Across this diverse region, jurisdictions are offering incentives to attract businesses from a truly broad range of sectors.
In brief
- The Americas offers a comprehensive and compelling, yet complex, range of incentives across R&D, sustainability and beyond.
- While competing with each other to attract business, some countries also offer incentives at state and local levels that need to be navigated.
- On-the-ground experience can prove critical in working out which incentive is most appropriate as well as potentially helping negotiate terms.
Today’s multinational organizations may be facing an increasingly tumultuous operating environment, but that hasn’t dampened their appetite for exploring new territory. Quite the opposite, in fact.
All over the world, companies must rethink their approach to global supply chains and markets in the wake of the COVID-19 pandemic, while also striving to meet ambitious climate-related targets and confront cost pressures. In response, many may seek new locations for their operations — and they could do far worse than the Americas.
Think of the Americas as a business location and the mind may turn straight to the United States (US). Its population of over 330 million people spends more than any other group of consumers, according to World Bank data, but the nation’s impact is much broader: American entities have had an unrivalled impact on the world in which we live – relentlessly exporting their innovations in everything from tech to culture, and even economic models themselves.
But the appeal of the Americas as a business location reaches far beyond the US. To the north, Canada offers vast wealth in natural resources and a highly skilled tech workforce. To the south, meanwhile, there’s the lure of low-cost land and labor. Companies can take their pick from the manufacturing base of Mexico; Argentina’s back-office support; Brazil’s vast and diverse opportunities; and the rising FinTech and logistics capabilities of new centers such as Costa Rica and Panama.
Of course, a location decision doesn’t hinge simply on the strengths of a particular jurisdiction. Each location is competing for the jobs and tax revenues that come with lucrative businesses, and many offer a range of compelling incentives to sweeten the deal. Overall, a jurisdiction’s economic strengths, weaknesses and incentives create a delicate balance to consider.
“You have to make your choice of location holistically,” says Michael Moore, EY Seattle/Portland Incentives, Innovation and Location Services Leader. “In order to make a sound business decision, a company has to compare jurisdictions on an apples-to-apples basis, considering a huge range of costs and logistical factors, each of which has a very real impact on the value of any incentives. And the incentives can be incredibly complex in their own right.”
While the Americas clearly represents a huge opportunity – offering safe and established centers as well as dynamic untapped potential – making inroads is certainly not easy. South and Central America, for instance, may present some serious logistical challenges, while incentives can prove equally inaccessible. They’re often not as well publicized as in the North, and the ways in which companies apply for and utilize them can involve a level of subjectivity that demands careful navigation too.
Unfortunately, problems may exist in more mature markets, too. With its vast array of incentives, the US actually catalyzed the hyper-competitive nature of the state system — but leveraging them can prove challenging, especially when their real value is often far more nuanced than it first appears.
“As many cash grant programs aren’t even advertised, a company may find itself agreeing to certain terms without understanding the gains they could have made from other approaches,” says Scott Mackay, EY Americas Quantitative Services Leader. “Decision-makers also have to consider the true cost of setting up business, from construction costs to taxes on materials, labor and other embedded expenses, not to mention the complexity of other factors, such as local labor laws.”
Making an informed decision regarding new locations requires a comprehensive model that shows the true cost of doing business in a particular country, and potentially in specific regions and cities within it.
So whether exploring the benefits of up-and-coming economies such as Costa Rica and Panama — or the more tried-and-tested routes of Brazil, Mexico, the US or Canada — it’s critical that businesses seek solid advice from those with a presence on the ground.
A knowledgeable advisor will help determine if a given location offers advantages in everything from supply chain to workforce. They can also help drive value from the wide range of incentives being offered and can help validate that they remain beneficial even when weighed against the true cost of doing business in that location.
Not only will they understand the hidden costs and risks, but they may even hold meetings with state and local government officials, presenting the potential benefits the company could bring the region in terms of capex and job creation, while collectively negotiating a strategic combination of incentives.
That business will then have a detailed understanding of its potential outlay, the cost and logistical challenges, and the real value of the incentives on offer. And it will be well-positioned to prosper – whether it’s a social startup in Silicon Valley, a Panama logistics hub or a back-office operation in Buenos Aires.
Summary
From Canada in the north all the way down to Argentina, the Americas presents businesses with a truly fascinating and diverse set of incentives. But navigating the regularly changing landscape can be challenging. Working with professionals who understand the markets on a country-by-country basis can help with critical decision-making.
The views reflected in this article are those of the author and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.
Brian Smith – EY Global Incentives, Innovation and Location Services Leader
With more than 20 years of experience, Brian is the EY Global Incentives, Innovation and Location Services (GILS) Leader, as well as the EY US Indirect Tax Inbound Leader. He is responsible for helping companies navigate through the complexities of making global location investment decisions from initial market entry (i.e., greenfield location) through expansion of existing operations (i.e., capital expansions, innovation, routine expenditures and sustainability investments).
Aaron Aversman – EY Global Incentives, Innovation and Location Services US West Region Leader
Aaron currently serves as the leader of the US West Region GILS practice. During his 19 years with the EY organization, Aaron has developed strong relationships with a variety of real estate and economic development officials across the globe as he focuses on complex site selection and incentives securitization projects.