As you realize your strategic plan, the need to increase your company’s physical footprint invariably follows. Whether your firm will require additional office space, manufacturing plants, or warehouses, deciding on where to open these new facilities is a complex undertaking.
Consider the case study of HQ2, Amazon’s multibillion-dollar headquarters, first announced in 2017. The eCommerce giant garnered bids from more than 230 cities to secure the most promising location. Even after months of negotiations, Amazon reneged on a deal with Long Island City, New York due to last-minute opposition.
The highly-publicized location search for Amazon HQ2 holds valuable lessons for executives in the process of selecting a new location site.
When Amazon released its request for proposals, its six-core criteria centered on existing infrastructure, such as international airports, highways, and large-scale commercial real estate.
Choosing a location with robust transportation and logistic infrastructure ensures that people, products, and capital can easily travel between your other offices and facilities. While rent may be cheaper in a location without these amenities, you would have to also engage in private contracts to replace the lack of publicly funded infrastructure.
In addition to drawing in external professionals, an ideal corporate location should also contain a sizable local talent pool. While cities with the best employment pipelines vary by industry, locations with outstanding institutions of higher education generally produce skilled workforces.
It is not a coincidence that biotech hub cities like Boston and Chicago contain renowned universities. Financial centers also attract a wide range of industries, which also increases the presence of a diverse, well-educated workforce.
Like companies, top-level professionals also prefer the convenience that a well-maintained city can offer. Placing your new headquarters in a location with immense intrinsic appeal makes it easier to attract talent.
Navigating regulations such as zoning and tax laws is arguably the most challenging aspect of selecting a new location. As many wage laws are also set at the municipal level, choosing between two locations in the same county can mean a multimillion-dollar difference in operating costs.
In the 2021 State Business Tax Climate Index published by the Tax Foundation, states with low or no corporate, individual, or sales taxes ranked highly for business friendliness. The 10 lowest performers levied high, complex tax rates, which increases costs and risks.
Employment rules can also vary widely by state. After California passed AB5 in 2020, companies across the nation scrambled to comply with the updated contractor and misclassification laws. The fallout from the bill saw dozens of companies pull out of the state and cut ties with California-based contractors.
Amazon faced similar obstacles in New York, where complex regulations and high taxes render the state near the bottom for ease of doing business. In the end, the retailer chose to forgo its Queens location.
Many of the reasons above skew towards the benefits offered by major, established metropolitan areas. However, up-and-coming secondary cities and underdeveloped locations can also provide unbeatable opportunities for investment and development.
If your company is on track to scale considerably in the near future, selecting a site with ample available real estate makes it possible to expand in place. Companies investing in IRS designated opportunities zones can reap significant tax incentives while revitalizing the economy of a distressed community.
While much of the criteria for judging corporate locations are quantitative, the human element is just as important. Companies must ensure that employees at all levels can secure a high quality of life.
Quality of life can be hard to measure, but many scales include factors such as cost of living, safety, culture, and excellent school systems. The ideal location for your company will depend heavily on the factors that your employees prioritize.
For example, tech professionals prefer working in locations with start-up cultures due to the plethora of networking and collaborative opportunities. On the other hand, companies such as Amer Sports Corp and eBay selected their respective headquarters for their proximity to outdoor activities and housing affordability.
Balancing all of these competing criteria is no easy feat, but necessary when making such an impactful strategic decision. Amazon’s decision to pull out of New York after investing millions in the bidding process demonstrates that poor site selection is in fact more costly in the long run.
As with any major decision, the key is to involve stakeholders as early as possible in the process. Notify your workforce of the impending move to identify any important information that could impact your decision. It is also advisable to enter discussions with politicians at all levels of government to avoid resistance or unexpected regulations.