Member Article

Location, Location, Location: the seven decision drivers

Choosing where to locate a business is a decision fraught with potential difficulty. A good location can help boost a company’s performance in the long-term, a bad one can cost millions in lost productivity and capital. This is also true when it comes to attracting and retaining talent. With many current and prospective employees eager to maintain a healthy work life balance, they will be highly attuned to where they are based.

In one case we encountered, a company elected to decentralise and move its location in order to reduce its expenditures. Although the real estate costs fell, the company ended up losing key staff and talent. The corporate identity was affected and moving location in this instance turned out not be the expected efficiency driver, but rather a strategic disaster.

That said, we often come across instances where a company’s location decision-making strategy has yielded positive long-term consequences. One global corporate, for instance, consolidated its back office support functions into fewer, bigger locations. The processing was aligned and globally integrated. This decision ended up increasing the firm’s ability to attract even more talent because of its dominant market position, whilst simultaneously yielding £150m of cost savings.

It is also important to remember, however, that the process of moving to a location can be lengthy. It often requires: consulting with stakeholders, identifying corporate requirements, assessing potential locations, visiting the prospective site and, of course, negotiating a good deal. This requires scenario planning and a great deal of forecast planning.

In the current climate, choosing where to locate a business has never been more important. But what do businesses need to bear in mind when deciding where to set up shop? Why might a company want to be more strategic about location decision-making? In JLL’s view, there are seven key drivers.

1. Attracting and retaining talent: Given the increasing numbers of young and international people moving to cities, most businesses will need to consider city centre locations. Cities are also becoming easier to get around.

2. Real estate costs: Ensuring efficient real estate is essential, after all, it is typically the second largest operational expense following labour costs.

3. City dynamism: Some European governments are seeking to devolve power to the regions and cities who, in turn, may offer business grants and incentives. Being aware of up and coming investment destinations that incentivise businesses could provide first-mover advantages.

4. Accessibility: Although it sounds obvious, it is essential that your customers, suppliers, manufacturers and, crucially, clients, are able to get around and manage transportation effectively. As a business, you also need to be well positioned to access new markets. Travel costs and as a result less productive employees are often ignored as a major cost driver.

5. Clusters: Similarly, being part of a network of connected businesses could give companies access to a more specialised talent pool, network of suppliers, service providers and regulatory bodies all within close geographic proximity. Clusters are reinforced by cooperation programmes between companies and education centres. Finally, the trust factor within the cluster is high, facilitating business and transactions and lowering unit and transaction costs. Bearing in mind that these locations can prove expensive (i.e. East London Tech City), it is important to weigh up the pros and cons.

6. Growth or a change in corporate strategy, technology or leadership: Some companies are opting for a central hub with meeting spaces, supported by multiple smaller spokes elsewhere. Meanwhile, others are maintaining large, centrally located corporate headquarters. Being aware of ongoing technological development can help ensure that a company’s operations are future-proofed, capable of facing whatever tomorrow brings.

7. Regulation and tax: Under ever changing regulations, firms will continue to search for opportunities to mitigate their tax liabilities. Minimum substance requirements won’t allow companies to use P.O. Box structures and require a physical setup with senior officials residing. These additional costs may outweigh the advantages of a low tax jurisdictions. Careful planning is required.

Choosing a location can be difficult, but with careful consideration and the right guidance, it can also be done seamlessly.

Matthijs Weeink, director and head of business location consulting, JLL

This was posted in Bdaily's Members' News section by Matthijs Weeink .