Amazon HQ2 Frenzy Illustrates The Complexity of Site Selection for Headquarter Operations
by King White, on Nov 27, 2017 4:41:45 PM
The high-profile headquarters search for Amazon’s HQ2 has created a media frenzy as economic development organizations seek to attract Amazon’s $5 billion investment and 50,000 jobs. Amazon specified it is looking for an area with a low cost of living, an educated and tech-savvy workforce, availability of economic incentives, close access to an international airport, and many other factors that it believes will make its operation a success.
As a result of the Amazon project, the art of site selection has taken center stage and is making companies more aware of the need for a formal site selection process for all project types such as headquarters, call centers, manufacturing plants and distribution centers. To help you better understand this process, Site Selection Group has identified 10 of the most important site selection factors to consider during the headquarters site selection process.
1. Labor availability
A headquarters will never be successful if you can’t staff it with qualified workers. As a result, labor availability is undoubtedly the No. 1 factor considered during the site selection process. It is critical that the labor market provide enough scalability to handle your long-term workforce needs. Some of the basic demographic factors to evaluate include population, population growth, age, income, educational attainment and historic unemployment rates. You will also want to look at the occupational composition of the market to understand the number of workers possessing the skills you are seeking as well as conduct interviews of local employers to hear firsthand what is happening in the market. This is probably the most complicated item to assess so make sure to utilize quality data and analytics in the analysis.
2. Labor costs
The cost of workers is very important to understand. You will want to determine up front if you want to position yourself as an employer of choice by paying the peak wages for the most experienced workers or if you simply want to pay average market wages to “fit in” as a local employer. You will then need to tap into wage data to compare locations. It is also a good idea to contact staffing agencies and interview employers to get an up-to-date understanding of the current labor costs versus depending on wage data that might be old.
3. Education system
The quality of the education system needs to be evaluated for two reasons. First, you will want to understand the graduate output of local colleges to help you in recruiting. For example, if you need software engineers then you will want to analyze the number of degrees awarded in information sciences. The second aspect of the education system to evaluate is the public school system to understand if your employees are going to be challenged to provide their children a quality education. This will be important when you try to relocate employees or attract employees from other metro areas.
One of the main reasons the large metro areas like Dallas and Atlanta continue to win projects is due to the ability to get flights to tons of domestic and international destinations. The importance of accessibility will be driven by your company’s need to get to specific locations to conduct business. If you know those locations then we might score each metro area based on access to those cities only. In addition, you might want to look at the average flight cost to identify any significant differences in costs.
5. Quality of life
Quality of life can often be very subjective and include a wide range of factors. These factors can include weather, quality of schools, outdoor amenities, sports teams and other similar lifestyle items. You want a place that gives you a competitive advantage when trying to relocate employees.
6. Cost of living
Metro areas such as New York City, San Francisco and Los Angeles have long been the source of many headquarter relocation projects that have benefited other cities due to the extremely high cost of living in those locations. Cost of living is measured in various ways but typically includes factors such as housing cost, grocery costs and other localized cost factors. There are some centralized sources for this data such as ACCRA and the Economic Research Institute.
7. Business climate
The business climate of a region has become more important than ever as companies seek to control their costs. Corporate tax rates, union activity, employment laws and other state level business factors can be very complicated and difficult to assess. You may need to seek the advice of your accountant and legal advisers to ensure these factors are accurately assessed for your business.
8. Real estate
So many people believe a site selection decision is simply about real estate, when in reality real estate is only a necessary bi-product of your site selection decision. Therefore, you need to analyze the availability and cost of office space for your headquarters. Key metrics will include cost per square foot, operating expenses, vacancy rates, absorption rates, square footage under construction and availability of tenant inducements such as free rent and tenant improvement allowances.
9. Economic incentives
There is a classic saying about economic incentives. It is that economic incentives should be considered “icing on the cake” once you have made it through the entire site selection process. For instance, it is doubtful that Amazon would ever select a city that offered the most economic incentives if they couldn’t find the talent there. The key is to properly evaluate the economic incentives and their impact on your bottom line. You will want to lump the economic incentives into categories such as tax abatements, tax credits, cash grants and in-kind services. Then you will want analyze if your company can actually utilize the economic incentives as some states often award tax credits that may not be of any value to you.
10. Cool factor
The final factor which has been getting a lot of attention lately is the “cool factor.” A lot of companies are seeking locations to attract millennials so the cool factor can definitely improve your ability. Cities such as Austin and Nashville are great examples of cities that are selling themselves on the cool factor. How you score and weigh the cool factor is a whole other discussion.
The Amazon HQ2 project has made companies across the world more aware of the site selection process. However, it is critical to remember that the site selection process needs to be highly customized around your company’s needs. Undertaking these projects on your own can be both challenging and dangerous which is why companies such as Site Selection Group were created to help you optimize your location decisions utilizing a proven site selection process.