Site Selection
Location Factors
When the decision to establish a new branch in the U.S. has been made, the most important criteria leading to this decision often are factors such as proximity to customers and suppliers, market expansion, exchange rate risk minimization or cost efficient production.
Companies have to realize that there are significant regional differences within the U.S.
A variety of location factors can significantly impact the profitability of the new branch. One has to differentiate between soft and hard location factors, with hard factors, such as cost of employment or energy cost, being easily measurable whereas soft factors, like quality of life are more subjective.
Regions can differ on factors such as property and building, infrastructure, logistics, cost of labor, energy prices, labor market or environmental regulations. To locate the optimal location, individual factors are weighted according to the specific project requirements of your company.
Labor Market
The labor market in the United States shows regional variations. Compared to Germany, the cost of labor is less in the U.S., most notably in the Southeast, but it varies significantly between different states and counties. In some occupations wages even differ up to 30% on average. Unions are more prevalent in the North whereas the South and Southeast are mostly Right-to-Work states. Statutory and agreed wages therefore vary between single States. Other labor market factors to consider are the availability of skilled labor, the unemployment rate, the percentage of high school and graduates, the size of the local workforce and the availability of educational facilities such as universities or technical colleges.
Infrastructure
In general, the infrastructure in the U.S. is well developed. A well-functioning road and railroad system cover the whole country. Individual locations differ mostly concerning the distance to international airports or seaports. Seaports are especially relevant for companies whose suppliers remain abroad or who plan to manufacture parts in Germany for example and ship to the U.S. for further processing. Companies often place value on the proximity to international airports to ensure easy reachability from Germany. Adequate availability and reliability of communication technology, electricity, water, gas and waste disposal management are additional factors to be considered when assessing different sites.
Energy Prices
Energy prices in the U.S. are typically less than in Germany, in many regions even more than 50% less. The energy market in the US is deregulated in the North and supplied by private utilities. In the South, the energy market is still controlled by larger public, regional utilities. Therefore you can choose your provider in some communities, whereas the provider is predetermined in others. Depending on your consumption, in some cases a provider can be selected freely. Compared to Germany, gas is considerably cheaper in the U.S. On the deregulated gas market, prices also vary substantially within the U.S. Depending on the provider prices can be set on a fixed amount for several years.
Incentives
To increase their appeal as economic location, states, counties and municipalities offer incentives when the project meets certain requirements to qualify. Incentives can manifest as tax deductions, tax credits, loans, investment allowances, payment of site infrastructure or the provision of property. On a regional level, incentives may vary widely between regions, with incentives usually being larger in economically weaker regions.
Although not the deciding factor concerning site selection, incentives can have a significant impact on project costs.
Property and Building
If the location meets the general project requirements the selection of specific properties still requires proper attention. Next to raw data like price, size, topography, ground composition, infrastructure provision or maximal floor loading we also assess options for expansion, the proximity to living areas or heavy industry and external exposures like noise, vibration, odor or dust.
Depending on your individual situation, a move into a pre-owned building might be more beneficial. Compared to a new building, rents can be very attractive. This possibility does not present itself to all companies, as specialized production often requires extensive building modifications. In these cases, more favorable conditions can be met with the construction of a new building.
Suppliers
Most companies appreciate proximity to their suppliers to avoid supply shortages und guarantee a smooth production flow. Therefore availability and amount of qualified suppliers, local content regulations, import/export tolls and just-in-time security of supply have to be assessed for each location.
Taxes and Regulations
Other factors to consider are the regional variations of taxes and dues. Next to taxes, environmental regulation can differ from county to county. Although environmental regulation is generally stricter in Germany, the accordance of certain production processes and its emissions with local environmental requirements has to be assessed. When selecting a location we also consider specific local requirements and bureaucratic peculiarities. The ease of obtaining building permissions can be more or less complicated depending on the county.
Quality of Life
In the U.S., German companies enjoy a very good reputation. To strengthen the image as a good employer, a new location should offer a high quality of life for new employees. The availability of pre-schools, schools, hospitals as well as cost of living, rents and the recreational value of the region have to be assessed. As operations in the starting phase are commonly supervised by expatriates with families, often the availability of German schools or classes play an important role, too.
