Governments compete. That statement may seem odd, especially to business executives – businesses compete in the market, but governments? Yet it’s true – while we all know governments regulate, we often overlook the fact that they compete, as well.
What are they competing over? Businesses – especially manufacturing businesses. And how do they compete? Through the use of a wide range of incentive programs that encourage relocation or expansion in their region.
Many manufacturers underutilize these programs. Some are unaware of what’s available, others assume the process is too complex, and many simply don’t have the internal bandwidth to pursue them. The result is that billions of dollars in incentives go unclaimed every year. For companies willing to be proactive, this creates a powerful competitive advantage.
A Look at Expansion Incentives
Expansion incentives—whether in the form of tax credits, grants, low‑interest loans, or workforce development support—are designed to encourage manufacturers to invest in new facilities, equipment, and jobs. Governments at the federal, state, and local levels all compete to attract and retain industrial investment, and manufacturers can leverage this competition to significantly reduce the cost of growth.
Building or expanding a facility is capital‑intensive. Incentives can offset costs related to:
- Construction and site development
- Machinery and equipment purchases
- Utility infrastructure
- Environmental compliance
- Workforce Development
While some incentives come in the form of direct grants, most are more indirect. Tax increment financing arrangements – where government subsidizes capital expenditures, and recovers those funds over time through increased property taxes – can greatly lessen the upfront cost of expansion. Payroll tax credits are also popular, and, from the government’s perspective, have the added benefit of linking incentives directly to increased hiring. In addition, many jurisdictions offer creative financing vehicles such as low-interest loans.
Finally, don’t forget workforce development. When asked to name the biggest challenge they face, manufacturers often cite the lack of skilled labor. The challenge is real, and governments have been paying attention. Today, there are a wide range of state-funded programs focused on apprenticeships, upskilling and training. In addition, state and local authorities are clamoring to attract advanced manufacturing to their region, and are willing to spend on workforce development accordingly.
All in all, expansion incentives can reduce project costs by 10–30 percent. That difference can determine whether a project is financially viable—or whether it gets delayed indefinitely.
A Look at Research and Development Incentives
If expansion incentives help manufacturers grow, R&D incentives help them evolve. Innovation is no longer optional in manufacturing—it’s the engine that drives productivity, quality, and long‑term competitiveness. Government R&D programs exist to encourage exactly this kind of innovation.
R&D is inherently uncertain. Not every experiment leads to a breakthrough, and not every prototype becomes a product. Government incentives—such as the federal R&D tax credit, state‑level innovation grants, and sector‑specific funding programs—reduce the financial risk of pursuing new ideas. While it may take some up-front effort to identify grant or funding opportunities, in many cases the return on that effort can be substantial.
One thing to keep in mind: the best opportunities are often the ones companies craft for themselves. Many Federal agencies such as the Department of Energy or Department of Defense are in search of worthy projects to fund. If you have an impactful project that can really make a difference, don’t wait for an RFP – proactively reach out to the appropriate agency and share your concept.
Why Many Manufacturers Miss Out
Given all these benefits, why is it that so many manufacturers don’t take advantage of these incentives? In my experience, there are three reasons: (a) lack of awareness of the programs; (b) misperceptions of eligibility; and (c) limited internal resources to manage the perceived complexity of the process. Let’s take a deeper look at each of these.
Lack of Awareness. While some Federal incentives like the R&D tax credit are well-known, most incentive programs are offered by state and local governments. Because the needs and goals of each state and locality are different, the incentive programs differ, as well. Unless you ask, you’ll likely not be aware of them. And many companies simply don’t think to ask.
That’s a mistake. After all, governments want to give their money away. And they’ve created lots of ways to do it. Not sure where to start? The local chamber of commerce will almost certainly be able to steer you in the right direction for expansion incentives, and there are no shortage of consultants that can help with R&D.
Misperceptions about Eligibility. No company is too big or too small to benefit from government incentives. While large incentive packages often make the news (think Intel and semiconductor manufacturing), you don’t need to be a publicly-traded multinational to benefit. The truth is that most incentive programs are designed to be accessible, and many manufacturers qualify without realizing it.
Limited Internal Resources. The idea of applying for a government grant conjures up thoughts of extensive bureaucracy, compliance audits, opaque processes and time-consuming paperwork. It’s understandable that companies don’t want to risk wasting valuable staff time on a process they don’t really understand.
In reality, most agencies make it fairly easy to explore available incentive opportunities. Again, remember: they want to give their money away. State and local economic development agencies are set up to make their programs understandable and accessible – they will lead you through the process, every step of the way. In most cases, the payoff is well worth the effort.
A Proactive Approach Pays Off
Manufacturers that treat incentives as a strategic priority, rather than an afterthought, will outperform their peers.
Here’s a quick checklist to help you move from reactive to proactive.
- Build incentives into early project planning. When considering an expansion project, don’t treat incentives as an afterthought. Be sure to engage economic development agencies very early in the process, and certainly before you’ve made any definitive decisions. Once you’ve selected a site or announced an expansion, incentives might no longer be available.
- Incorporate incentive analysis into your strategic planning processes. Whether you’re reviewing your overall R&D plan, your HR development needs, or facility requirements, be sure to add an incentive analysis to your process. Simply pausing to ask the question “are there government incentives available to help me do this” can help you identify opportunities you might not otherwise think of.
- Use outside consultants. There is no shortage of firms that specialize in helping companies secure expansion or R&D incentives. These firms have developed expertise in their regions and areas of focus, and can help you quickly identify and execute on funding opportunities.
- Use your local chamber of commerce. I can’t emphasize enough how valuable local chambers of commerce can be to secure small business incentives. These groups either coordinate local economic development efforts, or can steer you to the agency that does. Take advantage of what they have to offer.
Incentive programs exist at all levels of government, to accomplish any number of worthy goals. Federal, state and local programs facilitate job creation, workforce development, and technological advancement. All it takes to benefit from these programs is some planning, process and strategy.