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REALIZING THE GLOBAL ADVANTAGETalent – The Key to Optimizing Organizational SiteSelectionNovember 18, 2014 via Webcast
Presenters:
Dion GroenewegSue ReekieAndrzej Narkiewicz
Chaired by Phil Shirley
MERCER
SPEAKERS
Dion Groeneweg
PartnerWorkforce Planning LeaderGrowth Markets
Singapore
Sue Reekie
PrincipalManaging DirectorHong Kong
Hong Kong
Andrzej Narkiewicz
PrincipalSenior Workforce Strategy
ConsultantEuropac
Warsaw
Phil Shirley
PartnerM&A LeaderGreater China
Hong Kong
MERCER
Background to site selection and the importance of talent
A framework for addressing talent issues– Internal labor market analysis– External labor market analysis
Developing an Employee Value Proposition for your chosen location
Trends for site selection– Strategic rationale– Chosen locations
Q&A
Agenda
2November 18, 2014
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Section 1
Background and Framework
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Site location is a business issue and talent issues are critical
4
• Site location can be one of the largest financial decisions many companiesface.
• Site decisions often arise from some combination of growth / geographicexpansion, acquisition integration, recruiting difficulties, and those seekinglower costs.
• Labor supply, quality, and costs are often the largest and most variablefactor when looking at options to expand or (re)locate.
• Location decisions are clearly operating decisions – often involving the CFO,CHRO and staff specialists (e.g., corporate real estate, tax specialist, legal)
MERCER 518 November 2014
Defining client-specific criteria and weight is a key starting point of theSite Selection process.
30%
15%
14%
14%
8%7%
7%5%
Costs
Futurelabor
market
Laboravail-abilit
Labordemand
Hazardsrisk
Educa-tion
Economicincentives
Purchasingpower
Site
selectiondecisionExample only – Each location
decision will have differentfactors and weightings
MERCER 618 November 2014
Key elements of the site selection framework
BusinessRequirements
Expenses
Revenues
CapitalManagement
Profitability
NPV
Cost of capital
Assets
Financial
Labor costs
Labor availability
Infrastructure
Political and regulatory environment
Incentives
Risk profile
Economic development
Labor market
Business climate
Community
Labor quality
Quality of living
External factors
Risk analysis
Elements considered
Natural hazards
Currency riskBusiness interruption
Outputs
Financial outputsSummary of the financial impact of the
locations under consideration
External factors outputWeights external quantifiable factors
impacting location decision
Risk outputQuantification of the risk impact
based on the likelihood of the eventand the financial impact of the event
MERCER 718 November 2014
Building a site selection decision framework requires comparinglocations across a number of different dimensions
Labor cost
Labor availability
Infrastructure
Political and regulatory environment
Incentives
Risk profile
Economic development
Labor market
Business climate
Community
Labor quality
Quality of living
External selection criteria
Business requirements• Job (KSAs & experience)• Customer• Market• Operations• Organizational needs• Employee development• Joint venture partners
• Current operations• Existing organization• Expansion plans• Supervision / support• Suppliers / networks
Internal selection criteria
MERCER 8
Examples of the some of the types of data available
• Gross pay• Total pay growth rate – management,
technical / professional, clerical / technician,and operations occupations
• Gross employer payroll costs per employee• Employer costs after corporate tax credit• Occupation specific compensation and
benefits costs• Benefits prevalence and costs• Net employee pay after tax• Individual marginal tax rate• Labor law rigidity
• Labor supply – engineers, IT. and business /operations
• Unemployment rate• Immigration laws• Prevalence of part-time workers• Recruiting index• Job created / FDI
Labor Availability
• College enrollments, degreeprograms, university quality
• Number of local institutes of highereducation
• Percent English-speaking• Adult literacy rate• College degree holders and percent
with Bachelors degree• Annual patent applications and
number granted• Output per worker
• Office space costs• Office space vacancy rate• Transportation cost index• Utility cost index• Quality of public services and
transportation index• Commute times/distance• Infrastructure reliability
