Targeting Analysis Prepared for: Las Vegas-San Miguel Economic Development Corp.

1. Targeting AnalysisPrepared for:Las Vegas-San Miguel Economic Development Corp. Prepared by New Mexico Economic Development Partnership May 2010

2. What is Targeting? Targeting is a well recognized as the best approach toward successful economic development marketing. The purpose of this portion analysis is to identify good prospects using a proven targeting technique. Labor and industrial park needs of target-type companies can than be examined. Consultants utilize a unique methodology designed to identify target industries. It includes the following steps: Understanding what companies need when searching for a new location..

3. How to Target? Reviewing locations and expansions in the region in order to identify the most active industries. Assessing the economic development strength and weaknesses of a community in order to gain a general understanding, which active industries would fit best and which would not. Examining major companies’ supply chain and if those industries match the area’s strengths. Selecting those active industries, which best match, the strengths of your region, as the best target industries.

4. Methodologies Consultants maintain a database of actual industrial and office site locations/expansions[1]. For this analysis we looked at regional activity that occurred in 2008. This database assists us in predicting growth trends and we utilize this data for selecting the best initial communities for our site location clients. The methodology is sound and proven for the following reasons: Locations/expansions are driven by recent market conditions and these conditions will generally continue into the near future. [1]We used Conway Data information which tracts locations and expansions.

5. How do Companies Select Locations Companies (and site selection consultants) select locations/expansions with the best business climates. This may mean, for example, a good labor climate, good market proximity, good transportation, the availability of incentives, and all positive business conditions. This will result in clustering; a concentration of like companies due to favorable business conditions.

6. Why is Clustering Important? Clustering is a “green light” for other similar companies to take a look. But they will only locate if the good business conditions remain. For example, they may find the labor market for select skills depleted due to too much location/expansion activity. This is why we conduct careful fieldwork interviews with local companies for our site location clients, in order to help them to thoroughly understand the local business conditions.

7. Clustering Methodology This methodology is also sound for economic development targeting. It will assist you in understanding location patterns and to identify the most active, fastest growing company types. First, consultants screen the location/expansion data to identify which industries (by NAICS Code) located/expanded the most facilities in the four corners' states in 2008. They are defined as growth industries. The following graph identifies the most active industries.

8. Most Active Targets in Region 2007-2008

9. Background • New Mexico Partnership spent two days in community interviewing. • Approximately 20 interviews conducted. • Partnership accessed past reports and data available. • Partnership also involved in two site selections in Las Vegas. • Has familiarity with community • Over 40 years professional ED experience.

10. Labor Availability: San Miguel County

11. Labor Availability:Las Vegas vs. Lea County

12. Labor Characteristics: San Miguel County

13. Labor Characteristics:Las Vegas vs. Lea County

14. Quality of Services: San Miguel County

15. Quality of Services:Las Vegas vs. Lea County

16. Quality of Services:Las Vegas vs. Lea County

17. Quality of Life Factors: San Miguel County

18. Quality of Life:Las Vegas vs. Lea County

19. Needs: Warehouse/Distribution Access to market/transportation/freight costs Access to intermodal freight terminals and ports growing in importance Labor costs/availability key positions: material handlers, forklift drivers; truck drivers Electric power (costs/reliability) Access to Interstate highways (within 10 miles[1] of interchange) Large sites (50 to 250 acres) or large buildings (40,000 square foot plus) Rail service for select operations Incentives Infrastructure Training Good labor/management relations. [1] This mileage requirement has gone down from 20 miles due to increased fuel costs.

20. Strengths on I-25, many possible sites Access to ABQ and Denver markets Access to rail and possible increased freight. Available labor force for warehousing positions Excellent training programs and incentives Weaknesses Lack of infrastructure at potential sites ED organization does not have sites under control Apparent concern over sewer at northern end of I-25. Water issues throughout city Some unionization potential Warehousing and Distribution:Las Vegas Potential

21. Back Office/Call Centers/IT Labor availability key positions: customer service representatives (CSR), help desk reps, telemarketers, industry experts Labor quality (turnover, absenteeism, etc.) Labor costs Telecommunications Education/Training (and incentives) Existing leased Class A/B buildings with ample parking and/or improved commercial sites IT tech support Commercial air service Good access to corporate headquarters/related Corporate income tax Electric power (reliability & cost) Day care availability and affordability

