Site Selection Magazine Online – 1998 Global Location Activity – March, 1999 issue

Long-Term View Sustains

Global Location Activity

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Wherever new-site locators looked in 1998, the story was pretty much the same: tight labor markets, a short or decreasing supply of real estate and economic uncertainty. The severity of these forces varied from region to region and market to market, but corporate real estate executives and their business location teams were sure to encounter them.

Asia’s economic troubles, and the fear they would spread to other vulnerable regions, such as Latin America, kept many business strategists closer to if not on the edge of their seats, particularly in the second half of the year. But this group thinks long term. When Russia defaulted on its debt and plunged its economy into turmoil, and when Brazil teetered on the edge of economic collapse, most business strategists stayed sanguine. New plants opened and new facilities were announced in Russia, Brazil, and most other emerging and developed markets worldwide. In short, the world kept turning.

Global Service Platform

But site selectors took more notice of international business climates than usual, because theirs is an increasingly global responsibility. Major corporations are now developing global service platforms rather than dividing their market into the home market and the rest of the world, for instance. Why can’t a call center in Canada or Ireland serve the USA, if labor pools are larger and less costly than at home?

“As we ‘globalize’ certain functions, we can operate those functions on a global basis from wherever it is most competitive to do so,” says Alexander J. Darragh, vice president of American Express Real Estate Services. American Express, with a presence in more than 50 countries, runs operations centers in Phoenix, Ariz., India and Brighton, UK, that are equipped to process a variety of business functions depending on management requirements.

But some regions and markets did perform particularly well in 1998, according to Conway Data’s New Plant database, which tracks new and expanded facilities globally on the basis of investment, number of new jobs generated and facility size. While Canada attracted the most new facilities outside the U.S., Europe and the Middle East captured an impressive number of facilities relative to Latin America and Asia.

Europe Dominates Top Deals

Consider the Top 20 Global Facilities for 1998 chart (link below). If one views that information as a group of 60 facilities rather than three distinct groups of 20, then about half the facilities listed — 28 to be exact — are in Europe or the Middle East. The region did particularly well in the employment category, where 16 out of the top 20 facilities listed are in Europe, with heavy representation in Ireland and the United Kingdom. In fact, the New Plant database indicates 46 new or expanded facilities in Ireland in 1998 and 39 in the UK, which includes England and Wales, Northern Ireland and Scotland.

Other markets bear mentioning for their strong performances as well. China logged many new or expanded facilities in 1998, including some major automobile manufacturing facilities. These include a new US$200 million automobile plant for Honda Motor Co./Guangzhou Honda Automobile and a $230 million General Motors/Jinbei Automotive plant in Shenyang. Such automobile parts suppliers as Clarion Co. (car stereo components) and Federal Mogul Qingdao Piston Co. among others weren’t far behind.

Such Asian countries as India, Malaysia, Indonesia, The Philippines and Singapore were strong performers in the business attraction arena despite their economic problems. Even Vietnam — often referred to as a pre-emerging market — did well in the new and expanded facilities categories. Projects include a $542 million power plant being built by a consortium of Sumitomo Corp., Stone & Webster, Babcock Energy Ltd., and Hyundai Engineering, and a $95 million ship repair facility in Knanh Hoa.

Latin American Activity

Emerging markets elsewhere were well represented in Conway Data’s annual tally of new facilities, as well. Mexico and Brazil were Latin America’s heavy hitters in 1998, attracting dozens of new or expanded facilities. Projects announced in Mexico ranged from new electronics plants to power supplies to transportation-related industrial concerns. The latter include an 863,000-sq.-ft. (80,000-sq.-m.) new manufacturing facility for Navistar International in Escobedo. Valeo Sylvania is building a 100,000-sq.-ft. (9,290-sq.-m.) plant for manufacturing headlights and tail lamps in Queretaro.

Two major automobile plants were announced in Brazil during 1998 — a $700 million plant being built by Ford Motor Co. in Guaiba and a $600 million plant for Peugeot-Citroen. Reneault plans to build a new engine plant in Curitiba, and Pirelli announced a $170 million expansion of a tire manufacturing plant in Gravatai.

American Express’s Darragh identifies India and Mexico as countries worth looking at closely for possible inclusion in global organizations’ business expansion plans. In Latin America, American Express has a long-established presence, and the region is high on his list of potential locations for additional operations and call center facilities. “In Latin America, we have projects under way in Argentina, Brazil and Mexico,” Darragh reports. “Our issues are: Where can we find the most competitively priced labor with the key skills we want, including language and customer service skills; telecommunications costs as we regionalize our activity; and the political environment of the country.”     SS