Jean-Sébastien Leclerc considered Arizona, Nevada, Washington State and Oregon for the site of a new plant that would allow his family’s 110-year-old food business to expand into Western Canada and the U.S. Southwest.
Canadians make up about 78 per cent of foreign travel to Phoenix’s Sky Harbour Airport, as well as 85 per cent of private jet travel. Certainly the city attracts its share of snowbirds. But it has also done a bang-up job of wooing Canadian companies in search of a low-cost U.S. base of operations and a business-friendly climate. The current population is 1.5 million. But “if we had a beach, we’d probably have 25 million,” jokes Chris Camacho, president and CEO of the Greater Phoenix Economic Council.
“We wanted to be close to California, but not in it,” Leclerc, U.S. director of sales for the company, said. Although the state represents a huge market, “we had heard it wasn’t the easiest place to do business — a lot of rules and constraints and higher taxes.”
Ultimately, Leclerc concluded space was too expensive in Oregon and Washington State, at about US$100 a square foot. And, “we couldn’t really find anything in the market in Nevada that was the size we were looking for,” he added. But in February 2014, he turned up a 170,000-square-foot plant on 7.3 hectares of land in Phoenix that cost US$7.6 million, or less than US$45 a square foot.
Leclerc Group, based in Saint-Augustin-de-Desmaures, Que., needed more capacity to provide the Western Canadian and Southwestern U.S. markets with its snack bars and cereal, so after flying in with his father Denis Leclerc, the company president, to see the facility, Jean-Sébastien put in an offer, then wasted no time ordering the equipment required to get it operational. The plant was up and running in six months.
And when it advertised for eight production employees recently, it got 1,600 applications. “For us that’s unheard of,” Leclerc said. “In both Quebec and Pennsylvania [where Leclerc has another plant] the job market is very tight.”
There are about 350 Canadian businesses operating out of Arizona, up from about 80 just 10 years ago. Some are attracted by the prospect of having a low-cost launching pad into the U.S. Southwest market, while others use it as a base for managing plants in Mexico. But the main attraction is a pro-business environment with plenty of cheap space (Arizona was hard-hit by the U.S. economic downturn), excellent transportation routes and an educated workforce with a median age of 32.6.
Calgary-based DIRTT (Do It Right This Time) Inc., a manufacturer of design-savvy, modular and reconfigurable walls for interior construction, was drawn by Arizona’s strategic location. DIRTT Calgary facility builds the wall panels that provide the base of its products, while plants in Savannah, Ga., and Phoenix manufacture the aluminum frames the panels snap into.
Arizona’s advantage is its position via the West Coast, said Mary Wolf Francis, manager of community outreach and client relations for DIRTT’s Phoenix operation. That’s important, because a key competitive advantage is how rapidly DIRTT’s customized interiors can be designed, manufactured and installed, keeping the mess and inconvenience to a minimum at the hospitals, offices and other buildings that make up its clients.
“It’s a matter of feeding that 500-mile radius around us,” Wolf Francis said. “We had a number of projects in Northern California and it was much less expensive to have the material coming out of this factory. You just put it on a truck, turn left and head right up the coast.” And Phoenix is a three-hour flight from Calgary, with several direct flights daily, she noted.
That fact can’t be underestimated, said Glenn Williamson, a Montreal-born, serial entrepreneur and chief executive of the Canada Arizona Business Council. Before the 2008 recession, the state attracted about 140,000 Canadians a year for work and pleasure, but there were only about 25 non-stop flights a week between Canada and Arizona, he said.
Now there are 127 a week and about 78 per cent of all international travel into Phoenix’s Sky Harbour Airport is Canadian. “That air lift was probably the catalyst for why we have nearly a million Canadians here now,” Williamson said.
Charlie Hess, president of wiring harness manufacturer St. Clair Technologies Inc., said that was a factor in moving his company’s brain trust from Wallaceberg, Ont. to Chandler, Ariz., a half-hour from Phoenix. It moved manufacturing from Owen Sound, Ont., to Guaymas, Mexico, in 2011.
Although St. Clair’s ownership group still directs the business from Canada, a 25-member team operates out of Chandler, largely because of its proximity to the Mexican plant. Hess said he can fly out of Phoenix at 10 a.m. and arrive at the plant in Mexico by 2 p.m. “It’s the closest we could get to our plant and still attract the kind of talent we want,” he said. “We want young talented engineers to come and work for our company.”
There is a rich talent pool in the city thanks to the presence of Intel and other large tech companies, as well as three universities from which to hire. Still, many of St. Clair’s Arizona team come from Canada and Michigan, who are attracted by Phoenix’s sunny warm winters. “I’m not sure Texas would have been appealing and costs in California are much higher,” Hess said.
Melissa Hess, director of sales and technical services for St. Clair, said the Phoenix area also offers opportunities to diversify beyond the automotive sector, which now makes up the bulk of its sales. “There are potential targets for me here – potential customers we haven’t traditionally dealt with and wouldn’t have had exposure to without being in this area,” she said. “We really want to break into markets for our product beyond automotive and school bus.”
The company’s ability to diversify is being aided by the Greater Phoenix Economic Council (GPEC) — a not-for-profit alliance of business and political leaders aimed at fostering economic growth. “GPEC hosts a lot of events and exposes us to other people in the industry so we can exchange ideas and do some networking. That helps us promote what we do and make contacts,” Charlie Hess said. “There’s a blending of the public and private sector to a level I’ve not seen anywhere else.”
GPEC also offers services such as in-depth market data and analysis, operational cost analysis, help with site selection and incentive analysis to companies looking at locating in the area. “We’re moving very aggressively down the path of not only supporting people moving here, but also creating a conducive environment for industry,” said Chris Camacho, president and CEO of GPEC.
That effort has paid off. In 2006, only about one per cent of companies evaluating investing in the Phoenix market were of foreign origin. Now about 20 per cent comes from outside the U.S., with Canada being the biggest player by far.
“Our ability to compete successfully in a global economy is what is going to make us a great city going forward,” Phoenix mayor Greg Stanton said. “We’re at a bit of a tipping point and my feeling is we’re tipping in the right direction.”
© 2015 National Post