As the world shrinks, increasingly companies are shifting their operations across borders - or even within existing borders - in search of new markets or better or cheaper facilities and resources that will deliver new sources of competitive advantage. Among the recently announced relocations is that by oil services company Halliburton, which initially said it was opening a new corporate headquarters in Dubai in order to be closer to important markets in the Middle East, Asia and Europe - although it turns out only the chairman and CEO David Lesar will move from the current head office in Houston.
JP Morgan is building a new European headquarters to accommodate 10,000 staff in the City of London, while Standard Chartered is leasing property in the new Marina Bay Financial Centre in Singapore. And Telefonica plans to move 12,000 staff to a new HQ outside Madrid on the model of Santander Group City, the campus to which Santander moved its staff back in 2004. These are just some of the countless examples of companies shifting existing operations or establishing new ones around the globe. "We are seeing terrific investment flows around the world in all directions," says Tim Heatley, partner at GVA Grimley, which assesses potential relocation destinations for its clients.
But while there are huge benefits to be gained by relocating, the cost of getting it wrong can be disastrous, and Heatley warns against the kind of formulaic approach to relocation that you might get from a location checklist or a 'what to do' guide. "There is no such thing as the perfect location, because a good solution for one company could be a very bad solution for another," he says.
One of the most common mistakes companies make is to move into a country or city because it is 'fashionable', only to find that wage inflation or a shortage of accommodation and labour destroys their business case. "Companies really underestimate what I call the 'hot spot syndrome'," says Roel Spee, co-leader of PLI-Global Location Strategies, part of IBM Global Business Services. "The fact that everyone else is in a particular location is often the best reason to avoid it."
The trick to successful relocation is thorough research and a strategic approach, says Spee, who identifies the three main drivers for international relocation as being access to new markets, access to resources (human or material) and cost savings. "The huge inward investment in China over recent years is down to a combination of all three factors," he points out.
But a fourth driver in relocation, albeit usually domestic relocation, is straightforward capacity expansion - epitomised by Santander, Telefonica and Royal Bank of Scotland (RBS), which moved 3,250 staff to a new headquarters in Gogarburn on the outskirts of Edinburgh in 2005. While such moves are primarily property-oriented, they offer significant opportunities to introduce new working practices and cultures, and to reduce the organisation's carbon footprint.
In international relocations, however, property considerations come a long way down the list of priorities. "You start at the macro level by looking at the national characteristics of a country, including its labour laws, security, political and financial stability. You then drill down to the micro level and look at things like the local labour market, the availability of property, infrastructure, financial inducements and so on," says Spee.
Typically, a company will have a number of different possible destinations in mind, but it needs to narrow its search quickly and then analyse one or two in great detail - and this involves getting an on-the-ground feel, advises Spee. "You need to talk to governments, service providers and other companies who are already there in order to get a real understanding of the dynamics and what is likely to happen in the next couple of years, because things change all the time."
But once you get beyond the macro level, ensuring you can source the right sort of skills at the right price in your chosen destination is critically important - particularly if the strategic driver for the move was either to reduce costs or, specifically, to find a ready supply of particular skills. This applies whether you are moving a call centre from Australia to Bangalore or from London to Newcastle, and although it sounds obvious, companies often pay insufficient attention to it, says David Wilson, corporate services director at facilities management business Macro, part of the Mace Group.
"Several software companies that set up operations in Eastern Europe to get access to a low-cost and educated workforce saw large swathes of that workforce - which they had trained - go to Britain once countries such as Poland achieved full membership of the EU," says Wilson. You need to establish how you are going to attract and retain those staff - and a well-planned building can itself be a competitive differentiator.
What constitutes high-quality workspace differs from market to market, says Rick Bertasi, vice-president and general manager EMEA, Johnson Controls Global, which advises clients on the efficiency of their buildings. "You will have corporate standards, but you need your space to function differently in different locations, based on cultural expectations and cost," he explains. "For example, employees in Europe have greater requirements for natural light than their counterparts in the US, while personal space requirements are very different in Asia and Western Europe."
He cites the example of one company that suffered high levels of absenteeism in its new overseas office. "When they looked into it, they found that the design features on the walls were unsettling staff. Fortunately, it cost very little to fix, and once they had repainted the walls and introduced different lighting, productivity increased."
More generally, says Bertasi, making better use of space can both reduce costs and create happier, more productive employees. His organisation uses a tool called the Visual Lab to track in real time the extent to which space is being utilised. "You might find that only a maximum of 40% of your building is being used at any one time, so you could reduce the space, put the remaining space to better use and make it nicer, so increasing your cost per square foot, but reducing your overall cost."
