The 8-Step Site Selection Process that Identifies the Optimal Locations for Corporate Expansion
by King White, on May 22, 2019 9:26:19 AM
The site selection process has evolved dramatically over the last 20 years for a variety of reasons. Some of these factors include the availability of massive amounts of new site selection data, development of advanced software applications and tools to analyze site selection data, the sheer economic growth and corporate expansion during this period of time, and the general globalization of corporations.
As a result, it has made the site selection process more complicated and a company’s ability to find the optimal location for industrial projects such as manufacturing and distribution centers. It has also complicated the search for corporate function locations such as headquarters, software engineering, shared service centers, call centers, data centers and retail sites.
To help companies understand the key steps of the “modern-day” site selection process, the following seven-step process provides a great roadmap for companies trying to find the best onshore, nearshore and offshore locations to expand.
Step 1: Identify the project team
The first step is to 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.
Step 2: Define the project requirement
Project requirements vary significantly based on the project type. The requirements for a software development operation will dramatically differ from a manufacturing plant. The project team will need to work closely together to identify key dates, employee skill requirements, projected headcount, desired labor rates, capital investment, accessibility to customers/suppliers, real estate needs and infrastructure requirements.
Step 3: Conduct a geographic filtering process based on the project criteria
To properly filter locations, bulk data will have to be gathered to build a filtering model with relevant data aligned with your site selection criteria. Typically, companies will use data variables such as population, demographics, unemployment rate, cost of living, utility costs, industry presence, inbound/outbound materials, wage rates, union rates, tax rates, time zone and other similar variables to narrow the list to a long list of five to 10 locations. Many companies often think they can make a decision from this level of data which is typically a major mistake.
Step 4: Conduct an in-depth analysis of the long list to identify the finalists
To identify the finalist locations, the site selection team will need to perform a rigorous workforce, infrastructure, logistics, business climate, economic incentive and real estate market analysis of the five 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 and compared utilizing a balanced scorecard-type approach:
- 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 locations 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 locations.
Step 5: 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 location.
Step 6: Negotiations
Once the community tours are completed and the finalist locations 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 7: Build-out of the site
Once the economic incentives and real estate are secured, you will need to address the construction of the project which ranges in complexity greatly if it is an existing building or a greenfield site. 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.
Step 8: Staying in compliance to get your economic incentives
One of the most frequently neglected steps of the site selection process is economic incentive compliance. You thought the site selection process was over when in reality it never stops. In order for you to realize the economic incentives that made the project proforma get final approval from your executive team, you have to stay in compliance. This will require you to submit payroll reports, employee training expenses, capital investment, and real and personal property tax information to multiple economic development and government entities. This data will have to be submitted monthly, quarterly or annually depending on the specific economic incentive requirement stipulated in your agreement. If you fail to stay in compliance then you will often lose your ability to access those funds. This is why so many companies fail to actually receive the full benefit of the economic incentives they thought they would receive.
Due to the increasing complexity of the site selection process, 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.