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OM in the News: Let the Bidding Begin

September 14, 2017

Amazon’s current HQ in Seattle

If I were teaching class this week, I would start by asking my students how many would like to get a job at Amazon when they graduate. This is because, as The New York Times headline (Sept. 8, 2017) says: “Let the Bidding Begin.” Wanted by Amazon for its second headquarters: A place with a million people, a diverse population, good schools and malleable lawmakers. Room to accommodate up to 50,000 high-paid workers. 

Amazon has laid out in meticulous detail what it is looking for, even acknowledging that new laws may be required to get the high level of incentives necessary to hold the company’s attention. “This is the trophy deal of the decade,” said one industry expert.

Amazon’s detailed wish list for its new project, which it is calling HQ2, also includes on-site access to mass transit, a commute of 45 minutes or less to an international airport and easy access to a major highway. It wants excellent fiber optic internet connections, strong cellular phone service, traffic congestion figures, lists of universities, statistics on the qualifications of local workers, and recreational opportunities.

Political leaders in cities around the U.S wasted no time saying how badly they want Amazon to join them. Amazon has already been a beneficiary of generous public subsidies as part of its expansion of its warehouse network. It has received public subsidies totaling at least $613 million for 40 of the 77 warehouses it built from 2005 to 2014. Additional subsidies for Amazon data centers were about $147 million.

The average incentive package from a state usually adds up to 2-3% of wages, although recently there have been a spate of megadeals, like the $3 billion state tax credits that Wisconsin offered Taiwan’s Foxconn. Such outsize offers could end up being a “winner’s curse,” where the costs outweigh the benefits. Such gifts may not even be what is crucial. In G.E.’s recent HQ move to Boston, tax incentives were far from the most significant selling point.

Classroom discussion questions:
1. Why is this the location “deal of the decade?”

2. What do you think are the most important location factors Amazon should consider?

 

 

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