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 / Winter 2010 / Issue 61(originally published by Booz & Company)


Five Factors for Finding the Right Site

2. Capacity: availability of engineers and technical universities — or, put another way, the number of engineers in the region who have graduated from three- to four-year engineering programs in the previous 10 years. Capacity is of utmost importance when a company needs to scale up engineering centers in a short period of time and can use its in-house talent to develop these new employees. Many regions in developing nations that have stellar technical capacity are still relatively inexpensive (though not quite the lowest cost) because these areas, structured to mimic the wide-ranging ecosystem of Silicon Valley so they can attract multinationals, have a large and continuously expanding pool of potential applicants for engineering positions. For example, India’s Bangalore boasts more than two dozen technical colleges and hence was the perfect location for two highly touted multinational R&D centers that ramped up aggressively over just a couple of years: the Honeywell Technology Solutions Lab (now with more than 5,000 employees) and the Intel Indian Development Center (which has about 2,000 employees). Cities such as Bangalore, Chennai, and Hyderabad in India and Guangzhou in China often provide the perfect balance between cost and capacity.

3. Capability: presence of specific engineering skills and expertise that a company explicitly needs, as well as a sufficiently sophisticated work and operational environment. This category includes such desirable features as nearby R&D, design, testing, and prototyping centers established by foreign and local companies. Also valuable is reliable infrastructure: robust communication lines, sufficient power and energy supplies, and modern transportation systems. In addition, companies that seek high capability should look for the presence of innovation clusters — interconnected firms with skilled expertise for a given industry — targeted at their line of business. For example, Poland, Hungary, and the Czech Republic are known for their automotive design and engineering clusters, and India is dotted with software development clusters. Similarly, Ireland is fast becoming a haven for medical device companies because of its local technical expertise, and costs that are lower than those in the rest of western Europe. Companies that focus on capabilities typically plan to hire a small number of highly adept technical staffers in specialized fields and are not in a position to train a new group of engineers from scratch. U.S. auto supplier Delphi Automotive Systems LLC chose Poland as its engineering center for worldwide around-the-clock support and for designing high-performance shock and strut systems because the company wanted to stake a claim as a global leader in sophisticated auto supplies. Eastern Europe offered the following capability advantages: Its engineering skills and infrastructure are among the best in the world; many automakers and suppliers of advanced parts to the industry have already implemented advanced development technologies in facilities there; and its culture and intellectual property protections are closer to the U.S. model than those of, for instance, China or India.

4. Communications: ability to seamlessly share information between the new site and company headquarters without cultural and language obstacles. Engineering knowledge in most companies is tribal — that is, processes and methods are not documented. In addition, product engineering is often iterative, with multiple cycles among many functions, including design, development, testing, prototyping, and manufacturing. This makes regular two-way communication between a new engineering location and headquarters critical to ensuring successful integration of the site into the global network as well as critical to the ongoing operations. Compatibility of language thus plays an important role in the site selection process. In addition, the ability of engineers in the new facility to conduct business or technical tasks in the home-office language is necessary to ensure high productivity and fast turnaround.

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