22. Labor Costs are Closely Tied to Back Office Locations

23. Strengths Previous experiences with call center-labor force trained Definite labor pool advantage Excellent training and incentives and access to community college for specialized training. Some available properties for lease Access to university and college resources Weaknesses concern in the city that industry is too footloose. Previous bad experiences Labor quality questions (deeper analysis needed, along with more focused resident survey) No close flight service Labor costs could be influenced by government worker wages Questions on bi-lingual capacity and capabilities Lack of affordable day care Back Office Operations:Las Vegas Potential

24. Food Processing and Related Available labor skills key positions: machine operators (cutting, blending & PLC[1]); food technicians, maintenance mechanics and warehouse workers) Labor costs Access to markets & raw materials/transportation costs Good water and sanitary sewer capacities Electric power costs/reliability Fully improved industrial sites/specialized buildings (may require rail service) Incentives Equipment tax exemptions (large capital investment) Infrastructure Training Good highway access Good labor/management relations. [1] PLC – Programmable Logic Control

25. Freight Costs are Critical in Determining Food Processing Locations

26. Strengths Excellent incentives and training programs. Good highway access Abundant labor force for lower skilled jobs. Access to university and college that can tailor programs Weaknesses Lack of labor skills needed for food processing. (PLC,etc) Lack of planned industrial sites Lack of water and sewer capacity Unionization potential Questions on raw materials, natural resources (35,000 head of cattle) Food Processing:Las Vegas Potential

27. Ethanol/Biomass Criteria Local grain supply and basis (grain represents 65%-70% of total operating exp.) Highway access Rail access to isolated industrial site (70 acre minimum) Utility infrastructure (natural gas pipeline, electricity, water) Labor costs and availability Rural, remote, lower wage areas. Financing and/or creative incentives based on capital Misc. feedlots, etc.

28. Strengths Highways and rail access Reasonable labor costs Cattle and feedlots proximity Reasonable electric power costs. Close proximity to West Coast (biggest demand). Rail availability Weaknesses Apparent lack of water capacity No planned large industrial sites State permitting and regulatory environment Apparent lack of capital and creative financing (compared to Midwest) Ethanol/Biomass:Las Vegas Potential

29. Industrial Machinery Criteria Available labor - machining skills & quality (key positions: machinist, maintenance mechanic, machine operator (CNC) and warehouse workers) Labor costs Access to markets/transportation costs Interstate highway access Electric power (reliability & costs) Improved sites and/or existing buildings (minimum of 20,000 square feet) Rail access Available training (and incentives) Good access to supplier Good labor/management relations

30. Strengths Access to interstate Excellent incentives Labor cost (for unskilled) Reasonable electric costs Weaknesses Lack of skilled labor availability No skill training locally No cluster of machining activity Little access to customer base (ie. Juarez) (OEMs). Lack of improved industrial sites Water and sewer issues Industrial MachineryLas Vegas Potential

31. Wind Turbines: (turbine housing unit with gearbox, generator and transformer components) & blade assembly Access to market - wind farms Available labor (up to 1000 jobs) - machining and electronics skills & quality Rail (more than one provider preferred) Sites (up to 200 acres)/available industrial buildings (up to 500,000 sq.ft.) Free of earthquake or flood zones Training – college offering mechanical and electrical engineering degrees; plus machining and electronics Incentives and positive state/local policies. Near or must have access to customers and suppliers

32. Strengths Rail access Potential proximity to wind farms Good incentives and state policies University offering math and science degrees (not engineering) Weaknesses No apparent skills in machining, welding and fabricating. Lack of planned, improved sites. No proximity to customers and suppliers Questionable quality in labor force. Some unionization potential Wind Turbines and Blades:Las Vegas Potential

33. Example: Johnson Plate and TowerSanta Teresa, NM • Will build wind towers, close proximity to Juarez where turbines are built • Dona Ana Community College doing welding certification: Johnson P&T on advisory board. • OJT at El Paso site for those needing training • 32 welders • 12 blasters • 15 fitters • 35 helpers • 12 inspectors • 16 machine operators • 12 painters

34. Solar PV Modules(as opposed to ingots, cells, wafers) • Proximity to high end research or universities • Highly skilled talent (can be from semiconductor industry) • Strong financial incentives (cash) • Access to venture capital • Good electric power reliability and rates • Close to market where there are solar power plants or farms • “Market will change as solar modules become more of a commodity. Industry will look to reduce costs” (land, buildings, taxes, permitting, etc.)…Don Schjeldahl, VP, Austin Consulting

