GAME ON: Amazon’s HQ2 Race is Heating Up

Site selection is a process of elimination, not inclusion.

As you read this blog it’s a good bet that Amazon, which opened its search for a second headquarters location in North America in September 2017, has already eliminated a hundred or more cities from contention. The remaining competitors - nobody outside of Amazon can be sure which or how many metros are in this group – need to prepare for a next-level, on-site visit early this year.

An Amazon selection team, most likely made up of staff with significant experience in business operations, economic development and incentives, will be separating marginal from legitimate candidates quickly, moving beyond parsing RFP responses to initiating ‘First Contact’, a quick succession of eyes-on/hands-on evaluations. The team will be meeting with state, regional and city leadership counterparts, testing what was said in the proposals, looking for red flags and evaluating attitudes and cultures.

It’s difficult to overstate the importance of these First-Contact visits. In my 30+ years as a site selection professional I’ve seen contender-cities eliminated within the first 30 minutes, with hundreds of millions or billions of dollars and tens of thousands of jobs hanging in the balance. Who will be on the front line when the Amazon team steps off the plane?  Who should be on the frontline making the first impression?

Amazon’s decision regarding its HQ2 location will be of immense strategic importance for the next 50 years or more, with implications far beyond those of any real estate transaction, so cities approaching First-Contact visits with a transactional, brokerage mentality are doomed to failure. Instead, their leadership teams need to adopt the mentality of an attorney arguing at-bar, making an immediate and compelling case and exuding a “can-do or what can be attitude”.

By this point in the process, cities are expected to demonstrate a vision for master-planned communities and building smarter, sustainable energy and massive people-moving ecosystems. They also need to demonstrate a capacity for what I call ‘System Thinking’, a teamwork paradigm that removes walls and barriers to economic development by facilitating collaboration at multiple levels – including between the public/private sectors, urban/suburban stakeholders and university/community leadership – to produce actionable, rather than political solutions. Amazon, or any major organization making site selection decisions, views political infighting or an absence of political will as non-starters.  

Amazon’s site selection team will likely be focused on 4 main areas during First-Contact:

  1. Pipeline - Amazon HQ2 is projected to generate approximately 50,000 jobs over the life of the project, at the front-office (executive leadership, finance, planning, etc.), mid-office (marketing, legal, HR, etc.) and specialty skills (software developers, IT engineers, digital media, etc.) levels. A city’s leadership team will need to focus on the availability of people and talent in the short-term as well as ensure that existing infrastructure and infrastructure planning will support talent development on a scalable, sustainable basis over the mid- and long-term.
  2. Site Submissions – The Amazon site selection teams will look at traditional location factors, including cost competitiveness, business environment and amenities of the locality, state or region, to judge how well they align with the company’s culture and values. However, the physical sites - many of which I suspect will not be in ready-to-go form, but instead will require the Amazon team to visualize their potential - will require a team of stakeholders with an uncanny ability to describe the proposed sites’ future value and outline a critical path to improving upon the Seattle experience and navigating the process to occupancy.
  3. Incentive Programs – For me the biggest question is what Amazon will value as an incentive benefit. Will all off-site development be a “gimme” and only on-site incentives be viewed as true cost mitigation? What did Amazon include in its own budgeting as an incentive?  Withall the billions of tax credits already on the table there’s a good chance the value is null unless they are refundable credits. What about special legislation for funds to create a sustainable eco-system for the Headquarters operations - will that be counted as an incentive? My guess: incentives won’t be debated too much until semi-finalist locations are selected for the next round of visits and/or unless there is another RFP.
  4. The Leadership Team – The Amazon site selection team will be gauging the size, makeup, structure, expertise and decision-making power of each location’s leadership team. Their job is to be ruthlessly pragmatic, asking themselves if the politicians are speaking in realistic terms, if the grandiose ideas and concepts outlined by the prospective cities are believable, credible, and actionable and if the candidate location’s Power Consortium is diverse, looking and feeling like Amazon partners. 
It’s important to remember that, for all its size and the vast resources at its disposal, Amazon is not an expert at headquarters site selection; they’ve never really done this before. While its RFP constructed an early architecture of project criteria and the decision-making process, the experience Amazon gains through the First-Contact process will likely alter that architecture and lead to a re-prioritization of selection criteria.

We may find that the traditional, objective measures used by ratings agencies, such as Moody’s, to forecast leading contenders (e.g. tax incentives, costs, human capital, etc.) could be supplanted by the more subjective judgements of the selection team, who are asking questions like, ‘Who’s ready now?’, ‘Who put the best business case on the table?’, ‘How much confidence do we have in the leadership team?’, ‘Whose plan is supported by a strong public/private sector partnership?’ ‘Will the bottom line cost structure of the area support the immense CAPX effort we plan to deploy?’.

There is a lesson to be drawn: The location that is ready now to illustrate compelling future value - not necessarily the location that represents the ‘best’ solution – is sometimes the winner in site selection.  Right now, Amazon is alert for siloed thinking, walls hindering collaboration. They’re not looking for locations that look best on paper; they’re looking for System Thinking - cities with a pragmatic (albeit creative), problem-solving mentality.  Prepare to compete on that basis. 

Robert Hess
Vice-Chairman, Global Corporate Services

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