9 Oct 2013
Much has been said of America’s waning manufacturing prowess of late, with many left wondering if the nation’s former competitiveness will ever return. The July downfall of Detroit only served to underline these fears, illustrating that the US’s production power is not what it once was.
Nonetheless, recent manufacturing figures are beginning to show signs of resurgence, with some analysts going so far as to suggest that the world’s largest economy is gathering market momentum. Manufacturing – it seems – will live again, and as the industry looks a far more favourable bet, many companies are seeking the best business climate for accommodating this upward industry trend.
Aside from the region’s geographical benefits, Albuquerque is awash with generous tax incentives, with each intended to curb operating costs and lower corporate tax rates
Albuquerque – New Mexico’s most populous city with 912,000 residents – is emerging as one such business locale. Best characterised by a highly skilled workforce, low taxes, powerful incentives and an extremely low cost of business, the region looks the perfect destination for the revival of US industry.
European CEO spoke with Gary Tonjes, President of Albuquerque Economic Development (AED) about Albuquerque’s opportunities for doing business: “First and foremost, I think, it is about having the right business environment. Making sure that yours is a place that is attractive to capital, and attractive to new and expanding firms,” he says. The organisation, which offers labour market analysis, operational cost comparisons, demographics, and identifies incentives to stimulate business growth, is a non-profit organisation formed in 1960, which has recruited over 200 companies and introduced 25,000 jobs to the city’s metro area, acting as an advocate and point of contact to those seeking to do business in the region.
The Sennheiser effect
“The community and state value well-respected companies with quality brands and products,” says Tonjes. The city’s efforts to attract internationally renowned and respected businesses have proven fruitful in recent years, with there being a “growing recognition of this marketplace and how it treats capital.
That helps to get the attention of not only firms who are investing here but those who advise them. We’re reaching international firms through a network of site selection consultants and international real estate companies, through trade shows, sales missions and select media.” To AED and to the city as a whole, building a reputation in the higher echelons of international business is vital.
One of the region’s best-known resident companies is technology firm Sennheiser, which has operated in Albuquerque for more than a decade, and is moving into its twelfth year of full production. The German family-owned company has, since its inception little over a half century ago, manufactured products for the recording, transmission and reproduction of sound, and has led a number of innovations in the consumer electronics industry. The company employs over 2,300 people and has boasted year-on-year increases in turnover for four years running, having last year posted profits of approximately €43.5m.
The vast majority of Sennheiser’s profits stem from the EMEA region, however, the rate of the company’s growth in the Americas is far greater than that of its primary market. And yet, despite the US being a significant market for Sennheiser, the vast majority of employees derive from Germany – 53 percent as of 2012 – which remains the company’s primary base of operations.
“When prospective companies are looking at an area, it’s important for them to understand who else is there, what their credentials are,” says Tonjes. “Sennheiser is one company that has resonated with others because of their deserved status in the market.”
The company’s Albuquerque production plant was first established in 2000 and spans an area of 6,500sq m, constituting a considerable arm of the company. Sennheiser is an “outstanding company to have here as a community partner,” says Tonjes, who believes the organisation’s presence has lifted the city’s attractiveness to international investors.
The company has also undergone a significant change in management of late, with brothers Daniel and Andreas Sennheiser being promoted to the position of CEO in July this year. The joint CEOs will also succeed Volker Bartels as speakers of the Executive Management Board and take the company into its third generation of leadership under the
The company’s newly appointed Co-CEO, Andreas Sennheiser, told European CEO: “The biggest reason for establishing our operations here is in keeping with our strong presence in the US market, which remains a core market for us. Albuquerque in particular was an attractive site for us in that manufacturing costs are considerably cheaper than in rival markets.
“Sennheiser’s longstanding success in Albuquerque is very much dependent on the site’s business climate, with its biggest benefits being an attractive tax package, a strong technical workforce – with the potential to improve far beyond their immediate capacity – and the support of local authorities.
“The climate has most definitely changed since our establishment here, and although some big companies have moved away, the reasons for doing so are largely attributable to wider economic circumstances as opposed to Albuquerque itself. On the contrary, many companies have joined since our establishment here and we believe that many will continue to do so provided that the region maintains its current stature as a hospitable centre for business,” says Tonjes.
AED considers the co-location of major international companies to be central in attracting greater investment to the region, and while Sennheiser admits it was not necessarily the biggest factor in its site selection process, “it most certainly offered an indication of the opportunities to be gained from Albuquerque’s business climate.”
Apart from Sennheiser, Albuquerque plays host to a number of other internationally recognised companies, one of which is Intel, which employs 3,000 people in the region.
“Having Intel here is a huge benefit, not only for what they mean to the strength of our economy – because they’re such a large player here – but in terms of what their presence represents in terms of the attractiveness of this location for investment,” says Tonjes.
“Many employers that we take through the facility or who meet with Intel walk away and say there’s really nothing that can’t be done, there is nothing in our organisation that couldn’t also find success if Intel has found success here.”
Tonjes believes that the presence of large international companies in the city represents a vote of confidence in the area’s ability to make world-class products. “I think that » when you have the likes of Sennheiser, Intel and Tempur-Pedic here, it helps to demonstrate to others outside of the market that there are opportunities to be capitalised on here in Albuquerque.”