35. Strengths Some potential proximity to solar power plants. Good electric power and rates Good state incentives for solar State has strong solar industry base Weaknesses Not close to lab or university-based research No highly skilled talent No access to venture capital Lack of planned industrial sites Universe of companies is small, competition is very significant Solar Manufacturing

36. Electronics (Including Assembly) Labor skill availability and quality (key positions: assemblers, electronic technicians, testers, maintenance mechanics) Labor costs Education/training with incentives Electric power Supplier network Proximity to markets/good highway access Fully improved industrial parks Building costs Corporate taxes

37. Annual Operating Costs Breakdown of an Electronics Plant Without Material Costs and Freight

38. Strengths Large available labor pool Proximity to markets, such as Mexico and CA Good highway access Good training and state incentive programs Decent corporate income tax rates Weaknesses Lack of fully improved industrial sites. Lack of skill base in electronics assembly Questionable labor quality Industry has been moving to Mexico and China (ie. Foxconn) Some unionization potential Electronics:Las Vegas Potential

39. Film and Digital Media Highly trained film production crews Ability to utilize film studio Cost reductions and major financial incentives. Excellent aesthetics, background or scenery Ability to attract extras Temporary housing/extended stay hotels Institutions of higher learning that have digital media or film training Relatively good flights to LA or Burbank

40. Strengths Access to film crews in Santa Fe and expertise at Highlands. Good aesthetics and some good settings. Ability to attract extras Through Santa Fe, direct flights to Los Angeles. Excellent incentive program through state Access to studios in Santa Fe and Albuquerque Weaknesses some “push back” locally, not full support. Some lack of extended stay rooms No coordination, filming is not seen as an economic development program Film and Digital Media:Las Vegas Potential

41. Aircraft Related • Labor skills in the area (A&P mechanics, structural assemblers, welders, electronic assemblers, sheet metal assemblers, vinyl assemblers and flight line mechanics) • Hanger space (for lease) and access to runways • Central to markets • Good commercial air service • 10,000 foot runways • Favorable tax policies/abatement programs/incentives (e.g. no personal property tax on aircraft) • Good labor-management relations.

42. Overview: Back Office Industry “Back Office” describes administrative functions that can be done at off-site company locations or outsourced to contract firms. Services include inbound customer call centers, outbound telemarketing centers, and administrative service centers (such as managing billing and human resources functions). With the expansion of information technology, “data centers” can now be included in “back office” as they frequently serve an administrative internal purpose and can be located anywhere. Banking, insurance, retailers, government, and credit agencies all have strong back office components. The Back Office industry, is large, employing around 6-7.5 million workers in the U.S. today. However, it is difficult to estimate this with accuracy because often back office workers are categorized within other occupations. Of all back office support sectors, data centers typically have the lowest employment.

43. Overview: Back Office Industry Industry growth closely tracks that of the US economy. The trend has been to locate back office functions in countries like India and many companies have cut back office functions to save money. Software and hardware applications have also automated jobs and reduced employment. The future of the back office sector is good. The Bureau of Labor Statistics estimates that the industry will grow at a pace 2-3 times the rest of the economy. One reason for a positive forecast is the return of many off-shored back office jobs to the US. The return will be due to several reasons but some of it is because of consumer frustrations and American/Canadian loyalty, pressures from government and efficiencies. Outsourcing should continue but with less frequency and mostly at the lower end. Also, a new trend has emerged where the back office function is being completed from a 3rd bedroom or home. (ie. Verety in Roswell and Silver City)

44. Overview: Films and Digital Media The US motion picture production and distribution industry includes about 11,000 companies with combined annual revenue of $33 billion. The industry is highly concentrated: the 50 largest companies account for about 80 percent of industry revenue. Most companies are small and privately held. Most of the industry, including many independent firms, engages in both production and distribution; about 500 firms are solely distributors. Consumer spending drives demand. The profitability of individual companies depends on creativity, marketing, and distribution. Small companies can compete successfully by creating marketable movies, often for niche audiences, on low budgets. Although production work is labor-intensive, the value of the product results in high average annual industry revenue of $300,000 per employee.

45. Questions New Mexico Economic Development Partnership