5 Ways to Improve Your Site Selection Decisions
by King White, on Jun 26, 2017 4:57:16 PM
Site selection decisions are more critical when the economy is growing and companies are aggressively expanding into strategic locations. In a growth economy, labor markets become extremely tight and increased project activity makes it very challenging to enter new markets. As a result, you need to optimize the way you make site selection decisions to ensure you pick the best location for your business. This strategy applies to virtually every type of corporate project ranging from professional services operations such as headquarters, call centers, data centers, software development, and shared services centers to industrial projects such as manufacturing, food processing and distribution centers. The challenges also apply to retailers seeking to gain market share for restaurants, big box retail and niche clinical operations.
To help companies make better decisions during the site selection process, I have identified five ways our location strategists at Site Selection Group have helped find locations for more than 1,000 projects in onshore, nearshore and offshore geographies.1. Build the right site selection team
The strategy of putting the best players on the field absolutely applies to making site selection decisions. This is why it is critical to build the right team. The team should include subject matter experts in key areas and who hopefully have experience with sites selection projects in the past. These players will typically include representatives from the executive team, business unit, real estate department, logistics department, tax department, human resources and outside site selection consultants. This team will identify the key dates, employee skill requirements, projected headcount, desired labor rates, economic investment, accessibility to customers/suppliers, real estate needs and infrastructure requirements.2. Develop a location filtering process to narrow the field
One of the most confusing steps of the site selection process is figuring out how to filter down a region to a manageable amount of locations for in-depth analysis. To properly filter locations, bulk data will need to be gathered and run through a filtering model. Typically, companies will use factors such as population, demographics, unemployment rate, cost of living, utility costs, industry presence, wage rates, union rates, tax rates, time zone and other similar variables to narrow the list to five to 10 locations. It is critical that this process is carefully documented to avoid people outside the site selection team from poking holes in your process which can create delays and even the inability to get a project approved.3. Utilize proven research techniques during the comprehensive analysis
To identify the finalist location for your company, the site selection team will need to perform a comprehensive analysis of workforce, infrastructure, logistics, business climate, accessibility, economic incentive and real estate conditions of the candidate locations. This research will include the gathering of up-to-date demographic data, business and tax variables, and primary research which you will need to analyze in various site selection models that you will need to develop. The following provides a sample of the information that needs to be researched:
- Educational attainment
- College and universities
- Historic unemployment
- Location, size and wages of competitors
- Local employment drivers
- Military presence
- Recent expansions
- Recent closures
- Wage rates
- Infrastructure conditions (roads, utilities, fiber, etc.)
- Utility costs (electric, water, gas)
- Logistics costs
- Customer accessibility
- Tax rates
- Real estate availability
- Economic incentive availability
- Economic incentive comps
- Employer interviews
- Economic development interviews
Once this information is gathered and analyzed, the site selection team will need to agree on the shortlist of locations using some type of weighted scoring model. This model will need to score each location based on quantitative and qualitative factors such as labor market scalability, employee demographics, labor quality, competition, supplemental labor sources, cost of living and wages, business environment, accessibility, logistics, operating costs, real estate availability, economic incentives and any other critical factors that are relevant to your requirement.4. Conduct on-site due diligence
Once the site selection team has agreed on a shortlist of locations, the team needs to conduct on-site due diligence to gain a thorough understanding of what a particular community has to offer. The tours will typically take one to two days per community in the U.S. and up to a week in international locations. During the tours, the project team will meet with community leaders, regional economic development officials, workforce training representatives, staffing agencies, local employers, utility providers and real estate brokers. The anecdotal evidence uncovered during the tours will be crucial to the success of the site selection process and enable the team to truly understand the qualitative differences of each finalist community.5. Create negotiation leverage
The final critical thing to do in the site selection process is to maximize your negotiation leverage in real estate and economic incentives. The most important part of this strategy is to simultaneously negotiate the economic incentive and real estate terms.
The tax specialist or site selection consultant member of the site selection team will typically take the lead in economic incentive negotiations. They will need to initiate discussions with local and state leaders to confirm the availability of tax credits, tax abatements, cash grants, training subsidies, utility rebates and other related incentives. They will then need to carefully evaluate the financial benefit of operating in each location by forecasting the net benefit of incentives, tax implications and compliance implications.
The real estate deal will need to be negotiated at the same time as economic incentives. This is usually done by the real estate director or site selection consultant. If using an outside party to manage real estate negotiations, it is critical to make sure you hire a firm that only represents tenants, not owners, to ensure there are no conflicts of interest. The negotiations will revolve around finalizing the deal terms such as amount of space, rental rate or purchase price, concessions, improvements, renewals, expansion and contraction rights. It is absolutely mandatory that you never sign a letter of intent or lease agreement prior to getting final approval of the economic incentives.
As companies are rapidly expanding in the growth economy, the site selection process becomes extremely important. If you want to maximize your odds of picking the best location then it is critical to rely on experts, internal and external, who proactively maintain global location intelligence data, possess the tools to evaluate locations and have the hands-on-experience in the various onshore, nearshore and offshore geographies. Contact me at firstname.lastname@example.org if you have any questions or need help finding your next location.