The Relocation Game-The parameters have changed; no longer is saving money the sole motive for corporate America to move.

The corporate relocation game is not just about incentives anymore. Cities, counties, and economic
development agencies need more than a good incentive package to attract companies. Corporate America also
is looking for a competitive edge, an educated workforce, and access to universities when making decisions to
move operations.

by Randie Golkin the Urban Land Institute

For example, the city of Irvine, located in Orange County, California, offers no financial incentives, yet the
southern California city attracted Ford Motor Corp.’s Premier Automotive Group last November. In Chicago, the
city laid out $3 million to attract Boeing Co. from Seattle and pledged, along with the state of Illinois, up to $60
million in tax breaks and other incentives over 20 years. However, city and Boeing officials say the incentives
were not the reason that Boeing chose Chicago over Denver and Dallas, which also offered incentive packages.
Boeing, according to CEO Philip Condit, moved its headquarters to Chicago last September because of an
interest in changing Boeing’s image from an aircraft builder to a global business leader. And the company
believed that Chicago offered what it needed—a culturally diverse and educated workforce, major universities,
and convenient air transportation from O’Hare International Airport. Community leaders in Raleigh, North
Carolina, and Brooklyn, New York, also have attracted corporate citizens without offering them large sums of
money. Instead, Raleigh and Brooklyn have combined academic elements with business and have focused on
the two areas’ lifestyle as a way of drawing in companies.

“Originally, municipalities would attract companies with incentives alone,” relates Ettie Ben-Shoshan, an
associate with the business location advisory group of Jones Lang LaSalle in Los Angeles. “They would cast a
wide net, trying to attract any company in any industry. Today, municipalities are becoming much more
strategic. They’re hiring consultants to look at the characteristics of their particular market and then match
that market with an industry that needs the things in their market.”

In the city of Irvine, community and economic leaders decided more than ten years ago that the automotive
industry would be a good match for its needs. Today, there are 11 automotive companies with design studios or
regional headquarters in Irvine. The latest to move is Ford, which transferred its luxury Premier Automotive
Group—comprising Jaguar, Volvo, Lincoln, Aston Martin, and Land Rover—from Detroit to Irvine last fall. Ford
built a five-story, 300,000-square-foot building in Irvine, without receiving any financial incentives from the
city. It chose Irvine for two reasons, according to Ford and Lincoln Mercury spokesperson Jim Trainor. The
Premier Automotive Group wanted to be near other automotive design studios and close to its customers. Both
reasons, he says, will give the company a competitive edge. “We came out here because southern Californians
are on the edge of car trends,” explains Trainor. Lincoln Mercury, which is also owned by Ford, moved to Irvine
about four years ago. “It’s very eye-opening for us,” he continues, because not everyone is driving a Taurus,
Chevy, or Chrysler. In Detroit, most people drive a vehicle manufactured by one of the big three automakers.
But in southern California, especially in the Irvine area, affluent residents drive European and Japanese luxury
vehicles such as Mercedes-Benz, BMW, Lexus, and Acura—and these are the drivers that Ford’s Premier
Automotive Group wants to attract. By being in the same market, designers can see what these drivers like and
incorporate these preferences into their new models, notes Trainor. The Premier Automotive Group had
revenues of $30 billion in 2000, which constituted about 17 percent of Ford’s total revenue of $174 billion,
according to Wolfgang Reitzle, president of Premier Automotive Group. Reitzle says he plans to increase sales
by one-third in the next five years.

Ford also chose Irvine in order to be able to keep an eye on its competitors. Nearly every automaker in the
world has a design studio in southern California. Companies like Mercedes-Benz, now owned by
DaimlerChrysler; Mazda; and Kia have design studios in Irvine. In Los Angeles, about one hour away, there are
design studios for Porsche, BMW, General Motors (GM), Nissan, and Toyota, as well as a number of other car
companies. Perhaps the most obvious reason that southern California has become a hub for auto design
studios is that, like other industries, car companies want access to a talented, educated workforce, and such a
workforce is produced by top colleges and universities. Therefore, companies seek out areas with educational
institutions.

The Art Center College of Design in Pasadena, about one hour north of Irvine, produces many—if not most—of
the automotive designers in the world. Chief designers for Ford, BMW, GM, Honda, and Mazda in southern
California are all Art Center graduates. Automakers have trouble getting these graduates to move to Detroit,
says Julie Curtin, vice president with Development Counsellors International, an economic development
marketing firm with offices in Denver and New York City. Because most Art Center alumni prefer southern
California and do not want to leave, car companies open design studios there, she explains.

