How to choose the right location for your business

Finding the ideal site is critical to growing your business in France and on other international markets.

You can avoid disappointment by identifying risk factors very early in your selection process. In this article, we’ll show you how to find your ideal site in 3 steps.

Table of contents:

Step 1: Define the selection criteria for your location

Step 2: Zeroing in on the right site

Step 3: Arrival

Many companies try to expand into international markets, but fail when they choose the wrong location.

Why? Because all too often, sites are selected based on “benchmarks,” from corporate tax rates and cursory wage data to promises of subsidies and preconceptions about the flexibility of labor laws.

Once a building or piece of land is identified, the decision is made.

But that’s where problems start, because the real risk factors go well beyond this short list.

A new location can fail for any number of reasons—inadequate infrastructure, poor assessment of logistics costs and risks, inability to recruit qualified labor or attract vital skills, unexpected financial costs, lack of support from local officials, paperwork delays and more.

To make your venture a success, take a rigorous approach and consider all of the criteria that may affect your project.

In this article, we’ll examine the three key steps to ensure success and prevent unpleasant surprises.

 

 

The 3 steps of of a setting-up project

In order to reduce the risks regarding setting-up project, it is important to follow a 3-step methodical analysis approach.

Step 1: Define the selection criteria for your location

The first step in finding the ideal location is choosing the right country and the right region. Here you’ll want to consider two variables:

1. Financial criteria that will have a direct impact on the new entity’s income statement—payroll, real estate and energy costs, taxes and more.
2. Qualitative criteria that will get you off to a smooth start, shape your new site’s medium- and long-term operational performance, and ultimately affect its income statement.

Financial criteria for setting up your new venture

Since your outlay on production equipment is largely the same for any host country or region, your initial investment shouldn’t be the deciding factor. Instead, the relative competitiveness of your candidate sites will depend on six key factors.

Wage levels

Since your outlay on production equipment is largely the same for any host country or region, your initial investment shouldn’t be the deciding factor. Instead, the relative competitiveness of your candidate sites will depend on six key factors.

• Look beyond national statistics. Wage levels can vary sharply from region to region, even within the same country.
• Use recent data and look at long-term trends. Salaries can change quickly in some countries and remain very stable in others. Result: payroll costs that are 20% lower today may have lost their competitive edge in just five years.
• When you assess employer contributions, compare apples to apples. In some countries, mandatory employer contributions are lower, but employers have to buy private insurance. Pay close attention to what is and isn’t covered in the package of required contributions.
• Look for hidden costs, such as bringing in expats if you find you can’t rely on local management or have trouble retaining employees. If staff turnover doubles in your new location, recruitment and training costs will double, too, pushing up total payroll costs.

Real estate costs

Real estate costs are probably the single biggest variable from one city or region to another.

Whether you’re buying or renting, costs for a greenfield site, office space, a logistics facility or a factory can be four times higher in some regions than others, even for properties of identical quality and size.

And it’s important to consider your financial strategy, too. In some regions you may be able to reduce your capital expenditures by working with real estate investors to finance your building.

Utilities costs

The cost of utilities—power, water, gas and steam—can vary sharply from one country or region to another, and from one sector to another, especially for industrial activities. And remember that some countries offer favorable rates to businesses that rely heavily on electricity.

Logistics costs

This includes all costs associated with storage and movement of raw materials and finished or semi-finished products, including delivery to customers.

It’s smart to consult a professional as you analyze this variable. Logistics costs can fluctuate significantly—in response to economic conditions, the price of oil, and carbon and other taxes—and that makes them hard to project.

One of the biggest challenges is striking the right balance between optimizing inventory and avoiding shortages, which can have serious financial consequences.

Here again, a supply-chain professional can help if you don’t have an in-house expert.

Taxes

Taxes are often used as a key indicator for comparing host countries, but slow down and take a closer look. There are two factors to consider:

• National taxes are largely a function of each country’s corporate tax rate, and here you should be analyzing the actual impact on your business very closely. For example, a cross-border comparison is meaningless if you don’t consider the rules that define taxable income. Depending on applicable law, you may be able to reduce your overall tax liability with deductions or accelerated depreciation.
• Local taxes are often based on the size of your investment. When considering a site, ask the local tax authority for a simulation of the annual tax you would pay and information on any exemptions that might apply based on your projected investment.

