By Mark R. Smith, Contributing Writer
The act of a company large or small selecting a headquarters site, from selecting a Metropolitan Statistical Area (MSA) or finding the appropriate real estate – if that’s even needed in the evolving business landscape – can often be a fairly straightforward effort.
Unless, of course, it isn’t.
For every no-brainer, other corporate site searches can almost take on lives on their own, perhaps taking years to find the right city and commercial real estate space for the right time. For every case of two companies from the same market merging, assessing workforce needs and finding a new HQ, other searchers are frustrated by unimpressive tax credits, a lack of available workers, workforce training issues and uninspiring amenities, among other bullet points.
Then of course, comes the bottom line. What will operations cost in a given market? And might moving to a lower-cost area also mean a lack of available workforce, training programs or other problems could arise?
Three Points
Speaking of cost, that’s the first and foremost item that was discussed by Chris Lloyd, senior vice president and director, infrastructure and economic development for McGuireWoods Consulting, in Richmond, Virginia.
“Companies based in a high-cost market, particularly if they are working on a reorganization of corporate structure, can often find similar talent and accommodations in a lower cost market,” said Lloyd. “A move from New York City to a lower-cost market like Tampa could be one for instance.”
The next consideration is how a move can help change corporate culture. “Maybe one corporation had been controlled by a family and their hold is fraying,” he said. “That change can provide the impetus to look to a new market. Likewise, [a possible desire] to shake up the culture and start fresh elsewhere could be a driver.”
A third reason could be a change in the market, “meaning the company has divested or expanded and there has been change in the customer base which could warrant a relocation to be nearer that customer or in a place seen as more aligned with where the company is heading,” he said, noting the move of one recent McGuireWoods to Nashville “to be seen more as a player in the health care industry, which was a new strategic focus for that company.”
“Those are the three sparks that light the fire,” Lloyd said. “From that point, the decision reverts to the normal drivers of any corporate decision: the right talent, the right locations for suppliers and customers, then the broad category of alignment or fit: cost, regulatory climate – companies want to go where they feel welcome – and quality of life. Those are always the main drivers.”
During the past decade, a number of companies added other perks to the package to attract, convenience and even entertain workers. Today, however, in the COVID-19 world, that approach is being questioned. “A recent news story reported that Google applied the social aspect to the work environment by adding ping-pong tables in the open space,” etc., said Lloyd, “and some [observers felt] it resulted in employee burnout instead of additional productivity.”
Offering Incentives
Then there are ideas of luring companies from one region to another and how that happens. If a company is open to relocating and “doesn’t have a mindset of being in a certain location, there are often tax incentives to consider when selecting a new area,” said Oliver Schlake, clinical professor at the University of Maryland, College Park’s Robert H. Smith School of Business.
Take, for instance, an area like Rochester, N.Y., “where Eastman Kodak drastically downsized and redirected the company into other markets. The corporation doesn’t employ 10,000 people there anymore and its market is much different, so its former vendors and suppliers were distressed,” said Schlake. “You can’t just give up on a region, so sometimes a state can offer incentives to locate in a certain area. If they reach milestones for number of employees, for instance, they might get more tax relief.”
But one notable case of late concerns a corporation that was firmly in the driver’s seat and could make plenty of demands. “Even Amazon was given incentives when it selected Crystal City in Northern Virginia as the home for HQ2,” he said. “Such decisions can result in several years of tax relief.”
Another need to consider is what kind of human resources are required to grow the business, as well as the level of education and/or a trade skill. “Then if the company has enough workers, you have to see what the competition is like to hire more,” he said. “If the labor force is shallow, employees will cost more to hire.”
So, such moves require taking a long view. “You have to take a few years to think about where to move to, then work within a five-year horizon and know how you want to grow your business,” said Schlake. “Will that be organically or by buying other companies?”
Schlake said that while figuring out where to locate is challenging enough, early consideration of an exit strategy pays off, too.
“One company that has set a blueprint for success in this mode is Cisco,” he said. “They’ve figured out that they grow by absorbing other companies. That’s usually a disaster, but if they buy a company it has to be located within 50 miles of its multiple regional headquarters throughout the states. They know that most people won’t move, change schools, etc. and realize the personal component involved. Life if easier for both sides if the company being purchased in already in the region.”
Compromise Works
Delving into the topic or relocation reveals just how unique a given situation can be.
“Where a company locates depends on company size, where their market is, long-term view/strategy, labor force and if it’s the move is an expansion or relocation,” said Victor Hoskins, CEO of the Fairfax County Economic Development Authority (FCEDA), in Tysons, Virginia. ‘”They’re all key factors in the equation.”
Hoskins used the example from earlier in his career, of the German-based grocery chain Lidl, which in recent years has conducted a major U.S expansion. “The move to its corporate headquarters here to Arlington, Virginia, took place in 2015,” he said, “after they scouted locations for their corporate staff of 500 that offered a highly-educated workforce.”
Lidl’s first team “of about 50 people established a beachhead and keyed in on the geographic middle of the market it was moving into to get to assure strong access to its warehouses (which as located along Interstate 95 in Harford County, Md., with another in Southern Virginia) and its stores,” said Hoskins. “So it honed in on the Washington area, not only because it offered that highly-educated workforce, but transportation – they liked the Metro – and of course, policymakers.”
Initially, “Lidl needed staff in real estate acquisitions and marketing,” he said, “but then those needs grew to include workers from the immediate area.”
As Lidl expands its U.S. footprint “it’s projecting where their stores will be, how much volume they’ll handle,” etc. “But here’s why [Northern Virginia] works,” said Hoskins. “If they had located further away from D.C., they may have had a hard time getting that educated workforce. However, if they had needed a more blue-collar workforce for the warehouses, which might have been available further south in a more rural area of Virginia.”
