Tag: California

OM in the News: What Texas Wants for Christmas

The answer: More California companies to relocate to what Texas claims is the more business-friendly state. Oracle and HP are the latest big corporations to announce moves to the Lone Star State. Elon Musk, the CEO of Tesla, is also moving to Texas, and the electric car company is expanding there.

The announcements have highlighted the vastly different tax and regulatory systems in the country’s two most populous states, writes The Wall Street Journal (Dec. 17, 2020). California relies more on taxing personal income, particularly of high-income households, and operates a growing regulatory structure. Texas leans on more regressive property and sales taxes and boasts a more laissez-faire environment. The biggest difference: High-paid executives who move can see their state income-tax bills go from 13.3% to nothing.

Austin houses the powerful attraction of the U. of Texas

Moves by high-profile companies to Texas from California are not only likely to improve the personal finances of executives, but also offer employees more affordable housing and lighten regulatory burdens. For companies, much of the difference between California and Texas boils down to ease and cost of hiring—not just now but down the road. Companies have grown frustrated with the cost of attracting and keeping employees, as living expenses soar in California, and as regulatory mandates expand. “The compounding effects of California’s economic and political environment is making it more difficult to run a business effectively,” said one industry expert.

The Tax Foundation puts Texas 11th in its ranking of state business-tax climates, with California 49th. The biggest factor—outweighing any change in business taxes—is likely to be the lower cost of employing workers in the state. For most employees, that calculation is about housing costs.

Classroom discussion questions:
1. What other factors mentioned in Ch.8 (Location Strategies) affect location decisions?

2. How is “clustering” an advantage to both of these states?

OM in the News: China’s Newest Exports–Bridges for California and Workers for the Bahamas

China’s role as an exporter is not exactly a news item, but two articles caught my eye this week that are worth discussing in your OM class. In the first, The New York Times (June 26, 2011) tells of how California decided to by-pass the U.S. “Buy American” program to have the new San Francisco-Oakland Bay Bridge built in China and shipped here in massive pieces. The Times writes: “The project is part of China’s continual move up the global economic value chain–from cheap toys to Apple iPads to commercials jets–as it aims to become the world’s civil engineer”.  Based on the reputation of showcase projects like the Beijing Olympic-sized airport terminal and the mammoth hydroelectric Three Gorges Dam, Chinese companies have been hired to build copper mines in the Congo, high-speed rail lines in Brazil, and huge apartment complexes in Saudi Arabia.

So it shouldn’t have come as a big surprise to find out that China is about to build the largest resort in the Caribbean, in Nassau, Bahamas, to challenge the huge Atlantis Hotel head-on. The surprise, however, was the uniformly negative  reaction from every Bahamian I met, 3 weeks ago while on vacation, to the project’s construction. The Miami Herald’s report  that China would be sending 5,000 of its own workers to build the $3.4 billion, 2,250 room Baha Mar hotel and casino resort did not please locals –or the U.S. government. Hotel execs are cognizant of the negative message they will send to tourists, as well as the Bahamian citizens, by maintaining a work camp for thousands of Chinese laborers in a highly visible and affluent section of town. But the Chinese government insisted on Chinese workers– or there would be no financing. The Bahamas wanted another tourist draw and reluctantly agreed.

Discussion questions:

1. “He who has the gold, makes the rules” seems to apply in the hotel case. Do students agree?

2. Why did California opt for a Chinese bridge?

Teaching Tip: Using Prisons to Teach Design Capacity

The Wall Street Journal (June 18-19,2011), of all places, provides a great classroom example on the subject of capacity ( Supp. 7). The context is the California prison system, which was just ordered by the Supreme Court to reduce its prison population to 137% of capacity, citing unsafe overcrowding. Since capacity usually refers to the maximum number of units that can be produced or contained in a specific time (see our definition in Supp.7), it’s hard to comprehend filling a space beyond 100% of that limit.

 But the Journal writes that “the numbers on California’s prison overcrowding were based on its penal system’s design capacity“. The state traditionally planned for prisons to hold one inmate per cell. But most facilities doubled their population almost immediately after opening because of a glut of inmates. The state claims that it has recently reduced its prison population to 179% of capacity.

California also measures its prison system by operational capacity, or the number of prisoners who can be housed given actual conditions at prisons. Because of double-bunking, the operational capacity is almost twice the design capacity, meaning the system was able to claim to be only 9% above operational capacity in 2009. (The courts rarely recognize this measure). Adding to the confusion, a 3rd measure, rated capacity, based on fire marshals’ assessments of how many prisoners can be housed safely, is also used in some states.

The prison example provides an interesting contrast to our more traditional discussion of bakery capacity in Example S1.