Is your current facility bursting at the seams? Are you finding it hard to hire enough workers at a reasonable wage? Are transportation costs for your finished goods driving you to the poor house? Do you need better access to critical markets? Is your facility in need of an upgrade?
If you answered “yes” to any of these questions, relocating your company might be the ideal solution.
For companies of any size, relocating operations is a major undertaking. And even with extensive consideration and planning, the process is risky and will likely be full of curveballs.
But above all, the decision to relocate your company will likely come down to a combination of compelling factors.
“If you’re looking for a location that will give you access to a larger labor pool at a lower cost, and you can find locations where that is available, of course it makes good sense to move,” says Bill King, owner of Nacogdoches, Texas-based B&L Research.
As long-time editor of international site location magazine Expansion Management, King understands business relocation from multiple perspectives and says the decision always comes down to two things: people or money – or both.
1. More people. Sometimes, the decision to relocate comes down to numbers. Perhaps your operation has 50 employees, but now you need 200 employees. Can the area surrounding your business meet that need?
“If your current location doesn’t have the people you need, you may need to consider a new location,” says King. “You might not necessarily want to shut down your current site, but you definitely need to consider establishing an additional site in a more labor-rich location.”
2. Better people. The same thing holds true for skills. Finding the right technical, industrial, or mechanical expertise required to maximize your company’s production might translate into exploring larger metros with a variety of educational connections.
“If you’ve built a start-up, and you’re in a small or medium-sized town without a university, technical school or a population of people with the necessary skills for your company, you can easily outgrow your access to the skilled workforce you need to continue to operate and grow,” says King. “You need a place big enough to attract the people you want, especially if your company is high-tech or industrial.”
3. Proximity to customers/market. Market considerations are a critical factor when considering a business relocation. Has your market shifted? Expanded in new directions? Are you close to what you need, resource-wise? Do you ship goods by rail, road, air, sea? There are myriad questions to consider when assessing market potential and customer access.
“Increased transportation costs can kill you,” says King. “If your market has grown substantially into geographically disparate regions, it behooves you to open a physical presence in your new market area to capitalize on logistics and transportation assets, as well as save money on shipping strategies.”
4. Lower labor rates. Wage rates differ greatly nationally and globally. Savvy companies will always investigate the best ways to secure a skilled workforce while also paying reasonable salaries. Other labor considerations include unionization rates, right-to-work law and workers’ compensation rates, to name a few.
“For certain manufacturing positions, East and West Coast locations might require a salary of $80,00 - $90,000, whereas that same position in Texas might only cost you $50,000,” says King. “If your company is competing nationally, or even globally, those costs savings can be critical to your bottom line.”
5. Lower real estate/living costs. The price of real estate not only factors into your company’s operating costs, but also the quality of life of your employees. Will your employees be able to comfortably afford homes? Will the community be ideal for both your business and your employees? How does the area’s cost of living compare to other locations?
“Typically, when you relocate your company, your new workforce is already in place,” says King. “However, if you’re trying to recruit nationally, it might be challenging to get people to move to a location with a less-than-stellar quality of life. In those cases, your company will likely end up paying a lot more to recruit the people you need.”
6. Lower tax rates. Lower taxes have long been a site location factor, especially for businesses considering locations in a different state. Think California or New York vs. Texas. The potential savings can be significant. For moves within the same state, however, tax differences are less significant and, therefore, less important.
When it comes to tax incentives, King warns that caution must be exercised.
“Incentives have a short life span,” says King. “They are like an after-dinner mint; a nice way to seal the deal. But they have a shelf life and often go away within three to five years. If you are in a situation where you are required to do something you wouldn’t ordinarily do, that’s almost always a bad idea. If incentives are driving the deal, it’s probably bad for the community and the company.”
7. Better regulatory environment. Over-regulated environments are hard on businesses. Fines and compliance issues can add up to headaches and lost revenue, whereas a business-friendly regulatory environment signals concrete competitive advantages for businesses on the grow. Relocating your business to a friendly regulatory climate could prove an economically sensible choice in the long run. Noted for its favorable regulatory environment, Texas has been the recipient of hundreds of companies fleeing over-taxed and over-regulated states in the past several years.
“While taxes and labor costs are usually the main cost-comparison factors, they are not the only ones,” says King. “The thing to remember is that, if the cost of doing something varies from place to place, then it’s a site selection factor.
At the end of the day, a comprehensive analysis will help determine if relocating makes good business sense for your company.
“There is rarely a single reason for a move,” says King. “But if you can stack three, four or five reasons together, then it might be time to seriously consider relocating.”
Certainly, a business move is not a decision to be made lightly.
Don’t rush. Consider your alternatives. Beyond just a physical move, your company’s relocation must be intelligent, as well.