All roads lead to Tennessee

Think of Tennessee and you might envision Davy Crockett, the Great Smoky Mountains, or the Grand Ole Opry. Lesser-known facts are that it's the fifteenth-fastest-growing state in the country and situated in the center of the South. More than 75 percent of the country's population is within a day's

Tennessee is long and narrow - 500 miles from east to west and borders eight states. It has three distinct geographic regions and occupies two time zones. A number of interstates, railroads, and navigable waterways cross its expanse. Very few extreme weather situations arise that create major transportation or business delays.

Manufacturing has long been an economic strength of the state last year it accounted for 24 percent of the gross state product. Major manufacturing sectors include automotive, chemicals, food processing, commercial and industrial machinery, fabricated metals, appliances, plastics, and printing and publishing.

In 2000 Tennessee enjoyed a record $7 billion in private capital investments from new and expanding companies; up from $6 billion the previous year. More than 34,000 new jobs were created. Twenty-six percent of that record $7 billion came from foreign investors, most notably Japan and Canada.

"Our investment success is a direct result of a statewide team orking hard to bring in expansions and new business locations hat provide high-quality, high-paying jobs for Tennesseans," said lex Fischer, who served as commissioner of the Tennessee Department of Economic and Community Development in Nashville until September of this year.

This kind of economic success reinforces the need for a well-edu Gated work force. Groups such as Tennessee Tomorrow, a partnership of public, private, and academic leaders, and the Tennessee Commission on Education Quality are working to upgrade the educational system, especially preschool opportunities. One goal is for all at-risk preschoolers to have access to an early-childhood program. Funding will also be available for scholarships for teachers and reading coaches in the classrooms.

A Cross-Section of Tennessee

In some ways Tennessee is almost like three states in one eastern, middle, and western Tennessee are distinctly different regions, right down to the various southern accents spoken there.

WEST TENNESSEE

The western third of the state, bordered by the Mississippi River to the west and the Tennessee River to the east, is rural, flat, and agrarian-based. Memphis and Jackson are the most economically vibrant cities. Memphis has long been known as a key distribution center because of its location on the Mississippi River and its outstanding international airport. This solid infrastructure is attractive to many businesses, especially distribution centers. Federal Express Corporation's international headquarters are located in Memphis; International Paper Company is spending $66 million to expand its facilities in the city and will hire about 950 new employees.

In June 2001 Araco Corporation, part of the Toyota Group, announced a joint venture with Johnson Controls to build a $30 million, 190,000-square-foot automotive metal parts production operation in Jackson.

MIDDLE TENNESSEE

This central portion of the state, bordered on the west by the Tennessee River and on the east by the Cumberland Plateau, is more topographically diverse. Its principal city is Nashville, the capital, where interstates 24, 40, and 65 converge. Nashville, as well as the satellite counties of Wilson, Williamson, Rutherford, and Sumner, are experiencing record growth. Other cities that are attracting businesses are Murfreesboro and Franklin. Both Sprint Communications and Dell Computer Corporation have recently moved to Nashville.

Middle Tennessee is also home to a booming automotive industry. Both Saturn Corporation and Nissan Motor Manufacturing Corporation USA have auto-assembly plants here; Peterbilt Motors Company also has a truck-assembly facility. More than 800 automotive suppliers are located in the state - one quarter of these plan on expanding existing facilities with a total capital expenditure of $1.6 billion. Jobs in the automotive sector account for nearly 6 percent of total state employment.

EAST TENNESSEE

Located between the Cumberland Plateau and the North Carolina border high in the Appalachian Mountains, East Tennessee has a diverse industrial base. The Knoxville-Oak Ridge area is known as the Tennessee Technology Corridor, which includes the U.S. Department of Energy's Oak Ridge National Laboratory, the Universoty of Tennessee-Knoxville, and the new Spallation Neutron Source, at linear particle accelerator chamber that is the biggest research science project in the country. Knoxville was recently cited by Policom Corporation as one of the most economically strong cities in the country between 1974-1998.

Further to the northeast are Kingsport, Bristol, and Johnson City, all of which are experiencing strong economic growth, especially in manufacturing and distribution. King Pharmaceuticals is centered in Bristol; Cingular Wireless is opening a customer call center in Johnson City and will employ 600-900 people.

A rapidly emerging business sector in the Chattanooga area involves the development and manufacture of medical and rehabilitation equipment. Led by the Chattanooga Group and the University of Tennessee-Chattanooga (which has one of the top physicaltherapy departments in the country), the Chattanooga Chamber of Commerce has created the Chattanooga Regional Growth Initiative to attract related businesses.

