During the 1992 U.S. presidential election, H. Ross Perot made the famous quote about the “giant sucking sound” of jobs leaving the U.S. for cheaper labor markets like Mexico. Now the “giant sucking sound” is coming out of California where companies are struggling with multiple challenges including wage inflation, cost of living, business climate and labor laws within California. As a result, many California based companies have either relocated out of the state or shifted their growth to other geographies using site selection strategies. To help evaluate this site selection trend, Site Selection Group has identified some of the recent major corporate relocations and the states which are benefiting from this corporate exodus.
What are site selection drivers that companies should consider?
Site selection drivers to consider when deciding to relocate or stay in an area include items such as labor availability, labor cost, logistics, business climate, operating costs, labor laws, economic incentives and real estate. Companies will typically weight these site selection factors differently based on the specific project type. Each kind of project is unique so the criteria will greatly differ for projects such as a headquarters, software engineering, manufacturing plant, distribution center, call center or a shared service center.
To help evaluate these location factors, many companies will try to do it internally with representation from their various departments including the business unit(s), human resources, tax, real estate and the c-suite. Other companies will opt to outsource the process to site selection consultants who typically have access to better site selection data, more complex analytical models, market intelligence and the ability to help secure real estate and economic incentives.
What are the some of the challenges of doing business in California?
There are many positive and negative reasons to do or not to do business in California that need to be carefully considered by companies before making a location decision. Probably the most positive reason to be in California is the depth of the labor market specifically in the STEM sector. California possesses one of the largest talent pools of highly qualified STEM employees and educational institutions outputting STEM graduates. From the life science sector in Southern California to the tech industry in Northern California, California offers some the best and brightest talent in the world.
Conversely, there are also negative attributes that have forced many companies to look elsewhere. The negative factors include extremely high labor costs, employer unfriendly labor laws, high cost of living, excessive personal and corporate taxes, lack of economic incentives and very high real estate costs. There are also other challenges such as the time zone difference and the difficulty in accessing the East Coast. Overall, it has simply become extremely challenging to operate efficiently in California for a lot of companies.
The top 30 states that people relocated to from California
Census Bureau (American Community Survey) tracks population migration from one state to another. The following table identifies which states had the largest migration from California. Arizona, Washington, Oregon and Nevada make a lot of sense due to their proximity to California. However, states like Texas, Florida and North Carolina illustrate the distance that people are relocating which is often for a new job, corporate relocation or retirement.
|Rank||State||Population Migrating from California in 2017|
Which companies have left California?
The Dallas Business Journal recently released a list of companies that have relocated from Northern California to other cities. The following table summarize where these companies relocated their headquarters or established a satellite office.
Recent Corporate Relocations from Northern California
|Company||Bay Area HQ||New HQ Location||Satellite Office Location|
|AJ+||San Francisco||Washington, D.C.|
|Automattic||San Francisco||Work from home|
|Bare Escentuals||San Francisco||New York, New York|
|Bechtel||San Francisco||Reston, Virginia|
|Charles Schwab||San Francisco||New or expanded offices in Denver, Dallas and El Paso|
|Core-Mark||San Francisco||Dallas, Texas|
|Depomed Inc.||Newark||Lake Forest, Illinois|
|Earnest||San Francisco||Salt Lake City, Utah|
|Houzz||Palo Alto||Tempe, Arizona|
|Jamba Juice||Emeryville||Dallas, Texas|
|Lyft||San Francisco||Nashville, Tennessee|
|McKesson||San Francisco||Dallas, Texas|
|Mithril Capital Management||San Francisco||Austin, Texas|
|New Relic||San Francisco||Atlanta, Georgia (East Coast HQ)|
|Opendoor||San Francisco||Atlanta, Georgia; Los Angeles, California|
|Outdoorsy Inc.||San Francisco||Austin, Texas|
|Revel||San Francisco||Atlanta, Georgia|
|rfXcel||San Ramon||Reno, Nevada|
|Robinhood||Menlo Park||Orlando, Florida|
|RxTE Health||Pleasanton||Sacramento, California|
|Slack||San Francisco||Denver, Colorado|
|SoFi||San Francisco||Salt Lake City, Utah|
|Square||San Francisco||Atlanta, Georgia; St. Louis, Missouri|
|The Raiders||Oakland||Las Vegas, Nevada|
|ThredUp||San Leandro||Phoenix, Arizona|
|Varo Money||San Francisco||Salt Lake City, Utah|
|VF Corporation||Alameda||Denver, Colorado|
|Wonolo||San Francisco||Nashville, Tennessee (HQ2)|
|Xero||San Francisco (U.S. HQ)||Denver, Colorado (U.S. HQ)|
With labor markets extremely tight in some of key labor markets in California, companies are going to continue to rethink their expansion plans to make sure they are making strategic location decisions. As a result, California companies will need to develop site selection strategies that will help them meet their long-term business objectives and hiring needs if they want to be successful.