Relocations can be like ice skating. One minute you’re gliding along smoothly, enjoying the view and making great progress, and the next, you’re flat on your back, wondering what happened. A prestigious zip code seemingly loaded with incentives may prove disastrous while a middle-of-nowhere community can result in a highly profitable expansion. It can also mark the beginning of a trend, as with overseas automotive manufacturers like Mercedes and Nissan who established operations in Alabama and Mississippi.
Start with a team
Negotiating the slippery slope between a successful move and a debacle can be a major challenge that often requires treading a fine line. Many factors go into a relocation, consolidation, or expansion and a good portion must be done with the head, rather than the heart.
“First, assemble a team,” advises Jim Trobaugh, senior vice-president of CB Richard Ellis Call Center Solutions Group in Phoenix. A project is doomed to failure, he believes, without the input of certain key players. Although it’s obvious that a telecommunications provider will be searching for a solid fiber optic network, they might fail to consider tax ramifications. Regarding the latter, “California can be expensive,” despite its other benefits to that particular industry. Which is why “the involvement of financial and real estate people is essential” as well as the utilization of legal experts to examine the fine print and possible loopholes. Transportation and availability of utilities are but a few of the elements that make up a final decision.
And what about potential employees? “Here, managers and human resource experts come into play,” he goes on. “They understand the good, bad, and ugly of the workforce” — what ages and level of education are best suited for a particular type of undertaking, the demographics, and unemployment rates of the existing pool, and whether it’s a right-to-work state, which allows laborers a choice in joining a union, ultimately saving the company money. And sometimes, less is more: Decision-makers “may not have heard of Twin Falls, Idaho but if it has compatible facilities requiring fewer taxes and a better quality workforce, you can get the most impact for your investment.”
Job saturation is another issue. Some industries will move to the same region as their competitors, rather than a brand-new location because it has a proven track record of sorts. But this can create a whole new set of problems. For example, “once call centers employ more than 2 percent of the workforce, turnover becomes a problem,” says Trobaugh. “They start cannibalizing each other.” With an overabundance of jobs, personnel will switch to whichever center has the highest pay or best benefits “and all of [the existing companies] suffer.”
Perhaps most importantly, “team members must be present throughout the life of a project,” points out Anna McKean, of McLean, Virginia a practice leader for strategic relocation and expansion service for the mid-Atlantic region of KPMG LLP. “They need to stay involved, seeing it through to completion.” Otherwise, key points may get lost in the tumult of the move, such as the consideration of long-term tax increases, which can eventually cost a company millions of dollars.
One of the biggest flirtations with disaster occurs when decision-makers get swept away by a single aspect of a project. Jim Bruce, president of Business Facility Planning Consultants of Norcross, Georgia cites an example of a large company that invested nearly a billion dollars in a new production facility. “The consultants recommended a particular area as meeting the client’s criteria,”, especially in terms of convenience of location. “However, the senior people fell in love with a pretty piece of property up the road about 30 miles.” The result: the plant closed in less than a decade because it was difficult to hire and retain workers willing to make the extra commute.
On the other hand, by defining and focusing on several factors, another manufacturing site “proved incredibly successful, despite the fact that the client and consulting team came close to strangling each other,” he adds with a smile. “Certain operational aspects were identified as most important, based on past experience.” Along with being laid out to accommodate the flow of manufacturing, the plant was also close to rail lines and utilities, both of which were vital to its survival in the industry.
Incentives can be another seductive trip-up. Tax breaks and assistance from various community organizations can enhance the project but should not be the main reason for selecting a site. “Any time the focus switches to incentives, there’s trouble,” asserts Ed McCallum, senior principal of McCallum Sweeney Consulting in Greenville, South Carolina. “Incentives provide differentiation at the margins of a decision but should not be the drivers.”
Some sites simply will not work, no matter what the bonuses, such as a food production facility that utilizes wastewater far beyond the processing capacity of the local sewage plant. One such company learned this the hard way: After they’d signed the contract, it was discovered that the plant could not be hooked up to sewage at all. So they lost their deposit. “It wasn’t that either side was dishonest, it was just that client failed to investigate thoroughly,” remarks the project consultant.
Sometimes city planners “go to the same conferences and give the same answers, because they think it’s what people want to hear,” observes Dick Sheehy, site selection manager for IDC in Portland, Oregon. He looks for consistency of responses from all levels, be it a provider of an air or water permit or a state government official. “We’re working with many types of groups and they need to be in concert with each other. If you pose the same question to several people and get different answers, then it may be difficult to make your schedule.”
Still, “once a company is down to 2-4 areas, incentive packages can tip the scales,” points out Dennis Donovan, director of global site location at the Wadley-Donovan Group in Edison, New Jersey. Companies that utilize performance-based incentives — those given upon completion of a particular task or goal — often reap the strongest benefits. “If they meet the target for construction deadlines and numbers of employees hired, everybody wins.”
Firms that allow for adequate scheduling for relocations, consolidations, and expansions are in the best position to obtain prime incentives, according to Frank Spano, associate director of planning, facilities location group at the Cleveland-based Austin Company. “Sometimes decision-makers will see a small article about an incentive and think, ‘Why can’t we have that too?’ But factors such as the type of contract, expectations by various parties, and time frame come into play.”
