Finding the right region for your new business venture: Why it pays to be methodical

2 Mar 2021
Estimated reading time : 5 minutes
Finding the right region for your new business venture: Why it pays to be methodical
2 Mar 2021
Estimated reading time : 5 minutes

Planning to set up a new venture in Europe?

Before you start looking for the ideal site, you need to choose the most promising region(s). You need to develop a shortlist of candidates that are worth studying in depth—but how?

How can you be sure you aren’t ruling out the best destination? What criteria should you consider?

A methodical screening process can help. Start by getting advice from our business development experts and downloading our qualitative decision matrix.

 

Why it matters

A business development project has tight parameters:

  • It must meet strategic goals for your business, such as winning new markets or trimming costs—perhaps by moving closer to suppliers or a large pool of consumers
  • It has a timeline, from the moment the investment decision is made to the moment you kick off operations at your new site
  • It needs to stay on budget
  • ROI expectations are high: the site you choose will have an impact on your company’s business performance

For all of these reasons, finding the right region is a crucial step to growing your business. At this stage—between making the investment decision and exploring possible sites—your task is to develop a shortlist of destinations for in-depth research in the next step.

If you strike promising regions from your list too early, you may overlook the ideal site.

But if you fail to eliminate candidates with little to offer, you could make the wrong choice. Or at the very least, waste precious time and resources exploring sites that will never meet your expectations.

A methodical screening process will help you:

  • Choose regions that meet your needs and expectations
  • Avoid wasting time and money on destinations that clearly don’t work for your project
  • Lay the groundwork for your site specifications

Download the qualitative decision matrix

 

How to find the right region

List your selection criteria

Listing your selection criteria is the first step in screening candidate regions methodically.

One common mistake is to focus exclusively on financial criteria, even though qualitative criteria can make or break your project.

Here’s a sample list of selection criteria that you can use as a starting point:

Financial criteria

Financial criteria have a direct impact on the income statement for your new site:

  • Wage levels
  • Real estate costs
  • Cost of utilities, such as power, water and gas
  • Cost of logistics
  • Taxation
  • Financial assistance

Qualitative criteria

Qualitative criteria may seem harder to evaluate, but they can affect your setup process and the new site’s success in the medium and long term—which in turn can shape your company’s broader business performance.

These criteria include:

  • Overall environment in the region
  • Recruitment potential
  • Quality of infrastructure
  • Vitality of the business ecosystem and innovation potential
  • Quality of life
  • Openness to international markets

Compare apples to apples

One of the most challenging aspects of the screening process is assessing your sources of information. Regions compete fiercely to attract investors, and they can get into a war of statistics.

As an investor, it’s critical to keep a cool head and compare like with like.

For example:

  • Wage levels can vary sharply from region to region, even within the same country.
  • Wages can also change over time: after you’ve studied today’s numbers, look at the trend line for the past few years.
  • Employer contributions are calculated differently from one country to another. It’s important to know what’s covered in the package—and what isn’t.

When you’re working with qualitative criteria, it can be hard to gather information on an unfamiliar region. Economic development agencies and other local partners can provide accurate, up-to-date data.

 

The qualitative decision matrix: The right tool for the job

Why you should use a qualitative decision matrix

Using a qualitative decision matrix to screen regions helps you:

  • identify the most important criteria in choosing your investment destination
  • weight the criteria and/or issues based on your needs
  • apply the same criteria to all of the candidate regions
  • draft a fact-based shortlist of target regions

Bottom line: you can use the same benchmarks to assess all of your potential destinations.

With a clear decision matrix, you won’t be taken in by hype or big promises that may never be kept.

It can also make the screening process more structured: you can focus exclusively on what matters to you, and you’re in a stronger position when you work with local partners.

The criteria in our decision matrix

We’ve supported business development projects for years, and our decision matrix is the product of that experience, with qualitative criteria that are essential to making an informed decision.

Overall environment

This category includes risk factors in politics, the economy and the environment, as well as risks to your image:

  • Political and social stability of the host country
  • Monetary stability
  • International image of the “Made in X” brand
  • Efficiency and reliability of the host country government
  • Risk of natural disaster

Recruitment potential

The destinations you want have available labor with the right skills for your business. To find them, consider:

  • Universities and institutions of higher learning for your industry
  • Number of graduates per year
  • Occupational training centers for your industry
  • Number of jobseekers (total and for your industry)
  • Number of employees working in your industry
  • Flexibility of labor force: length of workweek, scheduling flexibility, days of vacation per year, night and weekend hours, etc.
  • Average annual turnover (total and for your industry)
  • Number of competitors in similar lines of business

Quality of infrastructure

To make the right decision, you have to anticipate what can go wrong. Taking a hard look at local infrastructure quality enables you to choose a region where your business continuity isn’t at risk. Criteria include:

  • CO2 emissions from electricity generation (T/MWh)
  • Reliability of power grid
  • Quality of telecommunications networks (actual speeds and coverage)
  • Quality and diversity of transport infrastructures

Quality of the local ecosystem

Another key to success is building a network of skilled, reliable local partners. Use your decision matrix to evaluate the potential of each region’s ecosystem:

  • Number of potential suppliers and subcontractors
  • Number of R&D centers and their specializations
  • National and/or regional policies supporting your business

Quality of life

Your site’s long-term performance can hinge on your ability to attract and retain top talent. The compensation package you offer your employees is important, but quality of life in the surrounding region is critical, too. Consider:

  • Presence of international schools
  • Quality of local health system
  • Air quality (AQI standard)
  • Cost of residential real estate (to rent or buy)

Openness to the world

If you want to grow on international markets, it makes sense to choose a region that’s open to international markets. This may seem trivial , but by failing to take a few key criteria into account, you could end up in a remote backwater. Consider:

  • Quality of air and rail connections
  • Number of companies from your country already doing business in the region
  • Satisfaction rate among foreign companies doing business in the region
  • Ease of obtaining visas and residence permits for expats

With our ready-to-use qualitative decision matrix, you can take a structured approach to finding the right region for your new venture.

When you’ve completed this step, you’ll have a shortlist of destinations that are in line with your expectations, and you can focus your search on them, working closely with your local partners.

This analysis also lays the groundwork for the next step in your project: drafting a set of specifications for your new site.