Amazon receives 238 bids for HQ2: what does that say about economic development organizations?

Amazon receives 238 bids for HQ2: what does that say about economic development organizations?

The big story in the economic development world in recent weeks has been Amazon’s search for its location for its second headquarters. In the last week, it announced that it had received 238 proposals from cities and regions across North America that want to host the facility, in which it would invest more than $5 billion and create up to 50,000 jobs.

Amazon said 54 states, provinces, districts and territories in the United States, Canada and Mexico were represented in the bids.

So this raises the question generally: apart from offering huge tax incentives and subsidies, how can a city, state or region differentiate itself to attract investment from large firms looking to globalize and expand?

If they all have the same story, is money the only incentive to win the bid? Or what about other things, like talent, infrastructure, ecosystem and all that? Maybe in the case of the Amazon HQ, these factors become secondary since there’s huge money and economic benefit involved, that many of the bidders would spend money to fix some elements, like infrastructure.

But for many other routine expansion and investment projects, this isn’t the case. The key is for the economic development organization to tell its story better, so that there is some unique aspect of its offer that can be highlighted.

Many EDOs don’t have a strategy

For that differentiated story though, the organization needs a strategy. In a recent blog article in the Brookings Institute, authors Ryan Donahue and Brad McDearman said economic development organizations (EDOs) need to have strategies that are more strategic. They say that most strategies that EDOs create are actually not strategies at all.

They state, “Strategy requires making difficult trade-offs (choosing what not to do), and the ultimate goal is to establish a unique position. We’ve written about EDOs that have done just this – picking one or two truly globally-relevant specializations in which to make concerted, long-term investments. Examples include Syracuse (drones), Des Moines (insurance), Milwaukee (water technologies), or San Diego (life sciences). We’ve also written about places that, in the absence of clear specializations, have decided that the most strategic approach is to focus on capacity-building for mid-sized firms regardless of industry. Examples include PRISM in Northeast Ohio, Jumpstart’s Scaleup Services, and national lab voucher programs.”

Align business attraction incentives with the ecosystem

They say one of the most basic functions of EDOs is to selectively invest in capacities that make a region ‘sticky’ for specific types of firms and talent, spurring a cycle of self-reinforcing growth in certain industries. Nearly everything that an EDO does – from business attraction incentives, to workforce training to startup accelerators – should align to ensure that firms in some set of industries have to be in the region, whatever the cost. The point is that, when an EDO defines an industry as a ‘target’, it is making a claim about an industry specialization: either that one exists and should be protected, or that an emerging one could be deepened through targeted investments.

The problems with having too many specialist industry verticals

They go on to explain that the first problem is that EDOs choose too many specializations (usually six to eight), each of which is too broadly defined (such as ‘advanced manufacturing’). “A strategy that ‘focuses’ on half to three quarters of the entire regional economy simply fails to provide a way to harness the energy of local leaders, prioritize investments, or create concrete, actionable initiatives to reduce barriers to the industry’s growth. As economic activity becomes more concentrated in the U.S., including in the most desirable industries, the average region stands little chance of breaking through with the watered-down, distracted efforts that these strategies inevitably generate.”

The second problem, they say, is a direct outcome of the first. “By labeling such a broad swathe of the economy as a target, it’s inevitable that there will be substantial overlap with other regions’ specializations. It seems that every metro area we work with claims to specialize in not just overly broad industries, but the same broad industries: advanced manufacturing, life sciences, and food and beverage are nearly ubiquitous.”

“Any pair of metros will have some overlap in their industrial makeup, but the level of duplication suggests that neither metro area has gotten anywhere close to establishing a ‘unique position’. They are sending generic signals into a crowded, noisy marketplace.”

The authors then go on to offer an explanation as to why this happens. Quoting them, “What keeps EDOs from doing this right? One explanation is that their leaders are timid. They prefer to avoid difficult strategic decisions, make every sector of the economy feel valued, and hope that opportunities will float their way despite their lack of strategy.”

They add, “Another is that many EDOs leave this research to consultants who lack in-depth knowledge of local industry dynamics, rather than doing the hard but necessary work of regularly convening and learning from firms. There are also, however, more benign explanations for why EDOs end up with muddled strategies: the academic research on specialization and economic performance is muddled. It’s not entirely clear whether it matters more if a region has a relative specialization – an industry that’s large compared to other industries within the region, even if small compared to other regions – or the opposite. It’s not even clear whether specialization or diversification is better for regional economies. Further, the notion of carving out unique industry-based niches is increasingly at odds with how the economy is organized – for decades, regions have become less specialized by sector and more specialized by function.”

Establish a unique proposition

The key takeaway from this is that EDOs need to have a focused strategy and be able to articulate a unique value proposition.

Finding the unique proposition and telling the story is what my co-founder Richard Wallace and I have been doing for many years – in technology, innovation, and economic development. In addition to looking at innovation, research, technology trends and their impact on economic development, we also established The Next Silicon Valley to showcase to a global audience what cities, states and regions have to offer over their peers. We specifically look to create and deliver content (online and offline) focused on differentiators around factors like place, policy, programs, innovation, talent and funding. We hope that by doing so, we help decision-makers become more aware of their global expansion possibilities.

Transformation and rebirths are happening within cities, regions, places, locations – and enterprise around the world. Everyone is trying to identify and nurture available local resources, and sources of competitive advantage to compete on a global stage of technology-based economic development.

But discovering those new destinations can be a challenge. And regions are keen to talk about what makes their location attractive. We’d be happy to hear what makes your city, state or region stand out from the rest.

[Image: Amazon]

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