Suppose you work for a company headquartered in Wichita, Kansas, and your goals are to reduce manufacturing costs, increase output and produce closer to your customer in Tianjin, China. You have a factory in Prestwick, Scotland, but you think you can get closer. As a resident of Wichita, you have a choice to make. Congratulations – you just stepped into the shoes of one of our customers, Spirit AeroSystems, a few years ago when they made the leap to expand internationally.
If you’re anything like Spirit, you’re facing very similar decisions. Now that you’re expected to serve more locations, ship to more locations and contend with new competitors, globalization is driving you to expand internationally. Whether you are a U.S. manufacturer wanting to expand to Asia or a European manufacturer looking to expand in the U.S., you first have to decide where you will locate your facility – but, where do you start?
Although there are hundreds of considerations to make when locating a new manufacturing facility, this blog will highlight seven key location considerations every manufacturer should think through before selecting a location. Throughout the blog, take a moment to ask yourself the suggested questions.
1. Raw Materials
- What does it take to make your product?
- Where are your suppliers located?
Every product begins with raw materials, so one of your first considerations should be the location of those materials. How far will they have to be shipped? Be sure to keep your options open and explore alternative suppliers to find the most cost-effective solution for your new location.
2. Shipment of Products
- Where are you shipping your finished product?
Before deciding where to locate, you also want to consider where your product is going. You want to find a location that does not drastically affect your speed to market while also being cost effective.
3. Labor
- What is the labor availability in the prospective location?
- What skill sets must the workforce have to successfully run your facility?
- What must they know to deliver a quality product?
You may find a great location that satisfies both your raw materials delivery and product shipment needs, but if you do not have the labor availability to run the plant, then you’ve just made a costly mistake. When exploring new international locations, be sure that the prospective area has a suitably trained workforce that can help your business succeed.
4. Location Infrastructure Attributes
- Where is the nearest utility?
- What are the physical characteristics of the site?
- What is your proximity to the services needed to maintain your facility?
Physical attributes are key when selecting the site where you plan to build your greenfield manufacturing facility. If extensive work needs to be done to make the site suitable, be sure the investment will be returned.
5. Economic Inducements
- How can your business benefit financially from locating in a particular area?
- What area do you want to avoid?
In some areas, especially internationally, you can be offered some great benefits by providing a boost to the local economy. Some of those can be extremely helpful, and others you may want to avoid. Many manufacturers collaborate with manufacturing consultants to determine which inducements will be best utilized.
6. Overall Cost of Doing Business
- What will the taxes be?
- How much will it cost to import raw materials?
- What are the facility occupancy/operational costs?
It is vital for every manufacturer to understand what the implications will be if they choose to do business in an unfamiliar international location. The government and the political system play an important role in the future of your business, so make sure your team is aware of the true cost, both directly and indirectly, associated to be in business there.
7. Quality of Life
- How will your team enjoy living in your prospective location?
If you’re like other manufacturers locating internationally, you will most likely be moving an assigned team to that new facility. In order to keep these devoted employees happy, you want to consider the quality of life for them and their families. Take a moment to investigate the safety of the area, housing, school systems and other factors that can affect their everyday life.
How did you do with the questions? Were you comfortable with your answers? Do you think they require more thought? Remember, these seven location considerations are only the tip of the iceberg. There is a range of considerations to make when selecting an international location. Without being aware of all of the key factors, your globalization effort is in jeopardy.
If you would like to discuss more location considerations for your company in particular, please feel free to contact Haskell’s international manufacturing expert, Paul Raudenbush.
