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Inward Investment Guides

Biotech Location Guide: BioConvergence: How New Biotech and IT Will Redefine the Health Care Industry

Dr. C. R. (Buzz) Canup, President, Canup & Associates, Inc.  (Biotech Location Guide 2006)
(page 2 of 2)
• Step 1 - Project setup/needs assessment: It is important to determine project goals, facility needs, and site selection criteria in the initial phases of any site selection project. Initiate a one- to two-day brainstorming session regarding the scope of the project, desired outcomes, and timeframe. These meetings should include top management, facility directors, financial executives, accounting consultants, and site selection consultants. Often, executives have early expectations on where their next facility or office is best suited. A discussion of incentives begins here, with the site selection consultants giving an early assessment of what incentives could be available based on similar type expansions and relocations. Milestones and success metrics should be set. The most effective site selection efforts allow four to eight months for the full evaluation, negotiation, and selection of a community.

• Step 2 - Determine an incentives strategy: Most technology companies are moving at a pace too fast to allow the exploration of incentives in their site selection decisions. For many, incentives are often the icing on the cake, sweetening the deal after a decision has already been made. Software companies are generally too small to see the benefit of financial incentives or just don't qualify. But others, such as manufacturers, know just how valuable incentives can be. New industries such as nanotechnology, biotechnology, and fuel cells are now caught up in a virtual "incentives arms race" among states and communities. Hiring a site selection consultant is a requirement to effectively explore the full range of incentives opportunities. In addition, a consultant provides "arm's length" protection from any problems or aggressive negotiations that might sour the public relations impact of an announced move. While the primary effect of incentives is to remedy a prejudiced or burdensome tax system, incentives often become a stamp of approval by communities that companies seek in their local public relations. More than ever, incentives are cash-based, where state and local governments commit funds to invest in infrastructure, work force training, free land, and buildings. Many states are now choosing to deliver hard cash to a company in order to win these strategic projects and make a marketing statement to the world.

• Step 3 - Issue a request for proposals: If a bioconvergence company wishes to pursue incentives, it is important that its site selection representative issue a request for proposals to a large list of communities. This ensures that a full range of options are presented to the decision makers, and incentives negotiations can begin. Companies should present themselves to communities in a confidential fashion, using project code names and relying on non-staff to interact with local business and government representatives.

• Step 4 - Evaluation of top locations and sites: The technology company or its site selection consultant must do thorough research on its list of potential locations. Today, communities maintain much of their information on an economic development website. In fact, site selectors use the Internet to gain most of the information they need in their evaluation before any phone calls or visits occur. Communities should be evaluated for each of the criteria set out in Step 1. Good site selectors will devise a weighted ranking system for all factors and rate communities on each.

For companies that require very specific sites for new construction, such as medical device manufacturers, visits to a community must be conducted by an experienced engineering or site selection team. These individuals make physical evaluations of sites and typically get information from local authorities on their acreage, topography, soil type, zoning, geo-technical conditions, utilities, and access points. The lack of sites and infrastructure may remove a community from a site selector's evaluation list. Technology manufacturers are increasingly focused on the supply of developed, "shovel-ready" sites in communities throughout the United States, thus raising the bar for corporate recruitment. Many communities precertify their manufacturing sites for specific uses such as semiconductor manufacturing or automotive manufacturing.

Utility evaluations are still very important to bioconvergence firms, particularly those with sensitive manufacturing processes or a large datacenter requirement. The demands of the digital world result in the large consumption of power. Affordable, reliable electricity is of utmost importance, particularly for manufacturers or datacenters. Dual-feed and gasoline-powered backup generators are extreme examples of requirements. Reliable telecommunications are equally important. Site selectors will evaluate brownouts, outages due to storms, power spikes, and excess capacity for peak periods. In light of the massive blackouts in the Northeast in recent years, reliability of the electric grid deserves greater scrutiny.

• Step 5 - Cost of operation benchmarking: Bioconvergence firms vary in their attention to costs. Manufacturers and large consumers of electricity do thorough evaluations of the costs for various locations. This benchmarking analysis should cover the cost of labor, supplier purchases, air travel among locations, real estate costs, and tax costs. This analysis is generally done by the site selection consultant or an in-house financial analyst. Benchmarking the final communities for a variety of weighted scores can help determine where an operation would experience the lowest operating costs. Numerous factors are ranked and weighted for all areas in contention to determine which areas are best suited for the operation.

• Step 6 - Short-list communities and visit: Once the initial analysis is completed, it is necessary to visit the candidate communities on the short list. These visits are meant to confirm the data sent by the community, visit prospective sites or buildings, and meet with local government, academic, and business leaders. The community visit is the most important part of the site selection process, and should be the determining factor in selecting a finalist city. Typically, a company will select a primary location but will have one or two other acceptable alternatives. This will allow more effective negotiations at the end of the process and provide a working alternative in the event a "fatal flaw" is discovered during detailed analysis and negotiations. Visits should generally be planned for one to two days per city in order to thoroughly review all the requirements in the selection process.

• Step 7 - Final selection: If incentives are part of the selection process, intense negotiations are required in the final weeks of the decision. Corporate executives must be involved in these negotiations, and an internal understanding of incentives targets is key. Confidentiality is best kept throughout negotiations with communities.

The final selection of a community often rests on one or two key requirements, including the availability of a site, the desire of the CEO, a marketing goal, or an incentive. The winning city is almost certain to be the one that brought the most comfort and enthusiasm to the CEO and the executive team. Thorough evaluations by staff and consultants can provide strong guidance to decision makers, but not a final decision. Once a decision is made, a company should make every effort to maximize the publicity and exposure in the community in order to build goodwill and begin to attract the critical technical talent that they will need.

The Future of BioConvergence
The integration of biotechnology and information technologies into the health care industry will continue at a steady pace for many years. The locational shift that will be associated with this industry will likely continue until new bioconvergence regions clearly emerge as winners. The role of global players in this industry should be monitored for its effect, particularly in areas that have fewer restrictions - stem-cell research in Asia, for example - or a growing specialized work force, such as technicians and doctors in India. More and more bioconvergence companies will go "virtual," keeping all manufacturing abroad as well as a large share of their research capabilities. The future of the bioconvergence industry is still unclear, but its wide-ranging effect and future economic impact deserves our personal and business attention. Hopefully, we will be watching its progress for many years to come.   
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