• Quality of living• Costs of living / purchasing power• Access to cultural institutions• Population and growth
Labor Costs
Infrastructure
• FX volatility• Average annual days lost• Likelihood of greater than 10%
property loss• Security risk• Political stability risk• Corruption index• Government effectiveness risk• Legal & regulatory risk• Macroeconomic risk• Foreign trade & payments risk• Tax policy risk• Labor market risk• Financial risk
• Incentives to employers• National GDP growth• Increases in national price level• Household income level• Maximum corporate marginal tax rate• National highways• National internet users• National telephone lines• National electricity consumption• Sector growth rates• GDP per capita• Country bond rating• Intellectual knowledge• Pension requirements
Business Climate
Risk profile
Labor Quality
Community
MERCER 9
QUALIFIED
NOT QUALIFIED
OFFER ACCEPTANCE
LABORDEMAND
EMPLOYMENTPROPOSITION
BRAND
LOSSES§ Joining other industries§ Entering different
profession§ Leaving the province/
country
EXITS§ Leaving profession
or industry§ Leaving area
§ Exiting workforce§ Retirement
POOL OF POTENTIALWORKERS EMPLOYEES
LOCATION
Labor Market Your own Talent Acquisition and Internal LaborMarket (ILM)
OVERALL LABORMARKET
§ Other provinces§ Other countries
NEW ENTRANTSEntering different
profession§ University
§ Other industries§ Other locations
Companies try to understand the external labor marketin order to better manage their Internal Labor Market
Promotions
338
1,001
2,093
650
273
195TotalEmployees
11.8%
13.3%
5.8%
16.%
12.0%
2.2%
2626
7878
117117
169169
3939
1313
1
18
23
34
7
Lateralmoves
MERCER 10
External Labor Outlook
1. Labor Supply ProjectionsThe number of workers available in the labor force
2. Labor Demand ProjectionsThe number of workers needed by the O&G industry
Pool of Workers
Graduatesfrom college
(adds to thelabor supply)
Retirements(subtracts fromthe labor supply)
Workers neededto
staff operations
Workerproductivity
gains(subtracts from the
workers needed)
Industrygrowth
(adds to theworkers needed)
3. Labor ForceGap ProjectionsThe differences between
the Labor Supply andDemand
MERCER 11
For this client, a number of alternative labor markets were examinedand ranked for labor market suitability
1 Quick quit rate represents the average turnover rate of those employees who quit within a year of hire for the period from 1999-2000.2 Market share is calculated using the 1999 sales as a percent of total sales in a Metropolitan Statistical Area.3 Overall ranking is derived from the weighted average of individual rankings (or scores) for each of the first seven factors (excluding marketshare), and adjusted to account for market share. The first seven factors are listed in order of their relative weight – or degree of importance –with the first factor having the largest relative weight.
City #1 City #2 City #3 City #4 City #5
Quick quit rate1
Unemployment rate
External demand
Labor expansion ratio
Labor consumption ratio
Labor depletion rate
Internal competition
Market share (branding)2
Overall ranking3
more favorable relatively more favorable moderate relatively less favorable less favorable
MERCER 12
Illustrative case study - framework applicationThis Mercer client used a similar decision-making framework to assess two locations for acentralized supply center, post-acquisition
Labor
Risk
Local business environment
National businessenvironment
Talent attraction / retention
NPV – economic impact
• Lower average compensation for medicaltechnicians in Anytown offsets greater labortalent availability in Cityplace
Decision Criteria Anytown
35%
Weight
5%
15%
n/a
15%
30%
Cityplace
Total Weight = 100%
Rationale
þ
þ
þ
þ
þ
72 64
• Hurricane/flood risk in Cityplace has higherprobability than fault line risk in Anytown
• More extensive communications and utilityinfrastructure in Cityplace offsets morecentralized location of Anytown
• Both markets in same country
• Higher satisfaction level evidenced by economicand population growth in Cityplace, combinedwith lower union participation and turnover
• Lower labor costs in Anytown comparablewith lower rent and utility costs in Cityplaceþ
Locating the supply center in Anytown wasthe favored based on this relative
attractiveness analysis
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Section 2
Site Specific Employee Value Proposition
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MERCER 14November 18, 2014
What is an Employee Value Proposition?
