Amazon’s announcement a few weeks ago that it will open a second US headquarters, and its invitation for cities to bid to become its new HQ, have sparked a lot of debate across the Atlantic. But the criteria set out by Amazon on what it expects from its new host city also offers interesting insights for places in the UK, and for the government’s industrial strategy.
It’s not often that a company explicitly states what it is looking for when it’s searching for a new location. But in announcing plans for its new HQ, Amazon did exactly that – setting out clear guidelines as to how bids from competing cities will be judged. In no order, it stipulates that the following conditions must be met by the successful city:
- Appropriate office space – either already built, or land to build on;
- Business friendly environment and tax structure – for business friendly, read low taxes and grants;
- Appropriate labour force – a good supply of workers, measured in terms of the size (population centre of over 1m), as well as skill level (highly educated and a ‘strong university system’);
- Strong transport links within the area – including a link to an international airport;
- Strong digital infrastructure – fibre broadband and good mobile coverage from a number of providers;
- Cultural and quality of life offer – a diverse population with good recreational and educational amenities to help attract and retain staff;
The document also sets out that Amazon only wants one bid per Metropolitan Statistical Area – which could be likened to a LEP or city region here – and that places bidding must have a population of at least 1m.
Of course, this is only one company (albeit a very big one – Amazon estimates the new HQ will create 50,000 jobs with an average wage of $100,000). Nonetheless, the list broadly chimes with the factors higher-skilled companies have named in conversations with Centre for Cities in recent years.
While Amazon doesn’t rank its criteria in terms of importance, it’s likely that the availability of a skilled workforce will be chief among them. As we show in our new briefing about why skills should be a key concern in the industrial strategy, British cities that can offer access to high-skilled workers and knowledge have been most successful at attracting high-paying, businesses and jobs.
Given the fundamental importance of skilled workers to a high-knowledge operation, there’s no reason to assume that Amazon would be any different. As such, improving skills-levels in UK cities has to be a top priority for local leaders and in the government’s industrial strategy.
But while skills are of the utmost importance, both the Amazon document and our recent What Investors Want report also illustrate that businesses and investors assess a wide range of characteristics when assessing the attractiveness of a particular city. Ultimately, firms are driven by their likely return or profit, and will be drawn to cities which offer them the best combination of skills, infrastructure, and a pro-investment city leadership with a strong record of delivery.
As such, improving transport, skills and housing should be top of the list for local leaders seeking to make their places more attractive to businesses. Crucially though, we found that this isn’t enough – city leaders also need to actively promote the advantages they offer, as well as focus on building stronger relationships with the private sector, and demonstrate a willingness to ensure big private sector projects get over the line.
What’s a little more surprising about Amazon’s criteria is that includes grants and subsidies as a key consideration. If we were talking about an Amazon warehouse, this demand would be expected. Such a facility would need access to lots of cheap land and workers, something which can be found in a large number of places, and so a sweetener would clearly help sway the decision. For example, this has been used by both the Scottish and Welsh Governments to attract Amazon warehouses to Swansea and Dunfermline.
But with the company’s new HQ, we’re talking about a higher-skilled operation. The clustering of high-skilled businesses in central London and Manhattan, two of the most expensive places to do business in the world, shows that high-skilled businesses are prepared to pay a premium for access to talent.
And it’s hard to see Amazon sacrificing this for the sake of some subsidies – indeed, it is unlikely the company’s decision to locate its UK HQ in Shoreditch resulted from similar interventions. The reality is that Amazon can only meet its need for a large skilled labour force, good transport links and a strong amenity underlines by locating in a major city.
This undermines a line of argument often put to us here at the Centre for Cities, which suggests that modern communications technologies allow big firms to locate anywhere. It also echoes a point made by Professor Michael Storper in his City Horizons lecture last September: that in the modern economy, firms like Amazon need cities as much as cities need firms like Amazon.
More broadly, it underlines the importance of cities to the economies of developed countries. In the UK, for example, economic activity isn’t evenly or randomly distributed across the country – it is clustered in cities.
For the industrial strategy to be successful in in raising prosperity and growth across the country, it therefore needs to focus on helping successful cities continue to thrive – and support struggling cities to overcome the challenges they face in boosting their economies.
Paul Swinney is senior economist at the Centre for Cities, on whose blog this article was first published.