Greenfield vs. location analysis: Strategic choices for business relocation and expansion

Imagine this: you’re gearing up to expand your business into a new market. But instead of excitement, there’s a looming sense of dread. The landscape is far from untouched — it’s a battlefield of regulations, economic turmoil, and logistical nightmares. This is the reality many companies face today. Raw materials are scarce; prices go through the roof when they are available. The labor force is shrinking as skilled workers abandon industries where wages can’t keep up with inflation. The harsh truth? Many businesses are no longer asking where to expand but rather where to relocate before it’s too late.

Enter greenfield or location analysis, which isn’t a strategy of opportunity but a lifeline. This isn’t about exploring untapped potential; it’s about survival. Traditional location analysis may tell you where the best opportunities lie, and greenfield analysis gives you a glimpse into what might be your only way out. The clock is ticking, and for many industries, especially manufacturing, the next step is not about growth — it’s about where you can still afford to operate. Let’s talk more about this below.

The global economic recession has led to rising raw material costs and significant logistical disruptions, making it increasingly challenging for companies to maintain operations. For instance, many semiconductor firms that rely on external manufacturing partners face severe supply chain constraints.

Skyrocketing material costs and component shortages compound these constraints, particularly in Europe, where several manufacturing plants are located. For example, Intel and STMicroelectronics, which operate plants in Europe, have highlighted the rising difficulty of securing raw materials at sustainable costs. Additionally, Infineon Technologies, which has multiple plants in Germany and Austria, has expressed concerns over the availability of critical components due to supply chain bottlenecks. What can this information tell you as a business owner?

Relocation has emerged as a critical strategy for manufacturers. The focus is no longer on expanding; it’s about survival. Companies are forced to reconsider which countries to operate in and which cities offer the most sustainable environments for their long-term goals. In many cases, businesses are opting for previously overlooked regions. For instance, South Africa, Vietnam, India, Indonesia, Brazil, and Mexico have become prime choices due to their abundant talent pools and comparatively lower costs.

These once-overlooked markets are now first-choice destinations for companies needing to cut costs and maximize talent availability. For example, electronics, fashion manufacturing, and automotive production industries are increasingly eyeing these countries as viable alternatives to traditional European or US hubs. So, what role can greenfield and location analysis play in your current and future decisions? Each approach offers unique benefits, but which one fits your business’s current needs?

Contrary to what it might sound like, greenfield analysis concerns something other than your favorite afternoon brew. It’s a strategy for evaluating opportunities to start from scratch in new markets. So, when the organization faces the challenge of selecting suitable locations for growth, development, or expansion, greenfield analysis is well suited. This critical decision hinges on labor costs, market demand, local talent availability, and long-term sustainability.

Wait, but I’m already doing location analysis, so what’s the difference? (you might say)

Well, these two essential approaches empower business leaders and HR professionals to make informed decisions about where to launch new operations, relocate, or invest resources.

Now, let’s explore what makes the new territory stand out. Initially, this term referred to the construction of infrastructure on underinvested land, but today, it has a broader meaning: access to new markets or regions without commercial activity.

Think of it like a blank canvas, an untouched space, or an empty page waiting for analysis. It’s a chance to present new concepts, reject preconceived notions, and adopt new decision-making flexibility. Greenfield analysis offers the opportunity to start from scratch and create something innovative and strategic.

The greenfield analysis concept is essential when looking for new places. This strategic point minimizes the distance between your new facility and customers, reducing travel time and costs.

It also finds the minimum seats to satisfy a specific service level requirement. In other words, you place a facility in the center of all your customers, but you make sure you can reach them all within a specified time, depending on your agreed service levels. This minimizes the number of facilities you will need.

Greenfield projects are crucial for companies aiming to:

Grow internationally. To completely personalize their operations without being constrained by current laws, businesses seeking to expand into new states or regions frequently choose greenfield strategies.

Adjust operations and infrastructure. Businesses can start from scratch to satisfy internal goals or market demands.

However, greenfield analysis does have its specific set of challenges. Building a company from scratch involves high capital investment and knowledge of the local legislation, with recognition of other risks involved in unfamiliar territory. In this respect, success depends on familiarity with the local environment and the labor supply.

Location analysis evaluates multiple locations based on key business metrics to identify the most suitable investment, operation, or expansion areas. Unlike greenfield analysis, which focuses on starting from scratch, location analysis evaluates new and existing sites to ensure optimal conditions for business success.

