Business Sweden’s experts, Max Åvall and James Armstrong from our hub office in Chicago, answer the big questions about the importance of a local site in the Americas and the solutions for getting the site selection spot on.
The Americas have always been a strong expansion market for Swedish companies, but why is it beneficial to have a local establishment and has this need changed over the past few years?
The Americas as a whole, and even down to regional and state level offers access to a huge customer base and the US economy alone is over 36 times larger than Sweden’s. A local presence gives direct access to that vast customer base and is a key reason and driver for local presence. It also demonstrates commitment to clients, suppliers and the market. Proximity means your production, innovation, network and research is part of the local ecosystem.
Sales in the Americas account for about 24 percent of Swedish companies’ global sales and a local presence in the market is a becoming increasingly important for gaining market share.
The current renegotiating of trade agreements e.g. USCMA is creating uncertainties and a sense of urgency among Swedish companies, prompting a shift towards setting up local production facilities or assembly plants to avoid the tariffs and import duties and meet certain criteria set out by legislation in American and other countries in the region.
A decision to expand into the Americas with a local production site is a big step, what is the primary challenge facing Swedish companies once that strategic business decision has been made?
The big question is, where? The Americas is a huge region and trying to understand and assess the benefits, challenges and opportunities between countries and states and regions can be hard if you don’t have local knowledge, network and experience. Local processes and business culture differ not only from how things are done in Sweden, but across the Americas. That is often a big challenge for Swedish companies to overcome.
Second, there are hard factors that need to be understood. Local regulation, legal structures, taxes and localisation incentives varies greatly in countries and regions. If you’ve never had a presence in the region before, it would be hard to know, for example, what the initial licences you need or what state or region would be better for your business over another. Gut instincts are one thing, but it is hard to match with data-driven analysis. And this analysis is hard to do if you are geographically distant from the market. And third, there are practical challenges. Physical distance and time zone differences make qualitative analysis hard, but also not having an established network or understanding of the key stakeholders to talk to is a barrier to getting a real understanding of local variance. We have local offices throughout the region and our teams work closely together to support companies with a thorough analysis with boots on the ground.
There is no shortage of data in today’s world, but how does it help to define a site search, what kind of information will a data search provide?
Data is abundant, but you need to make sure that the data is clean, so you know you’re comparing apples with apples between different countries or regions. What we wouldn’t do is just compare land costs between the US and Mexico for example, we would assess what that means for the company’s bottom line.
But it’s important that we first work with companies to find out what their key drivers for profitability locally are. We workshop to understand if these are labour costs, energy costs, cost of raw materials or logistics. This means the data that we gather is tied to important factors for the company’s business case. We would generally limit this to about 10 data points with some information easier to gather and others more labour intensive with local interviews and stakeholder engagement.
But data is a powerful tool to quite quickly cut options. Early in the data analysis process, we can narrow the search down to two or three states that will best meet specific needs for your business type. Then we use a combination of subjective and qualitative factors.
What other factors are often over-looked by Swedish companies, either in the selection process, or in the next step of setting up production in a newly selected site?
When Swedish companies relocate to the Americas, the cultural fit of a location is not necessarily on their radar. But it is quite important. Companies know their business and management culture, and it’s important that a site reflects that. Are the values of the area and the local workforce in line with yours, will it be a good cultural fit? Getting this right is important and can only be done with frequent trips to the Americas during the site selection process. A location can look great on paper, but when you visit, you immediately discount it based on cultural fit. Meeting with local industry leaders, understanding what people will think of you as an employer or supply partner are all very important factors. We help Swedish companies get the cultural fit right by travelling with them to locations to get into the heart of the place.
Also, local incentive opportunities are quite complex. Some Swedish companies will think they are initially quite small, say 20 employees, but there may be a range of incentives that a region can offer that will help in the short- or long-term. These could relate to the type of work offered, often the kind of jobs are highly sought after and prioritised by a local authority. So underestimating incentives can be common mistake that Swedish companies make as it is quite different from the European model.