Financial assistance

Governments often hold out the promise of financial assistance to attract investors, and it can be hard to resist a pledge of support equal to 10% of your total investment—or even more.

Here are a few tips for optimizing and securing your financial assistance package.

• Be wary. If it sounds too good to be true, it probably is. In many countries, government support is subject to regulation. This certainly holds true for the European Union, where terms and conditions limit the amount and percentage of government assistance on offer. Some local authorities are so eager to attract foreign investment that they don’t check their own applicable regulations thoroughly, and then find themselves unable to honor their promises when it’s time to transfer funds. Or worse, you find yourself required to repay assistance that you were never eligible to receive. To avoid unpleasant surprises, ask for written confirmation that all promises of financial support comply with national requirements.
• To get accurate information on available assistance, be prepared to share as much information as possible about your project. The more data you can provide—recruitment and training needs, talent profiles, investment type, R&D and more—the easier it will be for your regional partners to create a customized financial assistance package and tap into all available programs. If necessary, ask for a signed non-disclosure agreement (NDA) to protect the confidentiality of any information you share.
• Never make any decision based solely on offers of financial assistance. Here again, the promise of “a seven-figure check” may be hard to resist, but it may also blind you to factor that will affect your long-term profitability. Bottom line: keep a cool head.

Qualitative criteria for setting up your new venture

While financial criteria can be captured in a spreadsheet, qualitative criteria have subjective elements that depend on the eye of the beholder. The ideal solution is to create a project team of two or three people who can contribute different perspectives and different solutions.

Qualitative criteria include at least six different areas:

Site’s overall environment

The political and social context is the first qualitative criterion to consider because it is important to anticipate potential risks of regime changes or political instability that could jeopardize your business.

The monetary stability needs to be analysed. Indeed, a strong inflation causes uncertainty and affects businesses. Deflation also affects companies’ business activity.

It is also important to into account the way the « Made in… » of the country is perceived internationally, especially if you are planning on exporting beyond national borders.

The durability of the site will determine the success of your setting-up project. As such, you need to analyse the risks of natural disasters when considering locations.

Last but not least, a setting-up project means working with the host country’s administration. As a result, it is important assess the reliability and efficiency of public administration.

Availability and quality of labor

You need to ensure that in the region where you are based you will have graduates trained in your business. It is not only a question of finding employees today but also in the medium and long term. It is therefore essential to ensure that there are relevant programmes for your business sector.

Be absolutely sure that your location will give you access to the skills and human resources you’ll need to grow your business. As you research potential locations, ask yourself how many qualified workers will be immediately available or could be trained to do the work you need.Find out the overall number of jobseekers in the area and ask about the number of employees in your industry. It is important to choose an area with a real culture of your industry.

Once again, you can get this information from local organizations. They can provide information on the qualification level of workers in their region and local training centers.

You should also evaluate the flexibility of local labor laws.

Infrastructure quality

In order to successfully conduct your setting-up project, analysing the quality of the infrastructures necessary to your project is important.

The ideal site needs to guarantee efficient logistics. Whether it’s about raw materials or semi-finished goods’ supply or about distributing finished goods to retailers or consumers, quality and diversity of transport infrastructure is crucial.

The CSR challenges are becoming more and more important. Its affects the brand’s overall reprutation as well as the employer brand. As such, you have to consider CO2 emission from electricity generation.

The stability of electricity supply is essential for the durability of your business. Be aware of the reliability of the electricity network.

Last but not least, the quality of telecommuciation networks should also be taken into account. Good network coverage is an essential element and high speed is an undeniable advantage.

Business ecosystem and innovation potential

A seeting-up project means choosing a location but also joining an existing ecosytem.

It is wise to get information regarding the density of suppliers and subcontractors potential. Your company will thrive if it has access to reliable partners capable of answering to your needs.

R&D is also a major competitive advantage. It is important to know beforehand if you can rely on local R&D centers or if on the other hand you need to internalise it.

Support from local and national authorities is necessary for your business. Support for a specific sector can also be a great opportunity.

Quality of life

The quality of life should not be neglected as well.

The presence of international schools is important, especially if you need have foreign employees in your staff. For them to thrive, they and their families need to find a supportive environment.

