The FDI angle:
- Companies' investments are driven by a multitude of factors.
- Decisions by businesses to relocate to/from a location indicate its positive/negative attributes.
- Why does this matter? Locations that secure relocation projects tend to be attractive to foreign direct investment (FDI).
US history is punctuated by westward in-migration. In the 19th century was the California gold rush. In the 1930s, more than half a million people left Dust Bowl states for California. The 2020s are so far proving to be a reversal of this historical trend.
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Decisions to move away from California by entrepreneur Elon Musk and podcaster Joe Rogan are just the tip of the iceberg. Corporate relocations — when a company moves their operations from one US state to another — prove this point.
A quarter of the 680 relocations in the US tracked since 2019 were by companies leaving California, according to fDi Markets. Meanwhile, Texas attracted almost a fifth of company relocations in the past five years, closely followed by Florida (13%).
This data reflects a move by many companies to set up in more favourable operating environments with lower taxes. Texas has no individual or corporate income taxes, but does impose a tax on companies’ gross sales. Florida has no personal income tax and a relatively low corporate income tax rate of 5.5%.
Texas’s “very low tax structure”, combined with a pro-business regulatory climate and affordable living, has helped attract companies and talent from other states, says Willie Hornberger, a Dallas-based partner at law firm Jackson Walker.
This has also been a draw for foreign companies. The Lone Star State attracted an all-time high of 234 greenfield foreign direct investment projects in 2022, fDi Markets figures show, while preliminary data for 2023 shows another strong year.
More data trends to watch:
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Site selection consultants, who advise companies on where to invest, argue that relocations are increasingly driven by in-migration of workers to states like Texas and Florida.
“Companies follow where they can find labour,” says Paige Webster, an Arizona-based site selector with his own practice, Webster Global Site Selectors. This is shown by the motives cited by companies as to why they relocate. Almost half (47.7%) of US relocations since 2019 cited “skilled workforce availability” as a reason for the decision. This was closely followed by regulations (31%) and proximity to markets or customers (31%). These motives had to be mentioned by companies or their representatives when announcing the relocation projects. In many cases, more than one motive or determinant is recorded for projects.
Most of the corporate reshufflings are offices. About 80% of the relocations tracked since 2019 were companies moving their headquarters from one US state to another.
Tech companies accounted for the highest number of relocations, followed by the industrial equipment, business services and consumer products sectors. Alongside lower operating costs and talent availability, the pace at which states can facilitate corporate expansion has been another draw for companies.
“Being able to move at the speed of business is very important,” says Monty Turner, senior vice-president at Colliers International, a commercial real estate services firm. Many companies are aiming to “get up and running as quickly as possible”, adds Mr Turner, particularly as deadlines loom to get access to federal funding.
Ready-to-go sites, buildings and faster permitting have been other reasons for companies relocating to other states. Tennessee, which has attracted the third highest number of relocations since 2019, is a good example with its certified sites programme.
Mr Webster says that the state has “done a great job” in providing almost “ready to go” infrastructure, which has helped it to attract companies. The next cycle of movement within the US is already looking to be very different from the past.
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