Economic development is often measured by the number of new companies a community attracts. New investments, new facilities, and new jobs are important indicators of economic growth. However, a comprehensive economic development strategy cannot focus exclusively on recruiting new businesses. The retention and expansion of businesses already operating in a community is equally important.
Existing businesses are the foundation of a local economy. They employ residents, occupy commercial and industrial real estate, purchase goods and services, generate tax revenue, support local suppliers, and contribute to the overall economic stability of a community. When businesses grow, the economic impact can extend well beyond the individual company.
Business Retention Is Economic Development
Business retention and expansion should be viewed as a fundamental component of economic development.
An established company has already made a substantial commitment to the community. It has invested capital, developed a workforce, established a customer base, secured real estate, and built relationships with vendors and service providers.
When that company expands, the community benefits from additional employment, increased investment, expanded payroll, greater demand for goods and services, and potentially additional tax revenue.
In many instances, facilitating the expansion of an existing employer can be more efficient than recruiting a new company with the same economic impact.
Understanding the Needs of Existing Employers
Effective business retention begins with consistent communication.
Economic development organizations and community leaders should maintain ongoing relationships with local employers and understand factors that affect their ability to remain competitive and expand.
Conversations should address issues such as:
- Workforce availability and skills gaps
- Transportation and infrastructure
- Utility capacity
- Broadband accessibility
- Zoning and permitting
- Availability of commercial and industrial real estate
- Expansion opportunities
- Regulatory barriers
- Supply-chain challenges
- Access to training and workforce development resources
The objective is to identify potential obstacles early enough to address them before they affect investment and employment decisions.
Workforce Development Is a Retention Strategy
Workforce availability is increasingly central to business retention.
A company may have the capital, market demand, and physical capacity to expand, but growth can be constrained if a community lacks qualified employees.
For that reason, economic development strategies should closely connect employers with workforce development organizations, community colleges, technical programs, universities, and other training resources.
Workforce development should be driven by actual employer demand. Training programs are most effective when they prepare individuals for the occupations and skills that businesses need now and will need in the future.
A community that invests in its workforce is investing directly in the competitiveness of its existing employers.
Infrastructure Supports Existing Investment
Infrastructure is another critical component of business retention.
Transportation networks, roads, bridges, rail, ports, airports, utilities, water and sewer systems, and broadband infrastructure directly affect a company's operating costs and ability to expand.
Infrastructure planning should therefore consider where a community hopes to recruit its next major employer as well as whether existing business districts and industrial areas have the capacity to support future growth.
A company that cannot expand because of inadequate infrastructure may eventually be forced to consider locations outside the community.
Commercial Real Estate and Business Expansion
Commercial real estate plays an important role in business retention that is sometimes overlooked.
Businesses require adequate space to operate and grow. As companies expand, their real estate requirements may change significantly. They may need additional office space, warehouse capacity, manufacturing facilities, parking, distribution space, or additional land for future development.
If an area lacks available property, an otherwise successful company may be compelled to relocate.
This makes commercial real estate inventory an important economic development asset. Communities should understand the availability, condition, ownership, zoning, utility capacity, transportation access, and development potential of their commercial and industrial properties.
An important component of the economic development process is ensuring that existing businesses have viable opportunities to expand.
Existing Businesses Strengthen Recruitment Efforts
Business retention and business recruitment are complementary strategies. A community with successful, growing businesses has a stronger economic-development story to tell prospective employers.
Existing companies demonstrate that the community can support investment, provide access to markets and infrastructure, develop a workforce, and create an environment conducive to long-term operations.
Established businesses can also contribute to industry clusters and supply chains that make a community more attractive to additional companies.
One successful employer can create opportunities for suppliers, contractors, service providers, and complementary businesses to locate nearby.
Protecting Prior Economic Development Investment
Business retention also protects investments a community has already made.
Economic development frequently requires substantial investment in infrastructure, workforce programs, transportation improvements, utilities, industrial parks, and other public assets.
When an established employer leaves because a community could not fulfill its requirements, the community loses jobs as well as the economic activity associated with the company.
Retention helps protect that investment and creates opportunities for additional growth.
A Proactive Approach Produces Better Results
The most effective business retention strategies are proactive rather than reactive. Communities should not wait until a company announces a relocation or closure to begin evaluating its needs. Regular employer outreach, market analysis, real estate assessments, workforce planning, and infrastructure evaluation allow economic development professionals to identify opportunities and challenges before they become critical.
The approach also creates an environment in which business owners know whom to contact when they are considering an expansion, relocation within the community, acquisition of property, or other significant investment.
The Bottom Line
Business recruitment will always be an important component of economic development. New employers bring new capital, jobs, innovation, and opportunities to a community.
Economic development is measured solely by what a community can attract, retain, strengthen, and grow. Existing businesses are already invested in the community. They employ local residents and contribute to the tax base and local economy. Their continued success should therefore be treated as a strategic economic development priority.
The most effective communities recruit new investment while creating the conditions necessary for existing businesses to remain competitive, expand, and invest for the future.
That is the foundation of sustainable economic growth and a critical component of a strong commercial real estate and site selection strategy.
At Jones Wadsworth, we assist companies in making wise investment decisions for projects located within the state of Alabama. Dr. Nicole Jones is rooted in Huntsville and now accepts clients statewide.
