Episode 26 – The Impact of the United States, Mexico, Canada (USMCA) Trade Agreement
Rick Weddle: Welcome to “Site Selection Matters,” where we take a closer look at the art and science of site selection decision making. I’m your host, Rick Weddle, President at Site Selectors Guild. In each episode, we introduce you to leaders in the world of corporate site selection and economic development. We speak with members of the Site Selectors Guild, our economic development partners, and corporate decision-makers to provide you with deep insight into the best and next practices in our profession.
In this episode, we have as our guest, Dennis Donovan, Principal with Wadley Donovan Gutshaw Consulting; WDG Consulting advises corporations on geographic deployment of business operations, including manufacturing plants, distribution centers, R&D centers, IT centers, call centers, back offices, and headquarters operations. Today, Dennis will talk with us about how international investment promotion agencies or IPAs can become more effective in attracting U.S.-based direct or cross-border investment. Join me as we welcome Dennis Donovan to “Site Selection Matters.”
Dennis, today, we’re talking about international investment promotion agencies or IPA and what’s needed for them to be more effective in attracting U.S.-based investment. Take a minute, if you will, and explain, from your perspective, how the process of attracting investment works in the U.S.?
Dennis Donovan: Well, the process, Rick, is pretty much uniform, irrespective of the geography involved, and generally speaking, it’s a very structured process that a company would follow to identify and ultimately select a new location. And the process begins in what we call discovery or definition. And that’s identifying why is there a need for expanding or contracting the footprint of an organization? You know, what are those drivers? What are the business objectives that hope to be accomplished? And then from there, what are the requirements of the new operation in terms of its headcount, its access to customers, access to suppliers, real estate, and so forth. And then, you have to identify, you know, what geography are we looking at? Is this going to be targeted at a specific region of the United States or a region of the world? And if so, is the region being targeted to service customers better, to balance the footprint from a geography risk and supply chain standpoint, or to reduce costs? So, there’s that involved.
So, sometimes, the geography is small, is one state or one country, or it could be an entire continent or a couple of continents. So, that’s important. And then a company needs to identify and agree upon, what are the criteria? What is really overarching in terms of its importance? You know, in other words, these are must-haves to guarantee successful operation in a new location. And then, you’ve got important and somewhat important criteria. So, all that has got to be sorted out.
Once that’s agreed upon, then comes the analytical phases. And the first phase is to be able to identify where are the potentially best locations? We call that a long list. Well, it’s a very systematic and metric-driven process to ultimately start out with a universe of locational candidates. It could be 100 areas, 200 areas, more or less, and how do we get down to a manageable number that we can take a closer look at?
And this is where the rub comes in international site selection. We have very robust and extensive sources of data to be able to conduct this, what I call location screening, the winnowing down process, if we will, in the United States. Overseas, the available data far less expansive and uniform than it is the United States. On top of that, the data that are available from the websites of inward-investment agencies tends to be far or less than what we would really need to be able to move the process well along the decision-making pathway. So, that is definitely an issue that we face in terms of doing site selection outside the United States.
And anyway, once you’re down to a long list, then we start interfacing with economic development agencies by issuing a request for information, which asks for competitive intelligence on areas such as major employers, employers within our industry, available properties and so forth, electric power reliability, whatever it may be, and then we take that information provided by the inward-investment agency and the desktop research and we do a scorecard ranking of the various locations. We may even have one or two existing locations as benchmark. And we typically break it into operating costs and operating environment, which tends to be heavily weighted toward human resources these days. And so typically, the best locations tend to be the lowest cost, the ideal locations lowest cost, highest score in operating environment, especially talent.
And that leads then to a…what we call a shortlist. And the shortlist could be anywhere…usually, from three to five locations, that’s brought forward to the next phase, which is actually going and visiting each location and conducting on-the-scene interviews with companies, other organizations, and again, determining, which one of the shortlist locations not only is going to work best for the organization, the new facility near term, but longer range. You know, is the needs of the company as it’s projected to grow, will those needs be well matched by the attributes that we see that location having well down the road? Because they will change. That’s where the judgment of a site selection consultant comes in. How are these…You know, we may have great supply the electric power today, but based upon demand and generating capacity, maybe that’s going to be constrained in the future. So, it could be questions of reliability and cost. That kind of judgment has to go into the analysis beyond just what the cost of power is today.
And so, we rate each location in terms of its long-range viability for the project. And also, when we say location, location, typically, it’s a metro area, a submarket and we identify first submarket based on labor pool and then available properties, and then a specific community and then a site, that’s how location is defined. And that leads to a recommendation or a delineation of the best location and the backup. And then typically, a company will engage in final due diligence, ranging from incentives and taxes and legal in the top location, with the backup still in the running, because you never know, something could happen. And then ultimately, the decision is made to go to location X.
