Capacity Expansion in Developing Regions

Michael Verdier, P.E. and market leader of the Integrated Industrial Design segment at BHDP, discusses several critical strategies for capacity expansion in developing regions. Relying on personal experience as the program manager for the expansion of a greenfield manufacturing production facility in Nigeria, Verdier outlines many potential pitfalls and recommends solutions when working in areas like the Middle East, Africa, India and Southwest Asia.

capacity-expansion-nigeriaBuilding a new green?eld manufacturing facility or expanding an existing operation in a developing region like the Middle East, Africa, India or Southwest Asia presents unique challenges requiring robust execution strategies and long- term planning to ensure project success. Elements of achieving success include business and capacity master planning, site and facility master planning, pre-qualifying construction contractors and fostering collaborative relationships with local residents, community leaders and others during the project’s execution.

Unfortunately, these critical elements often are not documented and aligned in sufficient detail or are overlooked altogether, which can have a significant negative impact on the cost, schedule and quality of a manufacturing facility expansion project.

Robust Property and Infrastructure Search Criteria

Establishing the criteria for a property and infrastructure search is an essential pre-requisite to any greenfield project. This is even more vital when planning an investment to localize production or distribution in a developing region, due to the increased investment in travel (airfare, visas, vaccinations, etc.), professional resources (attorneys, surveyors, real estate brokers, etc.), interpreters and sometimes even security.

Elements of a successful property search and acquisition include:

  • Development of a documented and aligned business and capacity plan outlining your year-on-year strategic growth plan. The business and capacity plan should include near-, mid- and long-term incremental production volumes, production capacities, corresponding making/converting and packing line counts to support the stated volume growth across all product categories planned at your site through full build-out.
  • Creation of a documented full- build site and facility master plan based on the site’s business and capacity master plan. Ideally, the site and facility master plan defines the land area, optimal property geometry, property access requirements and placement and transportation needs including rail, highway and deep seaport.In 2009, I was appointed West Africa Program Manager to lead a greenfield manufacturing production expansion in Nigeria. The initial land search criteria called for 20 hectares of land but lacked critical supporting data such as an aligned full-build business plan, capacity master plan, site and facility master plan and utility requirements to deliver the business into the future. We briefly suspended the land search until these critical elements were properly defined, reviewed and aligned within the business unit. Because we did not compromise on the critical front-end planning effort, new land search criteria were defined, including the need to secure 40 instead of 20 hectares of land to meet the long-term business growth strategy.
  • Development of the (full-build) utility requirements necessary to deliver the capacity master plan. This step allows the land search team to quickly reject properties that don’t have existing reliable municipal utility supply or to aid in developing the delivery strategy and feasibility estimates when self-generation becomes necessary. Utility demand data is critical for confirming availability of utility services and validating reliability of supply, such as water yield, power, steam or natural gas.At this early stage, investigate and begin the contract negotiation process on municipal supply infrastructure and delivery rates. In addition, define expected lead times to delivery and the needed infrastructure improvements (domestic water, wastewater treatment or natural gas supply) to syncronize these with your planned start of production. Many of the sites we examined for the Nigeria facility had no municipal water supply. To even consider these sites further, we drilled wells and tested the water yield to determine if we could obtain a reliable yield for the volume of water needed for the facility.
  • In many areas of Nigeria power supply is unreliable, necessitating the need to self-generate power, or at a minimum, install back-up power generation to avoid unscheduled and costly production interruptions. Our solution was to build an on-site combined heat and gas power generation facility. This decision to self-generate power was made early in the planning phase of our project. The need and quantity of gas supply were known and became critical requirements in our land search criteria.
  • Identification of employee and family amenities and local infrastructure necessary to ensure the company can attract and retain talent to operate the facility. To accomplish this goal, having access to housing, schools, medical care, public transportation, recreation and shopping should be an essential part of a property search and selection criteria. Define these requirements in collaboration with a qualified country or regional human resources manager who knows what the personnel needs and issues will be and how to accommodate them.