Attracting and engaging talent is critical to the success ofgreen field investments
Valueemployeegets back
Valueemployee
gives
A set of offerings or associations that characterise how an employerdifferentiates itself from its competitors; an equation by which employeesbalance their effort and return from the employer.
MERCER 15
Constructing an EVP
Define your targettalent pool &employeesegmentation.
Use the data
• External laboranalysis.
• Focus groups &interviews frompotential talentpools.
• Benchmark dataacross a range ofbenefits &offerings,comparing.
• Carry out aconjoint analysisto surface the keyinsights.
• Focus yourresources in theearly stages onthose employeeofferings which aremost valued.
• Use the informationto create anemployer brand thatcan be used in yourrecruitmentcampaigns.
.
Step 1 Step 2 Step 3
MERCER 16November 18, 2014
Develop ‘Insight’s – to help you prioritise your investment in employeeprograms
SatisfactionLower Higher
Importance scores on the horizontal line (middle of plot) represent average importance (Importance score=100).Satisfaction scores on the vertical line (middle of plot) represent 50% favorable responses.
Important StrengthsBiggest Opportunities
Career Opps
Choice of rewards
Benefits
Base pay
Work-life balance
Quality of leadership
Work environment
Challenging work
Quality of productsBrand reputation
Job mobilityFuture growth prospectsRetirement
Impo
rtan
ce
Higher
Lower
MERCER 17
Case study: European Financial Services Company
• A FTSE listed insurance company wascreating new roles across Asia and theMiddle East; to effectively attract andengage the right resources.
• With a very strong external brand andreputation in its domestic market aswell as other mature markets, thecompany aimed to better understandand develop a regional EVP that wasappropriate for markets in Asia.
• They were competing for talent in afiercely competitive market and withorganisations who had a muchstronger local market brand.
• Ultimately, the employee valueproposition would serve as the keystone for other people programs andpractices such as career managementand recruiting.
• Mercer was tasked with conductingEVP research that would help definea clear and compelling valueproposition to bolster future growth.
• We reviewed the company’s EVPfrom an internal and externalperspective along withrecommendations for how best tolocalise it;
• The data collection effort includedreview of external labour analysis,employee survey, focus groups,interviews(including from the localmarket talent pool), and benefitsreview to compare existing practiceswith the market.
• Based on the results, Mercerconducted a conjoint analysis andsurfaced key insights throughemployee segmentation.
Business Results“Standard Life Plc has an extremely strong brand in several markets. By carrying out this
research we uncovered ‘insights’ into what the external talent pool is looking for and adapt ourPeople strategies to provide this. It helped to inform how we recruited and retain the talent weneed to grow our business” Arlene Stokes, Head of People & Hong Kong Operations, Asia &
Emerging Markets, Standard Life Plc
• A number of issues were identified asa result of the study; in particular, thecompany needed to leverage keyfeatures like an open, collaborativeenvironment and work-life balance aspart of its EVP.
• Most surprisingly, employees placeda higher value on the ‘softer’ aspectsof the employment offering – beyondpay and benefits; this knowledge wasused to refine EVP message andbranding for both existing and futuretalent.
