The biggest site-selection deals of the past two years—a pair of the largest ever—have blown up in the faces of the CEOs and politicians who consummated them. What follows is likely to be a new era demanding greater accountability by business chiefs and more transparency by government leaders when it comes to expansion agreements that seem too good to be true.
In Amazon’s abandonment of its “HQ2” plans for New York City, an ad hoc tribe of local political activists prevailed over the carefully considered business strategy of one of the world’s dominant companies, headed by the richest person in the universe. And in Wisconsin, voter unrest over generous financial incentives for a Foxconn flat-glass mega-factory helped oust the governor who granted them and wobble the CEO of one of the biggest electronics companies on the globe.
“New York City lost; the entire Northeast lost” in the Amazon debacle, says Dave Salinas, founder and chairman of District New Haven, a tech-startup campus in New Haven, Connecticut. “Imagine the repercussions of having all these citizens cheering for the team that lost.”
Amazon’s Big Apple disaster had little effect on New York’s standing in the Chief Executive “Best States and Worst States for Business 2019” survey of CEOs because the Empire State already has been stuck at lowly No. 49 for years.
But the fact that Virginia managed to land the other main Amazon HQ2 facility helped boost the state two spots in this year’s rankings, to No. 13, while Amazon’s consolation-prize plan to put a big facility in Nashville assisted a rise of three spots by Tennessee, to No. 4. And the Foxconn unraveling helped drop Wisconsin by four spots, to No. 17, after a strong climb by the Badger State from No. 41 in 2010.
Once again, Texas finished No. 1 overall for 2019, and once again was followed by Florida at No. 2. North Carolina fell to No. 4. Indiana remained No. 5. The ranking of the worst seven states—No. 44 Oregon, No. 45 Massachusetts, No. 46 Connecticut, No. 47 New Jersey, No. 48 Illinois, then New York and California in last place—remained unchanged.
Now CEOs, politicians and the economic development community are absorbing ramifications—and lessons—from the Amazon and Foxconn sagas.
For Rod Robinson, who watched the goings on in New York from afar as CEO of ConnXus, a Cincinnati-based digital-tech company, one obvious lesson is how to manage public expectations. “It’s a matter of making sure voters have an understanding of economic development and how government can play a key role as a catalyst,” he says.
Still, pulling themselves together to compete in the Amazon HQ2 beauty pageant helped unify long-term development efforts in many cities other than New York.
“Amazon did something good by reviewing strengths and weaknesses with every community,” says David Brown, president and CEO of the Greater Omaha Chamber of Commerce, which joined Nebraska in pitching. “And it was a rallying point for us as a local tool to convince people to do some big things in the community that we might not have thought of otherwise.”
Also, Amazon’s commitment to spread the jobs once aimed for New York City to the rest of North America, instead, can be expected to juice development in those 17 locales, including Atlanta. “Amazon already employs more than 4,000 people in Georgia, and they’ve had a good experience here,” says Pat Wilson, commissioner of the Georgia Department of Economic Development.
Meanwhile, Amazon’s nod to Nashville—a promise to locate up to 5,000 jobs there in a new operations center—will accelerate the Music City’s rise. “Nashville has become one of the ‘it’ spots in the whole country right now,” says Kathy Mussio, managing partner of consultancy Atlas Insight.
The Foxconn saga disquieted CEOs, politicians and the economic development community for different reasons than the Amazon arc. The partnership started as a test of how far a state and its leaders could reasonably stretch to guarantee not just a huge investment by a foreign company but also one that, as then-Wisconsin Governor Scott Walker hoped in 2017, would be transformative.
“Wisconn Valley” would arise in the southeastern corner of the state as a complete technology-enterprise ecosystem around a $10 billion Foxconn investment in a factory to build the largest class of flat glass screens for the latest consumer electronics, employing up to 13,000 people directly and tens of thousands more indirectly.
Wisconsin promised a state-record-shattering $4 billion of incentives to Foxconn. But not long after the Foxconn groundbreaking in Wisconsin that involved President Trump in 2018, that ground started shaking instead, as irresistible global industry dynamics began making themselves felt.
Foxconn CEO Terry Gou began sending messages that the company would make smaller screens than planned because it couldn’t be expected to set up the same kind of supply chain in Wisconsin that helps it dominate manufacturing in Asia. Gou also was spooked by the budding trade war between the United States and China because Foxconn makes most of its smartphone screens in China.