Jeff Bezo’s announcement that Amazon would need a second head quarter after Seattle and that it would go through a scrutiny to decide the best location has created quite a competition among city mayors to pitch their case in favor; the factors for success would include many intangibles that may not be so palpable in the first instance.

Availability of incentivized land access and means of transporting 50,000 people to and fro from their houses to the office & warehouses and connecting them with other hubs and spoke, including airways connections, are the usual priority items. But these are hardly the ones that will make or break in decision making. These would be the minimum requirement, not the most potent ones.

The real issue would boil down to in fact three things, availability & scalability of a deep pool of talent, ability to support global logistics operations & the proximity to networks that the future businesses of Amazon would be needing for its sustenance.

All three of these would never be found in one place and therefore it would be eventually a trade off.

Global cities have differentiated into offering either one or the other, if it offers a talent pool in one dimension, like finance (like New York), it would do worse in creative arts (like LA), if it does well in providing a network of talent in the Information Technology area (like Bangalore) it would be short in logistics space for a global hub to be set up (like Atlanta).

Differentiation has provided a lot of advantage but it has ended up in the worst of tradeoffs in many other areas. Offering a mix of things like multi-faceted talent will be the future forte of great cities.

Do we have such cities that offer multi-faceted talent, well we have one like Mumbai, but if only it could solve the other challenges it has like logistics and housing, where it would fail quite miserably in housing & locomotion. No head quarter can survive here for any long term, such are the woes we neglect to our peril.

Talent must preclude the ability to house and move such talent so that all innovation and creativity is not destroyed by the time the talent reaches the work place. The price of housing is the next big thing, it raises the cost of talent and while financial solutions to this problem tries to mitigate the loss function, it never quite gets there.

Financial rewards help to exacerbate the problem by making the price of housing sky-rocket. Imagine that to solve the transportation problem you raise the salaries by that much so that they can live closer to the offices, you have actually ensured that the price of housing would sky rocket to the point that you would have to look for solutions for relocating the office.

The differentiation of cities in the lines of offering specialized portfolio like finance, creative arts or logistics networks have eventually led to concentration of talent which have definitely saved cost and ease of doing business. Having Bollywood spread out over the whole country would have been far more inefficient, but on the other hand it has led to enormous rise of house prices in certain pockets with cascade effects.

There is always a breakaway point, when benefits outweigh costs for being a one stop shop for housing large cohorts in their workplace as well as their homes. Keeping people together is the biggest challenge of our times.

When does new office location decisions outvote the current location advantage? When the marginal cost of putting up an additional office is much higher than the benefit it would bring in.

Think of Seattle, it is precisely the reason why the next head quarter is not going to be Seattle.

Most cities, while they have done so well in the past, may not be the right choices for the future. Town planners and Mayors are as much to be blamed as the businesses themselves as they remain shortsighted to the housing and transportation problem they help to create in a combined manner.

The benefit of current networks get lost in the costs they help to accelerate.

When the new locations get created eventually, the prices that had zoomed finally taper off as there are no new buyers.

As this normally happens over a very long period, investors and house owners ignore them, deferentially.

I would not be surprised if the search for the second head quarters finally settles for a compromise; virtual workplaces remain the other alternative, the multipliers in this case has a sound basis.

Amazon’s Second Head Quarter Search & the differentiation of global cities

Leave a Reply

Be the First to Comment!

Notify of