Nestlé announced last week it is moving its US headquarters from California to Arlington, Virginia. We see similarities to other recent headquarters moves, yielding lessons for communities seeking to attract or retain these high profile activities.
Corporate strategy and talent are more important than incentives
Incentives are meaningful but they rarely drive the decision to make an expensive and disruptive corporate headquarters move. In Nestlé’s case, the company explained that locating closer to its customers, stakeholders and the global corporate headquarters in Europe were all important factors. According to executives, 80% of US products are sold in the eastern part of the US, which is also home to 75% of Nestlé’s US factories. The company also values the ability to “collaborate . . . with other important stakeholders in Washington and on Capitol Hill.”
Talent is also critical. Northern Virginia’s good schools, housing and transportation options reportedly played into the decision. Executives praised the size of the existing talent pool, the region’s attractiveness for current employees expected to relocate, and the ability to attract future workers. The building in which Nestlé will lease over 200,000 SF of space “was chosen for its centrality in the DC region, available workforce and accessibility to major transportation venues.” Other reports emphasized the need for a building that would provide “a sense of place and visibility,” in addition to a location for attracting and retaining top talent. These are also themes we saw driving Marriott’s decision to relocate its headquarters within Bethesda, MD.
Coordinated state and local incentive offers are necessary for success
The new operation involves approximately 750 jobs and a $40 million investment in the buildout of 200,000 SF of leased space. Virginia and Arlington are offering a combined $16 million incentive package to Nestlé. This includes $10 million in grants from the state ($6m from the Commonwealth Opportunity Fund and $4m from the Virginia Economic Development Incentive Grant), and $6 million from Arlington. It has also been reported that the state will provide funding and services for training through the Virginia Jobs Investment Program. Arlington’s incentives are built around a $4 million performance grant (IDA Performance Incentives) and $2 million in infrastructure investments focused on Metro, transportation and enhancing the space near the building.The County will also provide relocation assistance to current Nestlé employees. A similar level of cooperation lay behind the successful incentive offers made to GE in Boston and Marriott in Maryland.
HQ moves often connect to corporate culture change or reorganization
Corporate headquarters relocations often signal a desire to change corporate culture or focus attention on new markets, as Hilton CEO Christopher Nassetta recently explained regarding his company’s headquarters relocation from California to Northern Virginia. As we’ve explained in our own posts on GE’s move from Connecticut to Boston and Mercedes-Benz USA’s relocation to Atlanta, it can also be chance to reorganize to serve growing markets more effectively. This seems to be the case for Nestlé, with the Greater Washington region better situated to enable Nestlé’s desired collaboration with its US operations, customers, government officials, and global activities. Similar to the GE move, Nestlé is also taking the opportunity to redistribute certain activities that had been conducted at its Glendale, CA headquarters to operations in Ohio and Missouri.
Do negative experiences push companies away?
As we’ve written before, business climate matters but perhaps not in the way we typically think. While overall tax and regulatory environment are relevant, it appears that negative company-specific experiences may play a larger role in a relocation decision. Again citing the GE and Mercedes moves, each had had a unique, targeted negative interaction with state officials in its original HQ location. Articles on the Nestlé announcement also mentioned that the company had been criticized in California for bottling water during the state’s drought and subject to at least one lawsuit.
For more information, including the sources quoted above, please see:
Nestlé to move US headquarters to Arlington, bringing 750 jobs
Nestlé to anchor long-vacant Rosslyn skyscraper
Northern Virginia wasn’t the obvious choice for Nestle, exec says, but it was the right one
Nestlé U.S. relocating HQ, more than 700 jobs to Rosslyn
Governor McAuliffe Announces Nestlé USA to Relocate Headquarters to Arlington County