There are those who question why Irvine—a city that does not offer financial incentives—has become Motown
West. Car companies, similar to companies in other industries, like to cluster together, points out Paul Hiller,
managing director of Destination Irvine, the economic development arm of the Irvine Chamber of Commerce.
Irvine’s automotive cluster began in the late 1980s and early 1990s when Japanese automakers, such as
Toyota and Mazda, came into town. Ford now owns about 34 percent of Mazda and built its Premier Automotive
Group headquarters near the Mazda building. Following Mazda and Toyota, other Japanese car companies
arrived in Irvine. “The Japanese like Irvine,” Hiller says, noting that about 30 percent of the city’s population is
Asian. In addition, he adds, about 60 percent of the student body at the University of California in Irvine is
Asian. Irvine has a highly educated population, explains Hiller, and “these companies are looking for brain
power.” The Japanese say they like Irvine because it is designed in a neat and orderly fashion, he points out.
As a fairly young city, Irvine has many master-planned communities with houses built in perfectly square
blocks and shopping centers strategically placed among them.

According to Trainor, Ford liked Irvine’s probusiness environment and its high quality of life. The fact that
Irvine did not offer any financial incentives did not matter because Ford wanted to be in Irvine, he says. The
city, adds Trainor, has good schools, a low crime rate, and a suburban location requiring no commuting.

Two similar trends are seen by Paul O’Connor, executive director of World Business Chicago. One is that
companies want the availability of an educated workforce and the other is that they would like the ability to form
alliances with universities. World Business Chicago is the economic development agency that helped Boeing
set up shop in Chicago. Mohan Sawhney, a professor of technology and E-commerce at the Kellogg School of
Management at Northwestern University in Evanston, outside of Chicago, agrees. Universities are the driver of
the new economy, he says, noting that new discoveries in technology usually come from a university, then
move from the laboratory to the business environment. As a result, companies that want to be on the cutting
edge of new technology will align themselves with major universities. Northwestern is one of three major
universities located in the Chicago metropolitan area; the other two are the University of Chicago and DePaul
University.

For Boeing, not only were Chicago’s top universities and educated workforce important but also the city’s
central location, airports, quality of life, and image, according to Boeing spokesperson John Dern. Boeing
decided to move its headquarters out of Seattle, its hometown since 1916, to make a statement about its
future. “It’s diversifying into new business lines and doesn’t want to be thought of as strictly an airplane
manufacturer,” Dern explains. Boeing has a division, called Connexion by Boeing, that is exploring satellite
technology to provide high-speed Internet access aboard planes. Passengers would be able to check their
E-mail and to use the Internet while they are flying. Boeing also is working on technology that would allow
theaters to receive new movies digitally, via satellite, as well as other types of high-tech research. In effect,
says Dern, Boeing wanted its headquarters to be autonomous—away from the airfield in Seattle, where it has its
commercial aircraft division. The company also preferred to have its headquarters separate from its two other
divisions—space and communications in Seal Beach, California, and military aircraft in St. Louis. And, he notes,
Boeing narrowed its search to Chicago, Dallas, and Denver because it favored having a centrally located
headquarters.

Once it decided to relocate, Boeing acted quickly. Within six months, it had moved 500 employees into its new
headquarters in downtown Chicago, leasing 280,000 square feet, the top ten floors of a 36-story tower. “Now,
when we walk out of our building, we see other corporate executives instead of a tarmac with planes on it,” says
Dern.

If any community has capitalized on its higher education system to attract major companies, it is Raleigh,
North Carolina. Raleigh officials, along with North Carolina State University (NCSU), have worked with business
leaders to create the Centennial Campus, a 1,330-acre science/business park located next to the NCSU
campus, which combines high-tech businesses with government, research centers, faculty, and students. The
science/business park, only about 10 percent built out, also will include residential neighborhoods, a
hotel/conference center, restaurants, shops, and a golf course. “We call it a technopolis,” says John Church, Jr.,
director of economic development for the city of Raleigh at the Greater Raleigh Chamber of Commerce. “It’s the
next generation of the Research Triangle Park,” he adds.

