Targeting Companies

While one may narrow the focus of an industry prospecting campaign by scanning entire INDUSTRY GROUPS, the marketer must be aware that many location factors vary according to the nature of the individual COMPANY itself. Industry-wide statistics may be very helpful in selecting target industry groups, but they may be downright dangerous in choosing companies. Marketers who ignore specific company traits may overlook a large part of their market.

In selecting target firms, by far the most important factor is the size of the firm. Very, very few companies in the small employment bracket are good prospects for buying substantial sites and buildings. Industrial production, buying power, and capacity to build large new facilities is concentrated to a degree far greater than most area executives realize.

There are several hundred thousand manufacturing firms in the United States. At first glance, the market for new office and industrial sites appears to be almost unlimited.

A closer look at the Census of Manufacturing reveals that fewer than 35,000 firms (those employing more than 99 workers each) make up about 11 percent of all manufacturing companies and account for 78 percent of capital expenditures.

Approximately 13,600 firms (those employing more than 249 workers each) make up about four percent of all manufacturing firms and account for 62 percent of capital expenditures.

The change over several decades has been only a few percentage points, and it is likely that the concentration will continue. A similar situation is found among service firms. According to the Census of Selected Service Industries, there are more than 1.5 million establishments in the United States, yet fewer than 13,000 had sales over $1 million and fewer than one percent would constitute significant prospects for major new facilities.

Other factors

Among the select firms, those of greatest interest are the ones which build many new plants. It is not enough to identify target companies. A key question is "How many projects do the target firms launch each year?"

Growth patterns: Some companies are large and financially strong, yet they are very poor candidates for locating new facilities in various regions. Some are no longer growing; others are inherently tied to specific locations where they extract materials. Some which have growth potential and mobility are remaining static because that is the owner's policy.

Most growing firms, however, move to larger and larger markets and establish facilities accordingly. One pattern often observed is that a firm gains strength in one regional market and then adds coverage one region at a time until national coverage is achieved. In a typical region, the company may begin with a part-time manufacturer's representative, progress to a regional salesman, a regional sales office, a warehouse and, finally, a manufacturing plant.

This pattern and sequence permit an astute marketer to examine the present location of a firm's offices and plants and make a good guess as to the likelihood of new facilities which might be planned for other regions.

It is a fact that multi-plant operators comprise the cream of the market.

Financial strategy: in analyzing target companies, it is also helpful to know something about their financial structure and strategy. Publicly-held companies, for example, must think somewhat differently from their counterparts; every undertaking must be considered from the viewpoint of regular earnings and effect on shareholder morale. Non-public companies may take a greater interest in speculative projects involving more risk and intermittent earnings.

Some companies are very conservative, preferring to wait to build new facilities until they can be funded from retained earnings. Others seek maximum leverage through borrowing. There are wide variations among firms with respect to attitudes toward government financing and special incentives, as revealed by a survey conducted by the Industrial Development Research Council.

Some firms buy sites 10 times as large as needed for a new facility and engage in "land banking" as a deliberate strategy. Others have a policy of buying no more land than is needed to satisfy building/site ratio criteria in the zoning ordinance. There are almost as many opinions on lease-versus-buy as there are companies.

Company differences also occur with regard to capital budgeting and timing of investments in new facilities. Some firms adapt their facility plans to short-term economic cycles, others to long-term. Some are more influenced by the facility decisions of competitors. There are many differences among companies in setting amortization periods for facilities.

A large number of companies pursue special strategies. One retail firm has for many years invested in a "source" program designed to stimulate location of new manufacturing facilities by their suppliers near their stores.

Scores of companies are involved in "twin plant" programs wherein one plant in a country having low-cost labor makes sub-assemblies for a U.S. plant. While these sprang up originally along the Mexican border, such plans now involve units in such locations as Malaysia and Taiwan.

The marketer is also faced with company differences in regard to many other location criteria. Some firms do not wish to be the largest employer in a community; others may specify that they do not wish to employ more than, say, 25 percent of the labor force.

Other companies will not locate in states which do not have a Right-to-Work law or in a community where it is not practical to operate a non-union shop. Some firms deliberately seek to locate in depressed areas where there are special incentives; others avoid such areas. The same split applies to urban development sites.

Looking at other facets, one easily notes wide divergence in the directions taken by different companies. Some are eager to participate in mergers and acquisitions and have a deliberate program for conglomeration. Others elect to divest.

Still other companies mix product lines and become conglomerates. Others expand around the world and become transnationals. In fact, it is probably safe to say that no two large corporations have the same growth policy!

EDP applications: Some Site Selection consultants do a brisk business in selling area/company match-ups obtained via computer sort. Given a program which permits plugging in certain area characteristics, a print-out of companies which appear to match can be readily produced. This is feasible to the extent that the matching procedure is feasible. The user should be alert, however, to the possibility that the canned computer program may be of little aid in identifying significant segments of the market, such as:

• New ventures, even though they may be a joint venture of two large, well-known firms.
• Conglomerate programs or diversification moves which cut across SIC lines.
• Firms growing very rapidly called "pop-up" targets.
• Many foreign investors who deal through international banks, third-nation entities, blind trusts and other devices.

It is very difficult to obtain some of the data needed to pick specific target companies from among large groups. Cost data is particularly difficult to find. Area development executives who have some years of experience usually have managed to accumulate bits and pieces of data for a basic list of companies. Their task is to add more firms to the file and develop more sophisticated data on all entries.

For the new executive launching a new program, the task is more formidable. The typical marketer may, over a period of time, collect a substantial number of good company names using these various targeting methods.

However, no matter how good a list of companies he may have, the marketer still needs to know the name of the person to contact in those firms!