Site Selection in India: A Case Study.

The logistics of site selection across national borders are much more complex than locating facilities domestically, and for this reason the task is often handled by a team of experts. Background The site selection process for Du Pont Co. differs for international and domestic sites. Domestically, the company controls the total process, with real estate section performing or coordinating the job. The procedures are quite formalized and structured. Only the real estate section has the authority to execute agreements pertaining to real estate. Internationally the company does business through myriad separate, independent subsidiaries. In most countries Du Pont has an office primarily for marketing and has a country manager. This impetus for an international site originates with a business need to have a particular product at a place to serve a local market, regional market, for worldwide export, or for a combination of reasons. The international site selection process deals with widely varying circumstances, so the procedures are less structured. In many cases, particularly in the Far East but also in Europe and Latin America, certain products can be produced only in designated areas of countries. In some countries, it is nearly impossible for nondomestic company to acquire property in its own name. Many times the only way to enter a foreign market is through a joint venture partnership.

International Site Selection Team When the list of potential sites has been narrowed to a few, a select group from Du Pont, the site selection team visits the sites to evaluate them and make recommendations. The team usually consists of the following persons with their particular interests: the real estate representative is interested in making sure that all the bases are covered by the team in evaluating the costs and methods for site procurement. The representative will also investigate possibilities for expatriate housing and any off site support requirements, such as warehousing and office space. The civil engineer is interested in soil stability, methods of construction, utilities, wind direction, environmental concerns, etc. The logistics expert evaluates the feasibility of getting raw materials to the site and finished products out. The manufacturing or operations representatives concentrates on the work force, work rules, quality of labor, and overall suitability of the location for the product. The team or subgroups visit plants operating in the area to gather information on the work force, local government, reliability of the electrical service, etc. they also visit the utility companies and local schools, which are of great interest to expatriates and their families. Back home, the site selection team presents its findings to a steering committee made up of management, legal, public affairs, and finance representatives. This

committee gives the site selection team guidance on corporate concerns and regarding who will have input into the final recommendation and start- up of the facility. Site Selection in India With over 700 million people, India can no longer be ignored as a market, for Du Ponts products. In this country, at least for the products Du Pont is interested in manufacturing, it is mandatory to have an Indian joint venture partner. Also, to manufacture a product in the country, the company must obtain a license from the government for a particular area, which limits the number of alternative sites. Du Pont gave its joint venture partner the task of evaluating general areas according to the following criteria: Proximity to market Proximity to port Raw material transport State government stability Cooperation expected of state government Ease of obtaining license clearance Industrial relations Labor costs Site costs The power situation Pollution clearance Financial incentives Proximity to infrastructure Proximity to Delhi, the capital of India and the location of headquarters offices of both Du Pont and its Indian partner. Locations with insurmountable obstacles, such as a general lack of acceptance of the chemical plant and state government instability, were excluded. The Indian state of Uttar Pradesh in the foothills of the Himalayas was chosen as a potential location. Even so, this site is located 1,700 kilometers (900 miles) from the nearest ocean port, with road access and driving conditions that are treacherous at many points along the way. Du Ponts joint-venture partner obtained the license for a manufacturing facility and located the 570- hectare (230- acre) site in Bhang Wan, population 200. This is near Pontseib, which happens to be the sixth most important Seikh shrine in India. Obtaining the license was a very long and arduous process. The site selection team was to determine if there were any fatal flaws that would preclude its use for the intended purpose. The critical issues were: We were dealing with a potentially hazardous raw material, isocyanate (also referred to as NDI in this article).

It would have to be transported 900 miles inland. Possible poor quality or lack of expatriate facilities. Unknown quality of the local work force. We needed to address local environmental concerns.

An adequate electrical supply is absolute necessary. Usually we like to have two separate sources of electricity, such as backup from on-site generators. The permitting process took about 2 years to get the required okays on the site we are discussing. To go after another site might have delayed plant start- up by another two years. The timing was also a factor because three other companies had already gotten licenses to produce the same product. The Raw materials: But the main issue for the site selection team had to do with our concern that the isocyanate would be a problem to the Indian government and the people of India after the chemical plant disaster in Bhopal. The isocyanate that would be used at this plant is not like the isocyanate involved in the Bhopal tragedy. Du Ponts isocyanate is a solid during shipment, the chemical would be transported in 40-foot refrigerated containers all the way from the manufacturer to the plant site. Du Ponts principal supplier of NDI is Dow in the United States. Alternatively, we could also get it from Bayer in Germany, which is already supplying a polymeric NDI, used by foam- product producers in India. When confronted with the Bhopal problem, the Indian government immediately banned all movement of NDI within the country, regardless of whether the chemical was the same one involved with Bhopal. And it took a month for the foam producers to convince the Indian government that the NDI that they use was entirely different from that which caused the Bhopal tragedy. Then they were able to resume their imports of it. The other raw material used at this plant present no real environmental problem. It would be put into tanks at Du Ponts Niagara Falls plant and moved to the Indian site. Part of the logistics problem of determining whether Du Pont could make this enterprise work in India has to do with who the NDI carriers would be, what Indian affiliates they have, and what connection they would have with this prospective site. The site selection team found that there were several transportation candidates with good Indian contacts or subsidiaries. Falling shipment from the United States, Du Pont had two alternatives from Europe.

