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| Nice, but will it influence business loction decisions? |
Firstly: what exactly is 'Quality of Life'?
A definition always helps, so here's how Oxford Dictionaries defines 'quality of life':
'the standard of health, comfort or happiness experienced by an individual or group.'
A broad range of factors can influence quality of life, but those frequently cited include health care, education or child care provision; personal safety; housing costs; the 'social environment'; recreational or cultural amenities and even climate.
Quality of life is, as such, something that relates to the individual needs of the people who work for expanding or relocating businesses, not, directly at least, the internal needs of businesses themselves. The question is, therefore, 'to what extent are business location decisions influenced or determined by the needs and desires of the people who work for them?'
It's all about knowing your audience...
There's actually quite an extensive body of literature on this specific subject, and while different authors reach different conclusions, a few consistent themes stand out. As always, the key is 'knowing your audience', because quality of life factors are very important for some specific types of businesses and of secondary or minimal importance for others. Fortunately, the themes that emerge align very nicely with commercial sense, so here are some of the important ones, and why they make sense for investing businesses:Quality of Life can be a key location choice driver for 'knowledge-based' businesses
These are businesses whose major assets are the highly skilled people that work for them - for example in technology sectors or research and development functions.
This makes commercial sense because these workers are scarce, in high demand, and can therefore choose who to work for and where to live - they can have the job and the lifestyle they want. If businesses want them - to generate their profits - they have to listen to their needs and desires.
Quality of Life can be a key location choice driver for very 'footloose' businesses
'Footloose' businesses are those that are relatively unconstrained in their choice of location - for example they don't have to locate close to customer markets, suppliers, transport infrastructure or an existing, generally immobile workforce. Again this might apply to technology (e.g. internet) businesses with a young, highly skilled, mobile workforce.
This makes commercial sense because these business, and the workers within them, can demand an excellent quality of life without it being detrimental to the business (by imposing higher costs). It is, in fact, likely to be good for these companies, because quality of life benefits will help to attract and retain the best knowledge workers.
Quality of Life is generally more important for smaller businesses
Research* has shown that large companies typically focus on labour (e.g. cost and availability) and other cost factors more than quality of life factors. Meanwhile, quality of life is more important for smaller businesses.
This makes commercial sense because generally (major 'knowledge-based' operations notwithstanding) this large-company focus on costs corresponds with a focus on profitability. On the other hand, the owner-managers of small businesses have the freedom to prioritise quality of life factors even if this involves some compromise with regard to profit maximisation.
This theme is related to the observation that quality of life is a more important factor when the ultimate decision maker relocates with the business. This can and sometimes does apply to large businesses, but is far more likely to apply to small firms. And it's worth remembering that most regions want to target large companies that will employ large numbers of people and make a significant economic impact - rather than small 'lifestyle' businesses.
So how does this relate to the ways inward investment agencies typically present their 'quality of life' offers?
My basic observation would be this:A region's 'quality of life' offer should only be 'front and centre' of its proposition to investing businesses if it's targeting the types of business for which 'quality of life' is likely to be a key location choice driver. Otherwise, it should be addressed as a secondary factor, or as a factor that comes into play further along in the inward investment process (i.e. further down the 'inward investment marketing funnel').
But what we often find are agencies trying to attract businesses that are primarily driven by cost factors and local labour availability (e.g. industrial, distribution or call-centre operations) with a proposition that focuses strongly on their region's 'quality of life'.
The required remedy is, of course, for agencies to develop better understandings of the investor market segments they're targeting, and adjust accordingly how, where, when and to what extent they feature their 'quality of life' offers in their marketing.
Fortunately, all of this can all be summed very simply, using a great quote from one of the writers on this subject:
'using the concept of maximising profits may seem simplistic, but it works'**
Which, we think, really is the final word on the matter!
Author:
Nick Smillie
Clarity Business Strategies Ltd, 2015
*e.g. see LL Love (1999)
**JA Ritter (1990)
