The South shall rise … still: outsiders are flocking to the Southeast for its low-cost living and skilled technology work force

Chief Executive, The, Nov, 2004 by Peter Galuszka

A few years ago, executives at GE Energy decided to move their corporate home from Schenectady, N.Y., where its 100-year history dated back to inventor Thomas Edison. In shopping for a new location, they considered Austin, Tex., and Chicago, both major technology centers with decent transportation.

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But the company ended up choosing Atlanta and, as a result, President and CEO John Rice is now happily whistling Dixie. The pool for recruiting new workers is bigger and better than in other U.S. locations, Rice says. Add to that a pleasant climate, affordable housing and the fact that Atlanta is close to many of the electric utilities that are major buyers of GE Energy's turbines. Another plus is that Atlanta's Hartsfield Airport, the busiest in the nation, is a "tremendous time saver," says Rice. "You can pick up half a day on an international trip. I am very, very pleased."

The Southeast has been attracting investment for decades. But CEOs considering new corporate headquarters or expansions are now eyeing the swath of states from Virginia to Texas with renewed interest. As before, the South boasts cheap land, labor and utilities, but today it offers new advantages, such as diligent, technology-oriented work forces, proximity to two-thirds of the markets in the U.S., and transportation hubs for travel to global destinations.

In recent years, Atlanta lured not only GE Energy from upstate New York but also UPS from Connecticut. Charlotte bagged Bank of America in the 1990s and has just picked up the newly merged Wachovia and a large unit of TIAA-CREF. Charlotte's growth as a financial center has been so explosive that it is now No. 2 in assets in the U.S., after New York. Memphis claims an expanded FedEx, and Richmond is now home of relocated Prudential Securities and Philip Morris USA. (See maps, page 55.)

Non-U.S. firms are also heading to the American South. Germany's BMW makes its Z series in South Carolina, while Daimler-Chrysler assembles the Mercedes-Benz M class in Alabama. Japan's Nissan churns out Altimas, Maximas and pickup trucks at its plant in Tennessee, which has become the No. 2 state in Japanese investment after California. European and Asian equipment makers, telecommunications firms and special chemicals plants dot the rest of the Southern landscape.

Just how and why CEOs choose the South varies. For some, the choice is motivated by personal preference. For others, a great deal of thinking and data gathering, including input from consultants and head hunters, goes into the decision process. TIAA-CREF, for example, considered Tampa and Raleigh-Durham, N.C., when it was narrowing its choices in the late 1990s. Executives worried that the then-booming tech market would make labor too tight in Raleigh, so they jumped when Charlotte came up with opportunities to expand its labor pool by working with a local university. It took GE Energy six years of study before it chose Atlanta. "Economic decisions are relevant," says Rice. "But most states compete, so it really doesn't make a difference at the top tier."

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Reaching the "top-tier" category has been a long pull for the South, which seems to be perpetually fighting negative images of racism and poverty. One way around it has been to promote the idea of a "New South," a pitchman's sell that's been around ever since Atlanta newspaper editor Henry Grady hawked it more than a century ago. In 1886, he told a New York audience that the region once torn by civil war and slavery had been transformed and that "the light of a grander day is falling fair on her face." For decades following, tough anti-union stances and easy tax and environmental policies helped hard-eyed Southerners decimate the New England textile industry and snare chemical, aircraft and machine tool plants from all parts of the U.S. and the industrial world.

Yet this "New South" is different from decades before, thanks to the powerful and growing forces of global economics. Like all parts of the U.S., the vulnerable South has lost several million textile and apparel jobs to overseas locations in the past 20 years and stands to lose more in such manufacturing sectors as tire production and furniture. Even software production, long touted as a panacea to local economic ills, can now be easily outsourced to Bangalore. In the region's erstwhile capital, Atlanta, old-line stalwarts are faltering. Coca-Cola is in trouble and Delta Air Lines, employing hundreds locally, is close to bankruptcy.

That's why the region's commerce strategists are focused on winning sustainable jobs that won't be exported in 10 years, says Jim Fain, the commerce secretary of North Carolina. CEOs prospecting for new locations will get a warmer reception if they fit this bill. "We're looking at financial services, pharmaceuticals, bio-manufacturing, automotive components and specialty chemicals," says Fain.

A Pool of 'Knowledge Workers'

Low cost is still an attraction, but having a strong and willing pool of workers trained in knowledge industries matters even more, notes Matt Kisber, commissioner of Tennessee's Department of Economic and Community Development. He oversees a state "Fasttrack" program to respond within three days to corporate inquiries and have state-supported worker-training programs in place no later than five days after a new plant or office opens. Speedy responses aside, states are loath to undercut their workers in pay and benefits as they traditionally had done for years. "We're not a low cost, 'giveaway' state in terms of incentives," says Gregory H. Wingfield, president and CEO of the Greater Richmond Partnership, which recruits businesses to the Virginia capital region. "We have one of the best educated and most productive work forces."