Transportation: One of the factors in considering this site is the long lead time required to get the raw materials to the site from the production point. Shipment would require a certain number of days in the country of origin, plus time for an in- route port clearance. But in the case of India, the shipment process would also have a problem with monsoons.

The site selection team assumed that the raw material supply trucks would run only during daylight, making the journey to the site from the port a 6-day trip. The trucks carrying the NDI would come up through Bombay. In this region, the width of the road rapidly narrows from a maximum of 20 feet (6 meters) down to 10 feet (3 meters), and the course contains numerous sharp curves. That means that the truck with 40 foot containers in tow would probably have trouble getting around some of those curves. Although there has not been a specific commitment to Du Pont to improve the roads, we noticed that the Indian government was widening some of the roads p to the site. Our conclusion was that with the right logistical controls, such as driving only during the day and having people on board the trucks who were capable of making any repairs, the site could work. Other Site Selection Considerations: We considered the possibility of building a residential colony at the site. But it is remote and isolated and currently has no local amenities. Du Pont would have had to put in everything that the plants staff would have there. An hours drive from the plant over an adequate but heavily traveled road there is good family housing. This is the place where the British came to seek out cool weather in the hot season during colonial days. Two hours travel from the site within the city of Pontseib there is good family housing. There is apparently a lot of thievery, and so all Westerners living there hire guards. Grocery shopping in the city can be difficult for Westerners. There are specialty stores, you might call them, but they are in a crowded part of town, and they are extremely unsanitary to our way of looking at them. There is an excellent boys school in the city which goes to the secondary level. The city is the site of Indias version of West Point or Sandhurst for training of army personnel. On the down side, the big problem with this area is that it contains no major medical facility. Next, we will discus the quality of the work force. The plant site is located in Seikh country. One of the important Seikh temples is located very close to the site. And there are many Seikhs living in the local area. Seikhs are, of course, among the best of the work force in India. So the site selection team concluded that the labor pool was adequate and certainly trainable. There are people expert in mechanics from a large cement plant nearby. And there is a lot of light industry in the region. Plant safety is a real problem because Seikhs will not give up their turbans, particularly in this area which is characterized by a high level of religious enthusiasm. A safety hat will not fit over a turban. And the site selection team observed employees in local plants who needed hearing protection and hard-toe shoes according to our

standards, but these safety precautions were not the custom. We would have to impose these safety programs on plant staff. Regarding environmental factors, the plant would need to dispose of some liquid waste. A river flows right by this site. But the plant would generate a liquid waste that could not be discharged into that river, which is the local source for drinking water. Solid waste disposal did not appear to be a problem. But from a manufactures point of view, the dust generated by a nearby cement plant poses a problem. However, the engineers said that the dust was not an issue in light of the normal wind directions. We would need to drill wells on the site, and there was a question of groundwater allocation rights. But the site selection team concluded that the well would be okay if we got some local support. The final issue for the site selection team was the monsoon. In July and August, between 25 and 35 inches of rain fall in a single month. The site selection team visited the site in the non-monsoon season. The team visited the site again during the monsoon season. The Site Acquisition Process The site had already been designated for industrial use by the state government, so the site selection team did not have that hurdle to cross. Industrial sites in India can be acquired in two ways. First, the government can acquire it, akin to our laws of condemnation. This is, however, a very long process that must go through the courts and frequently results in bad feelings by the people since they may feel unfairly compensated and treated. The second way of acquiring an industrial site involves direct negotiation with the property owners. The 570-hectare (230-acre) property consisted of 100 individual parcels owned by members of 27 different families. We estimated that it would cost a million dollars, or $4,300 per acre, to purchase the land and another $100,000 to relocate the people living there. Their homes were grass huts. We were required to give the displaced families a small piece of land and for their scared cow on a section of the site away from the plant. We also agreed that the plants clinic would provide medical service to the community and that the plant would hire members of the displaced families. Du Pont did not have to hire all the people who have lived on the site. Generally, one person from each family would be hired. These people would be placed in jobs such as landscaping, grounds maintenance, and cleaning the plant-work appropriate for people who are not literate. Du Ponts joint-venture partner felt that the land purchase negotiations would take anywhere from 1 to 6 months but could take longer. Negotiations would generally be held with the head of the village and his counselors, who are not literate.

When the site selection team got back to the United States and we put our heads together and talked to management, we had many concerns. The general conclusion was that the site selection team found no fatal flaws in the site, and we recommended that Du Pont acquire it. Questions 1. What are the factors that influence an organization to select an international site? 2. Who are the people participated in site selection process? What are their responsibilities? 3. What are the information gathered by the team? 4. Why Du Pont had to have a joint- venture?