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
1 Texas 63,174
2 Arizona 59,233
3 Washington 52,484
4 Oregon 50,109
5 Nevada 47,513
6 Florida 30,919
7 Colorado 27,014
8 New York 24,982
9 North Carolina 22,469
10 Idaho 21,372
11 Utah 17,020
12 Illinois 16,046
13 Virginia 14,509
14 Massachusetts 12,745
15 Georgia 12,052
16 Ohio 11,286
17 Pennsylvania 10,995
18 Missouri 10,918
19 Michigan 10,874
20 Indiana 10,096
21 Maryland 8,994
22 Hawaii 8,843
23 New Jersey 7,968
24 Tennessee 7,879
25 South Carolina 7,618
26 Oklahoma 7,174
27 New Mexico 6,897
28 Kansas 6,511
29 Louisiana 5,534
30 Minnesota 5,518

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  
Krave Sonoma Austin, Texas  
Lyft San Francisco   Nashville, Tennessee
McKesson San Francisco Dallas, Texas  
MedeAnalytics Emeryville Richardson, 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  
Pandora Oakland   Atlanta, Georgia
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)  

Conclusions

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.

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