The quality of the local health care system is also important to attract talents to a foreign country. Employees will be reluctant to move to a country with a poor healthcare system.

The cost of real estate is also important, whether it’s about renting or buying. You will need to find a location that offers a good balance between an attractive area (with services, schools, shops, etc.) and the housing costs for your future employees.

Finally, air quality is becoming increasingly influential. The AQI (Air Quality Index) standard is used to assess the air quality of a location.

Openness to the world

The international openness of a location is a necessary criterion when conducting an international development project.

You need to travel regularly between the future subsidiary and your headquarters or other group entities. The presence of close and fast air and rail links will be an asset.

The presence of companies with the same nationality can reassuring for a foreign company. It is not always easy to be an expatriate in a country you know little about, with a very different culture. The presence of expats can help to avoid “homesickness”.

The satisfaction rate of foreign companies already present is also a good indicator. Gathering their feedbacks regarding the location will help you in your decision.

Last but not least, easy access to visas and residence permits for expats is important to consider. Collaboration between expats and locally recruited employees is obviously a key to success. The company culture and the transfer of work processes come from the expats. As such, remember to check the conditions and deadlines to obtain visas and residence permits.

Tip: Enter all of this information into a decision matrix

This is a lot of information to chase down, so don’t hesitate to ask for help. Nearly every country and/or region has an economic development agency or consultants who specialize in site selection, and providing answers to all of these questions is what they do.

One way to evaluate your options is to give every item a score from 0 (very poor) to 10 (excellent) based on the project team’s impressions, and then assign a coefficient to each criterion. This allows you to reach an overall score for each candidate location. To help you analyze your options, we offer a decision matrix that includes all of these criteria.

Download our decision matrix now

 

Once you have completed Step 1, you’ll have a short list of possible destinations that meet the right financial and qualitative criteria, and you can move on to Step 2.

 

Step 2: Zeroing in on the right site

Finding the right site for your new venture is vital to the success of your project. Don’t neglect it! It will take preparation, particularly to draft your specifications, and time to visit each candidate site.

Depending on what you need to accomplish—rent 500 sq m of office space? buy a 50,000-sq m industrial building?—the time commitment will vary, but the methodology is the same.

To-do list for an efficient location search

Here are a few basic tips to get you started.

1/Contact the economic development agency responsible for each of your short-listed destinations

Most regions now have national, regional or local economic development agencies that can act as your sole point of contact, coordinating your search and saving you precious time. In general, their services are free.

You can also work with specialized real estate and/or site selection consultants, especially if your project is complex and requires advanced technical skills or if you plan to conduct a broad international search.

2/Share your timeline with your local partners

When you share your timeline with economic development agencies, they can tailor their responses to your deadlines.

But don’t insist on tight turnaround times when they aren’t really necessary. While most economic development agencies will be able to respond to you on short deadlines—even very short deadlines if they’re well organized—you’ll have more options if you give them enough time to conduct in-depth research.

3/Draft a set of specifications for your new venture

In the first step, you identified and ranked the selection criteria you’ll use to make your final decision. When you provide this information to your contacts, it’s easier for them to pre-select the sites they’ll present to you.

The ideal site doesn’t always exist, and a detailed set of specifications clearly separates the “make-or-break” criteria from factors that offer additional benefits but aren’t essential. Result: you get a list of candidate sites tailored more closely to your needs.

4/Insist on confidentiality

Don’t hesitate to ask for a signed confidentiality agreement that will protect you from disclosure of information about your project. Any economic development agency should know how to work under an NDA (non-disclosure agreement).

Find your new site based on a set of specifications

Drafting your specifications is a critical step in making your new venture a success. Specifications will help you design your project and make it easier to work with the partners who are helping you find the right solution, or with your architects if you plan to build a turnkey facility.

What to include in your specifications

General environment

In this section, you should outline your preferences for the overall environment of your future site:

• Should it be close to a major metropolitan area, a mid-sized city, or a less urban environment?
• Should your site be located in a technology park, a business complex, an industrial area, or a logistics hub?
• How close should it be to residential areas? And so on.

Accessibility

This section should describe your transportation needs.

• Does the site need to be near a highway, a sea or river port (containers, bulk shipping, or other requirements), a railway station (passenger or freight), or an airport (passenger or freight)?
• Do you need a multimodal site?
• Do you need an urban transport system?

