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greenfield plant in Tianjin, China, from Pennsylvania- based Kennametal was at the center of a presentation on "Global Corporate Site Selection Best Practices" at the IAMC Professional Forum in Williamsburg.
   As reported in the July 2006 issue of Site Selection, the 161,464- sq.- ft. (15,000- sq.- m.) plant could eventually more than double in size, as well as double its initial payroll of 200.
   The company's wear parts and advanced materials products are key to such industries as mining and commercial construction. The company maintains 200 facilities representing 7 million sq. ft. (650,300 sq. m.) in 30 countries.
   Roger Nesti, global real estate manager, Kennametal, said the issues faced in this project are faced in all developing countries. The strategic layer behind this project includes the company's rebalancing of its global footprint, in order to be one- third each in Europe, North America and developing countries. Though Kennametal had pursued Chinese projects before (two JVs and one self- built plant), at the suggestion of Cushman & Wakefield it employed for the first time on this project the services of Tractus Asia Limited, represented at the podium by Dennis Meseroll, director.
   "Most companies think the fastest and easiest way to enter the China market is through a JV, but a wholly- owned foreign enterprise is as fast or even faster based on our experience," said Meseroll, a member of Site Selection's editorial advisory board. The choice was made to hedge bets, and evaluate a self- built site vs. a potential JV.
   The fast- tracked site selection initially screened 1,400 sites in economic development zones throughout China. Meseroll said the "Wayne Gretzky" approach of "skating to where the puck is going to be, not where it is" often makes interior China locations more attractive as an option as the coastal regions fill up with thousands of projects and the infrastructure and wage strains that accompany them.
   Thus do second- tier and interior cities come into the picture, flaunting both their new infrastructure and their frequently excellent universities. Meseroll cited Chongqing and Wuhan among this group of cities, but said that the frontier is not for everybody, both because of less sophisticated local officials and quality- of- life issues for senior management, both expatriate and Chinese.    Critical location factors that shortened the list of candidates for the Kennametal project were minimized real estate risk, minimized regulatory risk (bringing the list to 169 sites), maximized tax incentive (93), available appropriate land (59), location within 100 km. (62 miles) of an airport (36), availability of preferred process gas suppliers (21) and reliability of electrical power supply (16).

Among the unforeseen start- up costs for Kennametal's Tianjin facility was the driving of 2,100 pylons in order to stabilize what was essentially muck.

   Preliminary due diligence site visits dropped the list to nine because the appropriate land was not available.
   "Lo and behold the land you were told would be suitable is a lake," said Meseroll, or natural gas infrastructure was still on the drawing board rather than being accessible by industry. "It happens all the time, and you can knock out over half of the sites that you have on your long list," he said.
   Ultimately Tractus recommended looking at Wuhan, Guangzhou and Tianjin Wuqing, while Kennametal brought sites in Chengdu, Tianjin TEDA and Xiamen Haicang, near potential partners, to the table for comparison. Dozens of officials and suppliers were interviewed in order to corroborate data, with Wuhan scoring the highest, Tianjin TEDA second, Tianjin Wuqing third. Each location was then assessed for risk in the areas of logistics, overall costs, manufacturing support, utilities reliability, capable personnel, time line and political climate. Wuhan again came out the best, along with the Tianjin locations.
   In the end, the decision was made to go it alone as JV negotiations broke down – Meseroll cited a Chinese proverb: "Same bed, different dreams." Tianjin TEDA prevailed because of speed, with the investment agreement and land use rights transfer agreements completed in a little over three months.
   "The highest- ranked site is not necessarily the finalist – the optimal site chooses itself," said Nesti. "You need to leverage multiple locations during negotiations. Local management is sensitive to the relationship issue. But at the end of the day, districts don't care whether it's profitable, they get graded on the investment they sign up. We feel like we left some infrastructure dollars on the table, because we had to get moving and could not spend the time negotiating further."
   An international project management team is a must, Nesti said. And expect to educate Chinese firms about quality expectations. "Companies underestimate startup costs during the first three years of operations by up to three times," he said.