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Guest Post: My North Carolina View of Incentives

April 3, 2015

 

coleman richOur Guest Post today comes from Coleman Rich, at Elon University, in North Carolina. Coleman is Chair of the Department of Marketing and Entrepreneurship and Senior Lecturer in Operations and Supply Chain Management

Being a Textile Management grad from North Carolina State U., I have seen that incentives played an important role in NC to secure the textile trades from the North.  Many towns would pool their money to help secure a mill which would move individuals closer to town and give workers a steady wage.  The mills provided housing and staples for their employees. 

 Fast forward to 2 decades ago. North Carolina was in the running for the Mercedes plant.  The Governor met with the Mercedes representatives at Alamance Community College near I-40/85 to discuss incentives for the plant. There was a 1,000 acre site with rail, and Duke Energy would run the power to the plant. The Governor offered over $100 million. But the Germans went to Alabama.  We can only imagine how different this area would be if Mercedes had chosen this site.

 That one plant created an entire industry cluster in the Alabama and Mississippi area.  Since Mercedes announced the Alabama plant in 1993, Honda, Toyota, Hyundai

 Dell's 2012  closing of this manufacturing plant put more than 900 people out of work.

Dell’s 2012 closing of this manufacturing plant put more than 900 people out of work.

and Kia also opened factories in that region.  I believe incentives rarely work, but you have to “pay to play.” As a state, I would be willing to offer incentives to a large manufacturing company because I believe there is more economic value in supply chain companies locating in close proximity to the manufacturer.  Alabama’s network of auto suppliers now tops 130 companies.

Here is a mistake the State made with Dell in Kernersville, NC.  Virginia and NC were both bidding for the Dell plant.  Virginia offered incentives in the $30-37 million range.  Local and state incentives from NC were about $242 million. But the Dell plant closed after 5 years.  Why did NC offer more than Virginia in incentives for the Dell plant?  After all, as technology was changing and consumers moving toward laptops, this plant was making desktops. Also Dell began to change its business model to compete with HP.  Maybe the economic models that the state of NC uses also need to consider product life cycle of the product that will be made in the plant.

 But if it wasn’t for incentives, NC would not have been shaped by the tobacco, energy (Duke Power), furniture and textile industries.  Those industries could have moved further south to SC and Georgia. As I teach Chapter 8 in the Heizer/Render text, I share all of these points with my class.

 

 

 

 

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