Location, Location, Location

Factors to Consider When Deciding Where to Establish a New Laboratory

Companies have long located their R&D laboratories in accordance with two philosophies. The first is that of the central research laboratory at which scientists perform research in all areas of current or future interest to the company. The second is that of smaller, scattered labs located at production facilities. More recently, global companies have used a third approach, locating some R&D labs in or near major markets whose product needs and preferences differ significantly from those of the firm’s native country. Another approach gaining popularity is to locate laboratories in areas that are hot spots for specific technologies. This is most obviously the case in biotechnology, as pharmaceutical companies locate labs in stimulating intellectual environments for biotech such as Boston and San Diego.

The central laboratory

Large laboratories are often architectural statements representing the image of the laboratory operator (Photo 1). The central laboratory is often located in close proximity to company headquarters. Both large companies, such as DuPont (Photo 2) and Dow, and small firms have used this approach in choosing laboratory locations. Teamwork between researchers, design engineers and marketing staff is facilitated by this geographic proximity. ¹ This teamwork can reduce product development time and facilitate coordination of product or process development. This reduces development costs. In addition, frequent interaction between marketing and R&D personnel helps to ensure that products are well designed and meet important customer needs.

Having R&D centralized in a single facility makes it easier to justify, establish and maintain expensive services such as laboratory instrumentation, laboratory information management systems, and services such as machine and glassblowing shops. A large laboratory gives a company the critical mass to maintain a significant presence in the local scientific community through participation in the local ACS section and in other local science and engineering societies, as well as representation in local university outside speaker programs. This visibility can make it easier to hire scientists, technicians and summer interns locally.

A variant of this approach is to locate the laboratory and the plant on the same site. Doing so can reduce operating costs for the two facilities by combining utilities and other services. Also, the lab and the plant can share analytical services. Lab personnel are immediately available for plant trials or to test new manufacturing processes. Should plant operating problems arise, laboratory personnel are readily available to help solve them.

Smaller, scattered R&D labs

These labs are often located in or adjacent to company production facilities. The advantages are the same as for having central laboratories located on a production site. Modern telecommunications capabilities may be weakening the argument for this approach to choosing laboratory sites.

the argument for this approach to choosing laboratory sites. In today’s cost-conscious environment, companies purchasing businesses that include R&D operations may not wish to spend the funds required to relocate researchers and their equipment from their current location to a facility operated by the buyer. Often the former owner of the business will rent lab facilities to the buyer of the business. Such was the case at Goodyear’s Akron, Ohio laboratory when the firm sold its PET business to Shell Chemical. When Union Carbide purchased Shell Chemical’s U.S. polypropylene business, it leased space in Shell’s Westhollow Technology Center. The lease was acquired by Dow Chemical when the firm acquired Union Carbide. More recently, the purchasers of Shell’s resins, elastomers and specialty surfactants businesses leased the space used by the businesses they had acquired. A downside is that the hosting company may decide that the lab space is needed for its own requirements and may not renew a tenant’s lease.

Renting the laboratories used by the purchased business can have several advantages for the buyer. The first is avoiding problems associated with obtaining environmental emissions permits. A second is avoiding personnel relocation costs. A third is improved personnel retention after the purchase. Researchers are less likely to leave a new employer if relocation and the attendant disruption of their personal and family lives are not involved in the change of employment. A fourth is that laboratory services such as machine shops, glassblowing shops and analytical services may still be available to the tenant occupying space in a large laboratory. Making these arrangements when located in a separate, independent facility can be time consuming. Finally, while corporate secrecy must be maintained, exposure of researchers, particularly those hired after the sale, to corporate cultures different from those of their own employer can be healthy and lead to improved ways of doing things.

The last is also an advantage to the former owner of the business renting out laboratory space. Use of on-site services by tenants can also enable the laboratory owner to keep the level of total work done by these services at a level adequate to justify their existence. Sometimes this enables the laboratory owner to maintain analytical chemistry expertise that would otherwise be needed only occasionally. Most important, by keeping laboratories occupied and bringing in rental income, the laboratory owner is able to offset overhead costs for the firm’s own continuing R&D operations.

Smaller companies may set up a small lab in an existing building in an office park. This avoids the costs of constructing a new building. However, if the park does not contain other laboratories, emissions permitting may be a time-consuming and, for a small company, expensive issue.

Overseas laboratories

With many U.S. markets reaching saturation, locating production facilities in regions with rapidly growing markets, such as some Asian countries, makes sense for global chemical and pharmaceutical companies (Photo 3). There may also be labor cost advantages. As global firms locate production facilities in other countries to better penetrate their markets, the need to understand these markets and develop products tailored to them becomes increasingly important. Staffing laboratories located in other countries with their own nationals can facilitate this.

