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When a city’s cost is bad for business

A huge exodus from San Francisco may be under way as high-tech companies pack
their bags for cheaper North American cities and regions, according to a study.

By Tiffany Kary
Staff Writer, CNET News.com

San Francisco is the most expensive North American city for a high-tech company do to
business, with an estimated average cost of $43 million a year, according to The Boyd
Company, a consulting firm that advises major companies on location planning. For example, a
company relocating to Baltimore from San Francisco would see a savings of about 21 percent,
according to the study’s figures.

And as if that’s not incentive enough for companies to relocate, an increase in government
spending on defense, centered in the metro Washington, D.C., area, and the lure of cheaper
operating costs north of the U.S. border, are about to siphon more business out of Northern
California.

"I have never seen a decline so
rapid," said John H. Boyd, talking
about the conditions that
precipitated the study.

The numbers for the study were
based on the average cost of
operating a 500-employee facility.

Boyd, who has done location
planning for 27 years as president
of The Boyd Company, said he
has watched with amazement as
the unemployment rate in San
Francisco has risen from 1.7
percent in January 2001 to 7.5
percent in January 2002. That
figure doesn’t compare favorably
with the national average of 5.6
percent in January, Boyd said.

Things may get worse, he said, as companies head east and north, following the two biggest
money trails of the post-Sept. 11 economy.

Venture capitalists "are saying, ‘Show me the money,’ and
companies are concluding they have to be competitive on a
global scale," Boyd said. In an economy where it is close to
impossible to cut costs, cost reductions have a new
importance, and site selection has become more critical.

"Canada is emerging as an alternative location for U.S.
high-tech investments in the recessionary economy," Boyd
said, citing a lower exchange rate, the elimination of tariffs
under NAFTA (North American Free Trade Agreement) and
the absence of corporate health care costs in a country with a
national health care system. Several companies have already
caught on to the trend: Mountain View, Calif.-based Intuit and
Houston-based Compaq have both listed their Calgary,
Alberta, facilities as among their most profitable, Boyd said.

"Many companies in the (San Francisco) Bay Area are also
looking to Washington because of the vast government
spending for the war on terrorism," Boyd said. John Hopkins
University, which has locations throughout the
Baltimore-Washington area, "is the center for bio-terrorism
research, and the NSA (National Security Agency) is becoming the catalyst for billions and
billions of dollars in electronic surveillance and Internet security spending by the federal
government," he added.

"It’s like Silicon Valley is returning to its roots; it was founded in the defense industry in the
60s," Boyd said.

Of the individual cities being considered, Baltimore; Vancouver, British Columbia; and Calgary
are considered some of the most attractive. Baltimore was the cheapest U.S. location included
in the study, at $34.4 million a year. Vancouver was the highest-priced Canadian city, at $35
million, and Calgary was the lowest, at $27.7 million.

Santa Clara County, Calif., which includes San Jose, Calif., and
most of Silicon Valley, came in second to San Francisco with
costs of $41.7 million. New York was next, at $40.9 million and
then Boston, at $39 million.

Of course, not every city in North America was considered. The
study takes factors such as pre-existing technology centers, ease
of travel, and other nuances into consideration. The Boyd
Company has spent the last nine months doing everything from
number crunching to interviewing mayors to come up with the
survey cities, which are likely to become targets for expansion or
relocation by the consulting firm’s clients.

Though Boyd would not disclose which companies are considering relocation, he listed
Compaq Computer, Chase Manhattan Bank, Pitney Bowes and Time Inc. as clients.

"These cities included in the study were not chosen at random; you will see them on the short
lists of corporate-site seekers over the next 12 months," he said.

http://news.com.com/2100-1017-848005.html

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