When the world was first hit by Covid-19, the playbook of site selection decisions was ripped up. Companies planning investments had to suddenly freeze projects and focus on immediate concerns, such as the safety of their employees and maintenance of existing operations.
But now the world has adjusted to pandemic life, and with vaccines now being rolled out, optimism is tentatively returning to economic development professionals.
A survey released today by US-based trade association Site Selectors Guild (SSG), whose members advise corporations on their location strategies across the globe, reveals a marked improvement in the outlook for 2021.
An overwhelming majority (80%) of site selectors surveyed said they expect companies to move forward with site selection projects in 2021. The survey was conducted in the week of December 7 2020, and marks a significant improvement in the outlook since the first two iterations conducted in June (65%) and April (47%) last year.
“For the first time since March 2020, Guild members are sensing economic optimism,” said Jay Garner, SSG board chair and president of Garner Economics. “As companies grappled with everything from finding the right talent to restructuring their supply chain, we’re seeing an acceleration of site selection activity in 2021.”
Here is a summary of what SSG members expect for corporate location decisions in 2021, including a new hybrid approach for the site selection process.
1. Renewed site selection activity in 2021
While it has taken months for the corporate location decisions outlook to become rosier, the sectors expected to be the most active have remained consistent.
Life sciences, advanced manufacturing and logistics have maintained their top spots from 2020 as the hottest sectors going into the new year. Some two-thirds of respondents believe life sciences and biotech will be the most active sector, while 48% anticipated a rise in location decisions in advanced manufacturing. These sectors were followed by transportation and logistics (42%), food and beverage processing (40%) and software & IT (23%).
However, despite site selectors expecting a rebound of investor activity into the US, crucial sustainable investment into developing economies has taken a significant hit from the pandemic.
A recent report by the UN’s Conference on Trade and Development (Unctad) found that foreign greenfield investment into sectors related to the sustainable development goals (SDGs) is now 27% lower in developing economies than before 2015. SDG-related investment into developing economies is on course to fall by 40% compared with 2019, the report found.
2. Cautious FDI optimism
Some 43% of consultants surveyed expect that inbound FDI to the US will stabilise at the current levels of roughly $260bn per year, following recent stagnation of foreign investment into the US. Meanwhile, 40% of SSG members expect inbound FDI to increase in 2021, while 17% believe that FDI will continue to decrease.
According to data from the US Department of Commerce and SelectUSA, expenditures by foreign direct investors to acquire, establish or expand US businesses have declined by 43% over the past three years.
In terms of US direct investment abroad, 53% of site selector respondents expect that it will stabilise over the next three years, while 30% say it will rise and the remaining 17% expect it to decrease.
According to the survey, the region presenting the greatest opportunity for inbound investment to the US is Asia Pacific, with 65% of consultants expecting it to be a source of inward investment. Meanwhile, Continental Europe (62%) and the rest of North America (Canada and Mexico, 44%) were also cited as leading regions.
The greatest outbound market opportunities for consultants were said to be the Asia Pacific region (67%), Canada and Mexico (50%), followed by Continental Europe (40%).
3. Skilled labour shortages and remote working opportunities
SSG members have identified three key trends into how the pandemic has impacted the quality and availability of the US workforce. Shortages of skilled labour are expected to persist, particularly in US manufacturing that has seen renewed political interest during the pandemic.
They have also suggested that the need for more skilled workers in US manufacturing could lead to more reliance on technical and community college programs to upskill current workers.
Meanwhile, shifts towards remote working caused by the pandemic has opened up new pools of talent for service companies, such as those engaged in professional, scientific, financial and information services. The SSG members point to the fact that these employers can look beyond their local labour markets and consider workers from other parts of the country or even globally.
While offering an opportunity to employers, remote work has forced consultants “to deviate from their traditional models used to qualify and quantify” a location’s local labour force, according to the SSG survey.
Owing to the decline in service and hospitality industries caused by Covid-related restrictions and shifting consumer habits, the SSG members also highlight a temporary surplus of some entry-level or lower skilled talent. However, they expect the US labour market to tighten again once the economy recovers and continues to open.
4. Supply chain shakeup will continue
One of the biggest challenges for manufacturing operations highlighted by the SSG members related to supply chain distribution. The consultants expect reshoring and near-shoring of company operations to ramp up, “particularly in materials related to health and homeland security.”
A recent report published by the US-based Reshoring Initiative confirms this sentiment, forecasting that in 2020 more US jobs were created from reshoring than FDI for the first time in seven years. A separate survey of 750 North American manufacturing firms conducted in June 2020 found that 69% were ‘likely’ or ‘extremely likely’ to reshore overseas operations.
The surveyed site selectors more broadly expect regionalisation of supply chains to continue in 2021 as companies increase the localisation of their facilities to reduce the risk of disruption and minimise vulnerability to future shocks. Last-mile demand is expected to continue to be under the spotlight due to the rise of e-commerce during the pandemic, the survey found.
5. A new hybrid approach to the site selection process
As seen across many industries, site selection consultancies have had to embrace technology and remote forms of working during the pandemic. Some 95% of SSG members reported a transition to either an entirely virtual or hybrid process when selecting sites for corporate clients.
Virtual meetings and site tours have “saved companies and economic development organisation time and money” during the site selection process, the report said. However, consultants stressed that virtual meetings do not replace in-person visits to a location, adding that “boots on the ground are still critical to the site selection process.”
Rick Weddle, president and chief executive of the SSG, said that “so much has changed in the past year,” from the changing needs of companies to new practices in the site selection process itself.
“This latest survey gives us a glimpse of some of the key trends impacting corporate location decisions based on our members’ experience across a wide variety of industries, in the US and internationally,” he added.