Other corporate leaders are Health South Hospital and Siskin Rehabilitation Hospital. Unum Provident, also headquartered in Chatanooga, is the country's largest disability insurer. Cigna, another insurance firm, moved to the city in 1997.

"Chatanooga has many strategic values that will appeal to other companies in the field of rehabilitation," says Steve Hiatt, manager of business development for the chamber of commerce. "We want to be known as the rehabilitation capital of the world." Location, Location, Location

Every place has a key strength - Tennessee's is location. Its borders are within 600 miles of the majority of the U.S. population.

The western two thirds of the state is in the Central Time Zone; this appeals to call ceners, whichcan cover both East and West coasts from about 7 a.m. to 6 p.m.

U.S. DenTek, a distributor of oral-hygiene products, moved from San Francisco to Maryville in eastern Tennessee in March 2001. "By relocating to Tennessee our monthly freight bills are about 40 percent less," reported John Jansheski, president and CEO of U.S. DenTek. "Seventy percent of the U.S. population is east of Denver, which we can reach in a day or two. There is no question Tennessee is the best state to be in for distribution purposes."

Don Hudler, president of Saturn's Retail Industries division in Spring Hill, said that when Saturn began looking for a site, finding a strategic location was very important. "In Tennessee," he said, "we found a central location and outstanding transportation network. Here, the concept of just-intime delivery really works. Add easy access to hundreds of suppliers and it's no wonder Tennessee is the number-one producer in the Southern Automotive Corridor."

Tony Grande, current commissioner of the Tennessee Department of Economic and Community Development, said that many companies are "interested in being a bigger fish in a smaller pond," indicating that they often look to smaller, more rural communities for an available work force.

Rural areas often have higher unemployment, lower soc conomic status, and cheaper land. Small communities are beginning to invest in industrial parks and spec buildings. Some companies even want to meet the locals face to face before making a decision. Officials from Seymour Tubing Inc., who were looking seriously at the town of Dunlap in rural Sequatchie County, wanted to "walk the streets of downtown Dunlap and talk to the average person" before making their decision, said Sequatchie County executive Arthur Tollett. A manufacturer of steel tubes for automotive systems, Seymour liked what it saw and broke ground in October 2000 on a new manufacturing facility.

Work Force

Tennessee's unemployment figures are about 4.1 percent, still below the national average. Strong economic growth in major cities is reducing that figure even more. "Nashville's job growth [about 3 percent] has outstripped population growth [about 2 percent]," said Fred Harris, vice president of economic development for the Nashville Chamber of Commerce.

Numerous high schools, training schools, tech schools, colleges, and universities provide employers with a well-educated pool of potential employees. Another attractive feature, especially to manufacturers, is Tennessee's status as a right-to-work state union membership is well below the national average.

The state is very active in training workers for incoming industrial businesses. Tennessee's Industrial Training Services (ITS) helps expanding or relocating firms land the right employees for their operations. Training can be pre- or post-employment, on-the-job, or in a classroom setting - often through a community college or tech institute. ITS, according to its director Bob Parsons, also reimburses companies for some of the training costs.

A state training program can make a big difference in helping a company select a relocation site. "ITS continually assesses the effectiveness of its programs and upgrades them to meet the changing needs of our employers," said Parsons. ITS has trained more than 75,000 workers in the past five years.

Another initiative, the Tennessee Job Skills Program, gives grants to companies that invest in new technology, equipment, or facilities, or that upgrade current employee skills.

A state technology center can be found within 30 miles of every Tennessee community. Formerly known as vocational tech schools, these 26 centers help adults master job skills in agriculture, health, home economics, administration, and trade and industry. The centers work closely with local businesses to provide worker-training programs that are needed the most.

Tennesseans are well-known for having a solid work ethic. "Frankly, we were a little concerned about the work force's technology skills in the Nashville area," said Kip Thompson, vice president of worldwide facilities management and corporate real estate for Dell Computer Corporation, which set up a facility in Nashville in 1999. "Tennessee's work-force development office helped us assemble a very qualified and diverse work force." Keeping up competitively is the name of the game in today's global economy. "Competition is fierce, even between business units within the company," said Thompson. "Our Nashville location is holding its own against our more established facilities in Malaysia, Europe, and China. We are very pleased."

Thene Sheehy, director of Sprint's PCS IT Application Development Solutions Center in Nashville, agreed about the city's work force. "We have found an excellent pool of workers, especially 80,000 students from 18 colleges and universities," Sheehy commented. "There is a lot of creativity here already from the music business, and the creative process in software development is not much different."

