by King White, on Jun 23, 2015 11:34:00 AM
The site selection process has become far more technical than in the past, and this creates new challenges for companies trying to navigate the globe. As a result, finding the optimal location has become extremely challenging for companies expanding their headquarters, manufacturing plants, shared service centers, call centers, distribution centers, data centers and retail sites.
To combat these challenges, savvy companies use highly advanced location analytics to evaluate the multitude of location factors such as labor, business climate, taxes, infrastructure, customers, suppliers, real estate and economic incentives to make the best location decisions. These analytics can even estimate revenue forecasts for retailers. As a result, the site selection process has become extremely time-consuming. It requires experienced manpower and access to the latest location intelligence data and tools.
To help companies understand the critical steps of the site selection process, Site Selection Group has outlined some best practices used by their experts on more than 1,000 site selection projects completed over the last 20 years. This six-phase process provides a great roadmap for companies trying to find the best onshore, nearshore and offshore locations to expand.
Step 1: Define the requirement and identify the project team
The first step of the site selection process is to clearly define the requirement. From a headquarters or call center to a manufacturing plant or distribution center, the location drivers will vary greatly so it is critical to understand what factors will have the greatest impact on the location’s success.
To determine these factors, establish a project team. The team 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.
Step 2: Use a filtering process to identify the long list
Filter communities based on the critical project requirements to identify locations for in-depth analysis. To properly filter locations, bulk data will have to be gathered to build 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 eight to 10 locations.
Step 3: Conduct in-depth analysis to identify the finalists
To identify the finalist communities, the site selection team will need to perform a rigorous workforce, infrastructure, logistics, business climate, economic incentive and real estate market analysis of the eight to 10 candidate locations. This research will include the gathering of detailed demographic data as well as primary research that will be analyzed in various site selection models that will need to be developed. The following provides a sample of the information that needs to be uncovered:
- Demographics
- 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
Through the analysis of this research, the project team will identify a short list of communities using some type of weighted model that scores 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 and the economic incentive environment. This research will result in the identification of two to three finalist communities.
Step 4: Site visits to finalist locations
Once the short-listed communities have been agreed upon, the project team will conduct on-site community 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.
Step 5: Negotiations
Once the community tours are completed and the finalist buildings have been identified, the project team will initiate the simultaneous negotiation of economic incentive and real estate terms. It is critical to carefully control the negotiation process to maximum leverage and make sure commitments for real estate don’t conflict with a company’s ability to secure the economic incentives.
The economic incentives negotiations will typically be managed by someone from the tax department or the site selection consultant who will initiate formal discussions with local and state leaders to confirm the availability of economic incentives such as tax credits, tax abatements, cash grants, training subsidies, utility rebates and other related incentives. It is critical to understand the financial benefit of operating in each site by forecasting the net benefit of incentives and evaluating clawbacks and compliance implications for the various jurisdictions.
Real estate terms will be negotiated at the same time as economic incentives by the real estate director or site selection consultant. If a local commercial real estate broker is hired, it is critical to enlist 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.
Step 6: Build-out of the site
The final step of the project will involves the build-out of the facility. This includes the bidding and management of critical items such as design, construction, infrastructure, furniture and equipment. The construction team will develop detailed project budgets and schedules for the project then follow the project through until move-in. Selecting the vendors such as architects, engineers and general contractors with experience working on similar facilities can prove critical to delivering the project on-time and within budget.
Conclusions
Due to the increasing complexity of the site selection industry, it has become more challenging for companies to self-perform this process. If companies want to minimize the risks of making a bad location decision, then it is important to rely on experts who proactively maintain global location intelligence data, possess the tools to evaluate locations and have the hands-on-experience in the various geographies.