Research in many fields of science and technology has become internationally competitive. Accessing and understanding the most advanced research in other countries can be difficult without R&D bases in those countries.¹ Communication and understanding are also more difficult unless laboratory managers hire foreign nationals who speak the language and have a deep understanding of the culture.

With access to electronic communications and pushed by globalization, many employers of scientists have been building laboratories around the globe. Some firms with global operations, such as Procter & Gamble and Unilever, have long done this. For example, drug firm Bristol- Myers Squibb currently operates nine laboratories in five countries. Companies such as Exxon-Mobil, Royal Dutch Shell and Dow that have built world-scale production plants in Asia also have built new laboratories there.

Kuemmerle suggests that the optimal size for a new foreign R&D facility during the start-up phase is usually 30 to 40 employees.1 He suggests that the best size is about 235 employees, including support staff, when the laboratory is fully established. If the laboratory is too large, its culture can become too self-centered or too anonymous, resulting in researchers becoming isolated. However, many overseas laboratories are substantially larger than the limit recommended by Kuemmerle.

If the foreign R&D center is too small, the resulting lack of critical mass produces an environment in which there is little cross-fertilization of ideas among researchers. A small R&D site sometimes does not command as high a level of respect in the neighboring scientific community as does a large laboratory. As a result, researchers in small laboratories have a harder time gaining access to informal networks that provide opportunities for an exchange of knowledge. (One way to counter this problem is to have an active program of researchers publishing their results, attending local college and university outside speaker programs, and volunteering as speakers themselves.)

As a result of outsourcing, many pharmaceutical companies are funding R&D in biotechnology and combinatorial chemistry laboratories. The most common scenario is European pharmaceutical firms outsourcing such R&D to innovative U.S. firms.

With an increasing number of companies developing an international network of R&D laboratories, the task of coordinating R&D performed in far-flung laboratories becomes more complex. More R&D managers must become global coordinators instead of local administrators. An example of this is the technology manager position created by Shell Chemical during a company restructuring several years ago. A technology manager is responsible for R&D in a particular business and may supervise R&D that often takes place in different laboratories located around the globe.

Dale Holocek, former vice president, Technology Americas of Shell Chemical, notes, “Work is now being carried out by long-distance networks where building relationships, rapid learning and self- development are some of the core skills that will be needed to compete in the 21st century.”

Companies use a number of mechanisms to create a cohesive research community in spite of geographic distance. Hewlett-Packard regularly organizes an in-house science fair at which teams of researchers can present projects and prototypes to one another. Canon has a program that lets researchers request temporary transfers to other laboratories to broaden their skills.

As more pockets of scientific knowledge emerge worldwide and business competition in foreign markets mounts, the imperative to create global R&D networks will grow all the more pressing. Only research managers who embrace their role as global coordinators of R&D and managers of knowledge will be able to tap the full potential of their firm’s international laboratory network.

Locating labs in hot spots

Another trend is to locate laboratories in areas of intellectual ferment. The pharmaceutical and biotechnology industries are cases in point. For example, with its 275 biotechnology companies and major university medical schools, Boston has become a magnet for major pharmaceutical company laboratories. Indeed, acreage for large laboratory buildings is in increasingly short supply. As a result, some firms such as AstraZeneca are locating large laboratories in suburbs such as Waltham. Disadvantages of distance from major universities such as Harvard and Massachusetts Institute of Technology are balanced by reduced land costs and shorter, less time-consuming commutes by laboratory staff. Novartis used a different approach, renovating an old candy factory near Massachusetts Institute of Technology for its Novartis Institutes for BioMedical Research, due in part to the lack of availability of large tracts of land near MIT.

These hot spots are not limited to the U.S. With the lure of their universities, Cambridge and Oxford have become laboratory hot spots in the U.K. Since 2006, Suzhou Industrial Park, an hour from Shanghai, has become a major biotech R&D hub, mainly for start-up companies.²

Other aspects of laboratory location

Local factors such as land costs and construction costs can influence the choice of laboratory location. So can the willingness of governments to extend tax incentives to firms if they locate their laboratories in a certain area. For example, last August drug contract research firm Covance received tax incentives from Indiana’s Hancock County to create 315 new jobs at its Greenfield Laboratories. This will more than double the size of the laboratory staff.

Laboratories are no longer limited to the planet Earth. Laboratories on the International Space Station now orbit the planet (Photo 4). When it comes to laboratory locations, the sky’s the limit!

References

1. W. Kuemmerle, “Building Effective R&D Capabilities Abroad,” Harvard Business Review, March 1, 1997.

2. J-F. Tremblay, “A Fast Pace for Suzhou’s R&D Hub,” Chemical & Engineering News, Bristol-Myers Squibb, September 14, 2009. http://pubs.acs. org/isubscribe/journals/cen/87/i37/html/8737bus1.html.