benefit enormously, too, particularly as technology has made it easier to tie far-flung offices together. Philadelphia Macaroni, a family-owned pasta maker with two plants in Pennsylvania and more than $10 million in sales, is locating a plant in North Dakota to be near its suppliers and high-quality labor. Total employees at the new plant: 17.

Many regions of the country will bend over backward to attract small businesses. In addition to establishing an economic development arm, many industry-starved areas are willing to lure a business with tax breaks, subsidies, or loans. As a result of such inducements, lower labor costs, and higher productivity, businesses can save a bundle.

Consider New Flyer Industries Ltd., a Canadian maker of city buses. In 1987 it set up a finishing plant in Union City, Calif., near Oakland, to be close to a major customer. The plant was never as productive as the company had hoped, and as New Flyer's customers increased, it became a less convenient spot to ship from.

After a thorough search, New Flyer decided to close its California finishing operation and open a new plant in Grand Forks, N. Dak., a two-and-a-half-hour car ride from the company's headquarters, in Manitoba. The Grand Forks Development Corp. spent $221,000 to upgrade a 42,000-square-foot building for New Flyer. It put in air-conditioning, offices, rest rooms, lighting, lunchrooms, and oversized doors. The rent: $7,000 a month, compared with $23,000 a month in California.

The wage costs, of course, are cheaper, too. A handful of the 54 plant employees are paid $9.50 to $10 an hour, and most are paid just under $8 an hour. In California the average hourly wage was $12 to $13. That isn't the most significant difference, though, says plant manager Ross Watson. In California the workers tended to have high school educations, at most. "The people were 7:30 to 4:00 people. If the job didn't get done, they didn't worry about it. The drive just wasn't there," he says.

In contrast, the Grand Forks plant benefits from a number of university-educated workers. Says Watson: "Here it's the complete opposite. People just pick up tasks and do them on their own."

Guy Johnson, New Flyer's president, counts that attitude as one of the most important benefits gained by the relocation. He estimates that the new plant, which completed 350 buses in its first year, is 25% more productive than the California plant was. -- Ellyn E. Spragins

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Last updated: Jul 1, 1991




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