Feature Stories - April 2005

Making It in Nevada

Manufacturing Boom Hits Silver State

by Sharon Rorman Sheldon

It’s the California gold rush all over again – in reverse. California-based companies are hustling out of the tarnished Golden State because high taxes, labor shortages and impossible regulations make doing business harder than digging ore with a pickaxe. And Nevada is welcoming the onslaught of manufacturing and distribution firms with open arms.

"Nevada is the only state with positive growth in manufacturing and warehousing in the past four years," said Ray Bacon, president of the Nevada Manufacturers Association. The reason is two-fold: companies already in California that need to expand discover it’s easier, faster and cheaper to build in Nevada. In addition, many out-of-state companies want to be close to – but not necessarily in – California.

Many non-California-based businesses move west to take advantage of the huge California consumer market. "One of the main reasons for our growth is our proximity to California," Bacon said. "It’s still the fifth-largest economy in the world. So if a company’s target market is Northern California, a Reno location is attractive. If they are geared to Southern California, Clark County is the place to build." Either way, Nevada wins.

An increasing number of companies decide to build here rather than deal with the California bureaucracy. "Starting about six years ago, a big portion of the new companies migrating to Nevada were those with customers in the California market," Bacon said. "So they needed a presence near California, but are not stupid enough to locate in California."

It takes years to get through the permit process in California to build a new warehouse or manufacturing plant, he said. "The regulatory burden is much larger in California. It takes three times longer for approvals, costs are higher and the tax difference is a serious factor."

Besides being geographically convenient to all major western markets, Southern Nevada’s population explosion is one more reason for companies from around the country to locate here. "Southern Nevada is a giant consuming monster," Bacon said. "The tourism industry, gaming and shopping all provide additional markets. While visitors are in Nevada they consume food, lodging, laundry, services, whatever. If, for example, a company’s primary market is Southern California, there are plenty of trucks bringing goods from California to Southern Nevada that would otherwise go back empty. So a new business can usually find inexpensive product transport for distribution in Southern California."

What does Nevada have to offer? Try tax savings, labor savings, regulatory savings and low transportation costs. The state’s many economic development organizations have pounced on the opportunity with a passion, launching several campaigns to draw new businesses to Nevada. "Nevada to the Rescue" is a comprehensive overview of why Nevada is more business-friendly than California, created by the Nevada Economic Development Partnership, a group composed of five agencies: the Nevada Commission on Economic Development; Nevada Development Authority; Economic Development Authority of Western Nevada; Northern Nevada Development Authority; and Sierra Pacific Power Company. The campaign aggressively solicits new business and shamelessly refers to companies in California as the "Walking Wounded," asking the daunting question: "Will your business be terminated?"

The campaign’s keystone message is that Nevada offers two major business advantages. First is the absence of taxes commonly found in other states: no state corporate tax; no personal income tax; no franchise tax; no corporate profit tax, no inventory tax. There is no information sharing with the IRS, and minimal reporting and disclosure statements, as well as truckloads of economic development incentive programs. Second is Nevada’s location at the center of the western market and next-door to California, one of the world's largest markets.

Northern Nevada

Nevada hit the jackpot when International Gaming Technology (IGT) arrived. The state’s largest manufacturer, IGT employs 5,000 people worldwide, and 3,440 of them live in Nevada. Last year, the company had slot machine sales of 159,200 units; with just a couple of exceptions, all of these were produced at the Reno headquarters. IGT ships to all legal gaming jurisdictions worldwide, from the U.S. and Europe to South Africa and Australia. "We established our headquarters in Nevada because the state was and is the center of the gaming universe worldwide," said Ed Rogich, vice president of marketing for IGT. "We wanted to be geographically close to our customers, and it taught us a lesson about the importance of maintaining close ties to the markets we serve. And frankly, our top executives very much enjoy living in Nevada."

Another example of growth in manufacturing and distribution development is the new Wal-Mart building, an 850,000-square-foot distribution warehouse that will employ 500 people in the Reno area. Other projects include a new 600,000-square-foot distribution facility under construction in Minden, and another 700,000-square-foot facility that will be announced later this year.

