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Labor Consdierations When Relocating a Business

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Labor Trumps Other Factors in the Location Decision

What are some recent or noteworthy examples of companies that have relocated because of labor considerations?

Matt Jackson, Strategic Consulting, Jones Lang LaSalle

When companies expand, consolidate, or redeploy operations to a new location, they are typically making the move in efforts to improve shareholder value. Within the context of location, the three primary value drivers are revenue (sell more in new markets), margin (lower the cost of the products or services delivered by operating from lower cost locations), and innovation (develop new products for new consumer markets). Companies that would tend to relocate because of labor considerations would be doing so to improve margin or to source talent for innovation activities.

From a 50,000-foot view, companies that relocate because of the cost of labor are typically operating in an industry vertical characterized by thin product margins (or declining margins) and/or where the contribution that labor represents to the total cost of operations is notable. Such industries include toys, textiles, shoes, electronics, or business process outsourcing to name but a few. In such industries, the cost of labor plays a very important role where operations are established. The same logic would apply to specific facilities within a corporation, such as call centers, shared service centers, or other back office operations.

The drivers behind innovation can be thought of differently depending on whether the proposed innovation activities are considered "discovery" or "adaptation." If discovery, companies are typically sourcing labor to access world leading talent and cost tends not to factor highly on the decision continuum. In contrast, if the innovation activities are adaptive, meaning the company is seeking to improve upon an existing product that has already been adopted in the market, it could readily be seeking a low cost location for such operations.

While there are always variances to a general rule, the above would typically apply to most relocation decisions.

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About the Author

Matt Jackson, Strategic Consulting, Jones Lang LaSalle
Matt Jackson has 15 years experience assisting corporations with the global configuration and optimization of corporate operations to achieve revenue, margin, and innovation objectives. He has conducted projects in more than 25 countries around the world.

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