Oh, By the Way….
And therein lies the rub: Often the decision to relocate and particularly expand and/or consolidate is made within a short duration, on a tight agenda. This seems endemic, no matter what the enterprise, be it manufacturing computer chips or adding call centers. In this insecure economy, companies wait until the need is so great that the move must be done in a hurry.
So relocation advisers are continually battling with management who want decisions made and implemented immediately. But no matter how urgent the need, certain procedures must be followed, such as working backward from the desired start-up date and allowing at least eight months for property acquisition. “All expectations must be put on paper, and time must be allotted for an adequate study to provide realistic forecasts as to when things will be done,” says Spano. He also insists on constant communication between the client and site location consultant. “Projects and needs can change quickly and if someone’s operating on an inaccurate premise, such as the requirement for rail which for some reason no longer becomes relevant, then it turns into a relocation from hell.”
Some executives think they can handle the move themselves, which may be akin to trying to act as one’s own lawyer. Because they are juggling many demands, and rarely deal with location decisions, “the result is that it takes much longer and turns out to be more complicated than they ever expected, “comments Bruce Donnelly, president of Global Direct Investment Solutions in Fox River Grove, Illinois. Faced with deadlines or other constraints, they may “settle for suboptimal solutions which, even though it may not be a ‘disaster,’ may result in lost profits for many years.”
“When I start hearing the phrases, ‘oh, by the way,’ or ‘there’s something I didn’t tell you,’ this means that there’s a change in the schedule or a cost is being added,” remarks Sheehy. Not meeting dates or overruns “are a recipe for disaster” and can result in lost productivity, with the company missing out on the window of opportunity which was the purpose of the move in the first place.
Different Countries, Different Rules
Due to NAFTA and other trade agreements, the use of overseas facilities for call centers and certain types of manufacturing have become a popular choice in recent years, although the uncertain world situation may change that. The low cost of workers in India and Mexico and the billions of consumers in China have made these markets attractive.
But despite the money that might be saved, things become even more complex in the international arena. “Not only are you dealing with real estate decisions, but there are vastly different management styles, tax and employment laws, work ethics, and government operating procedures,” explains Dennis Smith, president of PacTac Advisors in New York City. Issues such as availability of power and running water and even bribing officials to get certain permits to come into play. In one instance, an American-based microchip maker expanding to Europe was forced by the local union to hire their pipefitters for a technologically advanced system, a job that normally went to a US company specializing in such installations. Needless to say, the latter was flown overseas for a serious retrofitting job, delaying the project by months
“Questions arise such as: What about visas for executives? How good is the construction quality? ” continues Smith. ” What are the rights of the company and the individual employees? For example, when a new law is passed in China, everyone applies their own interpretation until the government figures out how to implement it.”
Each country has its own cultural quirks. In India, the boss will advise workers on how to handle relationships, even giving the bride away at the wedding. “In Southeast Asia, senior executives may host an annual picnic for the entire town where the president of the company flies in for it,” says Smith. And in Indonesia “there’s no such concept as the majority rules. You talk about a problem until everyone agrees upon a solution.”
Lack of efficient analysis can result in a fiasco. “Many times, the CEO flies in, makes a visit, and decides it’s a great place.” Before leaping, Smith suggests talking to multinational firms that already have a presence in the country, locating advisors familiar with international issues, and taking a good look at how the firm’s management style and environment would mesh with that of the target country. “A company with a CEO who’s an autocrat who makes every decision may be better off not trying to do business in Asia.”
International implications also come into play on the home front. “Since 9/11, site security has become a major issue in the United States,” remarks Donovan. “Companies need to consider the location of power plants and military installations, even amusement parks and shopping malls, anything that draws large numbers of people.” Multinational corporations and data centers can be particularly vulnerable to terrorists, “”especially if they’re dealing with Middle Eastern countries.” A more remote site and a solid security plan can alleviate some worries.
It’s Always Something…
No one can predict how much downtime and attrition will occur during the move, although both can have a seriously detrimental effect. “Heavy defections, absenteeism, and low productivity show a lack of resource policies that fail to communicate the logic of the move,” observes Donovan. However, “when Quaker State moved from Pennsylvania to Texas and Ashland Oil relocated from Kentucky to just outside of Cincinnati, most employees went along. Management did a great job of conveying their intentions to both workers and the community.” Along with maintaining continuity, plans for recruiting and training replacement labor should also be in place.
Then there’s the monkey wrench of pollution, a site whose provenance may have included underground storage tanks or other waste. Donovan advises getting at least a Phase I environmental assessment, and if even a hint of contamination is found, going directly to Phase II. “Early remediation can take care of many problems.”
Sometimes things just happen. “At some point during a project — particularly a long-term one — something may come up late in the game that can be a deal-breaker,” remarks McKean. Events outside anyone’s control, such as the death of a key player, the company being bought out, or changing state and local tax laws can affect cost implications and market focus, endangering the entire program. “At that point, you must figure out whether to go forward with it or cancel. I’ve seen it happen both ways.”
And relocation — from hell or otherwise — is hardly an exact science. “Some projects have been spectacular mistakes, although the companies involved might not necessarily perceive it that way,” observes Donnelly. “Sometimes projects fail for business reasons that would apply anywhere.”