Figuring out where to locate your next facility—be it a factory, warehouse or your global headquarters—is tough. There are no sure things. Choosing a highly coveted area with attractive incentives can turn out to be a huge mistake while opting for a remote community can end up being an extremely lucrative move. And aside from being unpredictable, location projects can be extremely complicated as well, confronting you with a myriad of factors to consider, from security to transportation to the availability of utilities. Here's how you can handle the complexity and avoid the pitfalls when you want to relocate, consolidate or expand your facility:

It Begins with Teamwork

"First, assemble a team," says Jim Trobaugh, senior vice president of CB Richard Ellis Call Center Solutions Group in Phoenix. A project is bound for disaster, he thinks, without the participation of particular people. For example, the "involvement of financial and real estate people is essential," he says, so you don't overlook something as big as tax consequences. Also crucial are legal experts who can decipher the fine print and spot any loopholes.

And to take a good hard look at labor issues, managers and human resource experts have to be enlisted. "They understand the good, bad and ugly of the workforce," says Trobaugh, examining things like the most suitable age range and educational level for certain positions, the demographics and unemployment rates of the current pool, whether there is an overabundance of the same types of jobs in the area, and whether it's a state that gives workers the choice of joining a union, which will mean cost savings for the company in the long run.

A team effort could lead to a decision that may not have been obvious in the beginning. 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," says Trobaugh. To arrive at a decision that doesn't neglect to consider factors that could end up costing a firm millions—such as long-term tax increases—"team members must be present throughout the life of a project," says Anna McKean, a practice leader for strategic relocation and expansion service at KPMG LLP in Virginia. "They need to stay involved, seeing it through to completion."

Losing Sight of the Big Picture

The team should not allow a single aspect of the project to dictate their decision. Jim Bruce, president of Business Facility Planning Consultants in Georgia, recounts the experience of a large firm that spent nearly a billion dollars on a new plant. "The consultants recommended a particular area as meeting the client's criteria," he recalls. "However, the senior people fell in love with a pretty piece of property up the road about 30 miles." The company had to shut down the production facility in less than 10 years because the extra commute caused high turnover.

Incentives can also unduly sway location decisions. The team should avoid letting tax breaks and the support of several community organizations clinch the deal. "Any time the focus switches to incentives, there's trouble," says Ed McCallum, senior principal of McCallum Sweeney Consulting in South Carolina. "Incentives provide differentiation at the margins of a decision but should not be the drivers."

Remember that some sites are unsuitable no matter how many incentives they offer. For example, a food-processing plant that produces more wastewater than what the local sewage plant can process is simply not acceptable. One company made the mistake of signing a contract for a plant that they later found out could not even be linked to sewage at all. As a result, their entire deposit went down the drain. "It wasn't that either side was dishonest, it was just that the client failed to investigate thoroughly," says the project consultant.

However, "once a company is down to two to four areas, incentive packages can tip the scales," says Dennis Donovan, director of global site location at the Wadley-Donovan Group in New Jersey. Particularly beneficial are performance-based incentives—those that are contingent upon fulfilling certain goals or accomplishing specific tasks. "If they meet the target for construction deadlines and numbers of employees hired, everybody wins," he adds.

In a Hurry

Firms that designate enough time for relocations, consolidations and expansions are best able to get lucrative incentives, notes Frank Spano, associate director of planning for the Facilities Location Group at Cleveland-based Austin Co. However, companies often delay the decision to relocate, consolidate and/or expand until they absolutely have to, and end up having to do so in a truncated time span. As a result, location advisers can butt heads with management, who want things done quickly.

Despite this rush to meet tight deadlines, the project team cannot afford to skip certain procedures, such as allocating 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 believes that the client and the site location consultant should communicate constantly so that everyone's up to speed. "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," he says.

Executives who believe they can oversee the move themselves can also bog things down. "The result is that it takes much longer and turns out to be more complicated than they ever expected," points out Bruce Donnelly, president of Global Direct Investment Solutions in Illinois. They may end up choosing a subpar site, which "even though it may not be a 'disaster,' may result in lost profits for many years," he says.

International Issues

While foreign facilities have been tempting especially in recent years because of the affordable cost of overseas workers and because of trade agreements such as NAFTA, they also introduce many more variables. "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," says Dennis Smith, president of PacTac Advisors in New York City.

"Questions arise such as: 'What about visas for executives? How good is the construction quality?" adds Smith. "What are the rights of the company and the individual employees?" Firms have to analyze these issues in order to make a sound decision. Smith recommends consulting multinational firms that have facilities in the country, finding advisors who have experience with international issues, and examining the fit between the country's culture and the firm's management style and atmosphere.

Expect the Unexpected

Despite all the preparation, however, no one will be able to forecast how much downtime and attrition will take place during relocation, although both can have a profoundly negative impact. "Heavy defections, absenteeism and low productivity show a lack of resource policies that fail to communicate the logic of the move," says Donovan. Fortunately, there are success stories. "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," he notes.

Indeed, location projects are far from straightforward undertakings. Unexpected events—such as the company being acquired or state and local tax laws being revised—can delay or halt projects altogether. In order to get past such obstacles, project teams must be prepared to handle the things they can control and to keep a level head about things they can't.

Source: Avoiding Location Pitfalls
Sandra Gurvis
Plants Sites & Parks, July 2003
http://www.bizsites.com/2003/article.asp?id=412