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

Dion.Groeneweg@mercer.com

Singapore

Sue Reekie

PrincipalManaging DirectorHong Kong

Sue.reekie@mercer.com

Hong Kong

Andrzej Narkiewicz

PrincipalSenior Workforce Strategy

ConsultantEuropac

Andrzej.narkiewicz@mercer.com

Warsaw

Phil Shirley

PartnerM&A LeaderGreater China

Phil.Shirley@mercer.com

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

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Section 1

Background and Framework

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Site location is a business issue and talent issues are critical

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• 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

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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

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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

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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

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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

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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

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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

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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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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.

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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

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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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Country competitiveness for manufacturing

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Typical world locations for Shared-Services Centres

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Source: Globalisation Performance Study

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Why some countries are not popular

Source: GBS Globalization research, 2012

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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

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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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QUESTION & ANSWER SESSION

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CONTACT US

Dion Groeneweg

PartnerWorkforce Planning LeaderGrowth Markets

Dion.Groeneweg@mercer.com

Singapore

Sue Reekie

PrincipalManaging DirectorHong Kong

Sue.reekie@mercer.com

Hong Kong

Andrzej Narkiewicz

PrincipalSenior Workforce Strategy

ConsultantEuropac

Andrzej.narkiewicz@mercer.com

Warsaw

Phil Shirley

PartnerM&A LeaderGreater China

Phil.Shirley@mercer.com

Hong Kong