Even when these needs are met, recruiting can be challenging in many developing countries. Providing safety, security and incentives for families who will live in a developing country also are key considerations as qualified personnel weigh risks versus career growth opportunities. If all of the details have not been carefully planned and integrated into your project recruiting strategy, the ability to attract and retain high-quality talent will be reduced.

Investing the time early in the planning stages of your project to define these critical elements and document them as part of your land search criteria will streamline the process. In addition, it will eliminate the possibility of investing valuable time and resources visiting, investigating and potentially investing in properties that will not meet your long-term business needs.

Construction Contractor Pre-Qualification Process

Regardless of project size or planned execution strategy, a rigorous construction contractor pre-qualification process is of paramount importance to ensure your project is delivered with quality, on time, on budget and with no safety incidents. In-person on the ground inspection and validation of a prospective construction company’s capabilities and capacity, including auditing active construction projects, are necessary to manage project risk.

Here are a few key points for pre- qualifying contractors:

  • Never rely solely on previous client endorsements. Your definition of success or expectations for safety and quality performance may far exceed those of others. ?
  • Create an up-front agreement with your purchasing department to invite only technically pre-qualified construction companies to submit bids and proposals. This approach eliminates the cost and productivity loss associated with evaluating bids from non-qualified companies and subsequent internal discussions to eliminate prospective companies whose only qualifications were that they submitted the lowest bids.
  • Establish detailed construction contractor selection criteria as part of your technical pre-qualification process. Each selection criterion should be weighted based on the importance it has on the success of your project. No two categories will be the same because every project is unique.
  • Use the construction pre-qualification meetings and interviews as opportunities to gain advance knowledge of possible construction execution strategies most suitable for your project location based on locally available skills and experience. Don’t assume that because your last successful project adopted an engineering, procurement and construction management or design-build delivery method that the same delivery method can be adopted in a developing region. Become knowledgeable about the local capabilities and define your delivery method accordingly.Your pre-qualification meetings provide an early indication of how successful a company may be at delivering your project. In developing regions or remote locations, a company’s ability to articulate something as fundamental as its strategy for ensuring all skilled craft personnel arrive to the site each day offers tremendous insight into its level of project and construction management capabilities.

These execution strategies can influence the cost of your project in other ways. There may be a need to establish a life camp for expatriate managers, superintendents and supervisors for the duration of the project given the remote location, commuting challenges or lack of local temporary housing. An on-site concrete batch plant may need to be built to ensure reliable quality concrete supply for the duration of your project. There may be a need to establish and maintain an on-site heavy construction equipment mechanical workshop for repairs.

Although the site selected to execute our manufacturing expansion was only 35 kilometers from Lagos, the second most populous city in Africa, the lack of modern infrastructure and deteriorating transportation services and roadways combined with stagnating traffic congestion frequently resulted in a three- to four-hour commute each way to the project site. Unless your construction contractor has a plan to ensure all construction and craft personnel arrive on site on time each day, your project schedule will be at risk and the probability of cost overruns increases.

Of equal importance is the ability of prospective construction companies to define their strategies for reliably supplying construction building materials and equipment. Here again, poor infrastructure in developing regions can pose unexpected supply chain challenges. Many of the companies I met with could not articulate how they would supply materials to the site. Often they could not state where or how heavy construction equipment would be sourced or their strategies for repair. These companies were immediately disqualified.

Visiting Active Construction Project

Visiting active construction project sites of prospective contractors is an essential step in the pre-qualification process. This offers tremendous insight into each company’s project and construction management capabilities and commitment to quality and safety. A key indicator of how well a construction project is managed is the overall housekeeping appearance on site. Poor housekeeping on a construction site often indicates lacking or non-existent safety and quality standards. It also suggests the supervisors and personnel have a lack of pride in the work they are performing. A deeper investigation into the overall project performance metrics may indicate that the project is over budget and behind schedule.

As part of our due diligence and pre-qualification process we penetrated the execution strategy details of these and other aspects of each prospective construction company. The company to which we ultimately awarded the project articulated in extensive detail its material supply chain, procurement, logistics and staffing execution strategies. It demonstrated its commitment to quality and safety on active projects visited. To address challenges specific to our project, this company constructed a life camp near the project site consisting of containerized housing, a cafeteria, diesel power generation and dining, recreation and laundry services. It also understood that many of the skilled craft and labor personnel would be contracted from local villages where water was scarce. The company constructed a shower facility so construction personnel could shower prior to returning to their families each evening.

