A company looking for a foreign location site will probably make an international consultant its first port of call. “The reason is obvious,” says a spokesman for a large US industrial with overseas operations. “You want impartial advice from someone with a large international network and who speaks your language.”

Contrary to the popular perception, most large multinationals do not maintain an in-house team of location specialists. Companies such as IBM and some of the large car manufacturers, as well as a handful of highly internationally focused companies, find it worth the expense to put together a dedicated team of location specialists.

Specialised teams

In some instances, companies that may not want to use external help and have identified an overseas location will put together a specialised team to work on that project on a one-off basis. This will normally involve large projects, such as when Swedish electronics group Ericsson decided to set up a factory to supply India with switching equipment.

The company carried out the location search with its own team from Sweden, although it held talks with regional promotion agencies from several states with a view to obtaining the best incentives, before eventually settling on Rajasthan as the site for its factory.

The other alternative to using a consultancy, or an investment promotion agency (IPA) in a primary capacity, is through an acquisition or joint venture with a local firm. When Germany’s Bosch was seeking a site in Portugal for a gas heater plant, it decided to buy out its associate Vulcano and transform the local producer into the largest domestic gas heater factory in Europe.

Likewise, PepsiCo acquired a majority stake in Egyptian-owned Tasty Foods as a way of introducing international snack foods into the country. The US company eventually used its existing operation as a platform for building a second plant in Egypt.

Britain’s Cadbury Schweppes is a further example of a multinational that took the back door entrance into a foreign market, this time in Latin America. The company decided against going into Latin America with a greenfield operation, since this would mean a longer wait to realise a return on its investment. So it opted for an acquisition and acquired a majority stake in the Argentine family-run sugar confectionery business Productos Stani, using its franchise to take the Cadbury business into Argentina, and from there to the rest of the region.

The choice between using a consultant or an IPA will often vary by industry sector.

“In our experience, the matter is really not cast in stone and investors use a range of methods to gain information on the business climate,” says Joy Sasman, director of Namibia Investment Centre. “More than anything, we find that the decision to involve consultants depends on companies’ overall business culture and strategy. It also varies on a sector basis, with investors in the mining sector making more frequent use of consultants, mainly for assistance in the collection of seismic data.”

Australia’s Mount Burgess used consultants to collect data on diamond deposits in Namibia’s north-western Kunene region. Similarly, a South African company used consultants to investigate the size and quality of copper deposits at Haib in southern Namibia.

On the other hand, Anglo American used an in-house team for initial investigation into the viability of a zinc refinery. “We do, however, find that most investors contacting the Namibia Investment Centre do so directly, at senior level,” says Ms Sasman.

Cooperating with IPAs

Another popular misconception is that international consultants and IPAs are engaged in a cut-throat competition to secure business from investors. Both are chasing the same set of clients, so quite often it is the company doing things itself that tends to be the competition.

“We are not in competition with the IPA,” says Mark Hughes, lead advisor to Ernst & Young’s International Location Advisory Service. “In fact, the IPA is very much part of the process. However, there can be a distinction, as the IPA’s only job is to get the company to invest, while we provide the right objective advice.

“Our aims tend to converge once we are in an implementation mode as opposed to a pre-decision mode. For instance, they might use a real estate broker, but the project could be multi-disciplinary in scope, which would require the services of an organisation such as ours.”

Ernst & Young has deployed three core teams, in London, New York and Melbourne, to deal with clients in the world’s three key financial regions. In addition, there are country teams in place in “hot spots” such as India and China, as well as several European countries and US states. “The teams work with companies on the entire process, from what they want to do and why, to handing over the keys,” says Mr Hughes.

Christina Knuttson at Invest in Sweden agrees that there is no need for IPAs and consultants to be in competition with one another.

“We often recommend to our clients that they work with a consultant, in the same way that they will need a solicitor to draw up contracts and give legal advice, an auditor and so on,” she says.

“We are complimentary, and the closer they work with us the better their chances of having business referred to them.”

Pitching for business

A major problem consultants face is who to sell their services to when pitching for business. A lot of companies have property teams, but these may not be empowered to make investment decisions, so quite often the consultant will end up talking to the chief executive, finance director or management team leader.

James Hanford, head of real UK estate at IT company EDS of the US, says that his department normally gets involved in the early stages of planning for expansion. The company has a three-strong management team in the UK, as well as teams dotted around key countries and a global operation at its Texas headquarters.

“We nevertheless rely heavily on external suppliers, that could be IPAs or consultants, for specific services and advice, from legal advice to where to source office furniture,” he says.

Consultant KPMG says it can add a wide overview to a client’s specific problems and can work with them in various situations, not just in selecting a property.

“We work with clients either making a significant investment or when it is a deal-related decision, such as acquiring a business with overseas locations,” says Leslie Gunde, KPMG’s associate director strategic and commercial intelligence.

“We look at the implications of one location versus another, which influences the way a deal is structured, relative market attractions and different factors affecting success.” Mr Gunde says that the firm brings more awareness of market issues to the party than does an IPA.

Using embassies

Michael Dewick, head of international management development, South East England Development Agency (SEEDA), says that foreign companies will often deal with their embassy or consulate in Britain, or information transferred to Invest UK will be farmed out to regional agencies.

In 1999, SEEDA took the decision to deploy its own teams on the ground in North America, Europe and Japan. Some are full-time staff, while in other instances the agency will contract the services of a local company. “Our people make themselves known to the UK consulates abroad, and we also use relationships with legal firms, banks and the like,” says Mr Dewick.

Where the IPA tends to come into its own is in smaller markets where specialised knowledge and contacts are an asset in negotiating the minefield of bureaucracy. This can sometimes involve large projects, such as the $500m gold mining project set up in Greece by Canada’s TVX Gold Inc.

The company was advised on this project – the largest single foreign investment in Greece to date – by ELKE, the national investment promotion agency. A spokesman for the Canadian company said that ELKE did a lot to smooth the investment process, although he added that “government bureaucracy still has to be considered an obstacle and this can entail a considerable wait for permits”.

The message for companies is clear; making good investments involves using IPAs, consultants and internal resources as well.