For the third consecutive year, we’ve asked a select panel of industry experts to provide some need-to-know information about how, when, and why to relocate.
Eric Stavriotis, Vice President of Strategic Consulting
Jones Lang LaSalle, Chicago, IL
Make your own clusters.
When considering relocating your office facility, it is always tempting to locate near an existing cluster of skilled labor and suppliers serving your industry, and to tap those resources when building your business. Although that often is the best choice, it may make more sense for your firm to locate in an area where you have the ability to create your own cluster.
Through partnerships with colleges, junior colleges and, in some instances, high schools, businesses get an opportunity to train and tap into the next-generation labor market by helping to set courses and curriculum; providing internships; establishing public/private campuses with call centers and R&D facilities; and providing professorial access to company research.
When approached correctly, these partnerships will create a strong bond between the local community and your company.
Incentives should be the icing on the cake, not the cake itself.
State and municipal incentives should not be the driving force in any corporate relocation decision. While incentives can have a strong initial financial impact on a company’s bottom line, corporate leadership should base location decisions on factors that will have a much larger impact on the company’s success over the long term.
Incentives can play an important role in location decisions, especially if they further the company’s overall goals. While one firm’s strategy may be served by taking advantage of research grants or job training assistance, another may place a higher value on expediting the permit process or gaining assistance with infrastructure, land, building acquisitions, or roads and sewer costs.
The right incentive package can tip the scales to one location over another when all other factors are equal. In almost all cases, however, incentives should be the icing, not the cake.
Don’t take process water or wastewater for granted.
Among the considerations often overlooked by companies in the relocation process is their water source. Particularly for industrial and manufacturing firms, a top concern should be how to access process water and dispose of wastewater.
Questions that should be asked include:
• Does the community have the capacity to handle the kind and amount of wastewater you’re going to expel?
• Will you be asked to pre-treat the wastewater before disposing of it?
• How is your process water coming into the plant and can you get enough for your needs?
A full understanding of how process water will be attained and wastewater disposed of will save companies millions in the long run.
Don’t forget about examining forecast data.
It is becoming increasingly more important for companies to take a strong look not only at the static data from today, but also forecast data of what’s predicted for five or 10 years out. Before signing on the dotted line, learn as much as you can about the future of the communities under consideration for a relocation:
• What are the labor predictions?
• Will the labor pool be able to support your future needs?
• What’s expected in terms of population growth?
• How equipped is the community to handle this growth?
• What effects will steady growth have on the existing infrastructure?
• How high are taxes expected to rise?
Because location decisions are always long-term decisions, it is important to look beyond today’s local headlines to make sure the location you select will not only serve your company today, but also over the long term.
Rick Underwood, Vice President of Contract Logistics Sales-Americas
APL Logistics, Oakland, CA
Remember to add water.
More often than not, international manufacturing and ocean shipping go hand-in-hand.
Granted, companies can use airfreight to move their goods across the sea. However, most don’t do so routinely because aviation moves cost eight to 10 times more than water-based transportation and create a significantly larger carbon footprint.
Ships will be a key part of your business’ future if you move production overseas, so prepare accordingly for supply chain adjustments.
Among other things, you’ll need to: Reset your supply chain clock to run in weeks, rather than days or hours, because even the shortest ocean transit can’t turn on a dime. Re-evaluate your current inventory situation to determine how much inventory you’ll want to keep on hand at distribution centers in the United States (especially during the peak seasons).
Lastly, acquaint yourself with international transportation regulations and current homeland security requirements because these also will have an impact on product flow.
Ports of origin are especially important considerations.
In today’s ship-centric supply chains, port access is an important consideration for companies both here and overseas. And “access means far more than just proximity to your factories, distribution centers or end users.
There are huge differences in ports’ potential throughput—the rate at which they can get goods in and out. Ports in China, for example, currently have some of the best throughput in the world both because of their infrastructure investments and labor conditions that allow them to keep this infrastructure in use for more shifts. By contrast, many ports in Europe are experiencing significant congestion right now; and where there’s congestion, there tends to be delays.
There also are wide variations in ports’ channel depth, bridge clearance and offloading equipment—a distinction that may become even more important when the Panama Canal expansion is complete and companies start turning out larger ships that can’t necessarily be accommodated by just any port. Keep this in mind as your company reviews any prospective manufacturing sites because, if ports of origin can’t accommodate the kinds of vessels you want to use or volumes you expect to ship, that could prove to be a problem in the long run.
Find and utilize supply chain expertise.
Most companies understand that higher overall transportation and material handling costs go along with the territory of international manufacturing. After all, they’re increasing product moves by thousands of miles and multiple transportation modes.