And so, it’s a very structured process that companies follow. Follow that process, typically, that location is going to work well for the business well down the road.
Rick: Dennis, you’ve just described a really robust and rigorous kind of step-by-step process. It seems to me that we erroneously refer to this as site selection. And often, it’s really site elimination, isn’t it? Because you described the process of how you winnow down a very large list that may include multiple continents, hundreds of locations, down to a manageable few. It really is site elimination, isn’t it?
Dennis: It is. There’s a lot more elimination than there is acceptance, if you will. So, yes, it is an elimination process. And that’s good because there could be a number of locations that would work well, we’re looking for the optimal solution. If you’re going to make this major investment, capital investment, and talent investment, you know, the question becomes why not pick the optimal location that’s going to maximize the success from a business operation standpoint of the new facility. So, that’s what we always strive for is not pretty good, not very good, we strive for optimal or as close to ideal as we can get.
Rick: And information is the currency by which you trade and winnow this list down and the searches always begin with information. And here in the U.S., I guess we’ve all had a pretty good experience working with site selection consultants to make sure that our websites present the information that’s necessary. You made a comment about that in non-U.S. locations, whether it’s Asia or whether it’s Europe, that websites and data is less available. Any insight into why that’s the case? Or what’s going on there? Why wouldn’t they have the same capabilities that the U.S. EDO’s have?
Dennis: Well, that is a good question. And it’s perplexed me for 40 years. I can say that one of the reasons is that the government agencies and all these, be it South America, Europe or Asia, just don’t produce the level of data on demographics, on businesses, and occupations that you find in the United States. I guess maybe Canada comes closest, but even there, it’s less than it is in the U.S. So, the absence of government, you know, produced data really is a constraining factor. I mean, it makes it much more difficult to evaluate locations because you can’t get access to the data, it doesn’t exist. And then on top of that, private data vendors are far less extensive, either in numbers or in what they produce as well in countries outside the U.S. So, it really makes it very, very difficult, it really does.
And I have found that when doing international site selection, you really got to have senior talent on projects to make decisions, along the away, because a lot of interpretation is involved. And you have to do a lot more original research in international site selection than you do on U.S.
Rick: It’s very, very interesting, you know, this available data is something that’s going to be very difficult for, I guess, the international promotion agencies to kind of overcome on that, but what advice would you give an international EDO or IPA when it comes to trying to offset that and assemble their own database and work with you guys to deliver the information?
Dennis: Number one is to understand what data are really needed and are important to the site selection process. And so, I think, contacting site selection consultants, and just doing a survey saying, you know, what do you really need? Ideally, what would you like to see from us in terms of the ability to provide you with data on our website, and then data that would be more customized to a project? What’s really important? And my suggestion is that I would advise every inward-investment agency to visit the International Economic Development Council, IEDC, and in the U.S, a number of site selection consultants, including the Site Selectors Guild was involved in this, and IEDC, economic development professionals to look at…We believe that there were certain sets of statistics that any area should have to support site selection. And remember, site selection, you had to, you know, understand the marketplace. You’ve got about 35% to 40%, of site selection projects are represented by a professional consultant. So, we are expected to wade through all of the difficulties and challenges of spotty data. We have to do it, all right?
But then you’ve got, you know, 60% to 65% of the market that is represented either by a company doing it on their own or a related professional, maybe an attorney or an architect or something. For them, that is really difficult. So, as an inward-investment agency, you have to understand the entire marketplace. If a site consultant says, “Well, we don’t need, you know, population size because we can get that our own,” well, maybe we can, but two-thirds in a market may not be able to do so. So, you have to serve the entire market.
And I honestly believe that if you look at the IEDC data centers, this is the information we set is important for anyone involved in site selection to make an informed decision to get down to a long list of areas. I start from there. And any inward-investment agency that can come closest to having the IEDC data standards for their country and for the major, you know, employment centers or metro areas will have a leg up in a competition. Believe me, it is a competitive advantage of having this kind of information.
Rick: That’s very helpful. Let’s talk a little bit about the role that the site location professional or the advisor like yourself plays in this process because it strikes me that these decision channels, how U.S.-based companies make decisions can be very complex, and how can an investment promotion agency understand better by working with a site selection consultant, how companies make decisions and how they go about looking to grow and expand abroad?
