The 8-Step Site

Selection Process that

Identifies the Optimal
Locations for
Corporate Expansion
by King White, on May 22, 2019 9:26:19 AM

The site selection process has evolved

dramatically over the last 20 years for a variety
of reasons. Some of these factors include the
availability of massive amounts of new site
selection data, the development of advanced
software applications and tools to analyze site
selection data, the sheer economic growth,
and corporate expansion during this period of
time, and the general globalization of
corporations.

As a result, it has made the site selection

process more complicated and a company's
ability to find the optimal location for industrial
projects such as manufacturing and
distribution centers. It has also complicated
the search for corporate function locations
such as headquarters, software engineeri
shared service centers, call centers, data
centers, and retail sites.

To help companies understand the key steps

of the "modern-day" site selection process, the
following seven-step process provides a great
roadmap for companies trying to find the best
onshore, nearshore, and offshore locations to
expand .

Step 1: Identify the

•
project team
The first step is to establish a project team.
The team will typically include representatives
from the executive team, business unit, real
estate department, logistics department, tax
department, human resources, and outside
site selection consultants.

Step 2: Define the

• •
project requirement
Project requirements vary significantly based
on the project type. The requirements for a
software development operation will
dramatically differ from a manufacturing plant.
The project team will need to work closel
together to identify key dates, employee skill
requirements, projected headcount, desired
labor rates, capital investment, accessibility to
customers/suppliers, real estate needs, and
infrastructure requirements.

Step 3: Conduct a
geographic filtering
process based on the
• • •
proJect cr1ter1a
To properly filter locations, bulk data will have
to be gathered to build a filtering model with
relevant data aligned with your site selection
criteria. Typically, companies will use data
variables such as population, demographics,
unemployment rate, cost of living, utility costs,
industry presence, inbound/outbound
materials, wage rates, union rates, tax rates,
time zone, and other similar variables to
narrow the list to a long list of five to 10
locations. Many companies often think they
can make a decision from this level of data
which is typically a major mistake.

Step 4: Conduct an in-

depth analysis of the
Step 4: Conduct an in-
depth analysis of the
long list to identify the
finalists
To identify the finalist locations, the site
selection team will need to perform a rigorous
workforce, infrastructure, logistics, business
climate, economic incentive, and real estate
market analysis of the five to 1O candidate
locations. This research will include the
gathering of detailed demographic data as well
as the primary research that will be analyzed in
various site selection models that will need to
be developed. The following provides a sample
of the information that needs to be uncovered
and compared utilizing a balanced scorecard-
type approach:

• Demographics
• Educational attainment
• College and universities
• Historic unemployment
• Location, size, and wages of competitors
• Local employment drivers
• Military presence
• Recent expansions
• Recent closures
• Wage rates
• Infrastructure conditions (roads, utilities,
fiber, etc.)
• Utility costs (electric, water, gas)
• Logistics costs
• Customer accessibility
• Tax rates
• Real estate availability
• Economic incentive availability
• Economic incentive comps
• Employer interviews
• Economic development interviews

Through the analysis of this research, the

project team will identify a shortlist of
locations using some type of weighted model
that scores each location based on
quantitative and qualitative factors such as
labor market scalability, employee
demographics, labor quality, competition,
supplemental labor sources, cost of living and
wages, business environment, accessibility,
logistics, operating costs, real estate
availability and the economic incentive
environment. This research will result in the
identification of two to three finalist locations.

Step 5: Site visits to

Step 5: Site visits to
finalist locations
Once the short-listed communities have been
agreed upon, the project team will conduct on-
site community due diligence to gain a
thorough understanding of what a particular
community has to offer. The tours will typically
take one to two days per community in the U.S.
and up to a week in international locations.
During the tours, the project team will meet
with community leaders, regional economic
development officials, workforce training
representatives, staffing agencies, local
employers, utility providers, and real estate
brokers. The anecdotal evidence uncovered
during the tours will be crucial to the success
of the site selection process and enable the
team to truly understand the qualitative
differences of each finalist location.

