For more than two decades, California’s Silicon Valley has been the global epicenter of technological innovation. If you were a business in the tech sector and you were not headquartered somewhere in the region or in San Francisco, you were not a member of the elite corporations that called California home.
Some of the largest technology innovators and global brands called California home. The liberal culture of the state and early programs to support tech development and entrepreneurs were effective. And California became the birthplace or growth center for businesses like:
There has been a notable mass-exodus of both American professionals and corporations from California. Some of the impetus for this corporate exodus from California has included punitive taxes for large corporations. Other factors including increased cost of living, and lack of affordable housing could make recruitment in Silicon Valley and San Francisco difficult. Environmental damage from wildfires has also contributed to concerns about living, working, and operating a business in California.
The state of California has also made legislative changes that make hiring a contractor difficult. Coupled with political changes and suspension of H1-B work visas, technology companies experienced human capital difficulties. Cumulative changes have flipped the narrative of California as a state that is supportive of entrepreneurial growth, to a region that heavily penalizes large companies. And to the detriment of the state, businesses have been slowly migrating out of California to Texas.
The Shift to Remote Work is Reshaping the Necessity of a Head Office
The Covid-19 pandemic has created a sweeping impact across every industry and sector. For non-manufacturing industries, safety measures have involved adopting work from home accommodations. Employees and functions that could adapt to remote work have successfully adopted the model.
At first, the idea of sending employees to work from home was viewed as a temporary measure. Businesses have always feared that work from home arrangements could mean a loss in productivity. And provide additional challenges in terms of supervision, and team morale, with distance work.
Some studies have estimated that for the average company, 40% to 60% of desks remain vacant. That is because remote work has slowly become the norm for many professionals. Particularly in the tech industry. Web developers and code writers are more than capable of working from home. And many have done so for their employer for years.
The improvement in communication technology has been another important factor. It may seem laughable now, but the first wave of work from home employees relied on paper files, and folders. Now data transfer is secure and 100% electronic. Employers provide a VPN system to ensure network security and VOIP phones connected to office extensions. Technology has made working from home seamless and efficient.
And now businesses are looking at the long-term benefits of a remote workforce. The requirement for less office space can present tremendous savings opportunities. Just the kind of cost-cutting measure that can help businesses most impacted by the pandemic to navigate to economic recovery. The days of large corporate buildings may be numbered, in favor of smaller administrative and management offices instead.
American Technology Companies That Announced Migration of Headquarters to Texas
The state economy of California has long relied on the affluence of the top 1% of its residents. The current income tax for most California residents is 13.3%. A new measure called AB 2088 has been proposed which would create a precedent-setting tax on net worth. It would be the first state to do so in America.
The AB 2088 proposition would place an additional 0.4% tax on all net worth above $30 million dollars. According to a report from Forbes, the ‘wealth tax’ would impact bout 30,400 Californians and raise approximately $7 billion dollars annually. What is very harmful to multinationals headquartered in California, is that the tax includes all assets and liabilities globally. Not just earned revenues in the state.
While California moves full steam ahead it will have a tremendous impact on corporate business owners, Texas has looked more appealing. There is no state income tax in Texas. Residents pay only Federal tax. Commercial land is more readily available, and at a substantially lower cost in Texas, compared to California.
Texas does not impose an income tax on corporations either. The state does have a corporate franchise tax that is calculated based on earned surplus revenues. The corporate franchise tax is calculated based on the greater of 4.5% of earned surplus (gross receipts) or 0.25% of taxable capital. Access to America’s busiest port of trade (Houston) means ease of imports and exports as well. Computer components are currently one of the top four exports for Texas.
Elon Musk has been very vocal about his disdain for Silicon Valley. And for the unhospitable new labor and tax climate of California. The technology entrepreneur has moved the Tesla headquarters to Austin Texas. While Tesla did not uproot all business presence in California, Elon Musk stated that he felt Silicon Valley had far too much influence on technology. And that the state had stopped trying to accommodate businesses, and perhaps, took large tech corporations for granted.
Austin Texas has been slowly growing the number of large technology corporations that call it home. Like Tesla, Oracle has decided to uproot its headquarters and move it to Texas in 2021. Some of the motivations leading Oracle to the move are focused on retaining valuable human capital by providing flexibility.
Oracle employees (whether full-time or part-time) will be able to choose where they want to live. f the cost-of-living situation in California is difficult for an employee, they can opt to transfer to the new Oracle Austin location. And the benefits of the lower cost of living, while retaining their job.
The Austin campus of Oracle first opened in 2018. Oracle retains the office in Redwood City California. The tech giant also has locations in Denver, Colorado, Seattle, Vermont, Orlando Florida, and a second location in Santa Monica, California.
Strategically, if Oracle has a presence in every major marketplace in the United States, it has a tremendous competitive advantage. Rather than trying to import talent (or convince professionals to move to expensive California), Oracle and seek and retain leading tech professionals at multiple locations. And providing the ability for employees to transfer to a new location is a powerful employment perk and benefit.
3. Hewlett Packard Enterprise
Did you know that Hewlett Packard is frequently referred to as the tech giant that started Silicon Valley? Facebook is just a ‘new kid on the block’ when compared to HP. The company originated in 1938 and operated from a residential garage in Palo Alto, California.
In December, Hewlett Packard announced the move. Instead of moving to Austin like many of the corporations exiting California, HP chose Houston. Hewlett Packard Enterprises now has its largest employment hub at the Houston location.
California is not the only state to have an efficient import and export system for seafaring goods. The Port of Houston in Texas is the highest volume port of trade in America. And since HP does robust business for computer parts and components, being close to the Gulf trade routes is beneficial. The company is also constructing a new campus in Houston, which features a tech café and corporate training facilities.