Jane Larson
The Arizona Republic

California companies such as Google and eBay are expanding into Arizona, seeking a haven from earthquakes and the high costs of doing business. And economic development leaders say the trend can only grow as the two states’ economies become more joined at the hip.

Google, the Internet search giant, is scouting the Valley for a location for about 600 engineers and software developers. Ebay, the online auction and payment service, is building a data center in Phoenix and hiring top technical talent to run it.

In their march to Arizona, these companies are following other big names, including:

• DHL Systems, the package delivery giant that consolidated data centers from the Bay area and other locations in Scottsdale in 2002 and has continued to add offices and hundreds of employees.

• Countrywide Financial Corp., the Calabasas, Calif.-based mortgage lender, opened a campus in Chandler and expects to have 4,000 customer-service representatives, information-technology workers and other employees here by the end of 2006.

• Intel Corp., the Santa Clara, Calif.-based chipmaker, has begun building a third plant in Chandler.

Business holding steady

Taken together, the expansions seem like a lot. At the Greater Phoenix Economic Council, though, California-related business has held steady at about one-third of its projects.

“Some of the brand names bring it more to people’s attention, but we don’t see a lot of companies uprooting from California and leaving,” said Barry Broome, chief executive officer of GPEC. “We see second expansions and third expansions.”

Several factors lead California companies to expand in Arizona.

For data centers such as eBay’s and DHL’s, it’s a location generally free of earthquakes, hurricanes and other natural disasters that could shut down the massive computer systems that have become the backbone of their businesses.

Strong computer science and engineering programs at Arizona State University and the University of Arizona give companies confidence in a stream of future employees.

Flights another factor

The high volume of flights between Phoenix Sky Harbor International Airport and California locations makes it easy for executives to pop in on their Arizona operations and still be home in time for dinner.

Business leaders are wary of posting Arizona’s wins as California’s losses. They prefer to think of the two states as developing a stronger business relationship, or a regional economy that doesn’t stop and start at state lines.

The idea is to position Arizona as a base for expanded operations, as a supplier of goods and services to California companies, or as a source of investment opportunities for firms there. It’s a natural fit.

Mutually beneficial

“You need us, we need you, and one reason is you’re close,” said Wayne Schell, chief executive of the California Association for Local Economic Development.

But Californians still love California. They are used to world-class universities such as Stanford and Caltech, and California is a huge market and customer base.

“Our companies go (to Nevada and Arizona) not because that is their market. It’s California,” Schell said. “They’re going because of cost, because you guys can do something for them.”

Schell says California can compete for companies on the basis of a quality workforce but needs to work on other factors, including incentives for manufacturing and changes to the state’s liberal workers’ compensation program.

Arizona high-tech leaders have identified some work of their own to do.

A committee of the Governor’s Council on Innovation and Technology examined tech-related marketing materials from around the state and found Arizona lacks a unified message about the industry.

The group interviewed top executives at California technology companies and found that Arizona isn’t recognized as providing a prosperous environment for high-tech companies.

Quality of employees

In expanding or relocating businesses, California executives said they looked at the quality of employees available, either from firms in their industry or from universities; access to a large international airport; and a quality of life that enables them to attract and keep talented employees.

The California executives, though, praised the high quality of the employee pool in their state and the maturity of its technology industries. Moving companies out of state is considered risky because the majority of talented employees who have other options won’t follow the company.

The Arizona committee recommended that the state be positioned as a place where high-tech companies and individuals can thrive. Unofficially, the theme of the marketing campaign will be “Your boldest innovations can grow stronger, faster and better in Arizona - and so can you.”

Such a theme, they say, makes an emotional one-on-one appeal rather than a by-the-numbers comparison of the two states.

Increasing ties with California could lead some companies to moving their headquarters out of the state.

“If we can anchor these assets and be competitive, we hope over time it will lead to a headquarters strategy,” GPEC’s Broome said. “If they have equal operations, then why not Arizona? Eventually we would have a chance of picking off some of those.”