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HOME IS WHERE THE TALENT IS

ECONOMY: Fortune 500 List: Orange County 7, San Diego County 2

By Brad Graves

Newly released 2010 census data shows San Diego County has 3.1 million residents and Orange County has slightly more than 3 million. How do these adjacent areas of Southern California compare when it comes to corporate headquarters?

There are slight differences.

There are 71 San Diego County-based public companies with market capitalizations greater than $25 million. In Orange County, there are 64 such businesses.

Fortune Magazine’s Fortune 500 list includes two companies with headquarters in San Diego: Qualcomm Inc., which reported $10.4 billion in 2009 revenue, and Sempra Energy, which reported $8.1 billion in 2009 revenue. Fortune’s latest list ranks the top 500 U.S. public companies by 2009 sales; generally a company needed $4.1 billion in revenue to make the list.

For 2010, Qualcomm reported revenue of $10.99 billion, while Sempra said its revenue grew to $9 billion.

There are seven Fortune 500 headquarters in Orange County. Ingram Micro, a Santa Ana-based computer products distributor, is the whopper, with $29.5 billion in revenue.

The list also includes biotech Allergan Inc. — the maker of Botox — tech companies Broadcom Corp. and Western Digital Corp., financial services companies First American Financial Corp. and Pacific Life Insurance Co., as well as Spectrum Group International, which deals in precious metals and other collectibles.

An Accident?

The fact that Orange County has more Fortune 500 companies than San Diego may be more of an “accident” than anything else, according to Murray Rudin, an Orange County-based partner with Los Angeles-based private equity firm Riordan, Lewis & Haden.

Rudin and other observers noted that Orange and San Diego counties share an entrepreneurial spirit.

Paige Webster, who advises companies on site selection with Phoenix-based Foote Consulting Group LLC, can cite the merits and drawbacks of a number of cities in the western United States. “San Diego could improve on venture capital,” Webster said, noting there might be more of it available in Orange County.

Capital providers often want to be physically near company headquarters, which fills up buildings in financial centers such as Atlanta, Chicago and New York.

One of the publications that keeps score in the economic development game is Atlanta-based Site Selection Magazine. The Conway Data Inc. publication said March 1 that the Chicago region ranked as the No. 1 place to build a plant in 2010, with 184 new or expanded facilities. Houston ranked second with 152. No California community made the list.

Companies in Orange and San Diego counties are very similar in that they draw from the talent generated by area universities, said Esmael Adibi, chief economist for Chapman University in Orange. In Orange County’s case, Adibi said, it’s UC Irvine, Cal State Fullerton and his employer.

Seeking Technical Know-How

A concentration of people with technical know-how in a particular field will practically force companies to set up shop there, Adibi said. Biotech and biomedical companies draw from talent generated by UC San Diego in the same way that computer technology companies draw from Silicon Valley’s talent pool. Like San Diego, Orange County has specialized industry “clusters” in computer technology as well as medical instruments and biotechnology.

A large factor in where companies make their homes is where the chief executive officer wants to live, Rudin observed, though that may apply more to startups than to large public companies.

Mergers and acquisitions affect corporate headquarters, Adibi said, noting that Orange County is likely to lose biomedical company Beckman Coulter Inc. with its pending acquisition by Washington, D.C.-based Danaher Corp.

San Diego and Orange County share one other cluster with California DNA: a vibrant action sports and apparel sector.

Orange County is home to publicly traded Pacific Sunwear of California Inc. as well as Quiksilver Inc. San Diego County has firms such as Orange 21 Inc., which distributes Spy Optic glasses and related products, and Nixon Inc., which distributes watches.

Some San Diego County companies stay where they are first planted, and flourish.

WD-40 Co.’s namesake lubricant was invented in San Diego in the early 1950s. Now with manufacturing outsourced and half its business outside the United States, the company finds itself in a good location to talk to the rest of the world. WD-40’s 120 local employees can make phone calls to Europe during the mornings and Asia in the afternoons.

“The next best place to be is Hawaii,” said Garry Ridge, WD-40’s president and chief executive officer.

Some big companies find San Diego suits them as a headquarters or major division site. In 2009, Sony Electronics Inc. finished an 11-story, 450,000-square-foot tower in Rancho Bernardo to house its North American headquarters. Sony, which transferred the headquarters from New Jersey in 2004, employs 2,000 people locally, according to the San Diego Business Journal’s 2011 Book of Lists, which ranks it as the region’s 33rd largest employer.

Sometimes a firm finds San Diego no longer meets its needs.

