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"Location. Location. Location." Not only is that philosophy important when it comes to buying a house, it is equally relevant for businesses adapting their office location strategy to the realities of the COVID-19 pandemic. While most industries have been impacted by this evolution, many Tech, Media and Telecom (TMT) organizations have been successful in addressing talent challenges by thinking "outside the cube." Of course, the unique components of your business must be considered for your business location strategy, and this article will explore some of the opportunities and challenges.

What is an office location strategy?

Before the COVID-19 pandemic, an office location decision was usually informed by the bottom line: real estate costs, operating costs, taxes and government incentives. While the population for company executives and senior leaders was limited prior to shutdowns, most approaches to office location strategy did not always consider the area's talent pool or employee satisfaction. An area's cost of living, schools, housing, area amenities and commute times all inform how an employee views his or her job and can be important when trying to attract and retain talent. But the pandemic forced organizations to adapt their location strategies and keep workers home to help prevent the spread of the virus. The result is that many leaders found that they could operate and, in some cases, thrive with a fully remote or hybrid workforce. In fact, in a recent survey by Gartner, 72 percent of CFOs expect their corporate real estate footprint to decrease over the next two years, and 35 percent are proactively shrinking their real estate portfolios now[1].

While the office or headquarters may remain a physical location, going forward that site selection may simply serve as a hub that connects employees working virtually from around the globe.

TMT and work from home

Even before the pandemic, TMT companies discovered the benefits of relocating their office hub and tapping into talent around the world. Traditionally in the U.S., TMT organizations were historically located in Silicon Valley, or other high-cost coastal markets like Seattle, New York and Boston, and that concentration of the industry drove up costs of living and, in turn, prices for labor. While the San Francisco Bay area continues to gain tech workers, according to data from LinkedIn, the rate of that increase is down by over 35 percent[2]. The TMT sectors have discovered the business case that they can relocate their company to the southeast, south and mountain west of the U.S. and operate on a less expensive scale.

"There is a steady exodus of businesses moving out of New York and California and the pandemic may have completely changed the way companies operate. Now that working from home has taken its hold, the trend offers CEOs options. No longer do they have to pay for expensive real estate in New York City or San Francisco. They can have people working remotely or relocate jobs to locations that are less costly[3]."

– Wall Street Banks & Tech Companies are Fleeing New York and California | – Forbes.com

Eastern and Southern migration

Texas, North Carolina, Florida, Georgia and other states are offering multiple incentives, including property taxes, grants and employee-hiring credits to attract Silicon Valley companies and northeastern organizations that have priced themselves out. In light of the Great Resignation where the number of Americans quitting has exceeded pre-pandemic highs[4], employees now know their leverage. They can negotiate where they live, choosing communities that best address their lifestyle and, secondarily, their work. In response, companies are now looking to where employees want to set up shop and accommodate employees in a way that makes them feel valued. However, the mass migration of TMT talent is putting significant wage pressure on these traditionally lower cost domestic markets. Companies need to be mindful of benefits beyond labor arbitrage.

Onboard with offshoring and contingent workers

The other business strategy of tapping into more global talent, especially in TMT, is the increased use of offshore resources and contingent contract labor. Leveraging offshore talent can present opportunities beyond labor arbitrage by creating an ability to leverage a full 24-hour day and different seasonal peaks outside North America, focusing scarce domestic resources on higher-level business tasks and increasing employee satisfaction. Leveraging contingent workers, where allowed, can allow for better labor flexibility as business dynamics change and allow for a more variable labor cost structure. While offshoring and contingent workers can result in lower and more flexible labor costs among other benefits, organizations must also consider the costs of optics to consumers, local labor laws, cybersecurity, potential impacts to business continuity/resiliency and internal and external communication and language barriers.

Offshoring benefits and challenges
Benefits
  • 24-hour day and different seasonal peaks
  • Focus domestic resources on higher-level business tasks, increasing employee satisfaction
  • Better labor flexibility
  • More variable labor cost structure
Challenges
  • Optics to customers
  • Local labor laws
  • Cybersecurity
  • Potential impacts to business continuity/resiliency
  • Communication and language barriers

Companies must also consider the rapidly rising cost of talent and highly competitive recruiting environments in traditional offshore markets such as India, the Philippines and Eastern Europe. For the TMT industry, the advancement in the use of cloud technologies and advanced automation has allowed many organizations to reevaluate their offshoring strategies. To determine whether offshoring or reshoring is a viable option, organizations are encouraged to embark on a detailed study of costs, business goals and their comfort factor with a remote workforce.

The challenges

The virtual and hybrid models that have driven many employees to live out-of-state from their employer's traditional office location can also impact an organization's tax and regulatory responsibilities. Organizations need to be aware that remote employees can potentially create nexus for the employer's tax purposes, including:

  • Income taxes
  • Gross receipt taxes
  • Sales taxes
  • Local business taxes

Remote workforces also increase an organization's compliance responsibilities, especially regarding payroll taxes. Organizations must keep track of where an employee is residing in order to apply the proper statutory withholding obligations. If organizations did not previously embrace a remote workforce, such new responsibilities and work processes may be challenging.

And finally, organizations must consider technology costs of supporting remote teams. Outfitting your workforce with efficient, secure and reliable technology (and backup systems) can be costly and, as such, analyzing your technology infrastructure and projected costs is critical before embracing a remote or hybrid model.

Corporate culture

Office location strategies for the TMT sector have more considerations than just tax and compliance. How do companies maintain a sense of culture when there are some people in the office and some people working remotely? Or if everyone is working from home? Can you create and maintain a connected workplace through remote meeting technologies and email threads? TMT companies are still trying to figure this out. Currently, when many organizations are offering great benefits, hours and the availability to work from home, having a strong company culture both in and out of the office is crucial to keeping employees motivated and engaged.

TMT companies will need to identify their cultural non-negotiables. They can ask themselves: what does our culture do that we have to fight to keep? And how do we protect that?

Some companies and their employees have started to realize that a large amount of culture can be lost in the transition to a completely virtual format. TMT companies that decide to bring a part of their workforce back to the office in the future to maintain culture will have to be extremely strategic, given that the fully remote work model seems very appealing to most people, especially those with strong familial obligations and a desire for greater flexibility.

How FORVIS can help

At FORVIS we, too, have been navigating the implications of hybrid workforces and the opportunities and challenges from those changes. In us, you gain an all-in-one team of dedicated professionals ready to help your company; offering technology, operating model development, tax compliance requirements, change management and operations strategies to help your organization plan for the now and for what's ahead.

References

[1] Three Board-Level COVID-19 Issues That Affect Supply Chain Organizations

[2] More Companies Are Joining 'Tech Exodus' From California - Slashdot

[3] Wall Street Banks And Tech Companies Are Fleeing New York And California (forbes.com)

[4] https://www.statista.com/chart/26186/number-of-people-quitting-their-jobs-in-the-united-states

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