Sites for sore eyes

Many factors have to be considered when relocating or starting a business. Adrienne Margolis gives some pointers for navigating a way through the maze

Where is the best place in the UK to build up your business? A huge, some would say bewildering range of regional support is available from the Government. But companies do not seem to be tempted by grants and tax breaks alone. Surveys show that factors like the quality of the local labour force and transport links rate much higher in location decisions for the manufacturing and other sectors.

Relocation consultancy Omis has just produced its fifth annual survey of the best locations for business in the UK, on behalf of Bradford & Bingley Relocation Services. `Grants are largely ignored’, says Brian McDougall, principal consultant at Omis. `Relative to other factors, they rank very low. They are regarded as the icing on the cake.’

The survey sampled 47 industry and business sectors and looked at 100 locations around the country. Availability and quality of the workforce was ranked most important by just over half the respondents. Proximity to customers and markets came next, followed by transport costs and operating costs. Only 3% of replies said grant incentives were an important factor.

London was ranked top of all locations, followed by the West Midlands. Portsmouth and Aberdeen were ranked worst.

One in three of the companies in the survey expected to review their location over the next five years. `Most occupiers are just as conservative in their planning as they were five or even 25 years ago,’ McDougall says. He adds that grants and incentives have never been high on the list of decisive factors for most companies. Only 27% of those surveyed believed that local provision of grants or training funds in the area where they operate was adequate.

Despite these findings, property consultants say huge savings can be made if companies can find their way through the funding jungle.

`Occupiers tend to fall into two camps,’ Chris Noyes of Healey & Baker says. `There are those who are very much assistance driven, and go to a location where the most money is on offer. They are generally smaller companies, taking advantage of areas like enterprise zones.’ Other companies influenced by funding are major international inward investors, which are fiercely fought for by different UK regions.

`Because they are starting up new operations, such companies are looking at a substantial capital outlay,’ says Noyes. `If they can operate rate and rent free for say five years, this is a phenomenal saving.’

Companies can also make huge savings by moving a relatively short distance. Rolls-Royce recently set up a turbine manufacturing plant in Sherwood Park, close to junction 27 of the M1 in Nottinghamshire and only a few miles up the motorway from its main Derby site.

`The decision was based on availability of skilled staff, excellent infrastructure links and enterprise zone status, which means the company does not have to pay rates till 2006,’ Noyes says. This was topped up by a substantial rent-free period and tax relief on fit-out for the plant.

It took about nine months for the company to evaluate the options and reach a decision, but the final deal provided everything it wanted. `They won in every way,’ Noyes says.

All the experts agree that there is considerable confusion over what grants are available. The regions which qualify for EU funding are being redefined, while the responsibilities of the eight new Regional Development Authorities (RDAs) are still not clear.

Where can companies go for advice on the best industrial location? Among the large chartered surveying firms, Noyes is one of only two people who specialise in enterprise zones.

Another industrial location expert is Rupert Visick, assistant director of the Leeds office of Jones Lang La Salle. `Some incentives are useful,’ he says, `but most not massively so.’

A company is more likely to move 15 miles to be in the right area and retain the labour force than move 100 miles just for grants, Visick adds. `It is a question of the lifetime cost of the project. Manufacturers have to tool up for a long time, they have to make a decision based on time span. Incentives have to be substantial to make a difference.’

Some areas attract businesses because they have become `centres of excellence’. Even if operating costs are higher in places like Cambridge, Thames Valley or the Midlands, companies still want to locate there. Labour costs may be higher but all the grants in the world do not matter if the skills base is not right,’ says Visick.

Companies of all sizes come to Visick for advice but they tend to fall into two distinct categories. `A toolmaker from the Black Country may want a fireside chat, but is generally in tune with the business.’

Relocation problems are seldom solved by more research – smaller companies usually have a good idea of the issues involved, but need reassurance.

At the other end of the scale, large public companies use external experts so that they have back-up for the relocation decisions they take to their boards.

`They need extra advice because it is often difficult for them to step back,’ Visick says. Engineering companies in particular tend to have `no idea’ that they can take advantage of things such as capital allowances on industrial buildings.

`Typically such companies operate on a big site dating from the 1930s. They want to improve efficiency, and find that one way is to regenerate the site. For example, they can knock down old buildings, or sell buildings off in a finance and leaseback deal, providing a capital injection for the business.’

The influence of grants in sectors like car manufacturing is weakened by global competition, argue some experts. `The car market is so competitive it does not matter where companies are based,’ says Angus Mackintosh, director of European Research at consultancy Richard Ellis/St Quentin.

He argues that although in the short term multinationals may locate in the UK because of government subsidies, they have their pick of locations throughout the world. This is also true for large technology companies.

As one expert says: `Inward investment can go as fast as it comes. Samsung came into Europe to avoid import quotas. But when the bottom fell out of its market, it bailed out.’