By now, everyone has seen the news about GE’s long-anticipated move from Fairfield, Connecticut to Boston’s Seaport District. Additional headquarters relocations continue to occur, it seems, just about every week. With the Tyco merger with Johnson Controls, it looks as if the combined company’s operational U.S. headquarters will stay in Milwaukee, where Johnson Controls is located now.
Something to consider as your state, region, and city work to attract headquarters relocations is that this sector is unlike any other when it comes to business recruitment. As I pointed out in my article on January 5, Seven Scintillating Insights, some headquarters relocations can actually increase – not decrease – the company’s operating costs.
But while that is often the case, it is by no means always the case. My colleague Mark Sweeney, Senior Principal at McCallum Sweeney Consulting, notes that several exceptions to this “conventional wisdom” can occur. For example, the move could be to a lower-cost operating location – perhaps from an expensive city, to one that is still expensive on an absolute basis, but less expensive than where they were. Those cost savings could be measured by the standard operational costs – labor, occupancy, taxes, etc. – or may include subjective factors like labor availability, labor productivity, or access to infrastructure (such as international airports, or for one client, embassies).
Another exception could be if an extraordinary tax incentive package is offered. Yes, incentives can and do matter, especially for high-profile, Fortune 500® headquarters, which many in the economic development field consider the Grand Prize of Recruitment.
What does this mean for you as an economic developer?
- Hold on to any headquarters that you have. Be inside the organization, understand their needs, and work proactively with them on identified issues.
The more high-profile they are, the more certain you can be that other cities and states are trying to recruit them. The CEO of a Fortune 100 company told me recently that the number of EDOs competing to move their company is unbelievable, and they have been headquartered in the same city for over 100 years. At some point, one of those offers is going to look pretty interesting if there are issues with the home state or city.
- Pay particular attention to potential triggers for relocation decisions (these hold true for all industry sectors, not just headquarters):
- Change in leadership (example: ConAgra)
- A merger (example: Johnson Controls and Tyco)
- A shift in corporate strategy, such as from an industrial base to a knowledge base (example: GE)
There are many more examples, but these give you an idea of what to monitor.
- Think about your assets from a potential CEO’s point of view, and confidently assert that you can deliver on your promises. I attended a fam tour last fall put on by World Business Chicago, and was impressed by the strong recruitment message that Mayor Rahm Emanuel conveyed: it was consistent, substantiated, and right on target with CEOs’ needs. My colleagues agreed that if we had a prospect where Chicago made sense, we would feel very confident that leadership there would do what they could to make the project work. That goes a long way, and can often be more important than any spreadsheet.
AS I SEE IT, understanding the unique needs of headquarters and what factors have the potential to influence relocation decisions is critically important for economic developers. You also need to pay close attention to what is going on inside the company. If you are fortunate enough to have one or more headquarters in your region, just as in any other relationship, you need to work at keeping the channels of communication open and never, ever take for granted that they’ll always be there.
Looking for more insights on how to make your region attractive to relocating companies? Our strategic consulting services for EDOs can help. We bring the site selector’s perspective to every engagement to help you put your region in the best position to attract companies in your target industries. We’ve helped many regions do just that – read about a few of them here, then email Janet Ady or call 608-663-9218 to discuss how we can help you write your own success story.