Monday, June 6, 2011

Conducting a Location Study


There is a growing realization that the days of cheap labour in China are over.  Foxconn recently announced that it was looking to move production to Brazil.  The key drivers being discussed are the rising cost of labour in China and avoidance of import tariff in Brazil.

As more companies consider a move from manufacturing in China to other parts of the world, a key question many will have to answer is where to locate.  The central component for deciding upon a market entry strategy is the location study.  There are several key areas that firms need to consider when deciding upon a location to place its operations.

Talent Pool

Many companies focus entirely on staff costs across locations.  However, there are also risks to mitigate around the employable talent pool as well as skills and language capabilities.  If you are considering locating a finance shared service centre, consider also the level of education and the number of certified accountants in the location.

Business Environment

Is the business environment conducive to doing business?  Does the work force culture/attitude align with your corporate culture?  In some countries, accepting multiple job offers and taking the best one without informing the other firms is the norm.  How stable are the political and social environments? Consider also any government incentives, commercial laws and regulations (e.g. data privacy). Finally consider the maturity of the industry in the candidate country.  For example, India is a mature IT Outsourcing country and likely has less risk than other countries.

Infrastructure and Real Estate

Consider the in-country infrastructure such as telecommunications, transportation, access to networks within country and globally, and utilities.  Determine if commercial real estate rental prices are stable, rising or falling.  What is the availability of commercial space and what is the proximity to residential locations?

Accessibility

Are you considering a hub-city with international and domestic transportation options?  Consider also VISA requirements and how they might be aligned with your home country (e.g. visa’s for US citizens for China are quiet expensive but they are relatively cheap for UK citizens).  Consider time zone differences between your locations. Finally, consider small items like hotel availability and affordability near your planned offices.

Quality Of Life

The intangible quality called “quality of life” may seem to be a low priority but it can be the make-or-break part of the whole site selection planning.  Quality of life factors are important when considering long term sustainability of talent pools.  Factors such as standard and cost of living, social infrastructure, law and order, pollution, natural risk, and essential provisions all play a role.  While they are not as quantitative as real estate rental prices, they do need to be included in the measurement criteria.  For example, what is the rule of law in the target country as it relates to intellectual property?

Summary

A variety of factors exist when deciding where to locate your operations, shared service center or identify your next market.  At the heart of this decision is a location study to determine if the location in question fits into your overall strategy.  By identifying factors above, weighting them, and applying the qualities of the location in question against them, you can determine if the location is right fit for your firm.

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