Lisa A. Bastian (Feb/Mar 09)
The archetypal corporate headquarters is the epicenter of status, prominence, and collective brainpower for an organization. It also may be a community's major employer, an attractor of highly qualified labor, the source of great civic pride, a generous supporter of education and the arts - even a magnet drawing in other valued headquarters.
Imagine, therefore, the painful introspective questions a citizenry might ask when a corporate mother ship announces its departure. "Why and where are they going?" "Could we have done something differently to stop this?" "How can we keep another headquarters from leaving us?" The answers are as unique as the reasons (official and unofficial) given for these large-scale moves.
Too often city officials focus mostly on ways to attract - rather than keep - a headquarters. And even when well-thought-out retention plans are put in place by governments, they can practically fail overnight due to industry-specific meltdowns and other factors out of the control of communities. That's why the smart city will seek out the best data about why headquarters move, learn from the experiences of other cities, and then adapt to make itself less likely to experience such a loss.
Complex Reasons Behind Major Corporate Shuffles
In their scientific paper entitled "Why and Where Do Headquarters Move?" two European economics professors analyzed decisions made by relocating headquarters in the United States for the period 1996 to 2001. Originally written in 2004 but updated September 2008, the study utilized a database comprised of information on about 25,000 headquarters, of which nearly 1,500 moved during that time. (The journal Regional Science and Urban Economics will publish the 2008 version later this year.) Study authors Vanessa Strauss-Kahn of the ESCP-EAP business school (Paris campus) and Xavier Vives of Spain's IESE business school (Madrid campus) put forth many key findings about the topic.
The rate of relocation is "significant" (5 percent a year), said the economists. Larger sales-type headquarters tend to relocate more, as do foreign firms, global firms (in terms of their numbers of headquarters), and firms that are a result of a merger. "Corporate history matters, as older headquarters are less likely to move" than younger ones, noted the study authors.
Headquarters tend to be attracted more to metros with good airport facilities, low corporate taxes, low average wages, high levels of business services, same industry specialization, and agglomeration of headquarters in the same sector of activity. Other favored community assets of note include a well-educated, robust labor force, and plenty of recreational amenities.
It was discovered that the probability of locating to a metro "increases 40 percent if the city offers a small [airport] hub and increases by 90 percent if it offers a large hub, compared to a location with no hub." This finding "confirms the intuition that headquarters rely intensively on airport connections in their relation with plants and customers," said the study authors.
Data showed that the top 20 urban centers accumulated 75 percent of the headquarters. During the period researched, "net changes" suggested that the offices moved away from the largest centers toward second-tier centers, and that upper-middle sized, service-oriented Sun Belt cities (e.g., Houston, Phoenix) added more of these centers, while traditional Rust Belt cities (e.g., Philadelphia, Cleveland) lost more of them.
Smaller headquarters locate near hard-to-move plants, while large headquarters with global activities "are likely to go to active business centers." Overall, the researchers said headquarters chose to locate "where final demand, and consequently production of goods from their industry, is high."
World's Largest Telecom Moves Just 300 Miles
AT&T is a prime example of how moving a corporate headquarters even just five hours away can reap tremendous organizational benefits. Last June, San Antonio learned its most high-profile company, AT&T Inc., would begin moving its headquarters to nearby Dallas. About 700 of the firm's almost 6,000 employees working in San Antonio were expected to go north to "Big D" by year-end 2008. The company's Telecom Operations group, serving customers in 22 states, would remain behind.
Randall Stephenson, AT&T chairman and CEO, remarked that San Antonio is "a great city with much to offer and [has] been good for AT&T as we've grown from primarily a five-state local phone company to the world's largest telecom company." However, being headquartered in Dallas "will benefit our long-term growth prospects and human resources needs, and our ability to operate more efficiently, better serve customers, and expand the business in the future," he concluded. Translated from corporate speak, it means the firm simply outgrew the Alamo City.
Specifically, AT&T needed to gain better access to its customers and operations throughout the world. The Dallas-Fort Worth airport (third-largest U.S. airport), said an AT&T press release, will be "more convenient, time efficient and cost-effective" for company executives who need to travel to all 50 states and 160 nations. Additionally, Dallas would give AT&T proximity to many of its key technology suppliers and allow for membership in the area's large, established telecom cluster - another plus.
Global Transportation Leader Relocates to Cut Overall Costs
Saving money is the motive behind the relocation of the Americas regional headquarters of Neptune Orient Lines (NOL) - a global container transportation and logistics group - before year-end 2009. "We want to drive down expenses," explained Mike Zampa, NOL's director of corporate communications.
NOL incorporated in New York in 1848, then moved to the San Francisco Bay area over 150 years ago. Operating in Oakland for the past three decades, this headquarters facility coordinates NOL's terminals, shipping, and logistics activities in North, Central, and South America, and manages everything from marine operations to intermodal transport (by truck and rail) of containers.
NOL had been contemplating the move for some time due to the high costs in Oakland, said Zampa. However, it took the recent global economic downturn hitting global trade to set the plans in motion "for the long-term health of our company." Metro areas considered had to offer a lower cost of doing business, he explained, as well as a favorable cost of living, business environment, and quality of life. The ideal city also had to have a "good international airport." Phoenix got the nod.
John Bowe, NOL's regional president for the Americas, said that in addition to the more cost-effective benefits Arizona provides, the state's "very convenient location" should help NOL better manage its operations throughout the Americas.