Texas is the nation's top draw for companies seeking friendly business environment.
When Texas says it has created a business-friendly environment, it means it. And a wealth of comparative rankings underscores the state’s business vitality and appeal for site location, expansion and job creation.
Proof positive are listings that put Texas on top as a business destination. In 2012, CNBC named the Lone Star State No. 1 on its annual America’s Top States for Business list, which included cost of doing business, cost of living, workforce, education, infrastructure and quality of life among its criteria.
Texas was also the first choice of business decision makers on Chief Executive’s annual Best States for Business in 2012, where CEOs noted the state’s low cost structure and favorable regulatory environment among its major attributes. Site Selection magazine ranked Texas No. 3 on its 2012 Top State Business Climate list, on which it ranked No. 1 on the executive survey portion of the ranking. (Texas won Site Selection’s 2012 Governor’s Cup based on the number of capital projects in the state.)
“You go where the opportunity is,” says Joseph Vranich, principal of Spectrum Location Solutions an Irvine, Calif., corporate relocation services provider with a nationwide client base. “Companies are looking for a friendly business environment, which includes reasonable taxes and straightforward regulation.”
Texas meets those objectives on both fronts, with no personal or corporate income tax and a regulatory environment conducive to the needs of business.
Vranich says while the relocation and expansion trend is increasing all over the country, several states in particular, including California, have such a perceived negative business environment that he’s seeing a sharp uptick in the number of companies making major investment decisions or locations elsewhere.
To be sure, Texas has enjoyed great success in drawing investment and creating jobs from many different sources. It is a major destination for foreign direct investment and its track record of job creation through startups, expansion at existing businesses and relocation is impressive. Texas created 679,000 jobs between December 2009 and December 2012, more than any other state.
And state leaders have taken to the road to drive home the message of the Texas advantage. Then-Gov. Rick Perry spoke to business leaders across California in early 2013 to highlight his state’s cost advantages and overall business friendliness. In November 2012, California passed Proposition 30, which creates new brackets for higher-earning individuals and raises the state’s sales tax.
A number of California companies have found the appeal in a Texas ZIP code. In 2010, Vermillion Inc., a research and developer of high-value diagnostic tests used by physicians, relocated its corporate headquarters from California to Austin. In 2011, Xeris Pharmaceutics, a maker of injectable pharmaceuticals, moved its headquarters from California to Austin, citing, in part, California’s regulatory environment. That same year, home health services provider AccentCare shifted its headquarters to Dallas from California, in part because the CEO said Texas was more business friendly.
Texas continues to gain major investment and jobs from companies based in California, including some of the biggest names on the corporate landscape. Chevron announced in early 2013 that it would move about 800 jobs from its San Francisco headquarters to its operations in Houston. Google, Apple, eBay and Facebook all have a significant and growing presence in Austin, where 63 of the 225 corporate relocations between 2004 and 2011 were from California.
Texas Quality of Life
Quality of life is another key variable in relocations, both talent recruitment and retention, and if the sentiments of Texas residents are taken into account, they feel good about their state as a place to live and work.
Texas ranked in the top 10 among states on the American Dream State Ranking Report, the work of place-branding consultant Burghard Group in collaboration with Xavier University in Cincinnati. The report is based on research that includes survey responses to 139 statements that encapsulate various American “aspirations” ranging from economic conditions to overall well being to assimilation and diversity, trust in people and institutions, and the quality of air, water and food.
“In Texas, business friendliness is terrific, and depending on the community, costs of living are lower than elsewhere,” says Vranich. “As a consequence, costs of labor are lower. The benefit to that is a more stable workforce, because a person who can afford to own a home will stay with an employer longer than someone living in a crowded apartment.”
Schools are important as well. “Employees jump at the chance to leave Los Angeles to relocate to a community with a better educational system,” he says.
All the Right Infrastructure
Another significant selling point of Texas for companies reliant on exporting and importing is the state’s fully integrated transportation and logistics system, which includes 12 deep-water ports with channel depths of more than 30 feet. The widening of the Panama Canal to accommodate larger vessels, a project expected to be completed in 2015, will put the state’s Gulf Coast ports in prime position for increased activity.
According to Vranich, not only will access to ports along the Gulf Coast increase the efficiency of shipping containers for Asia, but also help companies avoid the more costly ports of Oakland, Long Beach and Los Angeles.
Energy costs are a driving factor in many relocations and expansions for every kind and size of company, making power another sizeable advantage for Texas. Vranich notes that it is the only state with an electrical grid not tied into the national grid system, helping avoid some federal regulations.
“Food processing operations in California are seeing their energy costs skyrocket because the state has implemented the cap and trade system,” he says. “They use lots of energy ““ gas for cooking and electricity for freezing ““ so there is a particular interest among them to go elsewhere.”
In addition, private power companies produce much of the energy supply in Texas, so they are often in a position to offer incentives or bargain over a rate, an incentive not necessarily available in other states.
“For eight years, California has been ranked by CEO magazine as the single worst state in which to do business, while it has scored Texas as the Best State for Business,” says Vranich. “That’s your contrast right there.”