Companies that use relocations to tailor space according to their employees' preferences find that productivity rises, claims Bertasi. "If you get it right, the rental considerations pale by comparison - but it is easier to measure rent than productivity of space, so most companies use rent as a benchmark. But poor use of space is a hidden cost and a very significant risk."
Rob Harris, managing director of Ramidus Consulting, points to the considerable scope for change management during a relocation exercise. "The upheaval implicit in a move can be an ideal opportunity to introduce new HR practices supported by investment in IT, in a way that would be much more difficult to achieve in a more stable environment," he says.
Flexible working is an obvious example. "Allowing staff to work in more flexible ways, which fit better with their family lives, makes them happier and more productive while allowing you to reduce your space," says Harris. "It's the kind of win-win that you wouldn't get just by doing a property deal."
In the traditional office layout, about 80% of space is devoted to desks and chairs, with a few cellular offices and a bit of meeting space thrown in. "A more opportunistic way of thinking about it is to reduce the space for desks, perhaps through the introduction of shared desks, and increase the amount of 'social' space - meeting rooms, break-out areas, cafes and a gym, for example. That encourages new levels of co-operation and communication among people, and forces them to work differently and socialise together."
Effecting such change requires close co-operation between IT, facilities management, property and HR. "Getting HR's input is critical because it requires consultation with staff and education on workplace behaviour," says Harris. It is important to win staff support for significant changes at an early stage, and don't be tempted to take away 'privileges' such as offices or desks without offering compensations - cubicles for private conversations, a gym, a restaurant and even a creche. Such facilities might spell the difference between valued employees staying with your organisation or leaving.
Another deal-breaker can be the length of time it takes staff to get to work in the morning - an important consideration if a business is relocating from a central to an out-of-town site. "It may sound trivial, but even having to take two buses instead of one can tip the balance for an employee," says Ron Adam, director of learning, Europe, at CoreNet Global, a corporate real estate adviser. Before its relocation, RBS negotiated with the local bus companies in Edinburgh to change some routes, so that staff could get to work more easily.
Canvassing the views of relocating staff about the kind of facilities they would like in new premises is critical. However, employees' two main gripes about where they work are not having somewhere to park and being either too hot or too cold - factors that militate against companies' efforts to use relocation as an opportunity to reduce their carbon footprint. "Cars and air conditioning are two of the biggest emitters of greenhouse gases, and European and global legislation is going to force a different approach," says David Forbes, corporate real estate adviser at Forbes Consulting.
By creating buildings in which windows are set back to create areas of shade and the opening of windows is controlled electronically, for example, companies can create more natural ways of keeping their premises at the right temperature, says Forbes. Similarly, encouraging and rewarding car-sharing and ensuring that the new location is well served by public transport can help reduce employees' dependence on cars.
These are among the practices that UK mobile operator 02, which recently announced its decision to consolidate a number of UK offices into a single campus at its existing headquarters near Slough, plans to introduce. Being able to draw electricity from Slough's power station, which runs on 95% renewable energy, was a factor in 02's decision to stay put. It wants its buildings to reflect its commitment to sustainable business practices. "The environmental statement it makes with its new building is very important to 02," says Forbes.
The availability of suitable real estate can be a real challenge for companies wanting to relocate, says Elias van Herwaarden, European service leader, global location and facility services, at Deloitte. "From Ireland to Poland to Malaysia, increasingly businesses want 'A-class' buildings - that is, those that are newly constructed in central or very accessible locations in major cities. If they can't get those, they move to 'B-class' refurbishments in secondary cities while they wait for the building in their ideal location to be ready."
Companies frequently get local developers and their banks to co-invest in the building they want to lease, but this approach is fraught with danger, warns van Herwaarden. "You need to look very carefully at the contract to make sure that you don't inadvertently agree to use that bank for all your transactions - as can happen." A safer approach is to work with a Western developer, or one that has a relationship with a Western developer, and where you need to use a local bank, check that it is financially stable. "From time to time, construction stops because the bank gets into trouble," he says.
And the less developed the market, the greater the challenges. Van Herwaarden describes China as "either a blessing or a curse", explaining: "There are special industrial zones, but you need to triple-check their status if you don't want to get locked in to the wrong situation, as some allow you only to export and others only to supply the domestic market." What's more, he continues, while some zones are managed very professionally, almost like mini chambers of commerce, others seem to regard themselves as merely purveyors of bricks and mortar or square metres.
