Canadians love escaping the cold and traveling south to soak up the Arizona sun, but Arizona is becoming more than just a vacation destination for Canadians.
Arizona’s economic climate offers Canadian companies a great place to enter the U.S. market, and Canadian companies are taking advantage of Arizona’s favorable business climate.
More than 350 Canadian companies have opened enterprises in Arizona, making Canada the leader in the number of foreign businesses operating in the state. Arizona has a $6 billion bilateral footprint with Canada, which includes foreign direct investment, trade and tourism, according to Canada Arizona Business Council (CABC). Additionally, Canada is the foreign leader in the number of residential home ownership and commercial property ownership in Arizona. These numbers are substantial for a country whose ties with Arizona are defined by airports and financial institutions.
Arizona’s thriving and profitable business relationship started 60 to 70 years ago, according to Glenn Williamson, CEO and founder of the CABC. That was when western Canadians were first lured to Arizona to escape the cold. The attraction has only grown, and Arizona welcomed almost 900,000 Canadian visitors in 2013, setting a record for the number of Canadians selecting Arizona for travel.
But Williams said the game changer for Arizona’s business relationship with Canada came when the U.S. military began building up the aerospace industry in Arizona.
“Canada has always been a significant player in that supply chain,” Williamson said.
In the 1970s, Canadians began entering Arizona on the commercial real estate level and bought up huge chunks of property, Williamson said. The number of Canadians visiting the state and doing business in Arizona was on a steady growth trajectory before the recession hit. However, unlike how the recession negatively impacted most factors in the economy, Canadians poured into Arizona during the recession and bought very expensive houses, Williamson said.
Fast forward to the present and there are more than 350 business operating in Arizona, employing approximately 50,000 people, Williamson said. The biggest Canadian companies in Arizona include Bombardier Aerospace, which employs 1,000 Arizonans, and Bank of Montreal, which has 400 Arizona employees, according to the Arizona Commerce Authority (ACA).
Trade and investment with Canada accounts for 146,800 jobs in Arizona, meaning 1 in 20 jobs depends on trade and investment from Canada, said Sandra Watson, president and CEO of the ACA.
“Each Canadian company that establishes a presence in Arizona creates jobs and capital investment in our state, generating a positive economic impact,” Watson said. “Increased activity between Canada and Arizona brings new business opportunities, innovations and solutions to both markets.”
Additionally, Canada as a foreign direct investor is very favorable for Arizona’s economy because it helps insulate the state by providing diversification in the market, said Chris Camacho, president and CEO of the Greater Phoenix Economic Council (GPEC.) Moreover, these jobs generally carry 15 to 20 percent higher wages, he said.
Arizona’s pro-business environment and low operating costs make the state very attractive to Canadian companies.
“Arizona is an open-for-business type of state, which we saw as very attractive,” said Joe Gysel, president of EPCOR Water USA Inc., an indirect wholly-owned subsidiary of the Canadian company EPCOR Utilities. EPCOR began operating in Arizona in 2010 and is now responsible for providing water and wastewater service to 22 communities and seven counties in Arizona and New Mexico, making it the largest privately regulated water utility in both states. Arizona was EPCOR’s entry point into the United States, with its U.S. headquarters in Phoenix. Choosing Arizona was a decision based purely on economics, Gysel said.
Regulatory assets, a competitive tax structure, talented labor pool and strategic location were all characteristics that attracted EPCOR and are continuing to draw other Canadian companies looking for corporate expansion, growth and start up in the U.S. market.
The low cost of operating a business in Arizona is key, experts said. Critical to this is Arizona’s Competitiveness Package. Adopted in 2011, this legislation modernized the state’s tax system, streamlined the regulatory structure and promoted a focus on business recruitment, retention and high-value job creation, according to the CABC.
Arizona’s simplified tax system is also a huge draw for Canadian companies. The state and local tax burden on Arizona’s citizens is the 14th lowest in the nation, according to the Tax Foundation. The tax-friendly environment is comprised of no franchise tax, no business inventory tax and no estate tax. The corporate and individual income tax rates in Arizona are also among the lowest in the nation. Additionally, the state provides companies low workers’ compensation and unemployment insurance rates.
GEOGRAPHY IS KEY
Another major benefit Arizona offers Canadian companies is the access to the growing consumer market. The state’s strategic geographic location offers business unique access to major world markets.
“The most apparent reason you see a lot of Canadian companies out of Vancouver, Toronto and Montreal is because they can get access to the California marketplace from a market that is more favorable from the cost side,” Camacho said.
Arizona is one of the only states within a day’s drive of California, the ninth largest economy; Texas, the 13th largest economy; and Mexico, the 14th largest. Canadian companies can reach 65 million consumers per day in Arizona by truck, Watson said.
“Arizona becomes Canadian beachfront property to South America,” Williamson said.
Arizona’s strenghtening workforce is also continuously fed by the state’s higher education system. The workforce in metro Phoenix offers a rich talent pool, Camacho said. The quality of the labor resources in Arizona was a compelling factor in EPCOR’s decision to locate it’s U.S. headquarters in Phoenix, according to the company. Arizona offers a number of top-quality universities, technical and trade schools that companies such as EPCOR are looking at during site selection. High-level education and training are key to companies growing in the utility space, experts said.
Arizona’s high quality of life, low cost of living and the low cost of commercial real estate are other huge draws for Canadian companies.
“One in five homes in Arizona is owned by a Canadian and that made coming to Arizona quite easy,” Gysel said.
MORE TO COME
In 2014, Matt Behmer’s Flagstaff-based Traditional Roofing Inc. was acquired by Canada’s Flynn Group of Companies. The Flynn Group of Companies is made up of seven companies and employs more than 4,000 people in 26 locations across North America.
“A lot of it had to do with the fact they saw growth opportunity here,” said Behmer, now director of operations in the Southwest for Flynn. He attributes the opportunity to grow, climate and logistics as the three main factors that brought Flynn to Arizona. According to Flynn, it saw Traditional Roofing as a perfect fit culturally and strategically to become a springboard for the company’s growth in the region.
In addition to the robust suite of advantages designed to help attract foreign businesses, Arizona-based economic development groups have laid the groundwork to facilitate the attraction of these companies. They accomplished this by engaging company decision makers in Canada and showing them Arizona’s many attributes and opportunities. The recruitment of Canadian companies has been a collaboration of economic development organizations, chambers of commerce, cities, towns, academic institutions and the business community.
“The ACA works closely with companies to educate them on Arizona’s value proposition and programs, which can help advance their corporate success,” Watson said. The ACA leads targeted sales missions every 30 to 60 days to select Canadian markets. In the past year, the ACA has led six such missions, Watson said.
GPEC is also on the front end of attracting Canadian firms.
“We take mayors on hosted road shows in Canadian markets to sell the advantages of operating in Metro Phoenix over other places,” Camacho said.
Despite all the success, Canada still doesn’t receive the same attention as other foreign countries, such as Mexico, when it comes to discussions on trade, investment and future growth. Mexico has a significant footprint in the state, but the business relationship between Mexico and Arizona has a huge way to grow compared with the state’s relationship with Canada, Williamson said. The benefits of Canadian companies doing business in Arizona and the impact on the state’s economy far exceeds the attention it receives.
Despite the lack of attention, experts agree that Arizona’s colossal business relationship with Canada will continue to grow and strengthen.
“Since 2009, Arizona’s exports to Canada have increased nearly 25 percent,” Watson said. “We expect to see trade and investment between Canada and Arizona increase exponentially moving forward.”