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orth Carolina is fertile turf for expansion-minded companies, finishing No. 1 in Site Selection‘s 2003 business climate rankings.
The Tar Heel State’s potent site-selection kick was amply evident in R.H. Donnelley‘s decision to consolidate its headquarters in Raleigh-Durham, N.C. (reported earlier as the SiteNet/IAMC Dispatch‘s August Incentives Deal of the Month). In the end, though, the state’s growth-friendly subsidies sealed the deal.
“After carefully considering all of our options, North Carolina’s offer of US$4.3 million in economic incentives over 10 years clinched our decision,” said Donnelley Chairman and CEO David Swanson from Donnelley’s current base in Purchase, N.Y. “North Carolina’s Job Development Investment Grant [JDIG] program was pivotal to our decision to relocate.”
JDIG legislation was approved last year, prompting North Carolina Economic Developers Association President Dale Carroll to enthuse, “The voice of economic development was heard.”
That voice spoke to Donnelley, the second firm to receive JDIG aid. The company will transfer not only 140 headquarters jobs to Raleigh-Durham, but will add another 135 jobs over the next three years as well.
Donnelley’s consolidation traces back to its $2.23-billion January acquisition of Overland Park, Kan.-based Sprint Publishing and Advertising.
“With our acquisition of Sprint Publishing and Advertising, R.H. Donnelley became a significantly larger organization,” Swanson said, “and this move is the logical next step in the evolution of the combined organization … better matching our operations to the business needs of the new combined company.”
$2 Million a Year
Donnelley’s acquisition was a major step, broadening its focus from primarily publishing Yellow Page directories to publishing in general. That step, though, created a 1,400-employee company riddled with revenue-eating redundancies, including both New York and Kansas headquarters.
Those overlaps spurred Donnelley to scrutinize its location-related cost structure. That process led to the four-month search for a post-acquisition headquarters. Donnelley considered the current Kansas and New York headquarters, as well as sites in Florida and Missouri.
The nod, though, went to North Carolina, where Donnelley has six sales offices and a 240-employee plant in Morrisville, in the Raleigh-Durham metro.
Raleigh-Durham’s pluses, said Swanson, included lower operating costs and proximity to many customers and sales offices, reducing travel costs. Those factors will slash headquarters expenses by $2 million a year.
“By consolidating these two locations into a single facility,” he said, “we can maximize employee and shareholder opportunities, enhancing our effectiveness while cultivating a more cohesive corporate culture.”
Quality-of-life considerations also helped cultivate Donnelley’s decision.
“Raleigh-Durham is regarded as one of this country’s best places to live and work,” Swanson explained. “These are important elements to our employees and their families and instrumental in helping us recruit future employees as we grow.”
Fusing headquarters functions, however, comes at a cost – $12 million, by Donnelley’s estimates. That made the JDIG subsidies even more important.
“The economic incentives were key in terms of economics, because this is going to be a fairly expensive move,” Swanson said.
North Carolina’s good news with Donnelley, however, was unwelcome information in some other states.
Scheduled for completion near the end of 2004’s first quarter, the headquarters relocation will transfer all 60 of Donnelley’s existing headquarters jobs and some 80 of Sprint’s headquarters positions to Raleigh-Durham. Sprint’s other 150 headquarters employees – most in billing, collections, distribution and printing services – will remain in Kansas.
Sprint Corp. announced in September that it is seeking to cut expenses by 5-7 percent a year over the next three years, in order to realize savings of some $1 billion. System consolidation, process automation and streamlining are foremost on that austere agenda.
All employees in transferred positions will be offered North Carolina headquarters jobs, said Swanson.
Functional duplications, however, will trigger the termination of some 80 non-headquarters positions in billing/ credit collection, finance, human resources, IT and publishing services, Donnelley said.
The consolidation initiative will also close Donnelley’s 110-worker publishing plant in Blountville, Tenn., transferring those jobs to Morrisville.
North Carolina had site selectors in mind in its recent aggressive moves to boost business attraction, Gov. Mike Easley (D) pointed out.
“R.H. Donnelley’s decision to move its headquarters is proof that North Carolina’s economic development tools, such as the Job Development Investment Grant, are paying off,” said Easley, a strong JDIG supporter.
Donnelley’s JDIG boost will cover 65 percent of employment taxes for each job. The grant begins in 2004, with subsidies awarded in each of 10 years in which the company meets job and salary performance targets.
The JDIG agreement calls for Donnelley to have at least 112 jobs by 2004, 166 by 2005 and 220 by 2006. And Donnelley’s salaries must average $70,000 in 2004, $60,000 in 2005 and $50,000 in 2006. (Headquarters jobs elevate initial salaries.)
JDIG guidelines specify that grants must provide benefits exceeding state costs for projects that otherwise wouldn’t locate in the state. Donnelley’s benefits will be substantial, judging by a North Carolina Dept. of Commerce benefits analysis. The $6.4-million grant will generate a $325-million increase in cumulative state gross product, according to Commerce Dept. projections.
North Carolina landed the Fortune 1000 headquarters after the first JDIG project in May: a $9.5-million, 11-year grant to Infineon Technologies North America. The company is bringing 400 high-level jobs to Cary, with salaries averaging $75,000.
