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Chapter 7.8


Why pick Oregon? Let me count the ways.
(The Business Journal, May 13, 1985)

By Richard H. Carson

Satoshi Nakaichi, corporate vice president of NEC America ended his presentation and called for questions. The audience was the Willamette University Graduate School of Management, and the first question was predictable: "Why did NEC America select Oregon?"

The year of 1984 brought Oregon an influx of major high-tech companies that were part of the international race to keep pace with the rising economy. NEC America's entry into the state soon was followed by Fujitsu America, Fujitsu Microelectronics, Epson America and National Semiconductor. Major plant expansions also were announced by Wacker Siltronics, Lattice Semiconductor and Sequent Computer Systems.

In the time since, industry representatives have answered the question for reporters, politicians and students. The answer has varied from that issued as a public statement to that given in private conference room discussions. It has varied within each company, depending on which corporate executive is asked. It is the kind of thing that stirs great rumors.

I have been told that one investment decision was made because the plant manager wanted to live here. One corporate leader jokingly claimed it was the number of golf courses. An ex-mayor reported that a company became interested in Oregon when it sponsored an international tennis event here. The legislative modification to the corporate income tax allocation method (unitary tax) is generally believed to have been repaid with Japanese plant investments. I have even heard that the state made one company a $30 million offer it could not refuse.

Why Oregon? The answer can be categorized both in terms of profitability (cost factors) and perceptions (non-cost factors).

Profitability

An industry's profit margin is determined, in part, by the direct costs incurred by siting in a geographic region. This requires deciding on a site location from a field of 50 states, 275 metropolitan areas and thousands of communities. The following table shows the projected shift in these annual operating costs from 1970 to 1990:

The direct costs of land, buildings, and property taxes usually play a minor role in locating a plant. Oregon property taxes are higher than those of its neighboring states, but the land purchase and construction costs are considerably lower. This means the actual property tax paid is comparable. The debt service paid on loans coveting land and building costs also would be lower.

Individual industry groups have varying positions on the need for certain state and local tax structures. Oregon's legislative action to modify its own unitary tax is a good example. The Japanese have a philosophic and economic aversion to the "worldwide" unitary tax. Oregon's one-day legislative session spoke louder than words and did give us a new status in Japan and at home.

The tremendous advance in robotics has made some industries increasingly sensitive to local property taxes. Capital intensive industries believe they have less of a social impact than their labor-intensive counterparts. These industries argue for a property tax structure that would exempt automated process equipment or provide for a variable rate structure.

Government tax incentives are perceived by industry as a bonus received after a plant decision is made. Tax incentives programs are very similar from state to state and have created a de facto national industrial policy. They do not make or break a plant investment decision by their presence, but could by their absence.

That leaves labor and transportation accounting for more than 90 percent of the industry direct costs. Electronic companies produce a low weight/high value product that requires them to pay more attention to labor costs than to product transportation costs.

The cost of moving key management and technical people also can be an important transportation concern.

Labor is the key ingredient to an electronic company's success in terms of product quality and innovation, but it is playing a decreasing role in terms of actual wage rates. Federal legislation has increased the minimum wage and this in turn has flattened the regional wage differences for unskilled workers. Oregon's wage rates for high-tech production workers is about equal to the national average, but our rates are slightly lower than our competitors in Washington and California.

I must conclude that the answer to "Why Oregon" is not simply a matter of direct costs to industry. We are competitive, but we are not in the bargain basement.

Perceptions

Non-cost factors include such criteria as labor availability, community attitudes and quality of life.

The availability of a highly skilled labor force is a major asset in Oregon. The entrance of the industry newcomers is directly attributable to the high-tech family that developed in Oregon starting with Brown Engineering (1944) and Tektronix (1946). Part of Oregon's investment attraction is that we have reached a critical mass in terms of the total number of high-technology companies (836) and skilled high-tech workers (40,300) located here. The American Electronics Association (AEA) now ranks Oregon as having the fastest two-year growth rate in the nation.

The growth of the Japanese high-tech industry has created new communication requirements. From the West Coast, an Oregon company can take advantage of the unique time zone differences and speak to business representatives in both Asia and Europe during a normal work day. In the morning an Oregon business can reach New York and London. In the afternoon it can reach Tokyo and Seoul.

Most of these factors are quantifiable, but the category of quality of life is where the line between reality and rhetoric is blurred. Quality of life to the high-tech industry is directly related to the company's ability to recruit and retain employees. Lower housing costs, a mild climate, a variety of nearby recreational and educational opportunities make employees happy.

The positive company-employee relationships fostered by Oregon's founding high-tech industries have contributed the state's image as being a place with high productivity, low employee turnover few management-labor disputes. This is particularly attractive to the Japanese management style.

A recent AEA survey of electronic engineers listed Oregon as having the lowest employee turnover rate in the nation a percent annually. The national aver was 17 percent and our neighbors in Washington and northern California were at 20 percent.

Industry has changed its priorities in order to meet the technological challenge. People now are the most important resource and employees want a good quality of life. In Oregon we protect that quality and that may be our greatest asset.

The Oregon Mystique

The California Journal (January 1985) stated, "It is with some surprise that Oregon suddenly finds itself becoming a national glamour spot for high-technology industrial development. Although other factors have contributed to happy situation -- the plain fact is Oregon is attracting more business than ever not because it has lowered its environmental protections, but largely because it has kept them high."

Newsweek (February 1985) reported that, "Over the past two years, Oregon has become the hottest high-tech growth area in the nation. It has done so on its own terms, boasting the nation's toughest land-use and environmental laws and modest financial incentives."

In the last year similar stories have I run in The Wall Street Journal, Christian Science Monitor, New York Times, U.S.A. Today, Forbes, Business Week, San Francisco Examiner and recently on the front page of the Washington Post.

Oregon's recent success in attracting high-technology investments also raised new concerns about the need to further diversify the state's economy. As nation climbs out of the recession, first industries to expand are those have reached plant capacity. The high-tech industry has grown so rapidly that it is in the forefront of that industrial expansion. As the more traditional industries once again reach plant capacity they will start down the Oregon Trail. This second round of investment may have its greatest impact statewide, because basic industries will not be dependent the high-tech labor force.

So a new perception about Oregon's pro-business attitude and the "Silicon Forest" is born. Ironically it has grown from the 1970's myth attributed to the Governor Tom McCall's "visit, but don't stay" statement, elaborated on by books as Ecotopia, and boldly claimed by the "Don't Californicate Oregon" bumper stickers.

This new perception has spread through the U.S. and the Japanese press. The question asked at Willamette University is being asked by business internationally: "Why Oregon?"

Richard H. Carson is the Manager the Industrial Properties Section with state's Economic Development Development. He also is a member of the team that assisted NEC America, Fujitsu America and National Semiconductor locate in Oregon.


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Common Sense
by Richard H. Carson