GE Bentley supplies a vast array of technical instruments designed to measure and collect data on machinery. In addition to monitoring systems, the company makes software, transducers and sensors. Many of the products test, align, measure and calibrate various kinds of instrumentation and machinery. There are more than 800 employees at the Minden facility.

American AVK, a Danish-owned company that manufactures plastic pipe valves for infrastructure work and fire hydrants, will open a 170,000-square-foot plant in Douglas County in 2007. After 50 years in Southern California, Mound House, a production pattern and foundry, relocated from San Leandro into a new 100,000-square-foot plant in Lyon County. In Dayton, which is also in Lyon County, Modern Stainless and Design, maker of metal wine casks, expanded its operation from 19,000 to 109,000 square feet, citing tax relief and better worker’s compensation rates as its reasons for expanding into Nevada.

The Haws Company produces drinking fountains (which the company founder invented 100 years ago, as well as plumbed eye washes and drench showers used in chemical plants. Originally located in Berkeley, Calif., Haws built a plant in Sparks 25 years ago to take advantage of Nevada’s positive tax structure, said Tom White, vice president of manufacturing. In 1996 the company moved into a new 200,000-square-foot facility. "We shut down our California operation completely in 2001 to consolidate operations," White said. "We’ve been very pleased with the workforce here. We thought it would be difficult to get qualified information technology employees, but found talented people already here. The same is true of sales and accounting. We are far ahead of where we were."

James Hardie Building Products had a similar experience. "Nevada made it very attractive for us to start our business here," said Steve Blackhall, human resources manager. The new plant started manufacturing its fiber cement and backer board product – which prevents moisture from getting onto tile – last December. One corporate goal was to centralize shipping in a geographically favorable spot. "Nevada represents a central location with a great transportation hub, as well as good recruiting opportunities," he said. The company currently has 85 employees with plans to hire up to 250, mostly from the local area.

Southern Nevada

Milgard Windows is the largest home window manufacturer in the western U.S., producing a wide variety of windows and skylights featuring tempered glass and vinyl frame products. It employs 200 people in its Henderson plant. "We saw an opportunity to be a major player in the local construction boom by bringing one of our manufacturing facilities to the area," said Bill Spencer, general manager. The company has manufacturing plants throughout the West, including Washington, Oregon, Colorado and California.

Also in Henderson, Berry Plastics makes cups for the local market and buckets for various uses, with large shipments to California. Good Humor-Breyers Ice Cream in Henderson benefits from trucks that bring food into the Las Vegas Valley from Southern California and go back loaded with ice cream.

Potlatch Corporation has a paper-products manufacturing plant in North Las Vegas. The company recently grew even larger, investing $66 million in expansion for production of tissue.

Transportation

Providing central access, Nevada offers cost-effective, rapid transportation to both domestic and international major markets. Airports, north and south, are complete with International Air Cargo Centers. Union Pacific Railroad Company is the largest freight railroad serving Nevada, operating more than 1,200 miles of line. Union Pacific crosses both Northern and Southern Nevada. Burlington Northern Santa Fe also has been authorized to operate over the tracks in Northern Nevada. More than 150 truck carriers serve Nevada, offering transcontinental, fast freight and van-line shipping to all major markets. Together, the transportation infrastructure contributes to Nevada’s growth in manufacturing. 

Foreign Trade Zones

Foreign trade zones in Las Vegas and Reno allow firms to bring foreign goods or raw materials for manufacturing and/or assembling into the United States without formal customs entry or payment of customs duties and government excise taxes until products leave the zone. If the final product is exported from the United States, no U.S. Customs duty or excise tax is levied. Merchandise entering a foreign trade zone may be assembled, repaired, cleaned, stored, salvaged, tested or repackaged.

Preparing for the Future

There are downsides to all this growth. Most companies are forced to bring in skilled workers and engineers. "Many new companies bring technical people with them from out-of-state," Bacon said. "This is a hole we should fill." Nevada schools have low reading scores and high dropout rates, according to the U.S. Department of Education.

While our good neighbor California continues to be a huge economic force globally, Nevada is circling the wagons to promote a business-friendly environment for companies astute enough to stake a claim.

Sharon Rorman Sheldon
Sharon Rorman Sheldon is a principal of Aztec Communication, specializing in public relations and professional business services.