Site selection: The cost of failure
Choosing the right location for your international business development project can make the difference between success and failure. And it’s easy to slip and fall.
What are the costs when your site selection process goes wrong? More importantly, how do you get it right?
With our years of experience helping companies set up new ventures, we can help you identify the risks that can undermine your project.
Damage to your bottom line
When your company sets its sights on foreign markets, expectations can run high. In addition to the ROI you’re counting on, successful international business development is a springboard to new markets and new opportunities in the medium and long term.
But choosing the wrong site can lead to disappointment—or worse.
Because the consequences can be disastrous at multiple levels:
- Operations: if your new site doesn’t run as expected, material problems can pile up, one after another.
- Business performance: if production falls behind schedule, you’ll face additional costs.
- Image: if you can’t deliver on schedule and create jobs as promised, the future of the whole venture may be in jeopardy.
Selecting your site without analyzing financial and qualitative criteria in detail exposes you to a number of risks.
The risks of choosing the wrong site: A closer look
The quality of local infrastructure is critical to success, and the ideal site should be tailored to your new venture’s needs.
Different types of operation—commercial versus industrial, for example—naturally call for very different site selection criteria.
But every business needs:
- reliable power
- optimum telecommunications coverage
- accessible, high-quality transport infrastructure
Choosing the wrong site exposes you to a variety of risks:
- power outages and fluctuations that can force you to scale back your operations
- C02-intensive energy sources that can undermine your CSR performance
- an unreliable telecommunications network that makes it harder to communicate externally with partners—and internally with headquarters and other entities within your company
- poor accessibility and low-quality transport infrastructure that can hamper logistics and generate unexpected costs.
Obstacles to recruitment
Poor site selection can also lead to headaches with human resources.
The first category of risk is the pace of recruitment. If you struggle to find enough of the right talent, you can expect more problems down the line:
- positions go unfilled in the short, medium and long term
- recruitment costs skyrocket
- “good enough” hires result in bad outcomes
- payroll must be increased to attract the right people
For all these reasons, it’s far better to choose a location with an adequate supply of trained workers—not just today, but over the medium and long term.
You’ll also want to find out if your candidate region offers training programs for the kind of employees you need.
Finally, consider your employer brand and identify other companies that will be hiring from the same labor pool.
Competing against a large field of rival employers can limit your ability to recruit the people you want.
And remember that recruitment is only the beginning.
Hiring good employees is important, but so is keeping them.
For expats, a region with high real estate costs, inadequate health care and no international schools will have poor quality of life, and could well cause your best people to leave in search of better conditions.
Site selection isn’t just choosing a place. It also means finding your place in a new business community.
So take a close look at the local ecosystem, whose quality can make or break the success of your new venture.
Choosing the wrong destination carries a number of risks.
- If you can’t find capable, reliable partners in the local community, you’ll have to bring expertise in-house or get the support you need from a distance. In either case, costs will rise.
- If your new region doesn’t have competitive R&D centers, you’ll need to bring that expertise in-house as well.
- Lack of support from national and regional authorities may slow your new venture’s growth.
Unexpected financial costs
A site selection process that neglects qualitative criteria can turn your project into a nightmare. But patchy analysis of financial criteria can also lead to disaster.
For example, overall wage levels are important, but it’s vital to compare apples to apples.
Employer contributions are calculated differently from one country to another, and if you aren’t careful, you can find yourself saddled with extra costs.
The same is true for taxes, which follow different rules in different countries. If you compare corporate tax rates without knowing how taxable income is defined, you’ll set yourself up for unpleasant surprises.
Lastly, take a cautious approach to incentives offered by host governments.
These are often subject to strict criteria, including benefit ceilings, staggered payments, and performance standards that your venture must meet.
If you don’t study these terms and conditions carefully in advance, you may find that some payments never materialize—or worse, that your company must refund payments that have already been made.
How to avoid these pitfalls
To reduce all of these risks to a minimum, take a methodical approach to your site selection process.
- Make a detailed list of your selection criteria (Our qualitative decision matrix can help.)
- Develop a shortlist of possible destinations
- Formalize your needs by drafting a set of specifications for your new site
- Share your specifications and preliminary timeline with your local partners
- Get support from economic development agencies
The key to successful site selection is to anticipate all the risks that could lead to failure.
Major risks include failing to analyze financial criteria correctly and overlooking important qualitative criteria.
Want to maximize your odds of finding the ideal site?