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S.D. remains strong for defense contracting despite relocation trend

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Northrop Grumman Corp. joined other large prime government contractors this week in a trend to move corporate headquarters to the Washington, D.C. area.

The search is on for the right location for Northrop Grumman's (NYSE: NOC) headquarters. According to the company’s press release, a decision is expected by spring, and offices will be open by summer 2011.

In late September, SAIC Inc. (NYSE: SAI) announced its move from San Diego to McLean, Va., a city outside of Washington.

Northrop and SAIC cited the need to be closer to their customers in Washington. The move in both cases primarily involved top corporate leadership while continuing local operations.

Ultimately the companies continue to do the same work, but the top leaders simply are not onsite every day to see it themselves.

Despite some initial concern, Ruben Garcia, district director for the Small Business Administration, said the impact of such moves has been minimal.

“When a company already has a presence in Washington, D.C., and they’ve not diminished the work that’s being done here locally, we see that just as a change of corporate leadership address,” he said. “It’s not something I think is going to impact us.”

And while more large companies might continue the trend, this region will continue to be a good location to do business.

San Diego still is a desirable place for government contractors to do business because of the large military presence and high concentration of federal employees, Garcia said.

For many defense companies large and small, key customers include the Space and Naval Warfare Systems Command (SPAWAR) headquarters and SPAWAR Systems Center (SSC) Pacific, both located in San Diego.

Capt. Mark Kohlheim, commanding officer of SSC Pacific, said his lab is part of a triad of government, academia and industry in the region that makes the prospect of doing business here appealing to companies, even if corporate headquarters are closer to policy makers on the East Coast.

“Being at the seat of the federal government, it’s probably beneficial to companies,” he said.

"There are a lot of advantages for companies to be here if they want to interact with the fleet, Marines, (and) operating areas off the coast ..."

SSC Pacific offers opportunities for businesses to learn about what the Navy does and offers opportunities for partnerships. Businesses located nearby have an advantage over those far away by being closer to those resources.

One such opportunity is to enter into agreements where a business can use the lab’s facilities that they could not feasibly recreate to work on a project. Kohlheim said businesses of all sizes take advantage of the opportunity, but estimates small businesses are the larger group of users.

Jim Lasswell’s company, INDUS Technology, is one business that needs to stay close to its Navy customer. While Lasswell does not like to see businesses leaving the area, he understands that California isn’t he easiest place to do business. But he said it’s the only place for him.

“I couldn’t move out of this local area without impacting my ability to do business with SPAWAR as our prime customer,” said Lasswell, who also is the co-chairman of the small business committee for the San Diego chapter of the National Defense Industrial Association (NDIA). “We’re kind of linked to them.”

Next to military customers, a big source of work for small businesses comes from the large prime contractors with whom small business leaders have developed relationships.

As top leadership for these large prime contractors now move three time zones away, some of those relationships could become more difficult to develop.

“A lot of times, they’re our customers -- you’ll have more sub than prime contracts,” said Benito Hobson, director of business development for Integrits Corp. and vice president of small business for the San Diego chapter of the Armed Forces Communications and Electronics Association (AFCEA).

“If your customer is headquartered in D.C., that matters. Even though you deal with the local organization … you have to deal with (corporate leadership) that’s 2,000 miles away.”

Hobson said it is important for small businesses to pay attention to what large businesses are doing, but he doesn’t foresee small businesses feeling the need to follow the trend to Washington. In many cases, he said, strong local contacts make it possible to trust that everything will be done correctly all the way up the chain.

Lasswell said moving top corporate leadership has no effect on his ability to do work with a company.

“The top leaders of those type of companies are not folks that I or my colleagues tend to deal with,” he said. “There’s an old expression that all politics are local. Yeah, it’s nice to be able to hobnob with front office suits.

“But to me, it’s relationships that build business. And it’s local relationships that really count a lot.”

Send your comments to Erin.Bridges@sddt.com

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