Business Challenge Approach Outcome
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Section 3
RECENT TRENDS
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1918 November 2014
Through Mercer’s project work, we know what is important to employersFrequency criteria appears in location decision making
Taken from 130 different site selectiondecisions across industries andgeographies
Labor related factors
18%
18%
22%
26%
29%
59%
95%
82%
58%
30%
29%
25%
23%
21%
15%
0% 20% 40% 60% 80% 100%
Industry experienceBusiness Climate
English language capabilityQuality of Living
Real EstateIncentives
InfrastructureRisks
Labor law flexibilityTurnover
Purchasing Power / Cost of LivingLabor demand
Labor Quality / EducationReduce costs
Labor availability
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MERCER 2018 November 2014
Country competitiveness for manufacturing
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Typical world locations for Shared-Services Centres
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Source: Globalisation Performance Study
MERCER 22
Why some countries are not popular
Source: GBS Globalization research, 2012
MERCER 2318 November 2014
Recent discussion topics
• 54% of large companies with Chinesemanufacturing operations say they are in theprocess of or are considering re-shoringsome production.
• Less than two years ago, only 37% ofrespondents answered similarly.
• Build where you sell is now integral tosupply chain strategies.
• While it’s likely the U.S. will be the primarybeneficiary of the trend, it’s not the onlycountry. In the U.K., for example, more than500 manufacturers and reported in late 2013that one in six had either brought someproduction back from overseas or hadbegun the process.
• In the rest of Western Europe the situation issimilar.
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Sample report piece – Selecting optimal country for a telecomengineering centre in Africa and Middle East
Costs COLQOL Migration Labour Competitors Education Safety Stability Attractiveness IT Travel Regulatory
FinalScore
Rank Weight 20% 8% 5% 10% 3% 3% 8% 8% 3% 15% 12% 5% 1001 South Africa 7 7 8 4 2 6 17 1 13 2 5 15 8.09822 UAE 24 4 1 7 1 7 2 6 2 1 4 4 8.84343 Egypt 4 12 23 2 3 17 12 5 14 5 6 14 8.87354 Pakistan 1 10 14 10 8 14 24 14 18 4 2 17 9.36345 Saudi Arabia 22 6 3 5 4 5 16 9 11 3 1 1 9.49426 Oman 12 2 7 20 11 8 4 7 1 10 12 3 9.9767 Qatar 23 1 4 12 19 4 1 4 6 12 10 7 10.52398 Kuwait 21 8 2 3 18 9 5 3 8 8 14 5 10.76619 Tunisia 5 5 20 17 9 2 9 12 15 13 13 16 11.014710 Jordan 11 14 5 6 16 3 10 17 3 11 11 11 11.217111 Bahrain 20 3 6 8 14 10 6 11 4 9 18 2 11.423412 Namibia 6 11 16 21 20 18 7 2 5 15 23 9 11.824813 Syria 3 9 9 16 21 12 8 22 17 21 9 21 12.313914 Morocco 18 15 24 19 5 11 11 15 19 6 8 20 12.546415 Iran 14 16 15 1 15 21 13 24 12 17 3 22 12.804316 Algeria 10 20 19 14 6 19 20 8 23 14 7 19 12.9044
17 Libya 8 13 10 11 10 22 3 18 7 22 20 24 12.970618 Lebanon 9 17 11 15 13 24 19 21 10 7 17 13 13.002719 Ethiopia 2 19 17 22 24 15 15 20 9 23 16 18 13.828120 Kenya 13 22 22 18 12 1 21 19 15 19 15 10 14.720921 Nigeria 17 24 13 9 7 13 23 16 22 18 19 8 15.119822 Tanzania 16 21 12 23 17 20 14 10 20 16 22 23 15.150823 Uganda 15 18 18 13 22 16 18 13 16 24 24 6 15.536724 Yemen 19 23 21 24 23 23 22 23 21 20 21 12 17.5448
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Sample report piece – Talent quality and availability
