As decisions go, this one is monumental, and it will impact your company — positively or negatively — for years to come. It’s the decision to expand your operations to a new facility — and if so, where — and it is hard to overstate just how important it is to get that decision right.
“Lots of companies make the wrong decisions for lots of silly reasons,” said David Brandon, senior vice president and principal of The Pathfinders, a Dallas-based site location consulting firm. “If you make the wrong decision [on your expansion], you can suffer for a decade, maybe for several decades, because of the costs involved.”
Companies pondering their first expansion can initially find the task almost overwhelming. Your geographic area can be the contiguous 48 states, or perhaps beyond to Europe, Asia, Canada or Mexico. There is a wealth of information available from all sorts of sources, the vast majority of which can be conveniently found without ever leaving your office, thanks to the Internet.
Lurking in the background is the costs involved in an expansion and whether your company can recoup some of those costs through tax credits, grants or other incentives.
But, according to Brandon, there is a simple process that companies can use to ensure an orderly location search and the right decision for a new facility.
Make Sure It’s the Right Decision
The first thing a company needs to do is review the decision to expand and make sure everybody understands why the decision has been made. Next, an in-house team should be assembled and given a set of responsibilities for providing support to the process.
| “The Internet is a good source to flesh out baseline characteristics [of perspective communities]. It’s also an excellent tool to identify the operative organizations within communities and economic development and utility personnel that would provide support.”
— David Brandon, Senior Vice President and Principal, The Pathfinders |
Before advancing further, however, the team should re-evaluate the decision to expand and make sure the assumptions for expanding are correct, Brandon said.
“I can’t tell you how many times we’ve encountered a client that believes it needs a new facility, but has failed to consider the availability of space in existing buildings,” he said. “We’ve also seen cases where an incorrect location decision was made based on logistics or market functions that weren’t incorporated into the process.
“Communication within the company and involvement by key personnel are absolutely critical to make sure the project is headed in the right direction,” Brandon added.
It is now time for the company to decide whether it will undertake the expansion project on its own, utilize the services of a third-party firm or a combination of both. Once this is done, the site location process begins by identifying the geographic region you think is most appropriate for your project.
The Internet has become the tool of choice for companies at the beginning of the location search.
By accessing state and local economic development or federal government Web sites, companies can find information on population, work force availability, building and land availability, other employers in the metro area, plus much more.
“The Internet is a good source to flesh out baseline characteristics [of perspective communities],” Brandon said. “It’s also an excellent tool to identify the operative organizations within communities and economic development and utility personnel that would provide support.”
Paring Down the List
You are dealing with a universe of several hundred communities and information is coming in fast and quick. It’s easy to succumb to information overload. Brandon suggested that companies define the top five decision criterion for the project — the “deal killers,” without which a community doesn’t stand a chance.
“Once you define those criterion, you can begin to screen the potential communities to get your list down to a manageable number,” he pointed out. “You look for that data and that data alone.”
After the initial search for information, you should have your universe narrowed to about 100 communities. Companies should submit requests for information (RFI) to the economic development personnel of each of these communities, and it should be done as anonymously as possible. All you need to give is the nature — manufacturing facility, distribution center, data center, etc. — and scale — square footage, the potential work force at full operations, etc. — of your operation.
There are numerous ways that this can be accomplished, Brandon noted, including e-mailing the RFI from your personal e-mail address or using an assumed identity and having the information mailed to your home.
“You need to protect your identity,” Brandon said. “The awareness of the company’s identity is not beneficial at this point of the process.”
All relevant information should be included in the RFI, so communities can respond as adequately and thoroughly as possible.
After communities respond to the RFI, the universe is pared again, first to about two dozens sites, then to a half-dozen sites. When you’ve reached this stage of the process, it’s time to begin the location visits.
“Put your feet on the ground and see what they have to offer with your own eyes,” Brandon said.
Basically, you’re looking to confirm the information you’ve gathered via the Internet and RFIs. You’ll want to meet with at least three to six employers that are similar to your company and discuss their experiences with the work force, community, state, utilities — every outside influence that can affect the profitability of your business. Look also at sites and buildings, as well as housing and other amenities, that are important to the relocating work force.
The Finalists
Now you’re in the homestretch. It’s time to trim your list to the two or three finalist communities. It is at this point that you identify your company, your industry and what you are exactly looking for in a site.
“You don’t reveal yourself until your sitting face to face with the community and asking them to commit to certain things,” Brandon said. “When you are asking the community for a commitment, your consideration is the identification of the company and the specific description for the development of the project.”
You can also begin incentive negotiations with the communities. But Brandon cautioned against putting too much emphasis on incentives.
“Putting incentives ahead of a sound business decision will ultimately bite you,” Brandon said. “Incentives become important at the margins for those who come from the direction of an optimum operating environment. They enable you to draw fine distinctions between competing locations. That’s the proper place for them.”
| “Incentives become important at the margins for those who come from the direction of an optimum operating environment. They enable you to draw fine distinctions between competing locations. That’s the proper place for them.” — David Brandon, Senior Vice President and Principal, The Pathfinders |
You’re nearing the final decision. But there is one more thing you need to do — make sure the community will accept you. Go out and talk to the residents to get a feel for how they perceive business.
Brandon related a story about a roofing materials manufacturer looking at several sites in the Northeast U.S. for a new facility. The executives went into one town and talked to the residents and came back convinced their company would never be welcomed there.
“They told me to scratch the community off the list,” he pointed out. “The community didn’t want manufacturers.”
Sometimes, it’s a clash of cultures — the community and the company’s image of itself and the vision for its operations don’t mesh.
Finding Success With Your Decision
Armed with a wealth of information that gives you the tangible and the feeling you get from your location visits (the intangible) you can make the most informed decision for your expansion project.
It is important to remember from the outset why your company is expanding. By keeping this in mind, you will be able to gather only the information that is pertinent to the project and avoid any extraneous information that will only bog you down and hamper your search.
Obviously, the reason you’ve decided to expand is because business is good and you want to keep it good. Finding the right facility in the right location will help your company stay on that path to success.
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