The Research Triangle, which began in the 1950s and is located between NCSU, the University of North
Carolina, and Duke University, has recruited a number of high-tech companies interested in benefiting from the
resources of nearby universities. Over the years, however, the Research Triangle has grown so large that it is
starting to become congested with crowds and traffic, says Church. “Centennial is the science park of the
future because it’s small and ped-estrian friendly. People are tired of commuting,” he maintains. “The concept
is to combine living, learning, and leisure in one location,” says Bob Geolas, Centennial Campus coordinator.
“Instead of having a campus with just businesses, we are creating a true academic village—a true community.”
The concept is working, he notes, adding that it is working without offering companies much in the way of
incentives, although leases and other expenses are less expensive in Raleigh, says Geolas, than in other areas
such as Silicon Valley, Boston, or Austin.

Since Centennial opened in 1988, more than 70 companies and government agencies have moved onto the
campus. The campus currently has about 1,300 employees and 1,200 university faculty, staff, and
postdoctorate students. The science/business park consists of 1.3 million square feet of office and laboratory
space in 16 buildings; construction is expected to begin on six additional buildings this year.

Centennial, which is being developed by NCSU, includes large companies such as the Bayer Corporation,
Eastman Kodak, and Ericsson. Along with government agencies, these companies generate about $35 million
per year in research funding for NCSU. But the science/business park also attracts smaller companies, such as
Jetstream Communications, which opened a division at Centennial in 2000 because of the relationship it
wanted to develop with NCSU. “We do proj-ects with the professors, have access to their test facilities and
labs, and hire interns from the school,” says Greg Germain, vice president for the North Carolina operations.
Jetstream, which is based in San Jose, California, provides voice-over DSL and broadband applications to
telecommunications companies, he adds, and needs to be on the cutting edge of new technology.

The motivation behind the relocation of Empire Blue Cross and Blue Shield to Brooklyn is quite different from
most. The insurer lost its lower Manhattan corporate headquarters in the September 11 terrorist attacks on the
World Trade Center. Formerly occupying about 450,000 square feet of office space in the World Trade Center’s
Tower One, the company’s search for a new home led it to a corporate campus with a university, high-tech
infrastructure, and an easy commute. Financial incentives were not a factor because Empire could not use the
tax breaks that were offered.

Empire Blue Cross will be moving about 1,300 employees into the Metrotech Center in Brooklyn, currently
under construction with an expected completion date of June 2003, says Kenny Klepper, Empire’s senior vice
president of technical systems and infrastructure, who led the company’s search for new office space. The
company also leased some 117,000 square feet on three floors in midtown Manhattan. The midtown office,
which will house 330 people, will function as Empire’s corporate headquarters. This way, notes Klepper, the
company can maintain a presence in Manhattan, while the remainder of its staff moves to the Metrotech Center.
Empire Blue Cross also considered sites in Queens and Westchester, he continues. But the company ruled out
Westchester because it was too far for its employees to commute and Queens lacked a business park
comparable to Metrotech, which has a high-tech infrastructure that can accommodate Empire’s voice and data
systems, as well as a polytechnical university, which could serve as a recruiting ground for potential
employees. In addition, he adds, there are nearby food services, a Marriott hotel, and upscale residential units.

“A lot of companies would have never considered Brooklyn before Metrotech was built,” continues Howard
Fiddle, executive director of Insignia/ESG in New York, adding that Metrotech offers new buildings with
technological infrastructure at a cost lower than would have been possible in Manhattan. Metrotech “is a good
example of how a place like Brooklyn can attract corporate America,” he says, at the same time pointing out
that Empire would not have chosen Metrotech if other blue chip companies were not already there. Some of
Metrotech’s tenants include Bear Stearns, J.P. Morgan, Verizon, and New York City government offices. Again,
costs were not the main motivator for Empire’s decision to move to Metrotech.

Even though costs always will be a part of the relocation equation, they are no longer viewed as the total
solution. A century ago, companies would move their manufacturing operations to cheaper parts of the country
to save money because, back then, incentives and lower costs were everything, explains Mark Klender,
national director of the Fantus Corporate Real Estate Consulting Group in Los Angeles, California, a division of
Deloitte and Touche. But as companies began moving their manufacturing operations to Mexico and, today, to
China, new parameters have been set in the relocation game, he emphasizes.

Now when companies move, they relocate their headquarters or other administrative functions in a systematic
manner, points out Lynn Sedway, president of the San Francisco–based Sedway Group, a division of CB Richard
Ellis. Companies, she observes, move their headquarters or operating divisions to create a new identity, gain
market share, obtain a competitive edge, or connect with customers. “At the end of the day, it’s about a lot
more than money,” Boeing’s Dern says.

Randie Golkin is a southern California–based freelance writer.

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