5 star review

When it comes to my house and my housewares, there’s nothing I value more than bang for my buck. I live in beautiful Kansas City where the average home price is just $122K, so I know luxe living doesn’t have to cost a ton. That’s why at $14.99, these wind chimes are music to my ears… I’ll tell you, when I’m sitting out in the backyard of my reasonably priced home in a safe neighborhood with great schools and these chimes start to tinkle, it feels like the whole world is singing just for me.

—     5 star Amazon review by Kansas City Mayor, Mayor Sly James, as part of campaign to lure Amazon to Kansas City

After reviewing nearly 250 proposals from across the US, Canada and Mexico, Amazon released a shortlist of 20 metropolitan areas that would progress to the next stage of their selection process for finding a home for their second headquarters. The list included cities like Austin, Boston, Denver, Philadelphia and Toronto.

Amazon’s original call for proposals required that candidates be connected metro areas with more than 1 million people, a business-friendly environment and proximity to major universities, of which there are plenty of examples across North America. But there’s a reason why cities like Houston, Detroit and Oklahoma City did not make the cut.

Each of the cities on Amazon’s shortlist is home to a sophisticated IT cluster. A network of firms that both compete and collaborate with one another, draws from the same talent pool and shares infrastructure. Data from the US Cluster Mapping Project (a collaboration between Harvard, the Department of Commerce and the Economic Development Administration, which utilises over 50 million open data records), shows us that each city listed on Amazon’s HQ2 list is a top 50 most specialised IT cluster in the US.

But more than that, it shows that they are also home to complementary clusters of distribution/e-commerce firms and of communications services firms as well. It’s the potential for cross-fertilisation across industries that Amazon is most attracted to.

 US IT clusters and Amazon HQ2 cities

Source: US Cluster Mapping Project, Amazon

At the TCI Conference in Toronto last week, Mercedes Delgado (part of the Cluster Mapping project team) looked at relative merits of regions built around narrow/specialized clusters versus those able to integrate cluster of related industries. She found that clusters of related industries protect regional employment against macroeconomic shocks. Unrelated clusters in contrast, offered no protection at all. If you want to get really technical, she found that “cluster agglomerations are at work during the whole business cycle, and [were] strongest during the financial crisis when uncertainty were the highest.”

The example she gives is the experience of the medical devices clusters in Salt Lake City and Madison. In Salt Lake City, the cluster is rich and broad, containing sub-clusters of surgical supplies, dental equipment and ophthalmic goods. In Madison, the cluster is highly specific to surgical instruments. During the GFC, industry employment shrank in Madison by almost a third; but it actually grew in Salt Lake City by 5 per cent.

Pundits are wagering their bets on who will eventually win Amazon’s $5 billion sweepstakes (and the 50 thousand high-wage tech jobs that come with it). Front runners look to be Austin, Atlanta and Philadelphia, but they’re just guesses at this stage. Worth unpicking are the frameworks that the likes of Moody’s and others are using to weigh the relative strengths of each contender city in making those bets, and what this implies about their what makes a town successful.