However, don’t fall into the trap of assuming that every increased expense is a fait accompli simply because your organization chooses a manufacturing venue that’s not logistically ideal. There’s a lot that seasoned supply chain experts can do to help you make even a “bad location better, whether it’s designing the ideal inbound or outbound product flow via optimization and simulation, coordinating with vendors, or designing the best configuration of distribution centers to support your new supply chain.
Kathleen Ellis, Senior Vice President
Chubb & Son, Whitehouse Station, NJ
Take advantage of global opportunities now.
Even though small companies face greater exposures, these can be significantly mitigated by carefully managing the risks. There is still much to be gained from going abroad, such as reduced production costs. And, in countries such as China, the opportunity to sell products to a new and growing middle class is enticing.
But be sure to do your homework before you invest. It’s important to have partners on the ground in these foreign countries and strong service providers, such as insurers, to help protect new ventures and investments. Since it is riskier for a small company to do business overseas, look for some knowledgeable partners who can offer experience and success in the specific market, such as an insurance carrier with a global network.
Mark O’Connell, CEO
OCO Global Belfast, Northern Ireland
Respond to business opportunities, not places.
When evaluating an expansion or relocation, look beyond the typical information economic development organizations are giving you. In other words, what location doesn’t offer competitive operating costs, available land/property, good infrastructure, incentives, skills, existing clusters, quality of life, and market access?
Consider the business case and proposition for each location you’re evaluating and determine which area has the unique attributes that will give your business the competitive advantage you desire.
Traditional investment criteria are moving away from a geographic “sale to one that considers factors such as access to technologies in the region, access to key accounts and strategic companies, and access to a strong academic infrastructure.
Sieb Hoogstra, Head of Corporate Location Services
OCO Global, Brussels, Belgium
Understand the European market.
Just because a country is part of the European Union doesn’t mean the access-to-market requirements are the same. Within the EU, each of the member countries have different real estate practices, employee environment regulations, labor laws and languages; they all require a “bespoke” strategic approach and evaluation. In contrast to the U.S., incentives in Europe are less available and much more regulated.
A thorough location benchmarking exercise, focusing on main location drivers and cost in a first phase, will allow a company to make a well informed decision to narrow options and to move on quickly with a more in-depth study of the short-listed locations in Europe, which will avoid long and costly research on too many options at the start.
Even though entering a new market offers growth opportunities for your company, it is important to take into consideration the worst case scenario—your exit strategy—when making a location decision in Europe. In some European countries, your exit costs could be extremely costly and resource-intensive, not to mention the potential negative impact on your image and brand.
Jerry Szatan, President
Szatan & Associates, Chicago, IL
Put incentives in their place.
Seemingly huge incentive amounts often dominate headlines about new facility investments. Their frequency and prominence have heightened awareness of potential incentives among companies making new investment decisions. Despite this prominence, it is important not to be misled by overemphasizing incentives: a dollar received in incentives is exactly equal to a dollar saved through lower labor costs, real estate costs, local taxes, energy costs, or any other one-time or ongoing operating cost. While incentives may be one-time benefits or expire after a limited time, operating cost savings may continue for the entire life of the project. Some incentives that are granted may never be realized because the company may not fulfill the qualifying conditions; for example, there may be tax credits which the company may not be able to use because it does not have sufficient eligible tax liability. More importantly, what good is a large, on-paper hiring tax credit if you can’t find enough people with the appropriate skills to hire? Find more than one place that meets your long-term operating needs, and then focus on incentives.
Think before relocating your business to escape a perceived problem.
Companies move existing facilities for many reasons; some are positive, such as relocating to be closer to new customers or changing suppliers, while some may be negative, such as moving to escape a perceived problem—for example, the perception that the local labor market has deteriorated and no longer can meet the company’s needs. Look internally for possible causes and solutions to the problem before blaming it on your surroundings. I have worked for many companies that were ready to move, blaming their surroundings for insufficient recruiting, low retention rates, or poor labor quality issues. But after critical review, it became likely that their problem was internal—caused by poor management practices or company upheaval or even a physically unappealing working environment. Moving is time consuming, risky and costly; and most executives underestimate the cost and time involved, unless they’ve done it before. It may be the case that the problem is your surroundings and that moving to a new location is the solution, but think twice and think critically before moving to escape a problem. If the problem is internal, you may only move it with you.
Jessica Hayden, Senior Vice President
Jones Lang LaSalle, Strategic Consulting, Chicago, IL
Find a qualified, third-party strategic alliance partner.
