California voter approval in November of Proposition 30, an initiative raises sales taxes and boosts income tax rates on individuals making more than $250,000, has triggered highly visible and highly aggressive recruiting efforts to lure companies away from the Golden State.
In Arizona, the Greater Phoenix Economic Council launched the California 100 recruiting program in which it has offered to fly in on its dime CEOs of high-tech companies, corporate facilities with 200 or more employees or emerging technology companies with compelling intellectual property for “complimentary one-on-one tours” of the Phoenix region.
The effort is a marked departure for Phoenix, which in the not too distant past talked about California in softer teams – “Sure, your headquarters might need to be in California, but Arizona is a less costly location for manufacturing or distribution.” So much for the soft sell.
Texas has rarely shown a softer side when it comes to competing with California. Gov. Rick Perry made a swing through California last week to meet with business leaders and talk up the Lone Star State’s business environment and advantages.
The Texas One public-private partnership that promotes economic development in the state sponsored the trip and also paid for radio ads promoting Texas in five markets including San Francisco, Los Angeles and Sacramento. And the state has even taken its competitive case with California to social media sites like Pinterest.
California, to be sure, is vulnerable to the pitch from out-of-state suitors. It routinely shows up at the bottom of rankings for best states for business when cost of doing business and business friendliness are considerations.
Yet, for the all the hits that California has taken on its business climate, it’s important to remember that it still has an abundance of assets, a huge concentration of talent and a critical mass of innovation that makes it attractive, both as a place to grow businesses and a place to recruit them away. A $1.7 trillion economy (the ninth-largest in the world) gets you that.
Despite the state’s reputation for business environment, it landed two of its major metros – San Jose and San Francisco – among the top 25 on bizjournals.com’s latest ranking of best cities for small business vitality (No. 1 was Austin).
San Jose climbed 50 spots to take No. 1 among the 200 largest metros on the Milken Institute’s 2012 Best-Performing Cities ranking, which gives considerable weight to growth in technology GDP and concentration of tech firms in relation to the national average. Finishing 19th on that list was Bakersfield-Delano, not exactly known as a tech corridor, but as the Milken ranking noted, includes a “diversifying energy industry likely to attract emerging technologies and high-skilled labor.”
The Golden State has been the gold standard for corporate headquarters for the Fortune 500, and on the 2012 list, it has 53, best among all states. (Texas has 52, Arizona has six.) And California has them across a range of industries, from energy (Chevron) to grocery retail (Safeway) to semiconductors (Intel) to entertainment (Disney) to financial services (Wells Fargo).
The Arizona Republic, in examining the state’s business recruitment efforts in light of Proposition 30, noted that “wooing California companies out of the state is incredibly challenging. In booms or busts, very few companies leave California. Some industries such as the entertainment and software sectors are entrenched there. Workers are often attached to certain amenities.”
All true. But entrenched industries don’t necessarily stay entrenched forever. Ask Pittsburgh and Detroit. Or Los Angeles, where the film and television industry for years has faced a frontal assault from out-of-state locations where productions costs are lower and where generous incentives are being offered. And California’s globally known, locally grown brands, including Apple, Google and eBay, have made enormous investments in other states (including Apple and eBay in Texas.)
California has been king of the hill for a long time. And when you’re king, there will always be competitors out there looking to knock you off your throne. California has an army of assets in its fight, from talent to innovation to transportation to quality of place. But it also has a mountain of challenges and a growing list of challengers, and that ensures the war for recruitment will be fought on its soil for a long time to come.
What’s your take? How much focus should there be on out-of-market recruitment vs. building existing business in an economic development strategy? Share your thoughts.