Site Selection 2020: The Importance of “Regional Depth” with Global Reach
A location that can accommodate both a company’s logistics and talent supply chains will enhance its prospects for long-term viability and growth.
Through these seemingly unending swings in economic momentum and unpredictability, changes in supply chains are putting added importance on the necessity of certain underlying community attributes required for a successful economic development project. Communities exhibiting these attributes that effectively market themselves to the world and develop plans for companies to tap into these advantages will attract more investment.
Deeply Regional and Globally Accessible
More than ever, communities best positioned to win site selection projects for the foreseeable future will be ones that are both “deep regionally” and highly accessible globally. Regional depth in this case means many things, including a diversity of real estate options and communities to receive multiple components of any one company’s supply chain within the same metro; a depth and diversity of talent in the metro area to support all aspects of the supply chain, including a future workforce accessible and recruitable to the metro; and availability of reliable and affordable industrial infrastructure. Being highly accessible globally means the company can readily access its customers throughout the country and around the world — both in terms of freight modes/transportation and with respect to a workforce skilled enough in the complexities of operating a global business from that community location.
Being deep regionally and accessible globally post COVID-19 also involves an intense focus on risk management. Risk management has always been a key driver in site selection. In its most basic terms, site selection is like a funnel with multiple communities getting dropped in at the top and just a few exiting at the bottom, with risk being taken off the table as certain communities are eliminated from consideration. While there is never a site selection project that is 100 percent free of risk, in an era of inevitable future supply chain disruptions and health pandemics, companies can further reduce risk in their finalist selection by tightening up where their people and assets are located vis-a-vis existing company locations, resulting in a corporate footprint that is more regional and localized and less disparate geographically.
Communities best positioned to win site selection projects for the foreseeable future will be ones that are both “deep regionally” and highly accessible globally. Companies will still need access to the world market — they’re not going to shut themselves off from their clients or even vacate areas near customers who may be all around the world — but where possible, they will do so from fewer locations or more centralized and geographically aligned locations, and from a more compact footprint, resulting in shortened logistics and talent supply chains across many aspects of their business. The implications for economic development professionals and communities is to be prepared, as an increase in industrial near-shoring and re-shoring opportunities is coming as supply chain complexities are simplified and elongation is reduced.
Regions that best accommodate and serve multiple aspects of a company’s operations from a logistics and talent perspective will land more projects borne from changes in its global supply chain. This point was illustrated when Bunge, a firm that until recently was headquartered in White Plains, N.Y., relocated its global headquarters to Chesterfield, Mo., in the St. Louis MO-IL MSA. In that example, the company was moving to a region that already housed its North American operations and had also recently been selected for related projects in the supply chain of its businesses, including an R&D Center in St. Charles, Mo., and a river barge terminal in Fairmont City, Ill. — part of the nation’s second-largest inland port.
As part of its move, the company cited personnel that was not only lower cost, but also had the needed talent to operate a global grain and logistics business. This existing workforce was further buttressed by high-quality universities with a strong business orientation, including excellent local universities in both states of its bi-state region and graduates from major outstate schools in Missouri and Illinois, as well as surrounding states such as, Iowa, Indiana, Oklahoma, Kentucky, and Texas.
Diverse Real Estate and Infrastructure Options
In addition to a deep and diverse talent pool, metro areas must also offer a diversity of real estate and infrastructure that can serve the world and multiple aspects of any one company’s supply chain. As companies look to better manage risk, we expect site selection searches to be focused increasingly around existing company headquarters, strategic company sites, and key customer locations, which allows for a more hands-on management of the business. In addition to a deep and diverse talent pool, metro areas must also offer a diversity of real estate and infrastructure that can serve the world and multiple aspects of any one company’s supply chain.
Nearby communities that offer diverse real estate options and reliable and robust infrastructure accommodative to multiple aspects of a company’s supply chain will win more deals. The implications of current supply chain changes for business retention are extremely important. Many existing employers considering new investments will be looking closer, including inviting and inducing key suppliers. Economic developers that proactively work with existing industry to identify and align potential projects to appropriate sites and buildings, and ensure a reliable and formalized workforce talent strategy, will win more investments and jobs for their community.
What’s Decreased in Importance?
Finally, it is helpful within the context of supply chain changes and risk management to think about what serving the world and running a global business from a regional location does not mean. We think one major change in site selection, especially from the perspective of a corporate headquarters, will be the continued decline in importance of locating near a hub airport. In the near term, this is partly due to aversion to air travel during COVID-19; however, the importance of a hub airport was already lessening in many deals prior to the pandemic, and the pandemic will likely reinforce and exacerbate this trend.
Bunge shared that one advantage of moving its headquarters to St. Louis was that travel prices had generally reached parity with New York, even with the added connection time of traveling overseas through a hub. The company also noticed behavior changes among its employees well before the pandemic, specifically that once there were fewer direct flights available, a deeper level of analysis of whether travel was even necessary often occurred, with many executives setting their meetings as teleconferences and video conferences.
The notion is that a viable spoke airport and excellent telecommunications and Internet infrastructure are more than sufficient. An in-person meeting will always be paramount for the most strategic and important meetings and relationships; however, COVID-19 has shown that much of our prior business travel was likely unnecessary, and that video calls can be an effective replacement.
In closing, logistics and talent supply chains as they relate to site selection are continually evolving, and COVID-19 will drive changes and new trends to which economic developers will need to adapt in order to reposition themselves for the benefit of their communities. In particular, as logistics supply chains and talent supply chains shorten, communities with a broad range of existing talent and regional talent pipelines and networks, diverse freight assets/modes, reliable infrastructure, and broadly accommodative land sites and buildings will capture more components of a company’s supply chain and win more deals.
As stated, although no metro area or site selection decision is 100 percent without risk, the chance that it’s a successful decision increases when executives select communities with the above attributes and when communities within a region work together to strategically position themselves to best serve agglomeration economies and trends brought about by COVID-19 and future supply chain disruptions. With this framework as a baseline, both the executive locating the project and economic developer of the community selected as the winning location can feel confident in that project’s prospects for long-term viability and growth.
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