Commentary

How to choose the best cities for locating your business

As your organization grows and aims to increase its global footprint, you need to take into account how conditions in a city impact your business activity.

July 04, 2017
Business people meeting outside modern building

In this rapidly changing economic climate, your location decision could determine your firm’s competitiveness and success in the long term. As your organization grows and aims to increase its global footprint, you need to take into account how conditions in a city impact your business activity.

“When setting up in new cities, companies are looking toward the future—their decisions potentially locked in for many years. Every business move is unique and has different drivers, with companies variously looking to explore new markets, gain access to new talent, improve efficiency or act strategically,” says William McBryde, Research Analyst at JLL’s Global Research in London.

“There is a range of practical considerations that are important, from issues of regulation and city dynamism to connectivity and having similar industrial clusters nearby. The war for talent is an intensifying driver, with real estate playing a key role in attracting, retaining and maximizing the productivity of employees.”

What do you care about?

According to a JLL report, The Promise and Perils – Location Decisions, “locations must be planned for the future, ideally for at least a decade.” Before making any decision, the first step is to assess your corporate value chain.

Your company’s success depends on the range of activities that add value to your product or service. Maximizing the corporate value chain’s efficiency will contribute to increased competitiveness, flexibility and, ultimately, to improved returns. Analyzing potential locations using the assessments below allows you to gain clarity on which locations work best for your needs and if you can optimize a specific function of your corporate value chain through a unique locational decision—helping to avoid trade-offs that may come with co-location of all functions in one place.

The recommended assessments are:

Talent assessment: The best location must provide access to the talent your organization requires. Well-informed companies will avoid a location that is suffering from a saturated employment market. Ensuring a thorough understanding of the nature and depth of talent required through access to detailed labor analytics is critical for almost every segment of the corporate value chain.

Financial assessment: A successful financial assessment uses long-term modeling and forecasting to achieve talent cost savings, lower total occupancy costs and enable cost-effective supply chain.

Economic assessment: Businesses value a sound and stable macroeconomic environment. However, opportunities in emerging and fast-growing economies may require engaging in more volatile markets with lower transparency levels. Your company has to find the right balance between opportunity and risk-taking when choosing more cities in less stable countries.

Regulatory assessment: Countries set national regulations, but operate in a global trading context. From trade blocs to monetary unions, some common regulations transcend national boundaries. A detailed study of a potential location’s regional, national and local regulatory environment is absolutely critical.

Operational assessment: This is important, especially for manufacturing operations.  A company should identify and measure environmental risk, timing, obstacles to development, and variable construction costs.

Fiscal assessment: Companies assess differences in corporate income tax, capital gains tax and tax withholding to optimize their corporate tax structure. Significant savings can be realized when risks, responsibility and control are appropriately allocated to the various functions in the value chain.

Competition assessment: Locating operations offshore in popular outsourcing destinations, such as Central and Eastern Europe, India and the Philippines requires careful planning. Understanding the competitive landscape, identifying the largest employers, interviewing employees and establishing nonfinancial staff motivations are essential elements of location due diligence.

The big picture factor

Companies should also pay attention to the appeal of different cities, which are jostling to lure talent, companies and capital. Many governments are stepping up efforts to become a better business partner by funding and providing both hard and soft infrastructure, cognizant of the fact that complementary transport and logistics networks, as well as livable urban spaces and a vibrant economy, have become essential in attracting a highly skilled workforce and firms to relocate.

According to McBryde, the top three essential features that enable a city to compete successfully are access to talent, access to infrastructure and a conducive business environment.

1. Access to Infrastructure. Cities must not only have strong internal connectivity and functionality, they need global connectivity and digital infrastructure. Among cities in Asia Pacific, Singapore remains a global leader in this regard because of its highly integrated city planning and management.

2. Access to Talent. Cities may become competitive through nurturing their talent, either through higher education institutions or attracting them from elsewhere. Cities such as London, New York, Tokyo, Paris, Singapore and Hong Kong have unique advantages in having talent who possess professional knowledge and experience and talent. Moreover, these cities have a healthy mix of internationally recognized universities and R&D institutions to keep producing the talent pool.

3. Business Environment. Cities must—through policy, leadership and regulation—offer business conditions that attract high levels of corporate activity (whether that be through low taxation, a strong legal system or low risk). Businesses prefer cities that act in predictable ways; consistent laws and policies are key.

“Other issues could include having robust and visible branding or reputation, perceived livability, or distinct economic advantages,” says McBryde.

Keep a lookout for ‘investment ready’ cities

Based on JLL’s Global Top 30 rankings, the top six cities with the highest density of corporate presence are Tokyo, New York, London, Beijing, Seoul and Paris. Ranking based on air connectivity, London comes first, followed by New York, Tokyo, Atlanta, Shanghai and Chicago. As for real estate investment, New York, London, Paris, Tokyo, Los Angeles, and Washington are the top six cities.

To be successful, “cities must be ‘investment ready’—presenting themselves as willing, attractive and knowledgeable partners for businesses and investors.” Currently, many cities are subject to fragmented forms of governance and lack national support, which can lead to a lack of integrated vision and an inability to act effectively on a large scale,” says McBryde.

Cities that act predictably and those with a clear, long-term vision and well-defined frameworks for planning and supporting a friendly business environment while facilitating access to talent will work best for your needs.

Want more? Talk to the team