Companies also want reasonable lease rates which, granted, can be tough to find in Northern Virginia and metropolitan Washington in general. “So, while Fairfax costs more than nearby Richmond, for instance, Lidl U.S. went for the headquarters with the higher rent, but not in a new building. They chose one that had been vacant for five years. It then located the warehouses in less expensive markets.”
Sometimes there is an unusual opportunity in the market that influences a corporation’s decision “and that was one such opportunity,” he said, adding that now the Arlington headquarters also features “a mini-Lidl that isn’t far from Amazon HQ2.”
Company location decisions are also influenced by having an opportunity to expand, on site or nearby. Northern Virginia is home to Alarm.com, “which is expanding in Tysons for the third time in 10 years and into its third building,” said Hoskins. Like Lidl, “They like the educated workforce, Metro access on the new Silver Line and the available space in a tightening market and it still meets their price point.”
And oddly enough, these decisions aren’t always about work; it’s a culture thing. Other factors in selecting a site include a safe community, amenities, outdoor recreation and solid educational options. “Also, these days companies tend to cluster around similar companies,” he said. “For instance, here in Northern Virginia, many of the cybersecurity and cloud computing companies have done so. They like the synergies.”
Full Circle
Arthur Jackson, senior vice president of economic development for the Tulsa Regional Chamber, also pointed to his “three main ingredients” that apply when making corporate location decisions: a low cost of commercial real estate, a track records of headquarters establishing in the given area and what’s generally referred to as quality of place. That last bullet point can concern tax rates, affordability, amenities, etc.
What gives Jackson a unique overview of corporations on the move is that he’s fairly new to the Tulsa market, which surpassed one million residents in the 2020 census, but arrived from the Austin (Texas) Chamber of Commerce – which offered similar features before it evolved into a much larger city.
Austin’s evolution resulted in Dell and Oracle calling it headquarters, and Apple, Facebook and Google all having a large presence in the city.
But what’s so interesting here? “Tulsa used to be larger than Austin, but people had to leave Tulsa for jobs when the energy bubble burst three decades ago,” Jackson said.
Now, there is a mix of jobs in the city, as Tulsa move forward by targeting other sectors including automotive. New last year was Navistar/IC Bus, a manufacturer of internal combustion and electric school buses; plus Lyseon, which makes chassis for electric buses; and Canoo, which makes electric lifestyle vehicles.
“Tulsa added more than 4,000 jobs in 2021 in the technology, automotive, aerospace, advanced aerial mobility and headquarters categories,” Jackson said, noting that number includes 2,300 electric vehicle technology and advanced manufacturing jobs.
Still, Tulsa is often known for the energy business and “was largest energy market in the world at one point,” he said. It’s home to three Fortune 500 companies: NPL Partners, OneOak and Williams Companies, all energy concerns; as well as one of the top 35 privately-held companies, QuickTrip Convenience Stores. It has traditionally also been strong in professional services and advanced manufacturing.
With the Program
Jackson spotlighted a recent win for the city, the arrival of ClearSign Technologies, from Seattle, which trades on NASDAQ and employs a staff of about 25.
“ClearSign choose Tulsa for its environment and for the opportunity to grow. That was getting hard to accomplish in Seattle due to general affordability, real estate costs and having to compete with Amazon and Microsoft for employees,” said Jackson.
To help address that latter point, for three years the city has run the Tulsa Remote Program, which is designed to grow the city’s tech workforce. As for its success, as of the fourth quarter of 2021, the program recruited 1,110 workers including 500 in the tech field who work for such companies as Facebook, Netflix and Google. Its retention rate is 90 percent after the 12-month commitment of its students.
What this all equates to is having “an ample workforce in Tulsa, without as much competition for employees,” he said, “with, in general, lower cost of living.”
Shift Work
So today, there are more factors to consider than ever, said Schlake.
“We’re seeing a great push for diversity, as well as a green approach in workforce development, so some companies move into areas where a diverse workforce is available,” he said. “As we move forward, other companies might want (or not) to do business with a company that lacks a diverse workforce or has not established a green footprint.”
But what Schlake called “the 800-pound gorilla” in this scenario is remote work. “If your company values the remote approach, there may not be a need for a headquarters, or if so it would be a smaller one.”
“But is it even possible to do this?’ he queried. If the need is on the service industry side, like call centers, “the companies could care less where it is,” he said. “That may make the site of the actual headquarters less important.”
Consider the approach of one of Schlake’s clients that took a decidedly clever approach to serving its international clientele. “It’s a German-based company that ran call centers worldwide that worked in staggered shifts in time zones that were eight hours away from each other,” he said, “so they located in Germany, as well as the West Coast of the U.S. and the Philippines. They were staged so the work force in each place was set up for full eight-hour shifts.”
But that heavy primate called remote work will challenge the way people think hard about their headquarters while they see if this approach will work long-term.
“Offices will still be alive and well, but we have to see how to run them,” he said. “What’s really being challenged is the old way of putting many people in a big office with dozens, or even hundreds, of cubicles; and how the maintenance of the infrastructure is pushed to the employees.”
Bio: Odenton, Maryland-based Mark R. Smith joined Expansion Solutions after having written about site selection among the vast number of topics he has covered in the business universe. That part of his career began in 1993 when he joined The Daily Record, a Baltimore business and legal publication, where he delved into the worlds of economic development and commercial real estate, among numerous other industries; in 2003, he was named editor-in-chief of The Business Monthly, another Maryland publication that covers the scene in the Baltimore-Washington Corridor counties.
Concurrently, he’s written at length about the film and video industry for a variety of publications, and about his other loves, including music, sports and leisure.
