Red Flags for Retention

RED FLAGS

• Ownership problems
• Disinvestment
• Changing markets
• Duplicate capacity
• Community relations
• Management instability
• Research and development
• Business climate
• Changes in land use
• Equipment changes
• Cosmetic appearance
• Gas Company internal warning signs

According to a study conducted by the U.S. Chamber of Commerce, approximately 82 percent of the economic growth of an average American community results from the expansion of locally owned and operated enterprises.

• Many of the local firms grew out of local advantages or needs.
• Existing firms have proven their adaptability to local conditions.
• An economic development effort frequently will get quicker results by dealing with existing local firms than it would be negotiating with outside interests.
• Satisfied firms can form the best advertisement in attracting new firms in the area.

The retention of existing California firms is key to increasing employment, maintaining a stable tax base and attracting new business. In order to positively impact business decision-making, we must educate ourselves as to the wants, needs and perceptions of the business community.

Business retention is a systematic approach to gathering information from the local business sector; using that information to address immediate problems; and developing programs and policies, which promote a diversified stable local economy.

Business retention:

• Supports existing businesses through identifying and solving immediate problems which hinder their viability
• Enhances commercial and industrial attraction efforts through the increased success of existing businesses
• Identifies and encourages new business opportunities
• Provides a ready-made early warning system for preventing impending plant

Early warning systems, in general, imply the ability to intercept troubling signals in time to make appropriate interventions. An early warning system for business retention carries with it the sense that the right form of intervention, based on the availability of finely tuned information, facilitates private business investment decisions favorable to the local economy.

Like Pieces of a Puzzle:

Business believes it has a self-interest in concealing relocation or shutdown plans. Managers think workers will begin quitting, and production could be disrupted. Workers could also become demoralized, and productivity would drop. Additionally, business does not like to telegraph its plans to its competitors.

In order to help you, the following are descriptions of the basic areas where red flags might become apparent. They include some questions that you should ask yourself in order to maximize your insight into the world of your customer.

Ownership Problems

Change in Ownership- Any change in ownership is an immediate red flag. In almost every transfer or manufacturing assets, the new owners have their own ideas for the plants, such as closing or reducing some, consolidating or selling some, or expanding others. Besides any immediate shakeups, any new owners will have a new investment strategy, a new basic direction.

Mergers and Acquisitions- The enormous increase in business mergers today is a primary cause of job loss in manufacturing. Numerous studies confirm that newly-merged companies often reduce their capacity and eliminate many jobs.

Lack of Successor- For many smaller, family-owned businesses, the biggest need is for a successor for the owner who built the business up, but will son retire or die and does not have a trained replacement.

Conglomerate Ownership- Conglomerates typically have little loyalty to any one industry. They shuffle their money into businesses which they project will have the highest growth and profit rates. To a conglomerate, almost every plant is a "branch plant" because it only has one headquarters.

Questions:

• Who owns the company?
• Has ownership of the company changed recently?
• Has the company recently undergone a merger or acquisition?
• Is the company owned by a conglomerate?
• If the company is family-owned, is there a successor to the present owner?
• Does the company lease or own the building? If the company leases the building, when does the lease expire?
• Was the facility the "desired" part of the acquisition?
• Has the parent company experienced any major financial difficulty such as bankruptcy?

Disinvestment

Whenever a company does not return an adequate share of profits back into a plant for modernization and maintenance, it can become a self-perpetuating spiral of decline. Conglomerates especially are notorious for "milking" or disinvesting viable manufacturing operations. Conglomerates like manufacturing plants for the heavy depreciation charges they generate.

Questions:

• Is there the plant scheduled to be modernized?
• Are pieces of machinery modern and well maintained?
• Is the company or parent corporation reinvesting in equipment?
• Is old equipment being repaired?
• Is the business operating near capacity? Why or why not?

Changing Markets

If there has been a general directional trend in sales over the past three to five years, it is important to find out if the plant's sales and employment have been keeping pace with the industry average, gaining or falling behind, and why.

Questions:

• Is the industry or service that the business in decreasing or declining?
• Is the business performing better than its competitors?
• Is the company close to their source of raw materials and/or suppliers?
• Has new competition emerged from other locations?
• Does the company anticipate their employment growing over the next year? Contracting? Remaining stable?
• Have there been steady employment or drastic layoffs over the past five years?
• Has the market area remained the same or changed?
• Has the company lost market share?
• Is the company as modern as its competitors?
• Has the company lost any major customers?
• Are primary customers of a business located within a shrinking industry or specialty?
• Is the business seasonal? When are the highs and lows?

