You are the CEO of ABC Corporation, a small company that specializes in making pencils from recycled lumber and finishes them with a non-
toxic surface. The pencil industry, really part of the communications hardware industry (competing with pens and other writing implements)
has been growing steadily as literacy grows around the world. A market segment which has been stable to growing slightly has been the golf
pencil industry and a subset of that is the “green” market (pencils made from recycled wood). Sales for your company have been growing at
about 3-4% per year and profitability has been stable at 7% of sales.
You have been very fortunate in that your work force is largely stable with low turnover and generally good morale. Your location in
Brunswick County, NC has an adequate number of people with the required skills so that staffing isn’t a real problem.
You have has been approached by economic development folks from South Carolina who is interested in having ABC open a plant in Sumter,
South Carolina. Since the company doesn’t need any more production capacity it would mean closing the plant in Brunswick County, North
Carolina and building a new plant in South Carolina.
Sumter is offering the following deal:
Will provide the local community college to attract and train new workers at the candidates own expense. ABC Corporation would have to
provide the equipment for training and a trainer to work with community college personnel. ABC would have no obligation to hire anyone who
completes the training. They would compete with everyone who would like to work for ABC in Sumter. ABC would have the option to bring its
existing work force or hire locals or any combination thereof.
To assist ABC in paying for a new, state of the art automated pencil making facility, South Carolina will rebate to ABC all state income
taxes paid by the ABC employees over a ten year period not to exceed the total that ABC spends on plant and equipment in Sumter. After
that ABC receives no subsidies from the state of South Carolina. Sumter County agrees to rebate all property taxes EXCEPT those taxes
which are used for education for a period of five years. After that Sumter will collect all normal county taxes. If there are any town
taxes in the specific area that ABC chooses to locate, the town will also provide a five year abatement of tax. All of this is designed to
help pay for the cost of land, construction and new state of the art equipment estimated at:
10 acres: $250,000
25,000 square foot production facility $2,500,000
3,000 square foot office complex 600,000
Miscellaneous startup costs 100,000
$3,200,000
The new plant and equipment could be financed via a special funding mechanism supported by the State of South Carolina at a rate of 3.5%.
A new state of the art plant using the latest in technology could reduce the need for employees by 5% compared to the current plant which
employs 100 full time people in the production facility.
As the CEO it is up to you if you should move to Sumter and what, if any, options should be made available to current employees. You have
to determine the correct course of action and develop a presentation to the Board of Directors explaining why you want to move the company
and what it will cost/save. If you choose to stay, you must make the presentation to the Board of Directors stating the case for why you
would not accept the offer from Sumter and South Carolina.
Remember your $150,000 a year job depends on making the right decision for the company AND selling it to the Board of Directors.
Hints:
Think about labor rates in Sumter, SC and Brunswick, NC counties. Who is cheaper and by how much?
Think about payroll tax savings on the smaller payroll.
Think about the cost of moving, if any, the employees from New Hanover, NC to Sumter.
Think about what you might offer in terms of severance, if any, to the employees who will be left behind.
Think about taxes? What are you paying now and what would you save (if anything) in SC.
Think about the cost of the new plant and cost savings to produce your product line.
Are there any other issues, like the social cost of pulling out of Brunswick County on 100 families that will now be unemployed? How
do you quantify that in your cost analysis? Is that something you should consider when reviewing this option?
Additional hints:
Population census for both states.
DOR for each state. (Dept. of revenue) to determine individual income tax rates
Check County websites for local property tax rates.
Check to see if other taxes may apply such as tax on personal property which may include equipment, vehicles, etc.