Human resources and hiring

Here you should describe your recruitment projections over the next 3 years by type of position, describe the pace of work, and let your partners know if you need to be near training centers and/or universities.

Real estate strategy

• Would you prefer to build to your own design, or are you looking for existing space?
• Would you rather rent or own?
• When do you plan to begin operations?

Site description

In this section, you should list a certain number of criteria based on your goals and limitations:

• Surface area of the building, dimensions, height, distribution of space
• Utilities, including electricity, telecommunications, water consumption, waste (if any), etc.
• Requirements specific to your activity—industrial, commercial, R&D, logistics, storage of sensitive products, etc.
• Parking spaces and green space
• Projected road traffic

You are welcome to download this set of model specifications for new sites, which details the information to provide based on the nature of your business.

Download our model specifications

Why specifications matter

Once they have your specifications, your consultant or economic development agency can draw up a list of candidates, which you can use to identify a short list of sites for further research and even a visit.

You should keep several things in mind at this stage:

• More and more professionals now offer virtual visits, so you can make a first cut without having to travel.
• At your request, your consultant or economic development agency should be able ensure confidentiality and avoid disclosing your identity to the owners of the land and buildings on your list.
• It’s not unusual for the site selection process to take several months. If your contacts are professional, they won’t mind if you take your time and make multiple follow-up visits before making your decision.
• When it’s time to sign the papers for a sale or lease, be sure to work with an adviser (such as a real estate agent, attorney or notary) who can support you and explain any unusual points of local law.

Step 3: Arrival

You’ve chosen your site.

Now the adventure begins—and a number of challenges need to be met: government formalities and paperwork, recruitment, preparing the site, and, of course, growing your business.

Here again, local authorities and experts can support your business as you roll out your project. In particular, the economic development agency for your chosen region—which in theory has been working with you from the beginning—is still an important partner.

Key services include:

• Supporting recruitment by pre-selecting candidates, getting training centers involved, and putting your business in contact with schools and universities.
• Streamlining government paperwork by getting any building and/or operating permits you may need, obtaining residence permits for your expat managers, and more.
• Helping you find your place in the local ecosystem by connecting you with the right professional organizations, clusters, laboratories and more.
• Introducing you to local officials
• Following up after you’ve occupied your site

Finding the ideal site: Pitfalls to avoid

Choosing the location of your business is a decision with high stakes. Here are the main mistakes not to make when setting up a business.

Don’t limit yourself to a few quantitative criteria

Choosing the site for your new venture is a sensitive decision that can shape the medium- and long-term growth of your business. It’s essential to take a big-picture view that includes all the keys to success and all the risk factors.

Quantitative criteria can be reassuring, but it’s a mistake to stop there.

Corporate tax rates, cursory wage data, promised subsidies, and preconceptions about the flexibility of labor laws don’t guarantee that your new venture will succeed.

If you don’t have a solid familiarity with your future environment, you can easily make the wrong choice.

 

Don’t overlook risk factors

When you’re looking for the ideal site, it’s easy to focus on the keys to success. But it’s important to keep an eye on risk factors too.

For example: did all of the companies that located in the UK consider the threat that Brexit posed to their business?

Common risk factors include:

• Political or social instability in the host country
• Changes in European, national or local regulations
• Inadequate supply of qualified employees
• Logistics risks
• Unexpected financial costs

 

Don’t get too many people involved in the decision

If your team is too big, you risk slowing down the process and making decisions more complex.

Without agility, your project can easily get bogged down.

It’s better to rely on 2 or 3 deeply involved people who know how to work with your local partners.

 

Don’t rush into any decisions

You can’t afford to let your project get bogged down—but don’t go overboard in the other direction either. Choosing the site for your new venture demands careful consideration, grounded in qualitative and quantitative data.

Take the time to gather all the information you need to make a decision on all of your potential destinations.

Then enter the data into your decision matrix to give each candidate site a score. By following this rigorous methodology, you minimize the risks of failure.

 

We hope that this article will be useful to you in your future endeavors. The entire Nord France Invest team is at your service, and would be delighted to provide any additional information and answer any questions you may have about locating your business in Hauts-de-France. Don’t hesitate to contact us!