With Broadcom exit, headquarters flight from Southern California continues

May 29, 2015


By Tiffany Hsu and Jerry Hirsh May 29, 2015

Some experts say the loss of corporate headquarters rob the region of prestige

Irvine chip maker Broadcom Corp. is the latest of many corporate headquarters to exit Southern California, leaving the business community puzzling over the causes and effects.

The technology stalwart — set to be sold for $37 billion in cash and stock to semiconductor rival Avago Technologies — launched in Santa Monica in 1991 and then moved to Orange County in 1995.

After Thursday's transaction, the company will be incorporated in Singapore, mostly for tax reasons, but its principal operating headquarters will be in San Jose. A significant presence will remain in Irvine.

Some experts say the loss of corporate headquarters and their influential business leaders rob the region of prestige and hampers its ability to attract other companies and workers. Others counter that such losses mean little beyond bragging rights, especially in cases like Broadcom, where the merged company is expected to leave the bulk of its workforce in place.

"It's kind of an ego boost, almost a macho thing, counting the big wigs and headquarters in town," said Christopher Thornberg, founding partner of Beacon Economics.

Although business advocates and economists argue over the effect of lost headquarters, it's clear that Southern California has seen a run of major corporate departures in recent years. Whether that reflects poorly on the local business or regulatory climate is a more complicated question.

Corporate headquarters defect from Southern California for two reasons: by choice or by acquisition.

Last year, Toyota Motor Corp. said it would move its sales and marketing headquarters to suburban Dallas from Torrance, and Occidental Petroleum Corp. moved its headquarters from Los Angeles to Houston; and Irvine-based Botox maker Allergan Inc, was taken over by Irish firm Actavis and its headquarters eventually relocated to Dublin.

Earlier departures included DaVita Inc., which operates kidney dialysis service centers and decided in 2009 to move from El Segundo to Denver. The next year, Northrop Grumman Corp. said it would jump ship from Los Angeles to Falls Church, Va.

Companies that choose to move "are saying something negative about the business environment in Southern California," said Aaron Renn, senior fellow at the Manhattan Institute for Policy Research.

But the loss of headquarters through acquisition, as with Broadcom, is just part of business. Big companies are buying and selling each other faster than ever before, thereby shifting their headquarters around the globe.

"The shelf life of a Fortune 500 company is shorter than it has ever been, so you are going to see a lot of transactions like the Broadcom one," said Greg LeRoy, head of nonprofit research center Good Jobs First.

A change in ownership at Broadcom does not mean that jobs and wealth are leaving, said Linda DiMario, senior director of economic development and tourism at the Irvine Chamber of Commerce. To the contrary, she said, Broadcom has pledged to continue with expansion plans in Irvine after the merger.

The company announced last year that it would build a new 1.1-million-square-foot campus in the massive Great Park Neighborhoods development.

Globalization is changing the role of headquarters as local corporate citizens, said Saskia Sassen, a Columbia University professor.

Giant companies now operate far-flung operations with small corporate staffs, bringing in consultants, legal experts, accountants and other specialized vendors when they need them — and not necessarily in the home city, she said. Cities such as Chicago, which bled corporate headquarters during in the 1980s and '90s, have remained vibrant economies, Sassen said.

Southern California is still home to business giants such as Walt Disney Co., Ingram Micro Inc. and Qualcomm Inc. In 2000, 28 Fortune 500 companies were headquartered in Southern California. In 2005, there were 26 companies.

Last year, 24 top companies were based in the region, including Broadcom, Allergan and Occidental.

Some economists see the departures as cause for alarm. The Southland could lose skilled workers, philanthropic benefits and business cachet that come with hosting Fortune 500 companies, said Esmael Adibi, director for the Anderson Center for Economic Research at Chapman University.

"A community that loses a headquarters faces pretty bad stigma," he said. "The types of jobs that are going to disappear are high-value-added, with wages and salaries usually above the average for the area."

Others are skeptical that such corporate moves signal regional business turmoil or a need for regulatory reform.

Southern California has long relied on small-to-medium-size businesses to drive its economy, said Robert Kleinhenz, chief economist with the Los Angeles County Economic Development Corp.

Last month, the government recorded 5.8 million nonfarm workers in the Los Angeles and Irvine metropolitan areas, 2.6% more than a year earlier. Despite being one of Orange County's major employers, with thousands of workers, Broadcom represents a tiny fraction of the total, and it may not even lose workers under new management.

Southern California also has several expanding businesses — many of which fly under the radar because they aren't public companies — which are stepping in as others fall to acquisitions or relocations.

SpaceX, the Hawthorne rocket company founded by L.A. entrepreneur Elon Musk, has grown in a decade to about 3,000 employees, most in Southern California. British engineering firm Meggitt established a new U.S. headquarters in Irvine last year and has grown rapidly to 420 employees. TrueCar.com, a digital auto sales portal in Santa Monica, has almost tripled its revenue in the last three years and grown to 500 employees.

"The fact is," Kleinhenz said, "many other indicators are telling us that this economy is at least doing well, if not thriving, and growing faster than other places around the country."