Infrastructure

Six interstates cross Tennessee, providing access to all national markets. Billions of dollars have been spent in the state on new highway construction. "The central location and excellent highway systems offer an obvious logistical advantage," said Thompson. "For Dell Computer, the customer experience and time-to-market are of paramount importance. The state is also clearly committed to investing in infrastructure and ongoing improvements to help businesses."

"We handle printing for some of America's favorite periodicals," said James A. Dawson, president of Quebecor Printing Corporation in Nashville. "Our success is based on our ability to meet tough deadlines. Tennessee's transportation network helps us meet these commitments."

Five major airports are located in Tennessee, all of which have invested heavily in new cargo-handling infrastructure, especially for air freight. Memphis International Airport is the number-one aircargo airport in the world and is undergoing a major expansion; the airport is the central hub for Federal Express and a major hub for Northwest Airlines. More than 70 general aviation airports service smaller communities across the state.

"FedEx selected Memphis for its worldwide headquarters because it is an ideal location for moving packages anywhere in the United States," said Frederick Smith, CEO of FedEx. "The weather is excellent and Memphis International Airport meets our needs for virtually round-the-clock operations 365 days a year."

Five primary railways and several waterways also provide transportation. The Tennessee-Tombigbee Waterway and Mississippi River connect Tennessee to the Gulf of Mexico. In fact, Memphis is the second-ranking inland port in the country.

Tennessee's utility company, the Tennessee Valley Authority (TVA), is the largest generator of electricity in the country. Average retail electricity in TVA's service area costs 22 percent less than the national average. Since 1995 TVA has added 700 miles of transmission lines and 138 customer delivery points.

Last year, within TVA's seven-state service area, power distributors and large industrial plants were without wholesale power for an average of less than eight minutes - a reliability rate of 99.99 percent.

"TVA rates have also been very stable over the years." said Charles Shoopman, TVA's senior manager of industrial development. "In September 2001 the board announced there will be no energy-price increases in 2002. In fact, only one increase has occurred during the past 13 years." TVA has also worked hard to reduce its debt, which today is 2.3 billion less than it was in 1998.

Taxes and Incentives

Tennessee has one of the lightest tax burdens of any state in the country, which reduces overall perating costs.

Tennessee's $1,311 in tax collections per capita is the lowest in the southeastern United States (the national average is $1,835). In addition, a number of financialincentive programs are available to companies at local, state, and federal levels in the form of grants, loans, and bonds for industrial infrastructure. Telecommunications assistance programs are also available for small and/or minority-owned businesses.

A jobs tax credit of $2,000 to $3,000 can be claimed for every new, full-time employee if the company creates a minimum of 25 new jobs and has a capital investment of $500,000 or more. Companies can receive a 1-percent excise tax credit for the purchase, installation, or repair of industrial machinery, computers, and telecommunications or warehouse and distribution capital investments. Net operation loss may be carried forward for 15 years; all capital losses may be claimed the year they are incurred.

No franchise tax is levied on property under construction, the purchase of pollution-control equipment, or finished-goods inventory in excess of $30 million. Property rented from an industrial development board may be capitalized on corporate books. Worker's-compensation rates in Tennessee are lower than the national average and there is no state personal income tax on wages or salaries.

Sales tax, use tax, and corporate/excise taxes are 6 percent. Goods in process, finished-goods inventories, inventories of merchandise, goods in transit, and pollution-control equipment are exempt from property taxes. No sales tax is required on industrial machinery, handling and racking equipment, raw materials for processing, pollution-control equipment, or packaging materials. Energy and water, when used directly in a manufacturing process, are also tax-exempt.

"Tennessee has a very pro-business climate at both the state and local level," said Thompson. "They are willing to do what it akes to close a deal quickly. Dell Computer built its 289,000square-foot facility in Nashville in only 62 days state and local officials were helpful in streamlining the process."

Another incentive is simply the affordable price of land. U.S. DenTek left San Francisco, its headquarters for 16 years, because it could not find nearby property for expansion. "I spent one year and $25,000 trying to find a suitable tract in California," said Jansheski. Land in California was priced at $400,000 per acre; in Maryville Jansheski purchased five acres for about $100,000.

Growth Sectors

Nearly 60 percent of all Fortune 500 manufacturers maintain operations, production, or distribution facilities in Tennessee. Sectors with the greatest amounts of growth from 1995 to 1999 are seen in the chart on page 53.