Step 6: Negotiations
Once the community tours are completed and
the finalist locations have been identified, the
project team will initiate the simultaneous
negotiation of economic incentives and real
estate terms. It is critical to carefully con
the negotiation process to maximum leverage
and make sure commitments for real estate
don't conflict with a company's ability to
secure the economic incentives.

The economic incentives negotiations will

typically be managed by someone from the tax
department or the site selection consultant
who will initiate formal discussions with local
and state leaders to confirm the availability of
economic incentives such as tax credits, tax
abatements, cash grants, training subsidies,
utility rebates, and other related incentives. It
is critical to understand the financial benefit of
operating in each site by forecasting the net
benefit of incentives and evaluating clawbacks
and compliance implications for the various
jurisdictions.

Real estate terms will be negotiated at the

same time as economic incentives by the real
estate director or site selection consultant. If a
local commercial real estate broker is hired, it
is critical to enlist a firm that only represents
tenants, not owners, to ensure there are no
conflicts of interest. The negotiations will
revolve around finalizing the deal terms such
as the amount of space, rental rate or
purchase price, concessions, improvements,
renewals, expansion, and contraction rights.

Step 7: Build-out of the

•
Site
Once the economic incentives and real estate
are secured, you will need to address the
construction of the project which ranges in
complexity greatly if it is an existing building or
a greenfield site. The construction team will
develop detailed project budgets and
schedules for the project and then follow the
project through until move-in. Selecting the
vendors such as architects, engineers and
general contractors with experience working
on similar facilities can prove critical to
delivering the project on time and within
budget.

Step 8: Staying in
compliance to get your
• • •
economic 1ncent1ves
One of the most frequently neglected steps of
the site selection process is economic
incentive compliance. You thought the sit
selection process was over when in real it
There are several market entry methods that can be used.

• Exporting. Exporting is the direct sale of goods and / or

services in another country....

• Licensing. Licensing allows another company in your target

country to use your property....

• Franchising ... .

• Joint venture ... .

• Foreign direct investment. .. .

• Wholly owned subsidiary... .

• Piggybacking.
Useful Notes on Transfer-Related
Entry Modes
Article shared by Nishant Raj
Transfer-related entry modes relate to transfer
of ownership or utilisation of particular
intellectual property rights from one party to
another in exchange for royalty fees.

This category includes following entry modes:

international leasing, international licensing,
international franchising, and build-operate-
transfer (BOT).

International Leasing:
International leasing is used when a foreign
firm leases out its new or used machines or
equipment to the local company (mostly in a
developing nation). Leasing occurs when the
developing country company does not have
sufficient funds to pay for the equipment. It is
very popular among the airlines to have
aircrafts on lease basis.
Another reason to go in for leasing by the
private sector companies is that they want to
keep their balance sheet clean. They buy the
aircrafts and transfer the ownership to the
banks and then take aircrafts on lease basis
from the banks. International leasing offers
many benefits.

First, the ownership of the property lies with

the foreign company during the lease period,
and the local company pays leasing charges.
Second, from the perspective of local company,
this mode reduces the cost of using foreign
equipment. Third, it mitigates operational and
investment risks. Last, it increases the
knowledge and experience with foreign
technologies and facilities.

International Licensing:
A licensing arrangement or agreement refers to
"a contractual arrangement in which one firm,
the licensor, grants rights to another firm , the
licensee, to manufacture, assemble or otherwise
use a proprietary product, service patent, brand
name or business format. The licensee pays a
license fee for a specified period, and pays
commission or royalty to the licensor calculated
on the basis of unit volume or sales value
achieved."

To the licensor, licensing provides many

Privacy - Terms
benefits - i) extra income is generated, ii)
To the licensor, licensing provides many
benefits - i) extra income is generated, ii)
established markets, which have been closed or
restrictions placed, can be retained, and new
markets (otherwise not possible) can be
reached, iii) overseas markets, not possible to
serve due to domestic limitations, can be
served, iv) creates a goodwill for the company's
other products and services, supply of raw
material to the licensor, and v) possible
infringement of the foreign company's
technology, systems, brand name, etc can be
discouraged. However, if the licensee does not
maintain proper quality control, the reputation
of the licensor gets damaged. It has also been
observed that in future the licensee becomes a
competitor of the licensor.
 -
International Franchising:
International franchising refers to granting of
specified intangible property rights by a foreign
franchiser to a local franchisee, and the
franchisee must religiously abide by strict and
detailed rules of doing business as prescribed
by the franchisor. Franchising offers greater
control over overseas operations and longer
commitments compared with licensing.

