Fare Thee Well, Company Town

Corporate headquarters are no longer a marker of economic prowess.

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And then there were two.

The news that investment mogul Warren Buffet agreed to purchase Precision Castparts is a compliment to the company’s prowess in advanced metals and a vote of confidence in its future. Yet for many the sale feels like a blow to the state’s often fragile business ego. As Precision Castparts moves from being a publicly traded, independent firm into the conglomerate that is Berkshire Hathaway, Oregon goes from having three Fortune 500 firms to having just two: Nike and Medford-based Lithia Motors.

The headcount of locally headquartered Fortune 500 firms has a certain talismanic quality in some circles. Just as you can’t be “major league” without an assortment of professional sports franchises, you’re somehow less of an economy if you don’t have a lot of headquarters of companies that make the Fortune 500 list. In an unscientific Oregon Business poll in August, 80% of respondents agreed that Oregon “needs more Fortune 500 headquarters.”

The good news is, as with so many of his investments, Buffett’s purchase of Precision Castparts is a strong vote of confidence in its management, strategy and long-term growth prospects. Based on his track record, Oregonians can reasonably expect a robust future for this homegrown, high-tech metals firm.

But just as the lack of a major league football or baseball team is considered an indicator of civic inferiority, is the fact that Oregon is down to just two Fortune 500 headquarters a measure of a feeble economy and business climate? Is it time for Oregon’s economic development professionals to get busy and recruit some other headquarters to take its place?

The short answer is no. The days when a big corporate headquarters was a sure fire marker of economic prowess are long since gone.

While Fortune 500 companies — and their headquarters — are frequently mentioned as targets of economic development, what is often overlooked is that most of the employment at Fortune 500 companies is not located in or near their headquarters. Most is located near customers, and some near production centers. Among the largest Fortune 500 companies, the typical headquarters operation accounts for less than 5% of companywide employment. Headquarters operations are much leaner and employ fewer people than during the heyday of large, vertically-integrated, multi-divisional corporate structures. In fact, for the large national and global retail, finance, and distribution firms that are the employment leaders among the Fortune 500 (Wal-Mart, McDonalds, Target, Citigroup, UPS, Home Depot), headquarters jobs account for less than 3% of total company employment. Most jobs are highly decentralized, close to end customers.

Total and headquarters employment of largest employers in Fortune 500
Job rankFirmFortune 500 rankTotal jobsHQ jobs% HQ
1Walmart Stores12,055,00014,0000.7%
2United Parcel Service46425,30010,0002.4%
7Sears Holdings45337,0005,7001.7%
8General Electric6327,0005500.2%
11Home Depot22276,3859,6523.5%

Consider Oregon’s largest private employer, chipmaker Intel. Its headquarters is still in Santa Clara, Calif., but the firm’s Oregon operations are its biggest center of employment. It gets more patents from Oregon than anywhere, it pioneers new generations of chips and chip-making technology at its giant, multibillion-dollar Ronler Acres complex, and it is home to many of the firm’s most important business units. What we lack is the mailing address of the corporate HQ.

A quick perusal of the city-by-city listings of corporate headquarters reveals a fundamental fact: Fortune 500 headquarters are homegrown—not imported. Cities are generally home to a big headquarters, because that’s the locale where the firm was founded and flourished. It is extraordinarily rare for a big headquarters firm to relocate to a different region.

The way other communities have gained new Fortune 500 firms is to have successful local entrepreneurs. An analysis of data on the origins of Fortune 500 company headquarters illustrates this process. In Seattle the growth in Fortune 500 headquarters over the past few decades has come entirely as a result of local entrepreneurship; Costco, Microsoft, Amazon, Starbucks and Nordstrom have all been in Seattle since they were started or had just a handful of employees. The same was true for Boeing, when it started some 90 years ago.

But even if having a bevy of Fortune 500 firm headquarters in your town was a big deal, it’s a highly doubtful proposition that you could get many of them through industrial recruitment efforts. Not only are such relocations rare, they seldom bring many jobs. The most widely publicized headquarters relocation of the past decade or so (Boeing’s move from Seattle) netted the City of Chicago a total of 400 jobs.

So set aside the ego for a moment and consider the facts. Buffett’s acquisition of Precision Castparts is a ringing endorsement of the company’s success and suggests a bright prospect for its future locally. It looks like a good deal for shareholders and for those who want to see more Fortune 500 companies in Oregon. Look to start and grow businesses here, and don’t expect to lure them from somewhere else.

  • Joe Cortright is an economist for Impresa, a Portland consulting firm.

Sellout state?

The recent sale of Elemental Technologies, the fast-growing video-streaming technology company based in downtown Portland, is a sign of how capital markets work. Like so many firms, Elemental was funded by venture capitalists looking to get a big return on their investment.

Sometimes big returns come from growing into to being a giant company like an Amazon (which bought Elemental). Far more commonly, investors get a return from selling their successful startup to a giant company.

The reality of contemporary American capitalism is that a considerable amount of investment capital flows not directly from investors to companies, but from the retained earnings of profitable firms that find it cheaper to buy existing companies rather than build new ones. Oregon companies are often the acquirers: Before it was purchased by Berkshire Hathaway, Precision Castparts had spent nearly $5 billion acquiring other metals firms in Canada, Texas, Pennsylvania and the United Kingdom. The fact that successful small and midsize companies access greater investment by selling themselves to big firms is a fact of life in the world of finance — not an idiosyncratic bug that afflicts only Oregon firms.