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Corporate Executive Survey Commentary: Functionality, Objectives, Market Considerations Play an Important Role

Although site selection considerations vary according to the specific project, the survey results are consistent with those observed from LFM’s client base.

Q1 2015
Site selection factors and the corresponding weights applied by decision-makers vary tremendously and are driven by the functionality, performance objectives, and strategic/market considerations characterizing the facility investment. The timing of the investment also can play a critical role.

Functionality: As examples, knowledge-based activities such as corporate functions or software development will be skewed heavily toward talent-attraction factors, whereas large-scale process manufacturing will be skewed toward factors such as the availability of certified sites, infrastructure, and environmental regulation. Projects that relocate critical personnel are heavily driven by housing availability and costs, school ratings, healthcare, and other quality-of-life factors.
In our projects, primary drivers have included lower energy costs coupled by rising offshore labor costs, underpinned by increased domestic demand.
Performance objectives: Ongoing costs and the return on upfront investment costs, supply chain, customer service, production value-add, and other operational factors are additional considerations framing the relative importance of individual location factors. For example, an assembly operation for a “cash cow” product might be driven by the availability of lower skilled and inexpensive labor, often offshored, balanced with an efficient supply chain. In contrast, a technical manufacturing or product development facility will typically be much more driven by a skilled workforce with higher acceptable cost thresholds.

Strategic and market considerations: Broader business and go-to-market strategies are a third set of factors influencing criteria and weights. Sometimes these are directly related to the specific site selection project and other times more broadly intertwined with the overall corporate location strategy and footprint.

Timing: Timing may not be everything, but it is certainly an important dimension, particularly for fast-track projects. In these situations, expedited permitting, available buildings or shovel-ready sites, and general confidence in local economic development stakeholders can be critically important to decision-makers.

Within the above context, the survey results are generally consistent with what we are observing from our client base. We see an overall uptake in new plant investment in the U.S., particularly from offshore companies, though the strength of this trend seems inconsistent. In our projects, primary drivers have included lower energy costs coupled by rising offshore labor costs, underpinned by increased domestic demand. And consistent with the survey, we see the mid-continent to southeast arc of states to be receiving the largest proportion of investment.

The survey concludes with a few social topics. With respect to healthcare reform mandates influencing site selection decisions, we’ve not seen the cost of healthcare (historically and in the current environment) to be a major site selection factor, at least for mid-size and larger projects. This insurance cost is generally a relatively small component of overall operating costs and tends to be trumped by other factors in the decision process. For small companies, this may be a much more significant concern. With respect to recent legalization of recreational marijuana in a few states and a growing movement to do so in other states, the survey results are interesting. Regardless of one’s personal views on this topic, it is thought-provoking that nearly half of the survey respondents say legalization would affect the decision to locate a new facility in those states. It will be interesting to see if and how this perception changes in the coming years.
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