15-02-2021 | | By Sam Brown
Recently, Samsung announced that it is looking to expand its chip production business, and Austin (Texas), is one of the candidates for the latest site. Why is Samsung looking at Texas for their latest site, and why are many companies leaving California?
Samsung, a South Korean electronics manufacturer, is one of the major players in the electronics industry, producing both consumer electronics and semiconductor parts. Samsung has been in the news several times regarding its intention to invest more in its semiconductor business and research grants for universities.
Now, Samsung has shown a commitment to this investment as they recently announced their plans to construct a new semiconductor production foundry. The new facility will be valued at around $17 billion and provide up to 1,800 high-paying jobs.
Regarding location, Samsung is looking at a 640-acre site in Austin, Texas, which they already own. Still, other locations such as South Korea, New York, and Arizona are also being considered. If the Austin site is chosen, it is expected that the new site will be operational by 2023.
Ask the average person on the street what they think of Texas, and you will typically get answers such as “Big hats”, “Cowboys”, and desert. Of course, Texas is the home of many tech companies including Texas Instruments who specialise in electronics, but it is not famous for its tech industry.
However, California is highly famous for its Silicon Valley with many of the worlds biggest companies operating there including Google, Apple, Netflix, and Facebook. Silicon Valley took off as a place for high-tech companies to form thanks to many contributing factors including access to tech, military contracts, universities, and highly talented individuals with venture capital.
However, many tech companies have started an exodus of Silicon Valley, and tech investments are leaving the state of California rapidly in favour of other states such as Texas. Examples of big names that are leaving California for Texas include Tesla, hp, and Oracle. The reason for this comes down to two major factors; tax and red tape.
Firstly, California is a highly-progressive state with a minimum wage of $15 (due to effect) and lists highly tax ranks. These two factors make it hard for any business to operate both large and small, and moving to another state in the same country not only offers lower operating costs but larger profits.
Secondly, California is a highly regulated state with red tape that has to be constantly navigated. For example, it can take a small company two years to process paperwork, and according to TECMA, ongoing compliance with regulations can also add unexpected costs to business.
California is also suffering from rising housing costs, making it more difficult for workers to find suitable housing. Moving to Texas for a lower-paying job may seem like a bad move. Still, when considering the lower tax rates and cheaper housing, workers will find they have more disposable income which is the most important factor for anyone who works.
The introduction of progressive laws such as tax increases, environmental charges, and regulation will negatively impact most businesses. While Samsung may be targeting Texas simply because it already owns land in Texas, it will also benefit from the lower taxes, lower wages, lower regulations, and lower housing.
Furthermore, as more companies and investors leave California to head towards Texas, Texas is a real opportunity to transform itself into the tech hub of America. This effect could be further amplified if companies such as Facebook and Google continue to face scrutiny over privacy violations and anti-trust laws, resulting in their breakup.
As larger companies move away from Silicon Valley, California will begin to lose its prestigious status as a tech centre. Tech giants such as Samsung will continue to demonstrate to the world that Texas is a state that is friendly to business, innovation, and investment.