Week of February 2, 2004
from Site Selection's exclusive New Plant database
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GEICO (Along with Warren Buffett) Picks Buffalo forBy JACK LYNE, Site Selection Executive Editor of Interactive Publishing
BUFFALO, N.Y. Warren Buffett had gotten some great news. His company had just saved a bundle.
A bundle of time, for sure, in getting GEICO's (www.geico.com) 2,500-employee regional customer service center up and running rapidly. One of the many subsidiaries of Buffett's Berkshire Hathaway Corporation, (www.berkshirehathaway.com), the insurance giant has decided to build a US$40-million facility in Amherst, N.Y., part of the Buffalo metro. In the meantime, GEICO is setting up in leased space and will open its center as soon as second-quarter 2004.
Investment guru Buffett, who was on hand for the project announcement, was already very familiar with the western New York city. Berkshire Hathaway also owns The Buffalo News. Familiarity, however, wasn't a factor in GEICO's decision, the world's second-richest man maintained at the project press conference.
"This was not handed to Buffalo," Buffett noted. "This was earned by Buffalo."
Buffett's knowledge of the area's residents, however, was apparent in his comments on GEICO's location logic.
"When you get right down to it, it's friendly people who make phone sales work, and that's what makes GEICO tick," the Berkshire Hathaway chairman said. "Smart people are pretty easy to find, but you can't train friendliness. In Buffalo, you have a combination of smart and friendly."
Senator Lobbied CEOSmarts and friendliness also characterized the recruiting modus operandi of the wide-ranging team that wooed GEICO.
State business recruiters, for example, had smartly monitored growth at the company's existing customer service center in Woodbury on Long Island. GEICO had had a history of expansion since first arriving in New York in 1952, opening a Manhattan regional office that was its first outside its headquarters area. By 1973, growth prompted a relocation to a new and larger company-built center in Woodbury. By the winter of 2003, though, GEICO's Woodbury operation had grown to 3,300 workers, totally filling that facility, too.
New York recruiters were well aware of the situation. In fact, they had already assigned a codename, "Project Eagle," to GEICO's seemingly inevitable expansion.
"When we first started working with GEICO more than five years ago, the company was in the process of expanding its Woodbury operation," Empire State Development (www.empire.state.ny.us) Chairman Charles A. Gargano recounted. "Realizing that GEICO would eventually reach capacity on Long Island, both the governor (George Pataki) and I kept in close contact with company officials, hoping that we could land a second operation in New York."
Those hopes got a further boost from U.S. Sen. Charles E. Schumer (D). The senator worked the project from his end in Washington, near GEICO's Chevy Chase, Md., headquarters. In November, he repeatedly made Buffalo's case in a series of friendly phone calls to Olza M. "Tony" Nicely, CEO of the fifth-largest U.S. auto insurer.
"I told Mr. Nicely that upstate New York is the ideal place to open a business," said Schumer. "The work force is top-notch, and GEICO employees would be able to take advantage of affordable housing, short commutes, and exceptional arts, sports, and cultural institutions.
""For the last few years, I've been making the case to companies, site selectors and anyone who would listen that our work force is ideal for companies looking to relocate or start new businesses," he continued. "Mr. Nicely took a look at what we have to offer and wants to bring his business here. That says a lot about this region."
New Law Played Pivotal RoleAt the same time, a host of local and regional officials were also pursuing GEICO.
By now, the recruiting cast was nearing film-epic-sized proportions. Keeping everyone on the same page presented challenges, said Thomas Kucharski, president and CEO of the Buffalo Niagara Enterprise (www.buffaloniagara.org), which promotes western New York's eight counties and Canada's Niagara Peninsula in Ontario.
"Large deals are never simple," Kucharski explained. "But the number of moving parts and relationships that had to be pulled together to get GEICO were unparalleled."
The New York Legislature also played a big role in influencing GEICO's expansion decision: Empire State lawmakers in October passed the Producer Licensing Bill (PLB).
The PLB adopts most of the National Association of Insurance Commissioners' producer licensing provisions. Considered a model licensing bill, the new law makes it easier for licensed insurance agents in New York to do business in other states and relaxes licensing standards. Thirty-seven other states have similar model bills.
Getting the new legislation in place makes state-based insurers more competitive, Pataki said. And for GEICO, it was a make-or-break consideration, the governor added.
"During our negotiations, GEICO requested assistance in passing the Producer Licensing Bill," Pataki explained. "Without this legislation, GEICO would not have located this facility in New York."
Enterprise Zone Provides Boost forAnother key location consideration, the Tonawanda Empire Zone, had been established in 1999.
Both GEICO, Area Development Projects
Fast-growing GEICO's two Amherst sites are both part of the zone. That qualifies the company for property tax abatements, employee-training funds and discounted power costs, as well as a $1-million grant for project-related expenses.
State and local officials also collaborated to create an unusual tax arrangement, leveraging the project to fuel investment in the area's older industrial areas.
That agreement creates the Erie County Regional Redevelopment Fund (ECRRF). Amherst has agreed to commit part of the project's tax proceeds to the ECRRF.
The redevelopment fund will then be used to fund local projects. Among them, said county officials, are the North Youngman Commerce Center and Buffalo Lakeside Commerce Park, as well as the redevelopment of the site of the Bethlehem Steel plant that closed in 1983.
60 Percent of Jobs forTwo area business parks were also heavily involved in project recruiting. Together, they're providing GEICO's rapid local ramp-up, enabling the insurer to get online quickly while building a permanent center.
Four-Year Degree Recipients
GEICO will initially open its Amherst operation in a 50,000-sq.-ft. (4,500-sq.-m.) facility in Audubon Office Park. In Audubon, the company plans to expand to 650 workers over the next three years. Then, in 2007, the insurer will move into the permanent center that it will build in CrossPoint Business Park, growing there to 2,500 workers over the next 10 to 12 years.
Wages at GEICO's center will be significantly above the customer-service-sector norm. The 2,500 workers on average will make $34,000 a year, company officials said. The center's jobs will not only include call-center workers, but also higher-end functions such as claims adjusters, who will make as much as $70,000 annually. In fact, 60 percent of the operation's jobs will be for four-year degree recipients.
"The area offers a well-educated and enthusiastic work force, which is our primary key to success," Nicely said. "We knew New York was the right place to expand. We're excited about the welcome we've received from the people here."
New York's welcoming style was a bit like GEICO's successful sales approach, which keeps rates low by dealing directly with customers. GEICO's revenues for 2002 (the most recent year for which complete data are available) totaled $6.67 billion, an annual increase of 10-plus percent. Similarly, the company's 22,000 employees are a fast-expanding bunch, growing by 15.6 percent in 2002.
Buffet and GEICO aren't the only ones recently being bullish on Amherst. Last year, the city landed a $3-million investment from French firm Saint-Gobain Advanced Ceramics and a $2.4-million headquarters investment by software company SofTrek.
Editor's Note: Look for coverage of this and other regional location stories in the Northeast States Regional Review, coming soon in the March 2004 issue of Site Selection.
©2004 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.