24th Annual Corporate Survey Analysis by Robert Hess
Robert Hess, Executive Managing Director, Consulting, Newmark Grubb Knight Frank (Dec/Jan 10)
Many of us will agree that 2009 was a most challenging year in the location-selection and business-expansion industry. Rarely have we seen such an assault on company portfolios and networks with regard to "survivability" in terms of rationalizing and cost-reduction across the entire enterprise. Even more compelling was the dramatic disappearance of top-line demand and the inability for companies to forecast the future, which often drives significant site selection projects under the guise of market access, product development, capacity planning, and innovation strategies.
In total, I believe the survey is an accurate reflection of the economy through the first three quarters of 2009. Increases in the number of facilities during last 12 months were down, any increases in new facilities due to increased sales or new markets were way down, and 70 percent or more of the decreases in number of facilities were due to consolidation, decrease in sales/demand, and cost reduction.
Relative to the question as to how the downturn has impacted facility plans, employee attrition and layoffs almost doubled to 35 percent from 18 percent last year, and deferring capital spending (a new category) was at 30 percent. (It's surprising to me that this was not higher, as an overwhelming majority of our clients have put off any type of major strategic initiatives that involve significant capital outlays until 2011).
The other noticeable result in my review of the data was the consistent feedback from companies who do plan to expand that job creation events would be much smaller (whether domestic or foreign expansions), and that companies are "hunkering down," with 72 percent and 60 percent having no plans to relocate or expand, respectively, a domestic operation for several years. If any companies are planning to change their footprints, the survey confirms that the rationale is driven by structural cost reduction and the need to better position their assets in a more compatible, pro-business climate. In summary, no surprises from what we have all read and experienced this past year, and confirmation that organizations will continue to explore globalization of new markets, but at a much slower pace and with smaller initiatives to reduce risk and avoid unnecessary cost outlays.
A note on the site selection factor rankings: Availability of advanced ICT services moved from 21st place in 2008 to 9th position in 2009. I see this as a remarkable change likely due to the need to intensely communicate and collaborate as well as facilitate information flow across companies and their supply chains in a time of drastic change like we have not seen since the Great Depression - and to ensure company sites and facilities are well-supported with stellar fiberoptic connectivity and IT capacity for future operational planning.
The survey also confirmed the importance of sustainability and carbon footprint reductions, which are moving from a "consideration" to a "business imperative" (as long as the measures are not cost-prohibitive). No surprises on stimulus funds not impacting site selection. In my travels with clients, I have heard of few, if any, economic developers - with the promising exception of those working on alternative-energy and green-tech projects - using stimulus monies in a material way to support or influence location decision-making programs. The basic critical location factors still apply, as the survey confirms year after year.
Some final comments of encouragement: As of November 30, 2009, economic indicators are moving to a moderately optimistic position; our global firm is experiencing a slight uptick in our pipeline for business expansion projects; and many of my colleagues in the business have been keeping busy with alternative-energy, food-processing, and service-industry engagements that are the receptors of the declining economy. We feel that the second quarter of 2010 will present more opportunity in corporate-service-provider business, and if you believe that six to nine months is the typical cycle for strategic planning initiatives, along with 71 percent of the executives who believe the economy will significantly improve by end of 2010/beginning of 2011, then maybe we are seeing the light at the end of the tunnel!