SAIC, a homegrown defense contractor, moved its headquarters to Virginia in 2009 to be closer to its federal government customer.

Courting Motorola Mobility

San Diego’s desirability as a site for corporate headquarters is a hot topic in the early part of 2011. Regional leaders have been courting Motorola Mobility Inc., a maker of tablet computers and cell phones, and one of two entities that came out of Motorola’s split in half at the start of 2011. The firm already has 800 employees in San Diego. CEO Sanjay Jha was previously a high ranking executive with Qualcomm Inc.

Julie Meier Wright, president and CEO of the San Diego Regional Economic Development Corp., said her agency responded in mid-October to a formal request for proposals from Motorola Mobility for a corporate headquarters. Two months earlier, a who’s who of San Diego executives made a sales pitch to Motorola, aided by then-Gov. Arnold Schwarzenegger.

In an interview last week, Wright offered little new information on the effort to attract Motorola Mobility. Illinois and Austin, Texas, are also reportedly bidding for the headquarters.

6 Factors

Typically when company leaders think of prospective locations, they evaluate several fixed costs, including labor, transportation, utilities and real estate, said Paige Webster, a site selection consultant with Phoenix-based Foote Consulting Group LLC.

Two other things go into the analysis. There is the incentive package that a local government can pull together. That is a variable cost. But it’s an objective measure.

The sixth factor swings the decision over into the subjective realm. That’s quality of life. When evaluating the merits of a location, such as whether Denver is a better place than San Diego, different people will give different answers, Webster said.

Duane Roth, chief executive officer of Connect, an organization that helps entrepreneurial companies in the region, said he’s inclined to agree with former U.S. Senate candidate and former Hewlett-Packard Co. chief Carly Fiorina when she was asked where to build a company.

“Easy,” Roth said, paraphrasing Fiorina. “Put it where the talent wants to live.” What motivated Gateway Inc.’s Ted Waitt to move his personal computer company to San Diego in 1998, Roth said, was a realization that top-end talent did not want to live in the region around North Sioux City, in South Dakota. Gateway, incidentally, moved to Orange County in 2004.

Balancing Act

Hewlett-Packard is one of Sony’s neighbors in Rancho Bernardo, having been there since the 1960s. The complex serves as headquarters for HP’s Imaging and Printing Group. The Palo Alto-based company employs more than 1,000 people there; HP does not disclose precise employment numbers.

The company is paying a price to have its talent in San Diego, acknowledged Glen Hopkins, a vice president and general manager for HP.

“It’s a balancing act,” Hopkins said of HP’s effort to spread employees over high-cost and low-cost areas.

Its local work force concentrates on innovation, including new products and technologies, not to mention new business models. It also works on prototype products. When it comes time to produce a product in bulk, or do other work, HP goes elsewhere. It can choose among facilities in Idaho, Oregon and Washington, not to mention India and Israel.

Hopkins said HP is in San Diego for the talent. So do representatives of chipmaker Qualcomm and fast-food franchiser Jack in the Box Inc., both homegrown companies that have not seen a need to uproot their headquarters. San Diego provides a certain quality of people and great quality of life, representatives said.

Good Place to Be

General Atomics has called San Diego home since its founding in 1956 as a unit of General Dynamics Corp. Now private, GA ranks 12th on the Business Journal’s Largest Employers list with 5,838 employees as of Aug. 1. By now, that number has exceeded 6,000, including its division that produces unmanned aircraft, said spokesman Doug Fouquet.

The company is not thinking of leaving, Fouquet said. As a matter of fact, aircraft-maker General Atomics Aeronautical Systems Inc. moved into larger quarters in Poway in 2008.

Other notable companies based locally are Sempra Energy and Life Technologies Corp.

Sempra ranks 13th on the Largest Employers list with 5,258 local employees. Sempra, which started as San Diego’s electric utility, eventually took on the Los Angeles-area natural gas system and branched into unregulated energy businesses. It has stayed in San Diego despite the fact that the area is not an energy center on the scale of, say, Houston.

Life Technologies is among the biggest businesses in the county’s important biotech sector, with 1,700 employees in the region.

Another company rooted in local infrastructure, AT&T reports more than 3,500 employees countywide.

A relative newcomer with a growing headquarters is Bridgepoint Education. Company representatives declined an interview, but Bridgepoint is publicly traded and recently told shareholders to expect revenue growth in 2011. Bridgepoint also occupies an increasing amount of local building space.

So despite California’s notoriety as an expensive and difficult place to do business, big companies have reasons to stay in San Diego.

“If you’re talent intensive, you’ve got to go where the talent is,” Roth said.

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