A recent article in Strategy + Business on five factors for finding the right site (registration required*) hit the mark when it said that many companies choose particular locales as the homes of new engineering, R&D, and design sites for all the wrong reasons. For example, as the article points out, executive proximity, factory location, and global trends are not necessarily good examples. Neither are unemployment rates (which could signal large available labour pools, but which could also signal a lack of necessary skills and education), favorable currency exchange (as currency fluctuates over time, or climate (as being warm year round doesn’t mean anything unless you’re building a tourist resort).
Choosing a future engineering or R&D location should not be a seat-of-the-pants decision. Since sites can’t be spun up or shut down quickly, these decisions have long term consequences and must be made with care. Each of the relevant C’s need to be carefully considered before a decision is made. According to the article, there are five (5) C’s that need to be considered, but I believe that there are six (6).
While I wholeheartedly agree that the following five factors need to be considered:
- Cost
What is the total cost of the location, including the costs of land, office equipment, communications, wages, training, taxes, infrastructure, and wages. etc. - Capacity
What is the current availability of talent in the region and the expected availability in years to come? etc. - Capability
What percentage of the talent has the specific engineering skills that the company needs (and/or can be easily trained to acquire those skills) and how easy will it be to find the talent to build and maintain the appropriate operational environments? etc. - Communications
What will be the ability to seamlessly share information between the site and headquarters without cultural, language, or distance obstacles? etc. - Culture
What is the ability of the location to attract talent that will fit in with the company culture? etc.
I believe that this factor is equally important:
- Competition
How many similar companies are setting up in the region? If too few companies consider the region, it may be difficult for the region to get the “critical mass” necessary for the region to be taken seriously as a producer of products and/or services in your industry. If too many companies are setting up in the region, it could cause costs to skyrocket while capacity shrinks and capability becomes too scarce to support a new entrant.
The authors might argue that “competition” is taken into account by the other factors, and capacity and capability in particular, and that, for this reason, it does not need to be considered on its own, but I would have to disagree. It’s true that capacity and capability will be affected by competition, because more competition will create more demand which will likely result in more educational programs being tailored to meet that demand, but the creation and customization of these programs takes time. As a result, competition can exist before there is capacity to serve it. Plus, once these programs are established, educational institutions are slow to change or discontinue them. As a result, some programs will continue to churn out large number of graduates in a certain field long after the demand for those graduates has subsided. Thus, there is no direct correlation between capacity and competition, as there is no direct correlation between capacity and demand for that capacity, and competition must be considered separately.
Finally, if one uses these six Cs (the five Cs in the article augmented with competition), it is reasonable to expect that her chances of finding the right site for expansion are greatly improved. For more details on the first five C’s, including some good examples of how to apply the principles in practice, read the S+B article on five factors for finding the right site (registration required*) in its entirety. There’s a lot more information in it than one can summarize in a short blog post and it is definitely worth your time.
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