Duplicate Capacity

When the company begins to develop other facilities which could take the plant's place, or when a merger results in duplicate capacity, this is an indicator that in the future the company may not need duplicate facilities.

Questions:

• Does the present owner currently have more than one facility producing the same products?
• If there are "sister facilities", where are they located?
• Do they have a facility that could be modified to serve the same market area?

Community Relations

Changes in the manner in which the company participates in the community, through philanthropy, service or other means are worth noting.

Questions:

• Has the company's philanthropic support of local groups and events changed?
• What form does this support take?
• Are company managers active in local groups? Has this changed?

Management Instability

Management instability is both a symptom of underlying problems, such as conglomerate ownership, and a cause of problems which, such as poor morale, antagonistic labor relations, and low productivity.
It is certainly a major danger sign if a lot of the plant's best managers are transferred out or if they leave to work for other companies, especially if many of them leave in a short period of time. The key positions to watch are the plant manager and the personnel director.

Questions:

• Are managers or personnel that you deal with leaving or being transferred?
• How receptive is management to plant improvements?

Research and Development

To remain flexile and competitive a company must continually be researching not only new production processes, but also new products and new markets; otherwise efficiency and market share will be hampered in the long run.

Questions:

• Have new technological advances impacted the industry? Does the business produce/use them?
• Has the company developed any new products?
• Is the company using state of the art technology, or is it "behind the curve"?

Business Climate

If management complains about the "business atmosphere" of the community, it may indicate that the company is looking at other locations in which it believes it can get a better "business climate."

Common business climate complaints include corporate tax rates, union wage rates, energy prices, unemployment compensation and workers' compensation premium rates, over-regulation and the education level of available workers.

Questions:

• Does the company have any major concerns about doing business in the area? What are they?
• Does the company feel the "business climate" is good for business? Locally? In California?
• Is the company satisfied with the municipal services of the area? If not, what could be expanded or improved?
• What is the company's labor supply...availability? Type? Education? Price? Is the labor supply meeting their future needs?
• Does the company have any infrastructure problems?
• Is the company affected by toxics? Do they need to buy any new equipment or retrofit? Have they been fined?
• Is the company affected by air quality regulations? Does compliance pose a problem?
• Is the plant unionized? If so, when does the contract expire?
• Can the company benefit from state or federal training and/or loan programs?
• How is the business treated by the local media?
• Has the company complained publicly about the "business climate" or other issues?

Changes In Land Use

There may occur a redevelopment trend in which industrial land will become prime real estate for new uses. If industrial real estate in the plant's area is being rezoned for new uses, that is a red flag. Additionally, if non-industrial (i.e., residential) development encroaches upon industrial areas, conflicts between the two can result in "ant-industry" sentiments in the community.

Questions:

• Does the company plan to expand within the next year?
• Has land in vicinity received zoning changes that are incompatible with current business types?
• Has land value risen dramatically?
• Have other companies moved from the area?
• If company were to expand, is there adjacent land available?

Equipment Changes

Removal of equipment is a very strong indication of management's commitment to the local plant.

Questions:

• Are there changes in equipment?
• Is any equipment being brought in?
• Has the company sold off major equipment? Transferred it elsewhere? Was it old or new? Essential or non-essential?
• Is the equipment being moved to other facilities or being sold?

Cosmetic Appearance

Changes in the emphasis placed upon the cosmetic appearance of a facility (i.e., new shrubbery, and the painting of the walls or exterior) are a strong indicator that it may be up for sale or expanding.

Questions:

• Has there been a noticeable change in emphasis placed upon appearance in areas such as landscaping, cosmetics, or interior décor (either positive or negative)?
• Have modernizations been limited to non-production areas such as manager's office?

The Gas Company Internal Warning Signs

The Gas Company represents a resource that can in itself provide some significant early warning signals. A good part of your process is to utilize available internal information.

Questions:

• Has the energy usage changed dramatically from previous years or months?
• Has the customer account cycled? If yes, for how many months?
• Have you seen significant changes in usage and load as indicated by the 300 kW Report or Gas Detail of Bill?
• Is Service Planning working with the customer on any expansions (i.e., increasing load capacity, replacing electric panels, transformers or meters)?
• Is a customer asking for a rate analysis? If so, why?
• Is the Key Contact Program providing you with updates on local issues?

Key Questions

• Is the company planning to expand, relocate or close the facility? If so, when?
• If a decision is made to expand or relocate, who makes the decision?
• What are the major issues facing the business?
• Is the product line changing and is the company remaining competitive?
• Who owns the company and what are their future business plans?