Key factors in location analysis

Location analysis is multifaceted and typically includes evaluating:

• Labor market supply and demand. One of the most critical aspects of location analysis is understanding the local labor market. This includes evaluating the availability of skilled professionals and the competition for talent in the area. Businesses need to determine if the local talent pool can meet their staffing needs and if there are enough qualified candidates for the specific roles they aim to fill. An in-depth understanding of current and projected supply and demand for skills helps businesses attract and retain the right employees, minimizing recruitment challenges.
• Labor costs. Regional wage variations and total labor costs, including social security and other employee-related expenses, can significantly impact a company’s financial health. By assessing these costs upfront, businesses can anticipate operational expenses in different regions and make decisions that align with their budgetary constraints. A detailed analysis of median salaries, tax implications, and the cost of living in various areas enables more accurate financial planning, helping companies to stay competitive without compromising on talent acquisition.
• Business environment. A favorable business environment is essential for smooth operations. This includes examining local regulations, tax policies, and the ease of setting up and running a business in the target location. Infrastructure, such as transportation networks, utilities, and technological connectivity, also plays a pivotal role. Understanding how these factors vary across regions allows businesses to identify potential challenges and opportunities, helping them avoid regulatory pitfalls and capitalize on regions with strong infrastructure support for their specific industry.
• Competitor benchmark. Analyzing the presence of competitors in a given area is key to understanding market saturation and potential opportunities. By assessing where competitors operate and their success, businesses can determine whether a location offers room for growth or presents too much risk due to high competition. Understanding the competitive framework also provides insights into differentiating offerings and assessing the likelihood of gaining market share.
• Educational infrastructure. The availability of educational institutions, particularly those with relevant programs, is a significant factor in workforce sustainability. Locations with strong universities and research centers tend to have better-developed talent pipelines, offering businesses access to well-trained, innovative employees. Assessing the local academic management helps businesses predict the long-term availability of talent and identify opportunities for partnerships with educational institutions to foster skill development that aligns with industry needs.

HRForecast location analysis solution provides a comprehensive package that addresses crucial factors such as labor availability, cost efficiencies, infrastructure, and business regulations. It enables business leaders to make well-informed decisions about where to establish or expand their operations.

IAV locations analysis case

When IAV GmbH, a leading automotive engineering company, needed to select a new location for expansion, they turned to HRForecast. HRForecast evaluated potential locations based on IAV’s specific criteria, including talent availability, cost structures, and competitor presence. As a result, IAV made a data-backed decision, ensuring their new site would meet current and future workforce demands while staying competitive in the market.

While greenfield analysis offers a fresh start in uncharted territories, not every company can afford to build from scratch. For businesses looking to optimize their existing resources, location analysis provides a more pragmatic approach. Let’s dive into how these two strategies compare.

Greenfield analysis and location analysis both serve as valuable strategies for business expansion, yet they still have distinct roles (after all, what are we all here for?):

• Greenfield analysis mainly evaluates opportunities to build operations from scratch, typically in regions where a company has no prior presence. This analysis involves assessing factors like real estate availability, regulatory environments, and long-term sustainability.
• Location analysis evaluates a broad spectrum of potential sites, not necessarily new or undeveloped ones, and compares them based on key metrics like labor costs, infrastructure, and talent supply. This analysis is about optimizing an existing business model to find the best geographic fit for specific business needs.

The relocation discussion continues after selecting a new country; the decision-making process is becoming increasingly granular. Relocation now hinges on much more than favorable wages or tax incentives. Businesses should consider land availability, local weather conditions, environmental regulations, and the political climate of their chosen region.

The growing importance of workforce capabilities is adding complexity to this decision-making process. For industries such as chemicals, electrical components, consumer goods, retail, and manufacturing, relocating to regions with a deep pool of skilled labor has become paramount. Governments are pushing hard for sustainable manufacturing, and compliance with environmental laws will only become stricter over time.

Greenfield analysis focuses on exploring untapped markets with minimal legacy constraints, making it ideal for companies looking to expand into new regions. This analysis emphasizes factors such as talent availability, labor costs, infrastructure, and the potential for scalability, enabling businesses to identify optimal locations that align with long-term workforce needs.

In contrast, location analytics provides companies with a comprehensive assessment of existing and new sites, ensuring that critical business metrics such as labor cost, talent availability, and infrastructure align with corporate goals. It’s essential for industries with increasing environmental constraints, such as fashion and automotive.

The relocation dilemma revolves around more than finding the perfect site. It’s about adapting talent strategies to the new reality. This is where the “build, buy, borrow” model comes into play. As companies rethink their talent pipelines, they should incorporate this model into their strategic workforce planning.

• Build. Develop internal talent through upskilling and retraining programs. For manufacturers, this means investing in existing employees to meet future demands, especially in regions with limited access to skilled labor.
• Buy. Sometimes, it’s necessary to recruit externally. Manufacturers can attract specialists from global talent pools, especially in advanced technology or sustainable manufacturing fields.
• Borrow. Short-term solutions, like hiring freelancers or using talent from other regions, can provide much-needed flexibility. This is particularly relevant for companies operating in expensive regions with prohibitive labor costs.

HRForecast’s smartPlan solution offers strategic workforce planning, enabling companies to assess the future impact of business drivers on workforce needs. This allows businesses to make informed decisions about building, buying, or borrowing talent, ensuring they remain agile in an unpredictable market.