Nissan of North America, which last month announced that it was moving from Carson to a suburb of Nashville, Tenn., is not the only L.A.-area company to find Southern hospitality.
In October, Tekelec Inc., formerly of Calabasas, relocated to Morrisville, N.C., in the middle of that state’s Research Triangle. Last week, 3D Systems Corp. announced that it was moving from Valencia to Rock Hill, S.C., near the Charlotte, N.C. area.
Southern states have also drawn companies from Ventura and Orange counties, among them Buckaroo Communications LLC (moving from Oxnard to Dayton, Tenn.), Essex Electric Inc. (moving production from Anaheim to Alabama), and Jammin Apparel (relocating from Anaheim to Rocky Mount, Va.)
This Southern migration represents a notable shift from previous relocation patterns when L.A.-area companies seeking to escape California’s high-cost business environment went to nearby states including Arizona, Nevada, Utah and Colorado, with some venturing only as far east as Texas or Oklahoma.
Those states remain popular among many L.A.-area companies seeking to relocate, but the 16 states comprising the South have become especially attractive, with their business-friendly attitudes, low property costs, low unionization rates and educated workforces.
“The South has really come up on the radar screen for companies in Southern California and across the nation,” said Robert DeRocker, executive vice president and partner with New York-based Development Counsellors International, which markets locations for economic development.
Catalytic effect
The actual extent of the migration to the South or even neighboring states remains a matter of debate. A recent study by the Public Policy Institute of California noted that only a small percentage of lost jobs between 1993 and 2002 were related to job relocations.
“Look, it’s not as if all the companies are rushing to get out of the state. Our own figures show that California is sixth in the nation in the total number of new and expanded facilities,” said Mark Arend, editor of Site Selection Magazine. “It’s just that the companies leaving are the ones getting all the attention.”
Nevertheless, economic development officials say that the interest in relocating, especially to the South, may intensify with Nissan’s move. Experts note the catalytic effect on economic development that followed the decisions by General Motors Corp., BMW Group North America, and Mercedes-Benz U.S. International Inc. to locate manufacturing facilities in that region in the mid-1990s.
“There’s a feeling now among companies that, ‘If it’s good enough for Nissan or Mercedes, it’s good enough for us,'” DeRocker said.
Kenny McDonald, senior vice president with the Charlotte, (N.C.) Regional Partnership, says he comes out to Southern California at least three times a year “more if we have companies we’re working with.”
McDonald recently worked with 3D Systems, which will complete its move to Rock Hill by mid-2006. He said the printing technology company was looking to get closer to the European market and that 3D’s chief executive was familiar with the region because he has a residence in the Greenville, N.C. area.
3D Systems said it was looking for a more business-friendly environment, lower operating costs and, most importantly, affordable housing. “In order to be able to attract people into a region, you want people to be able to buy a home,” Elizabeth Goode, the company’s director of corporate development, told the San Fernando Valley Business Journal. “You need to give people the freedom to be able to live near where they work.”
Southern California’s soaring real estate prices appear to be driving the latest wave of relocations. “It’s not just housing for employees. It’s also companies coming in for sticker shock when they get their lease renewal notices,” said Larry Kosmont, an Encino economic development consultant.
When combined with California’s high workers’ compensation premiums, along with energy and labor costs, a jump in lease payments can be enough to push some companies out the door. That push is being aided by aggressive marketing and incentive packages from other states.
State and local governments banded together to offer a $2 million incentive package in a failed attempt to keep Nissan’s North American headquarters in L.A. County. But such efforts are rare in California.
By contrast, South Carolina and Rock Hill offered 3D Systems rebates on its income tax withholdings, a suspension of property taxes for at least five years and even a $2 million training facility, said Stephen Turner, director of economic development for the City of Rock Hill.
And that’s for a company with only 100 employees.
Turner noted that the income tax withholdings and property tax suspensions are written into state law for all companies moving significant facilities to the state, not just on a case-by-case basis.
Southern states have decades of experience in pulling out the stops to attract companies. Starting in the 1930s, several utilities there began offering huge incentives for textile mills in the Northeast to relocate in the South. After World War II, economic development agencies sprung up, far ahead of most other areas of the country. “They have honed this practice of business attraction to a fine art,” DeRocker said.
Now, state and local agencies work hand-in-hand on incentives. “It’s virtually seamless coordination, which you almost never see here in California,” Kosmont said.
That’s not to say Southern California companies are going to flee to the Carolinas by the hundreds. And not all companies looking to move facilities outside California will choose the South.
“Most companies still go to the adjacent states here in the West to stay as close as possible to the Southern California market,” said Greg Whitney, vice president of business development for the Los Angeles County Economic Development Corp., which recently released a list of 80 companies that had moved jobs out of the region.
Phoenix, Las Vegas, Salt Lake City, Reno and Denver still draw dozens of local companies, as does Texas. In the last year, Calabasas-based mortgage lender Countrywide Financial Corp. has moved 2,800 jobs to the Phoenix area, while IndyMac Bancorp Inc. has taken 150 jobs there, according to the Greater Phoenix Economic Council.
But even Phoenix economic development officials concede that the area has lost some of its competitive edge due to the real estate market. “Sure, the cost differential has narrowed a bit, but the gap is still substantial,” said Barry Broome, president and chief executive of the Greater Phoenix Economic Council.
With home prices rising 30 percent a year in Phoenix and Las Vegas, the gap may narrow further.
“That’s part of the reason why some companies are looking further out now,” Kosmont said.
