Feel for the Future Steers Renewables Component Manufacturer Away from Costly Decision
A major component manufacturer was interested in building a new facility close to an expanding European market. Our consultants identified several acceptable locations that would reduce labor and transportation costs, then completed in-depth, on-site visits for the manufacturer’s preferred locations. The intelligence gathered, combined with industry knowledge regarding anticipated increase in component size, steered the manufacturer away from a port where logistics issues would have made the facility obsolete within a decade.
Experience, Insight Reveal the First Decision Isn’t Always the Best
A demand for significantly lowering the levelized cost of energy produced by wind turbines grew rapidly in Europe in the early to mid-2000s and with it the need for major wind component makers to think differently. One global manufacturing company decided to build a plant to serve the European market and meet increasing demand from one of its customers.
Ventoco consultants helped find the ideal location. More importantly, we helped the company avoid a problematic site which, with increases in turbine component sizes and lengths over time, ultimately would have become unworkable.
Seeking the Ideal Location for Expanding Market
The manufacturer’s customer was sourcing the parts from higher-cost areas in Europe. Meanwhile, the demand for newer, next-generation components required a new factory, and that meant identifying a location where, first, raw materials and a labor force would be available, and second, where the operating and labor costs plus shipping routes for the final produced components would improve total delivered cost to Northern Europe.
Our consultants reviewed multiple port locations in southeastern Europe and North Africa. One in particular stood out, meeting all the requirements for access to raw materials, shipping access, labor costs and availability and so on. Labor would have been especially advantageous, with costs approximately 80 percent lower than the existing factories in Europe at the time.
While everything looked great on paper, we decided to put boots on the ground.
Deep Dive Reveals Critical Issues
Our consultants traveled to several locations in the region to see for ourselves and to speak with people and manufacturing businesses face-to-face. One place stood out as an obvious choice, at first. In the course of multiple trips and our continued inquiries, we discovered three potential issues even for the best of the potential locations:
The port served a massive industrial park that primarily housed automotive and associated manufacturers. The supporting infrastructure – roads, rail service, loading equipment, etc. – was not designed to accommodate the substantial components we knew would soon be the industry standard the new plant would need to serve.
The nation’s political situation was such that already strict regulations and permitting requirements related to transporting products to port – times of day, sizes, etc. – could change at any time without notice or input from the manufacturer.
A relatively high inflationary rate in that particular part of the nation would result in real wages that would actually have doubled the labor and other costs over the lifetime of the investment.
What’s to Gain, What’s to Lose
Our due diligence made clear that the cost savings that seemed like a deal-maker would be obliterated and regulatory uncertainty would be a constant concern. Fortunately, we had continued to review other sites concurrently in other nations in the Mediterranean. We recommended an alternative that, while less attractive in terms of labor, offered better infrastructure that could handle growth and that minimized regulatory and logistics risks.
Pivot Keeps Company Ahead of the Game
The manufacturer sited its facility based on our recommendations, among others and met the growing European demand, and the facility remains in operation today. In addition, the site allowed for capability expansion to accommodate the larger components that did, in fact, become standard.
* Note – Due to nondisclosure agreements, we are unable to reveal this client’s identity.