Location decisions affect people across a company, and many high-level executives will bring their own perspectives to the table. With so many viewpoints, there are likely to be conflicting opinions. It is vital to the success of the company that location decisions are reached by consensus and serve corporate objectives as much as possible. To help take the emotion out of the decision, select a third-party strategic alliance partner who can focus on the quantitative factors as well as qualitative factors that align with stated corporate goals. A strong third-party adviser will ensure from the outset that all appropriate stakeholders are involved in setting and prioritizing relocation goals, and will help the company stay focused on strategies that best meet those goals.
A qualified strategic partner can help you with:
• Visioning and strategy
• Labor modeling and migration
• IRR and NPV analysis
• Executive visits and analysis
• Decision-making workshops and best practices
• Relocation advice and dependencies
On-shoring might be the best choice for your company.
While off-shoring might be the current trend and best choice for some U.S.-based companies, it may not be the right choice in the long run for your firm. Businesses need to take a close look at several international factors, such as set-up costs, once-in-operation costs, transparency issues, and the political climate, before committing to a global marketplace. Additional factors influencing the decision to make the jump overseas include international wage rates, fuel costs, shipping costs, and port conjunction. Look before you leap; for any global project, make sure you’ve considered all aspects of locating off-shore, near-shore and on-shore.
Communications can make or break your move.
Communication is key to any corporate move. The challenge, however, often centers on what to tell and when. Done poorly, internal and external communications regarding a corporate relocation can have detrimental effects on the company, its employees and the community. Timing is critical.
Before you announce your move, you can take some precautions to avoid a leak of information:
• Adopt a code name
• Limit the number of people who need to know
• Avoid land/building searches until city selection process is complete
Once you’re ready to announce, here are a few tips to avoid rumors and speculation:
• Consistency and professionalism are key
• Know your story
• Internal decisions versus external communications do not necessarily have to coincide
• The communication process needs to be clean and tight
• Be ready for questions
Jan Dickinson, President and CEO
The Dickinson Consulting Group, Portland, OR
Remember the Warn Act.
The Warn Act regulates when you make your announcement about a closure, expansion, relocation or other actions which impact employees’ jobs. It is vital to have all information and programs in place prior to this announcement.
There are site selection firms that offer the complete services including facility planning and relocation, as well as policies and programs for the transfer of human capital.
The internal corporate activity is totally different from usual relocation programs and, too often, vital issues are left unnoticed until it is too late. It is a huge undertaking, and you should not expect current staff—particularly HR—to handle daily activities of their job and add facility and/or employee relocation issues. These can overwhelm staff, especially if recruitment, severance/retention and outplacement also are added to their assignment.
Overlooked issues will often include the benefits area, where decisions have to be addressed concerning early retirement, 401K rollovers, vesting in programs, etc.
The appropriate programs also will ensure a higher acceptance rate from those employees invited to take the company’s move.
Find out about highway access.
Access and amounts of highway congestion impact not only distribution centers, but all companies and employees—directly and indirectly.
Be sure to factor in how many lanes will be available for your transport routes, plus the drive time from major locations. Are there tolls in place on local bridges and roads? If your products are shipped across borders, are there NAFTA tie-ups at the border crossings?
Utilizing Foreign Trade Zones or property in port areas requires extensive study on access and congestion, as well as the time it takes to get from the company or port dock to highways. Some ports even have purchased smaller ports in their area to help divert ocean and highway traffic, as a result of severe road congestion entering or leaving the port facility. This is becoming more than a “peak traffic time” phenomenon nationally, and is particularly problematic on Interstate highways.
Some states allow triple-trailers, which travel into and out of states that do not permit them. You must determine the time needed and the areas available on the Interstates to break down and/or add trailers.
Lastly, consider the current escalation in fuel prices, which will add to the importance of these considerations and, in some cases, discourage alternate routes.
Brooks Rainwater, Director of Local Relations
American Institute of Architects, Washington, DC
Green building is environmentally responsible and can save money.
As the cost of green building has decreased toward parity with traditional building practices in recent years, the benefits continually increase. Architects are designing healthy, energy-efficient buildings that increase natural light, incorporate high performance systems, improve airflow for occupants, and increase worker productivity. The outsized energy and water savings alone that can be achieved by sustainable designing far outweigh any additional cost. Within short-term payback periods, businesses are regaining their initial outlays and achieving significant returns for their investment in clean, green technology.
Communities across the country also have instituted green building policies that include lucrative green building incentives, from permit streamlining to direct tax incentives to bonus density, in return for designing to specified green standards. Corporations should increasingly take these green incentives into account, as well as the traditional economic development incentives offered by communities, when contemplating where to relocate their businesses. The future of the Class A property market is green, and corporate site selection officers need to react now by making investments in high performance, green buildings.