Phil Schneider, Principal, Global Expansion Optimization and Location Strategy, Deloitte (Dec/Jan 10)
Each year as I read the results of the Annual Corporate Survey, I am reminded of the old French proverb: Plus ça change, plus c'est la même chose" - The more the world and economy changes, the more the responses to which issues most drive site selection tend to remain the same. And that is really how it should be. But the value of this annual survey is not only to reinforce our understanding of the tried and true factors that will always be vital drivers of these important corporate decisions, but also to understand how ongoing changes in the world's economic structure and the evolution of business might affect these decisions here and now. And toward that end, this year's survey provides some interesting insight.
The first thing that jumps to my attention is the impact that the recession and tight capital markets are having on respondents. In 2008, 30 percent of respondents said they had added two or more facilities within the previous year, but for 2009 that figure has dropped to about 20 percent. Likewise, those companies that had decreased their facilities by two or more increased from 12 percent to over 20 percent. Also, the number of companies with no plans at all to open new facilities - not even 5 years out - jumped to nearly 55 percent. The percentage of companies citing plans to either defer hiring or the opening of facilities, or reduce employment and close facilities, also spiked. Those of us working in site selection or economic development no doubt can attest to the reduction in new location activity and increase in consolidations or rationalization.
The reasons behind the increase or decrease in facilities has also changed rather dramatically: increased sales or production, new markets, and new product lines are all well down as reasons for facility increases, whereas M&A is well up. And with respect to the reasons for the decrease in facilities, decrease in sales and the need to lower operating costs are all well up. Again, this reminds us that we are still in the throes of a recession, where lower profits have led to severe cost reduction, consolidation, and mergers.
Although, as mentioned, the factors driving most site selection activity are relatively stable from year to year, some interesting trends have emerged. One is the continuing decline in the importance of unskilled labor; higher skills are the drivers, and lower skills appear to be considered ubiquitous, or at least of minor importance in the larger scheme. Another is the large increase in the importance of ICT services. Just since last year, there has been a jump from roughly 24 percent to 41 percent who indicate that ICT services are "very important" to their decision. That's far more than feel that way about rail, airport, or seaport access - combined - and is approaching the level of importance of highway access. That tells me that moving information is fast becoming as or more important than the movement of material goods.
With regard to the types of operations likely to be deployed, plans for new shared-service, data, and other service centers, especially offshore, are increasing. I found it interesting how few had plans for new call centers, and that the number of companies planning them is declining both domestically and globally. This tracks with our experience in "back-office" type location work, where shared service and data centers have been hot, and call centers are not.
Another interesting - and less encouraging - result is that those companies that do have new facility plans are not making big plans. Only 19 percent of those with domestic plans expect to employ more than 100 versus 32 percent just one year before. Those with foreign plans do have somewhat larger employment projections, but still only 40 percent of them expect to have operations with more than 100 workers, and that too is down somewhat from last year.
As to where they are looking, the trends are interesting in that Africa and the Middle East, while still modest destinations overall, showed relatively large jumps in interest, as did Western Europe. The search for new markets and low-cost locations perhaps explains the heightened interest in Africa and the Middle East, but the increased interest in Western Europe is a bit surprising. Perhaps in troubling times, companies - SMEs (small and medium enterprises) - seek the comfort of more stable markets.