Becoming knowledgeable about local construction practices, capabilities and limitations is an essential element of due diligence for any project executed in a developing region. Taking that knowledge and formulating it into a robust construction execution strategy combined with the skilled resources and infrastructure necessary to bring it to life may come at a premium versus projects executed in developed regions. It is imperative to define the right strategy and associated costs early and be willing to invest in the success of your project.

Appoint a Project Spokesperson

One of the most important steps at the project conception is to appoint a highly qualified external relations or public relations manager to your project team. Ideally, this person is a country national who understands the local culture and possesses the ability to speak the local language. Interaction with the local residents during a large capital project is inevitable, and it is crucial to be aware of and sensitive to how your project is perceived and how it may affect their lives and livelihoods. Demonstrating a sincere interest, sense of concern and respect for them contributes to the success of the project and the community while potentially avoiding unwanted conflicts, disruptions or delays during construction execution and start-up.

It is crucial for the project leader and external/public relations manager to define a community communication plan and to arrange time to meet with local leaders. This meeting allows for a discussion of non-confidential aspects of your planned project and in return provides a venue for local leaders to express their concerns. This conversation also offers insight in how to prepare for any public comment period that may be required as part of a construction, environmental, operational or occupancy permit application.

Sometimes, you may learn that local leaders view your project as an opportunity for training, skill development and job creation for young men and women in their community even during the construction phase. Including legitimate skill development and job opportunities for local community members as part of your construction execution strategy should be discussed and negotiated in advance with your appointed construction company leadership. Gaining their agreement to purchase consumable construction office supplies such as printer paper, restroom tissue and towels locally may be viewed as another legitimate win-win by the local community.

The importance of building collaborative relationships with people whose lives may be affected by your project cannot be understated. Another way to demonstrate trust, show sincerity and foster collaboration and cooperation during your project is to invite local leaders to planned formal ceremonies, such as the ground breaking, and recognize them at those events to show respect.

The significance and value of investing in relationship building with local leaders became very clear during the bulk earthwork phase of the Nigeria project. Early one morning the construction entrance to our site had been blocked by local residents using primitive means. Rather than using force or involving security and police which may have escalated an already tense situation, we elected to adopt a more gentle and diplomatic approach. We met directly with local leaders to understand their grievances and align on a mutually agreeable solution. The events of that morning easily could have turned into a significant conflict resulting in construction delays, increased costs, productivity losses and potentially lingering safety concerns. Instead, the issue was resolved in a few short hours due to the early investment in relationship building and maintaining open communication with local community leaders.

Strategic Planning, Due Diligence and Collaboration

Constructing a manufacturing facility in a developed region presents challenges and requires a significant investment in capital, time and resources. These challenges and investments are even greater when expanding your operations into developing regions. Establishing an aligned long-term business and capacity plan that forms the basis of your site and facility master plan and land search criteria minimizes these risks. When these critical steps are rushed, it can result in unnecessary and avoidable rework later in the project.

Of equal importance is gaining firsthand knowledge of local construction practices and capabilities through extensive due diligence and leveraging the knowledge gained to define your execution strategy and contractor selection criteria. Finally, investing the time early in your project to foster collaborative relationships with local leaders and community members enables you to swiftly address and resolve issues that arise during your project.

These are a few critical elements to consider when expanding in a developing region. When incorporated within your overall project execution strategy, they contribute significantly to your ability to deliver against defined cost, schedule, quality and safety goals as you bring your project to life.


Michael D. Verdier, P.E. is vice president and integrated industrial design market leader for BHDP. Established in 1937, BHDP designs environments that affect the key behaviors necessary to achieve strategic results for clients by thinking creatively, staying curious, fostering collaboration and delivering excellence. For more information, visit bhdp.com.

This article originally appeared in the September/October 2014 issues of Facilities Management Journal; republished with permission.

Photo Credit: Flickr user airpanther.