Seven reasons why location is important
Deciding where to locate a business has always been important. Location plays a huge role in attracting and retaining the best employees, many of whom keep a close eye on where they’re based in order to optimize work-life balance.
Good location decisions can significantly boost a company’s long-term performance. Poor ones can cost millions in lost talent, productivity and capital.
We frequently come across companies whose presence of location decision-making strategies—or lack of—have longstanding consequences. In one case, a company decided to decentralize to cut costs. Real estate expense was indeed lowered, but the move also resulted in loss of talent and clients—costing the company up to millions of dollars.
In this case, leaving an important strategic location turned out to be a disaster.
It’s in stark contrast to another global corporate who decided to consolidate its back office support functions into fewer, bigger locations. This not only led to approximately US$185 million of cost savings, but also boosted its ability to secure software development talent.
The seven motivators
In addition to avoiding disasters, why else should you want to be more strategic about location decision-making? In my mind, there are seven key drivers.
1. Attracting and retaining talent. In most cases this will mean a city center location. Cities draw in increasing numbers of young and international people. These places also become accessible.
2. Real estate costs. It’s the second largest expense after labor costs—naturally, ensuring real estate is efficient.
3. Clusters. Having a network of connected businesses could give companies access to a better and bigger talent pool, regulatory bodies, investors and economies of scale. However, this could be expensive; weigh up the pros and cons and decide what’s important for your organization.
4. Regulation and tax. Bearing in mind regulations can change, speak to your C-suite and agree on one of the either: Do you want to be based in a country with lower tax rates or one with fewer regulations?
5. Growth or a change in corporate strategy, technology or leadership. Different structures work for different companies. In some cases, I’ve seen corporations opting for a central hub with meeting spaces while supported by multiple smaller spokes elsewhere. Meanwhile, others are maintaining large, centrally located corporate headquarters. Again, consider what works best for the function of your organization.
6. City dynamism.In Europe, some governments are transferring power to regions and cities, which might offer grants and stimulus to businesses. Be aware of up and coming urban centers that incentivize businesses as this could prove advantageous.
7. Accessibility. It sounds simple but, whether it’s accessing new markets, customers or resources, transportation is crucial for not just your people but everyone you work with to get around effectively.
Location decisions can be lengthy. It involves identifying corporate requirements, consulting with stakeholders, assessing potential locations, conducting site visits and negotiating the best deal.
Daunting? Yes, possibly.
But it can be done seamlessly…with a little help.
Finding a partner
The right partner will be able to point you in the right direction, provide options for you to consider based on your requirements and foresee possible challenges that may arise due to various reasons.
For example, our team recently assisted an international financial services company who was considering setting up a service center for 1,000 staff in Central and Eastern Europe. It’s a popular base for offshore centers, but increasing competition also meant that companies without a strong HR function could experience high talent turnover.
By highlighting the possible challenge ahead, the company was then able to ensure that their HR function was ready for the move and from a long list of 16 potential cities, the company accepted Warsaw in Poland as the best location and secured a 7,500 square meters grade A office space.
The redesign of their company footprint and consolidation of high cost functions into lower cost hubs not only allowed the organization to obtain significant cost savings, but also enabled it to then focus on their core business while letting us what we do best at—real estate.
Looking to the future
Location planning allows you to future-proof your operations based on current trends, but this isn’t the end of the story; new ways of working and rapidly evolving technology is putting pressure on all companies—including you and I—to review their real estate spend.
We must keep on top of these trends and regularly review our portfolios to face whatever tomorrow brings.