Principles and steps for selecting location to implement investment projects in Vietnam

Selecting location is one of strategic importance. Location has a lasting impact on the operations and benefits of businesses, and also has a lasting impact on surrounding residents. Location is the factor that has the biggest impact on the fixed and variable costs of the product, as well as the convenience of business operations and transactions. According to experience, selecting a suitable location can reduce product costs by more than 10%. If the location is not good, it will cause many disadvantages from the beginning and will be very difficult to overcome. Find out with OTIS LAWYERS in the article below!

Principles of location selection

When researching and selecting location, the following principles should be followed:

– Select the location area, then select the specific location.

– When choosing a location, technical standards are always considered first, then economic standards because economic optimization can only be achieved if technical standards allow.

– The selected location must be consistent with the general planning, ensure security, and not cause environmental pollution.

– The natural environment of the location is consistent with the project's requirements.

– The selected location should have an area large enough to easily arrange the project's production and service facilities and easily expand the project later.

– When selecting a location, it is necessary to ensure that the reserves of natural resources serving the operation of the project are adequate in quantity and quality.

– The location should be near the source of raw materials or the market consuming the project's products, or near the source of labor.

– The selected location should have favorable infrastructure, especially electricity, water, transportation, communication...

– The location should have favorable conditions for cooperation with production facilities in the region, while ensuring competitive advantage with businesses of the same type.

– Must consider the economics of the location.

– There should be many location options to choose the optimal option. When comparing location options, depending on the characteristics of each project, the following comparison methods can be applied: the method of using a general economic indicator, the method of finding key points... or applying transportation problem when choosing a location for a project.

Above are the principles for selecting locations for production projects. When referring to non-production projects such as hotels, hospitals, schools, cultural houses, tourist areas..., in addition to economic standards, special attention must also be paid to the conditions. in terms of convenience for the person being served and the quality of service provided by the location.

Steps to selecting a location

For large and medium-sized projects, it is usually carried out in 2 steps:

– Select location area

– Select a specific location

The location area is considered on a wide scale: province, city, district, district.

Specific locations are considered on a narrower scale: house numbers, streets, wards and communes corresponding to specific geographical coordinates.

The two steps of location selection include the following tasks:

Select location area

When considering selecting a project location, it is essentially considering the geographical, natural, economic, social, technical aspects... related to operation and performance. later on in the project. Specific issues that need to be considered in each aspect include:

– Socio-economic policies in the project's operating area, especially investment incentive policies and related financial policies. Main policies on distribution of industries and production facilities to avoid environmental pollution and economic development in ethnic areas.

– The influence of location on convenience and costs in providing raw materials and consuming products.

For different projects, location requirements are different.

– Resource exploitation and processing projects must be carried out where those resources are located. This will make product prices low because of low transportation costs (such as limestone exploitation and cement production, wood and bamboo exploitation and paper production, seafood exploitation and processing, and fresh vegetables, meat, poultry)

– Projects using imported materials should be located near border gates and ports.

– Projects that produce products with high transportation costs (including loss during transportation) should be located near the consumer market (projects that grow and supply fresh fruits and vegetables are located near the consumer market). densely populated places, near processing factories. Projects producing construction materials that are bulky and fragile when transported should be located near places with large construction needs.)

Thus, the project can choose a location near the consumer market or near the source of raw materials. However, some types of projects can choose locations in the middle of raw material supply areas and product consumption markets, such as the production of petroleum products, consumer goods, and high-tech products ( machine parts, electronic components)

In addition to the issues mentioned above, special attention should be paid to traffic issues related to the supply of raw materials and consumption of project products. For maritime traffic, it is necessary to clarify details about port facilities, depth, loading and unloading capacity, size of ship to be used, reserve facilities and costs. For road traffic, it is necessary to clarify the width of the road and bridge, the clearance and load capacity of the bridge, the quality condition of the road, traffic regulations and costs. If new bridges or roads must be built, the construction plan and investment cost estimates must be considered. For rail transport, it is necessary to consider the ability to transport goods, loading and unloading facilities, storage and any seasonal obstacles, transport costs from the main station to the station closest to the factory. For river traffic, you need to know the width and depth of canals and rivers, the capacity of barges and boats to use... transportation costs.

Socio-economic environment of the location area

The socio-economic environment includes many issues related to the operation of the project such as:

– Regarding labor, it is best to recruit general workers and specialized or professionally trained workers from the local population. This will reduce costs and create many advantages for future project operations.

– About the level of local socio-economic development, laws, customs and security issues. The local socio-economic administrative management organization will greatly affect the advantages or obstacles to the operation of the project.

– Terrain and climate conditions will affect the longevity and continuous operation of the project. For example, the stability of geological conditions (volcanoes, earthquakes), weather and climate (rain, sunshine, storms, floods, humidity, temperature...)

Select a specific location

A specific location is a specific geographical location to build a project. At the step of choosing a specific location, we need to solve the following issues:

– At the proposed location, is the site large enough for the project to operate smoothly and expand operations when necessary 5-15 years later?

– What is the current situation of environmental pollution and the ability to treat waste to prevent environmental pollution in the future?

– How appropriate is the infrastructure (electricity, water, transportation, communication, etc.)? Is additional investment required? Is the level of investment acceptable?

– What are the natural conditions of the location? This is a very important issue because it directly affects the investment costs for construction. Investigation of natural conditions includes topographic measurements, geological drilling surveys, and hydrological calculations.

Geological surveys and drilling give us a clear understanding of the stratigraphic structure, physical and chemical properties of soil and water in the soil. From there, we can solve the problems of the building's foundation and foundation, choose structural solutions and calculate the construction cost of the underground part as well as the above-ground part of the project.

During the investigation of natural conditions, when necessary, it may be necessary to further investigate meteorology: rain, sun, wind, temperature, humidity... that affect the process of organizing construction, organizing production, distributing and preserving products...

It should be noted that in the process of choosing a specific location, depending on the nature of each project, the scale of the topographic map will be determined. Based on the topographic map, the drafter lays out the construction limits, then works with the planning department, applies for a planning certificate and must receive satisfaction and permission from the local government.

After selecting location to build the project, a detailed description of the location must be made on a map with an appropriate scale with the necessary information:

– Location description: geographical coordinates or administrative area of the location. Boundaries, relationship of the location with the general planning, relationship of the location with the raw material area and the project's market (this part is often depicted on the map).

– Specific location description:

• Location map and overall ground status map (attached appendix);
• The figures describe the boundary area;
• Natural environment of the location: including data on geotechnical survey...
• Infrastructure: current status of the location's infrastructure system such as roads, wharves, electricity, water, drainage, communications...
• How does the social environment: population, customs, public services, etc. affect or facilitate the project construction and operation process?

– Location costs

• Compensation: calculate the amount of compensation and movement that needs to be done to clear the site, including houses, production facilities, graves, trees, crops... indicate the volume, unit price, amount each item and total compensation cost;
• Ground leveling fee: volume, unit price and amount; Finally, there is the total cost of leveling the site;
• If renting premises: need to clearly state the area, unit price, amount, and rental term;
• If purchased: actual cost;
• If land is granted by the state: calculate the value of land use rights (or water surface).

- Other contain:

• Advantages and disadvantages for the project when choosing this location, compared with a few other possible projects;
• The effects of the project on economic, cultural and residential establishments in the area…

For any questions or comments, please contact:

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