Making the Right Move: Corporate Location Planning Best Practices

Corporate location planning is about more than cost per square foot. When considering a move, companies need to look beyond the question of whether to buy, leasing or build to variables such as available manpower, infrastructure, tax incentives and quality of life.

Such considerations are becoming even more important as the economy improves and companies that had been holding off looking for new digs resume their searches.

And companies are looking. More than half of senior finance executives plan to increase capital spending and expand operating activities and head counts, according to the Global Business Spending Monitor 2011, a study by CFO Research Services.

After several years of doubt, cautious spending and budget cuts, roughly a fourth of mid-sized businesses expect to increase spending on relocation in 2011, and 30 percent of companies plan to move workers this year, the highest percentage in six years, according to Atlas Van Lines' Annual Corporate Relocation Survey.

Even with cash and optimism in plentiful supply, mid-sized companies face a unique challenge when they relocate because they’ve often grown and expanded in their original location, says Mark Sweeney, senior principal of McCallum Sweeney Consulting, a Greenville, South Carolina, site selection and incentive negotiation service firm. “The decision process is complex and it’s easy to get overwhelmed with data and choices,” he says.

To make sure that doesn’t happen, companies should take an integrated approach to moving to a new facility, says Alexander Brown, a vice president at of CresaPartners, a Miami-based corporate real estate service advisor. He recommends creating an advisory team that considers a company’s strategic goals, site selection and project management when contemplating a move so a relocation budget isn’t sunk at the eleventh hour. “The transaction is not complete until the construction is complete, the design is executed, the risks are mitigated, and the relocation is managed,” he says.

Here’s how three mid-sized companies chose new locations and what’s happened to their business as a result:

Securing Additional Manufacturing Space
Company: Amy’s Kitchen, a $500 million manufacturer of natural frozen foods based in Petaluma, California, with production facilities in Medford, Oregon, and Corby, England.

Challenge: With its West Coast manufacturing plant nearing capacity, the company needed an additional production plant with better access for shipping to East Coast retailers.

Strategy: CFO Mark Rudolph was on a relocation team with the company’s owners, chief operating officer and directors of human resources, engineering and manufacturing. The team analyzed demand for Amy’s Kitchen products and discovered more than half their sales were on the East Coast. As a result, they had consultants look at possible East Coast plant sites that were family-friendly, could provide a great quality of life and had the population density to support new hires.

Because Amy’s Kitchen built its Medford plant, the company got the exact space they wanted. But construction took time and cost $70 million. Though the location planning team didn’t rule out building again, they wound up buying a former frozen food plant in Greenville, South Carolina. Rudolph expects the company to invest $63 million to get production at the plant on par with its Medford location.

Result: Amy’s Kitchen bought the South Carolina plant partly because Greenville County expanded a wastewater capacity system that the company would use. The county also offered reduced property taxes and job credits, and the state gave it a grant to retrofit the building. Some of the company’s biggest savings will come from not having to ship across the country, which Randolph estimates will lower costs about $4.5 million a year.

Advice: Find a location where a company can get the most tax and business incentives. But “take time and decide if these locations are the proper fit for your company. Your business is based on a vision, and the proper site selection should be aligned with that vision,” says Brown, the CresaPartners vice president.

Securing Cost Effective Manpower for Present, Future Growth
Company: A mid-sized national finance company.

Challenge: The CresaPartners’ client, whom the advisory firm wouldn’t name for privacy reasons, was looking to open a 300-seat call center in the Rocky Mountains to improve productivity and cut real estate costs.

Strategy: Before evaluating properties, CresaPartners asked the finance company to describe the jobs it was hiring for and desired qualities for employees it wanted to hire. The consultancy used the information to run demographic studies of the area. Based on that research, they determined the state they’d initially targeted could provide enough employees in the short term, but if the client kept growing, it would run out of qualified candidates after the first year. As a result, CresaPartners expanded its search and eventually identified a town in a neighboring state that could provide enough manpower for the client’s present and future hiring needs.

Result: Because of lower prevailing wages in the area where the new call center opened, CresaPartners’ client cut payroll costs by 20 percent, or about $2.1 million. The company also predicts saving 45 percent in real estate expenses over the life of its 10-year lease. Add those to $1.92 million in business, tax and job training incentives that the state offered and it adds up to approximately $6 million in savings, Brown says.

Advice: When it comes to location, cast a wide net. Labor costs can vary as much as 25 percent between metro areas, says Mark Sweeney of McCallum Sweeney Consultants. However, companies looking to move should consider quality of life in an area and not just labor costs, he says. “Quality of life usually affects the ability to recruit and retain talent,” he says.

Relocating after a Natural Disaster
Company: Oreck Corp., a privately held vacuum cleaner manufacturer and distributor with more than 400 U.S. retail locations.

Challenge: To relocate headquarters and manufacturing operations after Hurricane Katrina.

Strategy: Hurricane Katrina didn’t just displace Oreck executives from the company’s New Orleans headquarters. After the disaster, the company decided to leave its Long Beach, Mississippi, manufacturing plant due to rising insurance rates, labor and housing shortages and other post-storm problems that made the cost of doing business there too high. After the worst of the hurricane’s aftermath was over and the company was no longer operating in survival mode, Oreck Chairman Bill Fry hired McCallum Sweeney Consultants to look for a central location to relocate the factory, one with a concentration of workers skilled in manufacturing, marketing, IT and finance.

Result: Fry says Oreck invested “in the neighborhood of eight figures” retrofitting a factory in Cookeville, Tennessee, and building a new headquarters in Nashville. The state gave Oreck a “fast track” grant of $750,000 to be used for infrastructure or workforce development. But finding talented workers was key, Fry says, because building high quality products depends on having a skilled workforce. Ultimately, moving away from the Gulf Coast to a more central location helped Oreck cut shipping and insurance costs, he says.

Advice: Incentives are good, but they can’t substitute for location. “Projects should drive incentives, not the other way around,” says Sweeney, the McCallum Sweeney Consultants senior principal.