As of yesterday Oracle Corporations announced that it will be moving its headquarters from Redwood City, California to Austin, Texas. The company said this will be in effort to create a more flexible approach to its workforce. As of now it is unclear what this will exactly entail. They will have a new HQ address in Texas, but they have no current plans to move any existing staff. Oracle is now just one of many other big corporations to flee Silicon Valley, including Tesla and HP inc. As to why companies are fleeing California in this era, there are three main reasons.
Firstly is political views. Many conservative executives are turning their back to Silicon Valley as they have issues with the region’s politics. The past 8 months have been politically polarizing which had probably increased this factor's strength in the decisions of these top executives. Larry Ellison, the co-founder of Oracle noted to have had a fundraiser in recent months to support Donald Trump's campaign.
The second factor is taxes. California has a state income tax of 13.3% for amounts of $1 million a year. On the other hand, Texas has none. They do not even collect capital-gains tax on individuals. While state tax is only one of the many expenses for Oracle, in the previous year Oracle reported paying $172 million in state tax. Coupled with the high cost's of living in California, Texas is a much cheaper option for these companies and their workers.
The last reason so many companies are moving is because of the pandemic. When the technology industry started to flourish many decades ago, the common thought was that in the future people would be able to work from anywhere. Given that everyone will have cell-phones, computers and cloud business communications centers, people could work together from all across the globe. While that is true, the opposite trend actually prevailed. Tech entrepreneurs consolidated in areas such as Silicon Valley because it was easier and more efficient to do business close by. Now with the pandemic, tech companies have been forced to work from home, and it has proven successful. Companies like Oracle now realize it is possible to work outside of Silicon Valley, and they are choosing to do just that.
Having grown up within sight of the Oracle towers, this move definitely hit close to home. It’s definitely something I think we will see more of in the future, and this is just the start of the exodus from Silicon Valley. I anticipate that many more companies will move to cheaper states like Texas or Seattle, and we will start to see more companies come about from other areas around the world.
What do you think about big corporations moving away from California to avoid state taxes?
Do you think that this is the start of a new trend? Or will the end of the pandemic bring us back to the same culture that we had before the virus?
Would a more spread out network of tech companies be beneficial to us? Or do we prefer to have an overly expensive, crowded, traffic filled peninsula?
12 comments:
Oracle leaving Redwood City is definitely another landmark in the general trend of large tech companies leaving Silicon Valley, not even directly because of the pandemic or ideological differences. Setting up business here in general is just hard for many startups and even smaller established companies; there's a lot of competition, the cost of having a brick-and-mortar office is astronomical, and there's very little benefits to keep companies in Silicon Valley during a pandemic now that all tech workers are stuck at home. As time goes on, we'll likely see this trend continue and tech industry influence in Silicon Valley decrease, since it does not seem like the U.S. will be back to business as usual anytime soon It'll definitely be beneficial for those already living here and not involved in the tech industry, but most people who are involved in the tech industry will have a harder time choosing where to go to work.
I think the biggest factor out of the three stated here are taxes; corporations are obviously going to do anything to save money. As stated above, there is a large amount of competition, so not only do businesses have a larger risk factor from increased competition, they also have a lower reward factor. This exodus is not limited to companies either; many Californians are fleeing the state due to increasing terrible conditions, including the highest tax rates out of the entire state, the rising ridiculously high housing costs, extreme traffic in the urban areas, wildfires, high poverty levels and increasing class disparities, and cities like San Francisco with poor sanitary conditions.
I recall an article from Facebook stating that remote occupation is the future and I don't think that is a false statement. Starting off with many major companies moving their headquarters from business rich areas such as the Silicon Valley and New York City into more isolated areas is definitely an economically driven motive. But this will set off more than just economic factors, the huge loss in revenue and eventual consolidation of companies in different areas could force policy changes in hopes of enticing certain companies back. They may have left because of the taxes, but companies will definitely stay because of the convenience of remote working. But this may have some positives since workers aren't strictly limited to only American enterprises, the bringing about of remote working will interconnect the world, and companies such as Roche and SAP that are from Europe may hire more workers from all over the world. I don't see this change as a bad thing, just an inevitability that brings about indications for the future.
As much as remote working may be a small consideration for companies who are moving, I think a much larger consideration is the cost of setting headquarters in different locations. Many states and cities actually provide tax incentives to make it more appealing for companies to move there... Companies are overall trying to stay profitable, and I think that the trend isn't necessarily new, and isn't changing. It may be accelerated right now due to the amount of economic change with the large changes due to COVID, but I think that this moving is following the same tendency of companies to look for the most profitable locations. Similarly to how you won't find Starbucks in the middle of the woods, you won't find tech giants and other companies throwing money where it is less profitable.
I agree with Vasilis that this trend of companies moving out of state isn't new and has been hovering over for a while. I agree with people above that mention that remote occupation has been an option for years in some fields and I think covid has reinforced the possibilities of it. During "normal years" there were always meetings that managers tried to convince to everyone were necessary to be in person. However the work from home policy has shown to be as efficient (more specifically in the tech field) for many as it was in person proving that meetings that were once deemed too important to happen over a conference call are now comfortably happening over zoom. I think this restored confidence in Oracle's decision to move. Apart from that, I think the finances obviously play a big deal especially for companies that are trying to maximize their revenue during these times. Tesla also recently moved although I think that also had to do with the fact that California guidelines were stricter for covid compared to Texas.