In Russia, real estate costs are among the highest in Europe and "you need a lot of stamina to get through the paperwork". In India, although the bureaucracy means things take time to resolve, it is predictable "and more transparent than in Russia", where the opacity of the regulatory environment is a problem.
Most companies lease property these days, rather than buy, and sometimes developers offer inducements such as rent-free periods or a contribution to fit-out costs, though these may be subject to tax. Indeed, tax issues - or more specifically, tax incentives - have driven a number of corporate headquarters moves over the past four years, including the relocations of companies such as Procter & Gamble and Colgate-Palmolive to Geneva, which enjoys low rates of corporation tax. Luxembourg and the Netherlands have 'participation exemption regimes', which allow companies tax exemptions on capital gains and dividends from overseas subsidiaries.
"But you can't just put a brass plaque on the wall: you have to demonstrate that the central management and control of your business takes place in that location and that only day-to-day operational management takes place in the home country," says Peter Beckett, tax director at Ernst & Young Real Estate, Hospitality and Construction. He adds that moving to such locations for tax purposes is appropriate only for companies with large amounts of taxable profits.
In addition to tax incentives, most countries offer financial inducements. These differ by region and by industry; for example, the US offers genuine financial incentives, but in Europe such incentives are in reality subsidies - that is, governments attempt to improve regional weaknesses by attracting companies and then compensate them with subsidies. Spee explains: "Only the poorer regions in Europe can offer such subsidies; elsewhere, they would be judged to be 'illegal state aid'." Generally, he says, incentives should not be on the list of strategic drivers for a relocation - "though they could tip the balance in favour of one location or another at the end of the decision-making process".
Advisers say that senior-level involvement - typically, the CEO and finance director - is crucial to successful relocations, as is an individual and tailored approach. According to GVA's Heatley: "There are only two ways to do relocations: the right way and the wrong way."
SANTANDER GROUP CITY
In April 2004 the 6,500 employees of Spanish banking firm Santander Group began to move to a new global headquarters in Boadilla del Monte, 15km west of Madrid. Santander Group City covers 150 hectares - almost four times the size of the Vatican - and in addition to its nine office buildings, training centre and two data processing centres, it also contains the largest on-site company-funded nursery school in Europe, a gym, swimming pool, tennis courts, an 18-hole golf course, restaurants and shops, a hairdressing salon and medical facilities.
A series of mergers throughout the 1990s and early 2000s meant the group was spread across 23 separate office buildings in Madrid, a costly, inefficient and fractured working environment for a single profit-oriented bank. But in addition to the desire for greater efficiencies, the new building was designed to help forge a single corporate identity, introduce a more democratic culture, facilitate more flexible working practices and make a statement about the bank's professionalism and global ambitions.
It was also designed to take into account the personal as well as professional needs of the bank's staff, whose views were canvassed throughout the conception and reflected in the construction of the new campus. It includes many innovative design features, including windows that provide 68% more light and 34% less solar radiation than conventional windows, and a waste-disposal management and recycling system for the complex. Green spaces, which have been planted with trees and now attract indigenous animals, account for 80% of the site. A series of systems through shared use of photocopiers, printers and other equipment has drastically reduced consumption of water, power and paper.
The group invested more than EUR100 million in state-of-the-art technology and equipment, including a communications infrastructure with high-speed networks and multimedia capacity. It claims that employees are now more productive, and interact and communicate better. It also says that the considerable savings it has made by relocating to a central location include lower maintenance costs, lower rent and reduced time moving between offices.
Standard Chartered recently announced it was investing $800 million, comprising rental, renovation and relocation costs, in new office premises in the Marina Bay Financial Centre in Singapore. Irene Masterton, group head of strategy and planning for corporate real estate services at the bank, explains: "We have had a strong presence in Singapore for a long time, but we have a number of buildings scattered around the island and feel it is time to consolidate some of those in this important emerging business district."
Masterton and her team work alongside business and country managers to ensure that the group's property portfolio is aligned with and supports important business decisions. "We are constantly reviewing our key areas of growth, the countries we should be in to further that growth and the optimum property solutions to support that."
In trying to create the most conducive working environment for staff, it is important to be culturally aware, she says. "For example, we want to introduce wireless technology in our offices in London, but that wouldn't work in every market - nor, for that matter, would something that Western employees often take for granted, such as air conditioning. In some places in Africa, the energy it would take to support that would mean that all the lights in the local area would go off.
"We have our ideal design criteria, but try to implement them in a way that doesn't adversely affect the local economy. However, landlords, particularly in emerging markets, are very keen to include modern design features in their buildings, knowing that they are likely to reap a better return on investment from international-standard buildings."