While manufacturers offer licenses, service

providers offer franchising. "The biggest
difference between franchising and licensing is
that the franchisee uses the name of the
franchisor. One can see so many Foreign Service
companies operating in India through
franchising arrangement. Some of the notable
names are McDonald's, Kentucky Fried
Chickens, Pizza Hut, Le Meridian, and Best
Western.

McDonald's has roughly 16,000 restaurants in

120 countries. The franchisor receives royalty
payments, income generated by sale of
contractually required inputs. The franchisee
obtains well known brand name supported by
national or international promotion; no
immediate competition (being one franchise in
one locality); receives a package of
supplementary services; and receives
standardised training in managing the business.
Build-Operate-And-Transfer
(BOT):
ADVERTISEMENTS:

Ad closed by Google

BOT is a "turnkey" investment in which a

foreign company is assigned a job in its toality,
from design to construction. The big projects
involving huge investment, long time, and
special skills are the candidates for this kind.
Airports, dams, seaports, steel or chemical
plants, expressways come under this category.
To undertake such projects, often the foreign
firms form joint venture with some local firm.
Foreign Direct
Investment (FDI)
By ADAM HAYES Updated September 02, 2022
Reviewed by CIERRA MURRY
Fact checked by PETE RATHBURN

Foreign Direct
Investment (FDI)
f far-an da-'relct in- 'ves(t)-mant]

The purchase of an
interest in a company
by an investor located
in another country.

0 lnvestopedia

Lara Antal / lnvestopedia

What Is a Foreign Direct Investment
(FDI)?
Foreign direct investment (FDI) is an ownership
stake in a foreign company or project made by
an investor, company, or government from
another country.

Generally, the term is used to describe a

business decision to acquire a substantial stake
in a foreign business or to buy it outright to
expand operations to a new region. The term is
usually not used to describe a stock investment
in a foreign company alone. FDI is a key
element in international economic integration
because it creates stable and long-lasting links
between economies. [l]

KEY TAKEAWAYS

• Foreign direct investments (FDls) are

substantial, lasting investments made
by a company or government into a
foreign concern. Ad
• FDI investors typically take controlling
positions in domestic firms or joint
ventures and are actively involved in
their management.

• The investment may involve acquiring

a source of materials, expanding a
company's footprint, or developing a
multinational presence.

• The top recipients of FDI over the past

several years have been the United
States and China.

• The U.S. and other Organisation for

Economic Co-operation and
Development (OECD) countries have
been the top contributors to FDI
beyond their borders.
How Does Foreign Direct Investment
(FDI) Work?
Companies or governments considering a
foreign direct investment (FDI). generally
consider target firms or projects in open
economies that offer a skilled workforce and
above-average growth prospects for the
investor. Light government regulation also
tends to be prized. FDI frequently goes beyond
mere capital investment. It may include the
provision of management, technology, and
equipment as well. A key feature of foreign
direct investment is that it establishes effective
control of the foreign business or at least
substantial influence over its decision making.
Types of Foreign Direct Investment
Foreign direct investments are commonly
categorized as horizontal, vertical, or
conglomerate.

• With a horizontal FDI, a company

establishes the same type of business
operation in a foreign country as it operates
in its home country. A U.S.-based cellphone
provider buying a chain of phone stores in
China is an example.
• In a vertical FDI, a business acquires a
complementary business in another
country. For example, a U.S. manufacturer
might acquire an interest in a foreign
company that supplies it with the raw
materials it needs.
• In a conglomerate FDI, a company invests in
a foreign business that is unrelated to its
core business. Because the investing
company has no prior experience in the
foreign company's area of expertise, this
often takes the form of a joint venture. Ad