Technology

Tennessee is developing a reputation as a technology center. The Tennessee Technology Corridor, approximately a 25-mile stretch between Oak Ridge and the University of Tennessee at Knoxville, is defined by more than 500 high-tech companies, 5,000 engineers, 4,400 scientists, and 2,000 Ph.D.s - the highest Ph.D. density in the country.

To date, technology has focused on manufacturing, information technology (IT), and biotech. The Oak Ridge Centers for Manufacturing Technology help manufacturers improve their processes and develop new products. For example, a laser metal-coating process developed by the University of Tennessee's Space Institute can be applied in the manufacturing of automobiles.

IT research is led by BellSouth and aided by a state program called Technology 2020. The very active Information Technology Business Association nurtures IT start-ups within the state. Digital Crossing in Knoxville is a fully wired location where multimedia firms can co-locate and collaborate on various projects.

Medical research and pharmaceutical manufacturing are the key components of the biotechnology sector. Leaders include St. Jude Children's Research Hospital, Vanderbilt University, and pharmaceutical companies such as King Pharmaceuticals.

Oak Ridge National Laboratory is a U.S. Department of Energy facility that supports 15 sophisticated experimental-science research centers, including atomic physics, bioprocessing, metals processing, materials research, and manufacturing technology. The National Transportation Research Center conducts transportation research, development, and technology. Williamson County Research and Technology Park in middle Tennessee is a state-ofthe-art research campus that interfaces with various academic and government researchers on genetics, imaging, IT, pharmaceuticals, and industrial-engineering projects.

Until two years ago, there was no trade association to represent the collective interests of the biotechnology sector. "The different segments of industry and research had no formal way to connect with each other," said Dennis Grimaud, president of the Tennessee Biotechnology Association (TBA), which was founded in 1999 and now has nearly 100 members.

"Prior to 2000, Tennessee's open-records act stipulated that if a state-funded university used grant money from a private company for research, the resulting intellectual property could not be protected," said Grimaud. "TBA lobbied hard to get that changed so that state schools can now protect intellectual property for commercialization. This of course has greatly increased research funding from the private sector."

Another key organization is the Tennessee Technology Development Corporation in Oak Ridge. "Tennessee has some of the best scientific and research institutions in the world," said Tom Rogers, executive director of the Tennessee Technology Development Corporation (TTDC). An ongoing task of the TTDC is to attract venture capital to the state's technology companies.

Still yet another group is the Memphis Biotechnology Foundation. A partnership between the University of Tennessee Health Sciences Center and the Baptist Hospital Association, it was founded in April 2001. One of its goals is to help establish incubation buildings for new life-science technologies.

Transportation

Saturn Corporation, Nissan Motor Manufacturing Corporation USA, and PeterbitlMotors Company maintain large-scale assembly operations in middle Tennessee. More than 800 automotive suppliers are located in the state, and the investments are growing. Last year, Saturn and Nissan invested a combined $2.5 billion in expansions. Automotive workers and suppliers represent nearly 30 percent of Tennessee's manufacturing work force.

"Tennessee has been a good home for Nissan and we have been successful here for many reasons," said Emil Hassan, Nissans senior vice president for North America. "A major reason is the work force. Tennesseans have a good work ethic and are very flexible. They do an honest day's work for an honest day's pay. And of course, the other big positive for Tennessee is its ideal location."

In April 2001 Toyo Seat USA Corporation, which manufactures seat frames and mechanisms, broke ground on a $12 million expansion plant in the town of Pelham. "We came to Tennessee because of the state's central location, positive business environment, and strong work ethic," said vice president John Smith. "Our new location in Grundy County will afford us a top-notch work force while allowing us to be near many of our customers and suppliers."

Quality of Life

At some point in the decision-making process, quality of life becomes an important consideration. The cost of living in Tennessee is very reasonable; all major Tennessee cities are well below the national cost-of-living average. Some of lowest-median-- priced homes in the southeastern United States - and the entire country - are found in Tennessee's nicest cities ($100,000$137,000 range). Residents do not pay personal state income taxes. Electricity, natural gas, and water are very affordable. Tennessee's climate is moderate - the four distinct seasons lack the extremes of other locations, and a variety of natural and scenic wonders abound, including the Great Smoky Mountains.

"I had pretty much given up the notion of finding a location as attractive as the San Francisco area until I came to eastern Tennessee," said Jansheski. "Maryville is in the foothills of the Smokies. We have beautiful lakes, rivers, and mountains. It was a great decision to come to Tennessee. The businesses here all support each other and the quality of life is outstanding - all at a very affordable price."