AED has played a central part in securing a range of impressive business contracts in the region’s metro area, including General Mills, Hewlett-Packard, Fidelity Investments, Verizon Wireless, PR Newswire, as well as a host of others.
“We’re finalists for a few international companies right now. We expect the final decisions will be made by the end of 2013.”
From a geographical perspective, Albuquerque is best situated to cater for manufacturing and distribution requirements, with the city offering easy access to a number of thriving US markets and great transport links. “For the companies that have opted to locate here, that proximity to the west coast market and to the Midwest and Texas has served them very well.”
Tonjes says that mattress maker Temper-Pedic’s initial decision to locate in Albuquerque was made on the grounds of “supporting growth in the Western US at the time. However, they’ve since been able to expand on their reach, pushing east of us and into the thriving Midwest.”
The city’s infrastructure remains a draw to those looking to capitalise on opportunities in emerging US markets and on Mexico’s impressive economic growth of late. The centrality of the area in serving these markets has lead to speculation that it could soon play host to an inland port development.
“Additionally, we have here the Albuquerque International Sunport – our airport – with one exciting development for us being that we have a new 84 acre site on the airport for companies that require runway access,” says Tonjes. Sennheiser says Albuquerque is a safe bet. “The primary geographical benefit that comes to mind is that New Mexico is without the risk of natural disasters. While it’s true that Albuquerque is entirely reachable and boasts a sound infrastructure, it is incredibly important to us that there is a low risk of business interruption.”
Aside from the region’s geographical benefits, Albuquerque is awash with generous tax incentives, with each intended to curb operating costs and lower corporate tax rates. When fully implemented in 2017, New Mexico’s comprehensive tax package will allow for
manufacturers to enjoy the lowest effective corporate tax rate anywhere in the Western US. A rate that is expected to stand at around two percent.
Tax, claims Tonjes, is “an area we’ve seen some solid improvements in each of the last two years. We have a competitive package that is both big on tax avoidance and tax abatement, coupled with programmes that bring cash to companies for their expansion in the US.” New Mexico’s legislature cuts the region’s higher bracket corporate tax rate by 22 percent, bringing the top rate to 5.9 percent over the course of the next few years.
Furthermore, New Mexico’s single sales factor tax break means that manufacturers may elect only to be taxed on sales to customers in the state, all but eliminating corporate income tax for those companies with factories in Albuquerque.
Although the single sales factor didn’t take effect until July this year, a number of interested international parties have already cited the new tax policy and generous incentives as one of the primary reasons for their choosing Albuquerque as a potential site. “One of the companies is a highly capital intensive firm in advanced manufacturing and for the other it’s their first entrance into the US. What they told us is that the passage of this tax package coupled with various other incentives played a part in selecting New Mexico as a potential site.”
The tax incentive didn’t go unnoticed for Sennheiser either. “Undoubtedly, the region’s tax package is very important to us, the most crucial of factors being that it makes sense operationally, it benefits our market, and it’s entirely clear in its make-up,” he says. “Above all, the tax regime must be comprehensible and, if not entirely beneficial, surely not prohibitive to our business.”
Culture of sharing
Beyond its low operating costs, Albuquerque fosters a culture of collaboration throughout its business environment, encouraging those native to its borders to expand beyond their own market and to increase their global footprint where possible. The region’s ethos of adaptation and expansion is one best characterised by native Sennheiser. The company’s CEO sees the opportunities afforded by operating there: “The biggest benefit for us is reactiveness. In today’s markets, demand is moving faster than we can ever hope to keep pace with, which is why it’s important that our operations are in close proximity to our customers. We strive to offer a high level of responsiveness and local understanding in each of our key markets and to work with our customers in matching their demands and expectations.”
This same ethos of responsiveness and collaboration is quite apparent in much of the city’s business dealings. “We’re seeing tremendous growth among those fostering business partnerships through dedicated trade missions in different parts of the world, with some reaching outside of New Mexico and others reaching in.
“We have a number of players with international connections in the Albuquerque area, one is Eclipse Aerospace, which is really spearheading developments in the Very Light Jet market and has some good linkages with European markets.
“Of course, we have seen so many of our local companies benefit from selling their products to European and international markets. Beyond the obvious international players here, companies such as drug manufacturer OSO Biopharmaceuticals have 50 percent of their sales in Europe today.”
The relationship between Albuquerque’s business and educational infrastructure has proven particularly productive in the past. One example being in the 1990s, when Intel was undergoing a major expansion and turned to the University of New Mexico, Central New Mexico Community College, a network of other colleges and 70,000 students to facilitate their staffing requirements. The US multinational required approximately 2,000 semiconductor technicians to tend their expanded facilities and made it so through their work with the city’s diverse education system.
Another example of this relationship having paid off is when, in the 1990s, food company General Mills introduced a number of training programmes to local community colleges so that graduates of the programme would be qualified to work in the company’s Albuquerque production plant.
It is quite clear that Albuquerque offers a host of business opportunities for those looking to capitalise on the US’s reemerging industry prowess. “For our market, we consider Albuquerque to be the ideal location,” says Sennheiser, who urges companies to consider the region’s investment opportunities, particularly those with regards to manufacturing. With the city being home to a highly skilled workforce, extremely low operating costs, and an accommodating business environment, Albuquerque possesses the necessary attributes to drive industry expansion and looks to play a central role in the region’s economic growth.