Dennis: Again, I think, you know, reaching out to site selection consultants is important. And also attending events that are sponsored by the industry. And you know, attending Site Selection Guild conferences or CORNET, IMEC, you know, any of these organizations to better understand, you know, how the process unfolds, and what’s expected. Where is the interface with economic development agencies? And again, you have to understand the interface with the entire marketplace, not just site selection consultants, it’s very important. So, you always have to be careful of what a professional site selection consultant relates. Are they relating the views and perspectives of the entire market or just that 35% to 40% representing professional consultants. But if we can help educate inward-investment agencies on this is the process, this is what is required at various points in the process, and here’s how you can maximize your value as a stakeholder in the process to us, I think that would be very helpful.
So, again, I think reaching out to professional site selection consultants is really critical. And you know, we’re more than willing to take the time to explain how that process unfolds. And then eventually, I can see maybe even for organizations, groups of countries, in Europe or Central Europe or something, they have their conferences, invite consultants to speak at these conferences and to hold workshops, say, “This is how it needs to go down.” Because again, I mean, it is just amazing, in an age of technology and data, I see the technology out there, but even there, it’s not as much…You know, I can come to the U.S. and I go on a lot these websites and can do virtual tours of building, virtual tours of communities. I don’t see that as much overseas. So inward-investment agencies have got a lot of catching up to do.
Rick: It sounds like they really do. It sounds like there’s just a lot of changes and a lot of differences between the way the site location work has traditionally worked in the U.S. and now, how it is or has worked in countries abroad. You know, Dennis, in addition to that, we really live in interesting times internationally. We’ve had a long run of globalization and increasing supply chain integration in the world. Now, we’re seeing suddenly a rise in trade conflicts and tariffs. Recently, Brexit finally happened as the UK moved out of the EU. More and more countries now are talking about nationalism and isolation rather than global integration that you and I have known so well over the last several decades. Take a look into your crystal ball, if you will. Where do you see this headed? What could we expect next from an international perspective.
Dennis: Yeah, my opinion is that the economic forces that are propelling globalization of businesses are so strong that these headwinds that you refer to are merely that they’re temporary roadblocks, if you will. I believe that we will see more of an integration of the global economy for many, many reasons. And that is going to…That will dictate and elevate above all else how companies are going to respond. Now, obviously, you will have outliers. There will be certain countries that will be…they could be much more nationalistic, they could be relatively unstable, it could have anti-business regulation and so forth. But generally speaking, I believe we’re going to see more unity down the road that we will [inaudible 00:17:37]. I think this is a blip on the radar screen because the forces are so strong that governments and populist presidents, if you will, are not going to be able to derail the trends that are [inaudible 00:17:49] that make it necessary for businesses to survive. Without a global integrated platform, virtually, no business can survive anymore. So, that’s going to trump everything else. I don’t view it as dire as a lot of people do. I think again, bumps in a road.
Rick: Yeah. Well, that’s good news, Dennis. You know, what you’re saying, I guess is, in today’s world, the world is the market, and these macro forces will eventually kind of overwhelm whatever short-term blips or bumps. I like the way you said temporary headwinds, may provide. So, your thought is that like Brexit will eventually even out and those forces will kind of push forward. While it may not be back to business as usual, the long history of globalization will continue. I guess that’s what you’re saying?
Dennis: Yeah, absolutely. Well, I mean, Brexit is definitely an issue and there may be some shifting of financial headquarter operations and so forth, but bottom line, the UK is one of the largest economies in the world. What, companies aren’t gonna invest in the UK? To me, that’s a ridiculous assumption. Yeah, would you like to see Brexit? No, I don’t like Brexit at all, I don’t think it’s good for UK or for Europe. Having said that, I don’t believe it’s going to be a serious impediment for growth in Europe or even in the UK, personally.
Rick: Well, that’s interesting. That’s great. And that’s fascinating. You know, Dennis, you’ve given us a lot, a whole lot to think about today. What a great conversation we’ve had. But that’s really all the time we have. So, let me end by saying thanks to Dennis Donovan for talking with us today, on this episode of “Site Selection Matters. ”
Dennis: It’s been my pleasure, Rick. Thank you for having me.
Rick: Thanks for listening to this episode of “Site Selection Matters.” And a special thanks to Dennis Donovan for helping us get inside and better understand what international investment promotion agencies or IPAs need to do to be more effective and make their regions and communities more competitive in site location. What an informative discussion, and one that leaves us with a lot to think about.
Again, I’m Rick Weddle, president of the Site Selectors Guild. This podcast episode represents my views and the views of my guests, and they do not necessarily represent the views or opinions of the Site Selectors Guild or its membership. We do hope you’ll subscribe to “Site Selection Matters” podcasts on Apple Podcasts, Stitcher, Spotify, or wherever you listen to your podcast. We look forward to bringing you some great discussions in the year ahead. Until next time, good day.