- November 29, 2017
- Posted by: David Marshall
- Category: business, finance & accounting, management
The big expansion news over the last few weeks has been Amazon search for a second North American headquarters and the speculations about where they’ll actually place it. Dozens of cities are all clamoring for Amazon’s $5 billion investment and hoping to be the city to employ 50,000 employees, many with six-figure salaries.
Many cities have thrown their hat in the ring, from big cities like Atlanta, Houston, Boston, New York, and Toronto, to mid-sized cities like Raleigh, Pittsburgh, Austin, and Ottawa. The requirements were that the city have 1 million or more people, have an international airport, access to mass transit, an educated workforce, and have enough space for an 8 million square foot facility.
Since the online giant realizes they can’t fit another 8 million square foot office in their hometown of Seattle, they want to expand. And I think it makes a lot of sense that they skip some of the bigger, more expensive cities, like San Francisco, Boston, and New York, and go with a smaller city like Pittsburgh or even Austin.
For the most part, a business’ location is determined by where you live when you start it, or where you physically manufacture your products — like in the case of a 112-year-old company whose manufacturing presence was built 60 or 70 years ago.
Robroy’s conduit division was built in East Texas, and the reason that was given was to get closer to the source of raw material, Lone Star Steel, 30 miles away. In those days, it was sound logic because freight of the raw pipe was 10 percent of the total revenue. So under those circumstances, you could take a big bite out of costs just by being so close. Even though it was long before my time, I couldn’t fault that logic. (The funny thing is I don’t believe Robroy has ever bought a nickel’s worth of steel from Lone Star Steel.) But in that case, shipping and location drove the plant’s placement, and Robroy grew up around that idea.
Another example: Warsaw, Indiana is the home of the worldwide headquarters of three joint replacement manufacturers: Depuy, Zimmer, and Biomet (now part of Zimmer Biomet). Revra Depuy started manufacturing splints in Warsaw in 1895. Justin Zimmer left Depuy and started making his own splints in 1927. And Dane Miller, who used to work at Zimmer, started Biomet in 1977. Basically, if you’ve got an replacement joint in your body, it came from Warsaw, Indiana.
But in Amazon’s case, they have the freedom to put their new headquarters wherever they want them to be — they’re the 8 million square foot gorilla. And given their requirements, I believe they’ll not only be able to attract a lot of talent in the city, but they’ll persuade a lot of people to move to their new city as well.
Not only that, many allied and supporting businesses will spring up in that new city — more car dealers, more home builders, more restaurants, and so on. Thousands of new jobs will be created in that city just to support the new Amazon HQ. How many of those businesses will grow its own medium-sized business that lasts for 50, 75, or even 100 years, because of Amazon’s choice?
We’re not sure when Amazon will announce their decision, although they have said it will be some time in 2018. Phase 1 will start soon thereafter and will build anywhere from 500,000 to 1 million square feet of office space; the whole project will take 15 – 17 years to finally complete.
I’ve been a manufacturing executive, as well as a sales and marketing professional, for a few decades. Now I help companies turn around their own business. If you would like more information, please visit my website and connect with me on Twitter or LinkedIn.
Photo credit: Jay Sterling Austin (Flickr, Creative Commons)