Elon Musk recently announced that he was relocating the companies SpaceX and X (formerly Twitter) from their current headquarters in California to Texas. The news has placed a spotlight on the rise in big tech shifting its operations to the Lone Star state, with Austin emerging as a main hub.

Known as the “Silicon Hills” and the “Third Coast”, there are 5,500 startups and tech companies just in the greater Austin area (Texas’s state capital). The city is emerging as a strong competitor to Silicon Valley for workers, as Austin’s blend of tech, art and unique culture has attracted many away from the more expensive San Francisco Bay Area.

Musk blamed a California bill banning schools from making it a requirement to alert parents if their child wishes to change pronouns or identify as transgender. But there may also be business reasons for the move.

According to critics, Musk may have calculated that he has gained all the benefits he is likely to obtain from the state of California, such as indirect subsidies for his electric car company, Tesla. He moved Tesla’s headquarters to Austin in 2021, and has exchanged his residence in California for one in Texas.

Shifting landscape

The decision to relocate a company is usually influenced by a combination of internal and external factors – of which one key factor is the need to respond to the demands and expectations of owners and stakeholders such as clients, employees, shareholders and financial markets.

These groups, who all have a stake in a company’s success, can exert pressure on an organisation to align with their interests and preferences – including on where it should be based.

The impact of headquarters relocation on a firm’s performance is a crucial consideration for leaders contemplating moves. One study found that relocating headquarters led to little improvement in operating performance. But it also documented stock market reactions (both positive and negative) to relocations. A positive reaction was found if the announced reason was attributed to cost savings, while a negative reaction was often found if the relocation was seen to be motivated by management self-interest.

Austin, Texas, will be the new headquarters for X (formerly Twitter). Roschetzky Photography

There’s also a lot of psychology involved in headquarters relocations. Companies seeking to relocate often have to build a case internally for the perceived legitimacy of the move, as such big decisions are likely to be controversial. “Push” factors like high taxes and employment rates, as well as “pull” factors such as central locations and lower taxes, will all affect the likelihood of successfully relocating a corporate headquarters.

Employee tensions

The relocation decision can have significant implications for employees, organisational culture, and a company’s overall performance. The move to Texas is likely to affect the workforce in terms of job satisfaction, empowerment and training opportunities.

Research has shown that staff training and teamwork positively affect employees’ sense of empowerment and satisfaction. The relocation could provide new training opportunities and foster a collaborative work environment.

SpaceX will move from Hawthorne, California, to Starbase in Boca Chica, South Texas. Grossinger / Shutterstock

Moreover, the relocation decision may affect the local labour market in Texas. Headquarters relocations can have implications on local labour demand, urban infrastructure, and housing markets.

The influx of a new workforce or the relocation of existing employees could impact the local economy, negatively affect housing availability, and change the overall labour dynamics in the region in complex ways. For instance, it could affect the structure of the workforce, such as the number of male and female employees.

Workers arriving from elsewhere can also create tensions with members of a local workforce, due to salary disparities and cultural differences. Managing these differences effectively is crucial for maintaining a harmonious work environment, and ensuring continued employee engagement and performance in the new location. Musk should take heed.

Impact on current workers

The relocation will affect thousands of employees at X and SpaceX, as both companies require in-office work. When Musk acquired X in 2022, he mandated almost all employees to return to the office, insisting on an “extremely hardcore” work ethic.

Leaders may decide to move their headquarters based on a complex interplay of factors including responding to stakeholders, considering the financial implications and addressing legitimacy concerns, while also evaluating local contextual factors in the region they will operate.

By carefully weighing all these influences, leaders such as Musk are more likely to make relocation decisions that align with their strategic objectives – and with the expectations of everyone with a stake in their company’s success.