When the pandemic first forced businesses to close in-person offices and rely on remote learning, many with the luxury of working from the safety of their own homes have chosen to continue at home, even when companies began welcoming back their workers. It is definitely interesting to see how technological access combined with the safety precautions of the pandemic has led many companies to permanently allow their workers to remain at home. It is clear that such tasks can be performed away from the physical office buildings, and I truly see this remote working as the future of many big corporations. Oracle is definitely not alone in this move, as many other Bay Area technology companies are also considering plans to leave Silicon Valley due to high taxes, and political tensions, among other deterrents. Ironically enough, Silicon Valley was started in the 1980s-90s by tech companies leaving Texas(largely affected by the Dot-Com burst), and today, mainly due to overregulation, stubborn taxes and the decreased necessity for workers in offices, the companies are moving back to Texas.
https://californiaglobe.com/section-2/bay-area-based-tech-company-oracle-to-leave-california-for-texas/
According to Hoover Institution, just between 2018 and 2019 (major economic boom years), 765 commercial facilities left California. An estimated total of 13,000 businesses have left California between 2009 and 2016. The most common reason for leaving has always been economics -- cost of living is too expensive (it is 50% higher than the national average), and the taxes and regulations are simply too high. In fact, The Tax Foundation ranks California 48th in terms of business climate, and also in regulatory burdens. In general, since the California government is notoriously business-unfriendly, I can see why so many companies and founders are choosing to shift their businesses out of California. Since Silicon Valley is such a "hub," I do find myself wondering where new tech "hubs" will begin popping up around the country.
https://www.hoover.org/research/california-businesses-leave-state-thousands
When first reading the heading for this article, I was pretty surprised. Oracle was situated in the heart of Silicon Valley, the center for technology, and for them to just up and leave seemed weird to me. Although I don't completely think it was the best idea accessibility wise, I do see how large of a factor taxes could have been in the decision-making process. With the pandemic on top of California being extremely expensive in general, moving to Texas definitely seems like a key way to save a lot of money.
I also thought it was interesting how the article pointed out that a lot of other big tech companies have been slowly moving away from California. I wonder what the future is going to hold for Silicon Valley. I never really thought about the companies there dispersing and always took it for granted that I had such good access to so much of the engineering and tech industry. With the strength and improvement of technology these days, I don't think communications between companies will be an issue as it's no longer hindered by proximity, but I do wonder about collaboration. Being in an environment with a lot of other innovative minds aids in the inventing and creating process and I would be interested in knowing how much of an effect being in a tech capital has on the companies and their employees.
I appreciate the impact that Oracle's big move, as well as the mobilization of other big tech companies, will have on the area, but I am less keen on their rationale. Big Tech's presence in the Bay Area has driven up the cost of living and contributed to gentrification. Perhaps, if this pattern of migration continues, Bay Area residents will feel this impact less acutely; then again, maybe not. At this point, the high-powered tech culture might be too integral to the DNA of this region.
I am a bit disappointed, though completely unsurprised, to learn that corporate greed played a significant role in this decision to move. Of course companies are looking to maximize profits, but knowing that much of that profit benefits the already-wealthy company executives, the move seems to most tangibly benefit the leadership rather than the flexibility of the workforce, as they claim.
Overall, I see the positives to expansion and mobilization. Perhaps the moves will help balance out the Bay Area economy, but if other "hubs" pop up around the country, as previous commenters predict, those places may experience the same boom and resulting economic impact.
I think it makes a lot of sense for companies to move away from California especially since the state income tax is so high in California. It makes a lot more financial sense for these companies to move to states where the taxes aren't extraordinarily high or states like Texas where there aren't any state taxes. Since these tech companies can afford people to work from home it doesn't really matter as much where their HQ is located--whether CA or Texas; it doesn't really matter since employees will be working from home. I think the pandemic has also shown many companies that it is possible for employees to work from home and that they don't necessarily have to stay in Silicon Valley. I have been seeing a lot this trend of large companies moving out of CA and people wanting to move out of CA. With the highest taxes, bad government regulation and management, increased homelessness in places like SF and LA over the years, I am not very surprised why many people are migrating to other states. I think it has been so great that I have experienced growing up in an environment surrounded by the advancement of technology and innovation here in Silicon Valley. However, I also think that this mobilization of large companies is a positive thing. Like Simone said, these companies will bring their economic and technological impact to other states and help other states across the US flourish as well.
It's not surprising that companies like Oracle are moving out of state to avoid the overly high state taxes. Financially, companies pay a big price to be in the well-known location of Silicon Valley here in the Bay Area. I think the reason why all these big companies even gathered here was not because of its convenient location but also the reputation the area has. Now that with the pandemic, many companies see that remote work is much more efficient and doable compared to the theories several years ago. This means that companies that already have a strong reputation no longer need to rely on the location for it to operate. They can move their company to a much more affordable place while keeping the same workers. Also, this would make the hiring process not limited to people from the Bay Area. I used to intern at a data warehousing company and now they're able to hire data scientists and engineers outside from the US because of the advancement in remote work. Some smaller startup companies are still able to operate without an actual office. I like to think of this advancement as one of the positives of this pandemic. I do see that companies moving out of the Valley as a possible trend in the future since there are fewer restrictions on their operating methods.
I think it is natural for corporations to want to leave California for the sake of avoiding state taxes. Under America’s free-market economy, businesses are always competing against each other, so it makes sense for them to take every advantage to maximize their profit. Unlike other unsavory business practices that give capitalism a corrupt reputation, I don’t see this move as anything particularly controversial or immoral. However, I don’t see this as a trend that will fundamentally change the nature of Silicon Valley. Although it is true that location matters less in the field of technology than it does in other industries, corporations still rely on the human element to succeed. Face-to-face networking is invaluable in the world of business, and I don’t see the COVID-19 pandemic changing that. For the same reason that corporations and interest groups meet with politicians in Washington to lobby for their goals, I believe that businesses will still converge around Silicon Valley to innovate and negotiate.
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