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Country Labour force('000)
Economically activepopulation projections
(as of 2020)
Unemploymentrate
Employmentin
manufacturing
Labourmarket risk
No. ofstudents
(tertiary level)
Combined primary,secondary andtertiary gross
enrolment ratio (%)
Availability ofscientist and
engineers
Algeria 13904,0 17813,3 0,1 846,7 71,0 682775,0 73,7 41,0Bahrain 358,0 423,9 0,1 50,0 43,0 19079,0 86,1 94,0Egypt 24044,0 31045,5 0,1 2229,7 43,0 2153865,0 76,9 47,0
Ethiopia 39804,0 60139,8 0,6 585,6 64,0 147954,0 42,1 122,0Iran 27829,0 36018,1 0,1 3632,0 46,0 1714433,0 72,8 n/a
Jordan 1686,0 2255,0 0,3 5,3 39,0 186189,0 78,1 39,0Kenya 17371,0 24821,2 0,4 0,0 71,0 98607,0 60,6 42,0Kuwait 1459,0 1731,2 0,0 58,9 54,0 333480,0 74,9 62,0
Lebanon 1482,0 1766,0 0,2 0,0 46,0 144050,0 84,6 n/aLibyan ArabJamahiriya 2268,0 2757,5 0,3 0,0 54,0 375028,0 94,1 44,0
Morocco 11360,0 13649,4 0,1 1142,0 64,0 335755,0 58,5 68,0Namibia 697,0 937,2 0,1 23,8 54,0 13536,0 64,7 132,0Nigeria 45298,0 65428,0 0,0 0,0 68,0 947538,0 56,2 36,0Oman 967,0 1316,7 0,2 13,9 36,0 9664,0 67,1 95,0
Pakistan 56709,0 83201,2 0,1 0,0 46,0 401056,0 40,0 89,0Qatar 511,0 619,1 0,0 40,0 46,0 7826,0 77,7 53,0
Saudi Arabia 8920,0 12050,7 0,3 505,1 54,0 525344,0 76,0 43,0South Africa 17702,0 19364,8 0,2 1737,0 57,0 675160,0 77,0 110,0
Syria 6390,0 8804,8 0,1 572,6 57,0 215734,0 64,8 40,0Tanzania 19956,0 28772,6 0,1 0,0 61,0 31049,0 50,4 104,0Tunisia 3752,0 4586,4 0,1 382,7 57,0 263414,0 76,3 10,0
UAE 2737,0 3506,0 0,0 195,0 46,0 68182,0 59,9 75,0Uganda 13500,0 21410,0 0,0 564,9 54,0 74090,0 63,0 77,0Yemen 5412,0 8608,5 0,4 135,5 64,0 173130,0 55,2 n/a
MERCER
Country ImportTaxes onvehicles
Corp andPersonalIncome Tax
Customsduties
Restrictionson Entry
LandOwnership
Repatriationof investment& profits
Rent andUtility
Free TradeZones
SaudiArabia
UAE
Egypt
Morocco
Regional Benchmark to attract autocompanies
Neutral Improvement Opportunity exists toattract auto companies
Sample report piece – Automotive plant locationIllustration of analysis on incentives and regulations systems acrosscountries (1/2)
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There are no “best practice” answer for employers– Answers right for one company can be wrong for another
Decisions must be based on more than just costs– Account for a variety of relevant distinguishing factors and criteria
Labour market situation is dynamic and can change faster than expected.– Be sure to have up-to-date information and most local information
Actions must fit the business model– Support short and long term objectivesQuality of information research
– Robust data & information research to get accurate information on localconditions (salaries, workforce availability, political context,…)
– Necessary to cross-check the conditions proposed by the countries withmarket research (risk of over-promising)
Key lessons learned from our experience of site selection projects
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MERCER 2818 November 2014
QUESTION & ANSWER SESSION
MERCER
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MERCER
CONTACT US
Dion Groeneweg
PartnerWorkforce Planning LeaderGrowth Markets
Singapore
Sue Reekie
PrincipalManaging DirectorHong Kong
Hong Kong
Andrzej Narkiewicz
PrincipalSenior Workforce Strategy
ConsultantEuropac
Warsaw
Phil Shirley
PartnerM&A LeaderGreater China
Hong Kong