Evaluating new Business Locations
Founder & Managing Director at Catalina Consulting, Karena Vaughan shares tips on how to best evaluate new business locations.
In our experience, leaders in successful, fast-growth companies often wonder if they could grow faster and more efficiently, with access to resources outside of their existing business locations.
Questions you may ask yourself:
- You may be evaluating expansion options and wonder which location would be best for their business.
- Perhaps the pandemic or indeed Brexit has raised questions around access to markets and skills and you need to understand the low-risk options.
- The success of your business may rely on the ability to hire and retain niche skills, and you ask yourself if there are locations where you can do this in a more cost-effective way.
- You may have identified opportunities in an overseas market and wonder if you should find a partner to set up a joint venture or if you should establish your own operation.
Our customers tell us that discussions around these questions take place fairly regularly but may often go no further than the meeting room.
Few SMEs have the expertise or the redundant capacity that allows them to create project teams for location-specific challenges, and as a result they may be missing out on new business opportunities.
The advice that we offer
There is a significant amount of free information available on business locations. Most countries, regions and often cities will usually have some form of commercial or economic development representation, usually a public sector funded agency whose responsibility is to support businesses seeking to establish new operations in its area and to help businesses based in the area to develop export sales. Some agencies also provide advice and support with skills development.
A simple Google search will identify the right agency and the person responsible for inward support.
That individual should be able to provide a broad range of information as well as an in-depth view of the city or region as a location for doing business.
It is vitally important for an SME evaluating a new business location to know which factors should be included in the evaluation criteria.
Our advice is to focus on FOUR key areas:
Whether you establish a partnership, acquire a company or set up a joint venture, ultimately you will have to hire people, perhaps rent or buy property, provide infrastructure and technology, pay taxes and social costs. So, whilst initially it may seem that setting up operations in a region with lower salaries will offer significant cost savings, when you calculate the total overall cost you may find that the differential is much smaller.
If you need to hire mainly graduates, you will find that many university cities offer a steady pipeline of high-quality people. However, if you rely on the availability of experienced skilled managers, you will need to dig much deeper into the available pool of talent. Check out the businesses that you will be competing against for skills. Check out levels of attrition and wage inflation and make sure that you will be able to get the right people with the right skills in sufficient quantity.
Risk covers a broad range of other factors including access to suppliers, political, regulatory, legal and fiscal factors, competition, IP protection, connectivity, physical and technological infrastructure, and management time getting to the new site and managing the new site remotely. Be comfortable that you can manage all identified risks.
What support does the city or region offer to new businesses setting up in their area, hiring people, scaling the business and exporting? Do they provide any incentives or grant funding? Are there any tax breaks for new businesses? What practical support do they offer with set up and growth activities?
Finally, when all of these points have been covered, we advise SMEs to:
- Visit the area
- Speak with local businesses
- Meet with potential partners
- Carry out some initial interviews
Only then will you have a complete picture of the value that location will bring to your business.