2011- Spring Global Arena article for Director of Finance Magazine on the most important factors to be evaluated by CFOs when choosing a new business location.

1. Financial Planning
Finding the best
business location
By Peter Storm
FINDING THE BEST LOCATION CREATES A CHALLENGE selection process based on their assumption that they’ll
for international companies, and – more to the point – the be in the best place to help their client implement the
challenge often ends up. Moreover, the time available to Foreign Direct Investment (FDI) project, and be able to
deliver the promised benefit is continuously shrinking: new charge a large volume of implementation services.
foreign investments must provide benefits immediately. In order to save costs other companies use an internet-
Because decision-makers will be held accountable for choices, based research instead. Problem is that there are billions of
it is clear that Financial Directors must understand and pages on the Internet, and every new set of keywords results
influence these decisions. in a new list of potential locations. Moreover, these search
This article provides an overview of the process. results are generated based on the way locations chose
to promote themselves ( via “search engine optimization”,
Finding Business Locations or SEO), regardless of your needs. Google ranks the
It is normal practice to initiate a location review project locations based on the chosen keywords and how these
with support from one of the large consultancy firms. The relate to the websites of location agencies. In spite of the
business owner defines some requirements and, after a challenges, according to The World Bank (Global Investment
period of paid-for research a shortlist is presented. The exact Promotion Benchmarking – compares the performance of
criteria that resulted in the selection are not always clear, and nationally-mandated investment promotion intermediaries
sometimes are not even supported by objective data, and on their effectiveness in meeting investors’ information
can be based on personal preferences or local contacts. needs), companies increasingly use the Internet as a way
This approach is not only a “black box”, it can also to identify and analyze potential locations. In case of
be very expensive. For large companies this approach emerging markets the use of the Internet was even higher.
is sometimes the best choice. After all, consulting The Internet approach is inherently cheap and easy, and
agencies will often discount consulting fees during the therefore can be a good option. As with all searches on
2 Director of Finance

2. Financial Planning
the Internet, however, the actual effectiveness is negatively to Poland. If more current data and trend analysis were used,
impacted by the sheer overdose of irrelevant ‘stuff ’ that these organizations may have invested in Romania in the first
is available on the web, clogging search efforts. This is also place.
impacted by paid-for content (“Google Adwords”) that This example shows that a location decision cannot
shows up in your search result even if you’re not looking for be determined by simple analysis of an existing situation.
it. Separating the wheat from the chaff is becoming an art… Macro-economic indicators used to support a decision
We believe that the best approach combines the best of take time to reflect rapid changes. All analysis should be
both worlds. Focused analysis – transparent, objective analysis reviewed in the context of current political and economic
of reliable and comparable information – paired with the developments. This is a process we strongly recommend
power of the Internet. The analysis helps sort, organize, and the customer should do jointly with a consulting firm.
filter the unparalleled mass of information available on the web.
This approach could be used to generate a ‘long-list’ of Business Demands
locations. Use an online tool to take the search criteria that It can be important to gauge a second opinion about location
have been defined based upon your strategic needs, run selections. During the review it often becomes clear that
the analysis to get a short-list, and then get hands-on again conclusions have been reached in isolation (if, for example,
when reviewing candidate sites. Meetings with representatives a single consultant was used) or subjectively (if, for example,
of those sites can be used to evaluate ‘chemistry’ and chosen because the consulting agency can pocket a finder’s
cultural fit, and thus help steer your decision towards the fee for bringing customers to a particular location).
location best matching your business and personal needs. In In contrast, build a transparent process with well-defined
addition, they can be used to identify and target incentives. and agreed criteria using independent data sources. This
transparency makes it easier to understand and support the
The Best Location: result. As stated earlier, though, major location decisions are not
“Best” is viewed differently depending on the planned made solely based on the results of a model. The model helps
sector/function specific activity. An organization working to generate a useful short-list, but the final selection can only
toward an systematic analysis and objective location be made after site visits and negotiations have taken place.
decision will quickly find themselves buried in data. Location The use of independent data and multiple criteria makes it
factors will be varied – encompassing things like labor possible to perform periodic reviews of business locations. This
availability, productivity and flexibility, market attractiveness, provides insight in the relative performance and comparative
cost of living and a variety of socio-political measures. advantages of the locations and gives the information needed
It is not easy to objectively compare and rank these factors. to negotiate better conditions over time. The technique is
To be objective, it is necessary that the data – which comes particularly useful during a merger, acquisition or divestiture.
from a multitude of sources – is comparable and consistently In the global world, it is important to continuously review
defined. Moreover, although comparable and consistent and evaluate the competitiveness of business locations.
data sources are necessary, they are not sufficient to reach
a solution: the appropriate data series are not easily ranked. Summary
(For example: How does GDP per capita relate to local Using the Internet to search for locations is becoming
unemployment rate? What does labor productivity per person increasingly relevant, but everyone experiences information
employed mean compared to average redundancy costs?) overload. The Internet provides a gazillion hits for every
In addition, the aspects that are most important to a query, ranked largely based on paid-for content and SEO,
decision maker will vary depending on the purpose planned and not ranked based upon your needs. To effectively
for the location. The needs of a regional headquarters use the Internet for your search efforts it is fundamental
site are far different from those for a factory. to begin location analysis by determining the most
A multivariate, statistical model combines a variety appropriate process. It is of paramount importance
of data sources encompassing economic (e.g. things to determine in advance when/how you’re using the
like GDP, Labor productivity, Cost of Living), talent (e.g. Internet, and when/how you’re using consulting firms.
things like education capabilities, labor market flexibility) We strongly recommend a combination of the two,
and human (e.g. things like socio-political stability, so as to maximize your options at a very low cost,
corruption index) factors. To be useful, the model must while maximizing the effectiveness of your decision
be dynamic, that is, it must allow the user to determine with high accuracy. Available time and available
the relative importance of the different location factors. resources (cost…!) will help you determine the
It is also important that decisions are supported by current optimal balance between Internet and consulting.
data. Consider a situation from Poland in 2007. In that time Establishing a new HQ-relocation can be a disruptive
frame, there was a huge increase in investments into Poland. process, opening a new foreign subsidiary can be very
The surge was supported by analysis of historical data that costly and risky business. Deciding on the best location is
indicated (correctly at the time) the presence of a skilled a massive challenge with huge impacts for the company. It
workforce, moderate wages and extensive fluency in English. is key to have these challenges become successes, and to
Unfortunately, by the time newly created production facilities have these impacts be profitable. As Financial Directors
were completed and work was being sourced, conditions had you now have effective tools to help you achieve that. n
changed. A large number of skilled workers had left Poland for
jobs in the Western part of the EU. Organizations then had to
Peter Storm, CEO at Global-Arena.com
source workforce in countries like Romania and relocate them
Director of Finance 3