United States: Building A Robust Innovation Economy: How Betting On Higher Education And Fostering An Entrepreneurial Ecosystem Helped Northern Virginia Land Amazon HQ2

On November 13, 2018, Amazon announced that its HQ2 project—contributing an estimated 25,000 high-paying jobs and $2.5 billion investment—to be located in the Crystal City area of Arlington, Va. The announcement by the e-commerce giant ended months of fierce competition, and was cause for celebration throughout the Northern Virginia and the DC metro area.

More importantly, the Amazon HQ2 success offers Northern Virginia leaders a chance to examine what went right, and how they can build upon this success to create future opportunities for the region.

With its attention to technology, real estate, and economic growth efforts in Northern Virginia, Womble Bond Dickinson recently gathered leaders from the region's economic development, higher education and entrepreneurial arenas to discuss how to build a robust innovation economy.

Womble Bond Dickinson attorney Todd Harris moderated the discussion, which featured David Baker, Assistant Director, Government and Community Affairs at Virginia Tech University; Victor Hoskins, President and CEO of the Fairfax County Economic Development Authority; and Tien Wong, Chairman and CEO of Opus8, Inc. The following article is based on the conversation between Baker, Hoskins, Wong and Harris.

Landing the Big Fish: Amazon Picks NOVA for HQ2

Economic development is often compared to fishing, and the logical extension of this metaphor is that Amazon's HQ2 was the Moby Dick of economic development.

Many said it was the largest, most highly coveted project in US history, with virtually every major and mid-sized market putting together their most attractive proposals in order to bring tens of thousands of high-paying jobs and billions in investment to shore. And Victor Hoskins was determined to land the big catch.

Hoskins, now President and CEO of the Fairfax County Economic Development Authority, served as Director of Arlington Economic Development and led that city's pursuit of the Amazon HQ2 project.

Amazon had no shortage of attractive proposals to choose from. But Hoskins said three factors ultimately pushed Northern Virginia to the top of the list:

1. A deep existing tech talent pool, plus a talent pipeline for the future. Talent, not tax incentives, was Amazon's biggest concern, Hoskins said—and the most important reason the company chose Northern Virginia. Enrico Moretti, a highly influential economist at UC Berkeley, popularized these thoughts in his 2012 book The New Geography of Jobs. Moretti writes that economic development in the twenty-first century is about "attracting the best human capital" and Northern Virginia has one of the highest concentrations of college graduates in the country. As Amazon's Director of World Wide Economic Development, Holly Sullivan told Washingtonian magazine, "We needed to find a location that had the day-one talent, but also a location that has the resources and the sort of education ecosystem to build upon that tech-talent pipeline."
2. A unified, regional approach. Unlike many bidders for the HQ2 project, Northern Virginia is not a single municipality. Rather, it is a region represented by a number of city and county governments. This easily could have resulted in an "Every community for itself" approach, in which Northern Virginia's counties and cities competed against each other in a weakened attempt to compete for Amazon's attentions. Instead, Hoskins said the region's leaders recognized that their best chance of succeeding was to work together. And regardless of where in Northern Virginia Amazon actually located, the entire region would benefit from the decision.
3. A stable community. Amazon was not looking for short-term returns with the HQ2 decision—the company wanted a permanent second base of operations. So Hoskins said they wanted a market that was going to remain steady in the ups and downs of the economic cycle. "The presence of the federal government gives us something of a buffer against a downturn in the economy," Hoskins said. In addition, Virginia has maintained the same corporate tax rate for 40 years and the state has enjoyed a AAA bond rating since 1938. Hoskins and his team promoted the vast opportunities of Northern Virginia when courting Amazon, but they also stressed that the region was a safe, smart play.

The HQ2 success didn't develop in a vacuum. Area business, government and educational leaders have been working on strategies to grow Northern Virginia's economy; landing Amazon was a natural outgrowth of those efforts.

Hoskins said that when he started work in Arlington at the start of 2015, the county's office vacancy rate was more than double where it had been several years earlier. Hoskins considered that a warning sign that changes needed to happen.

"My whole approach was straightforward. I said, 'You need to diversify more,'" he said. Northern Virginia had long been a tech hotbed. During the dot-com boom of the late 1990s, the region was home to many online start-ups that blossomed into multi-million-dollar companies, including WorldCom and AOL.

Hoskins' strategy was to build on this successful base by (1) going after new and different types of tech companies, and (2) pursuing corporate HQ projects.

"We started methodically. We went after edtech, medtech, cleantech, AI, big data and headquarters – that's all we did," he said. The scattershot, chase-every-project approach favored in some circles wasn't in the playbook. Instead, Hoskins targeted projects that were a good fit both for the region and the company.

The first domino fell when German grocery giant Lidl built its North American headquarters in Arlington, as the cornerstone of the company's massive expansion into the US market.

"They bought a building that had been vacant for five years," Hoskins said. "We weren't going to fill it with government employees—we had to attract new business."

The next step was to recruit Nestlé USA's US headquarters from California. The 2017 decision brought with it 750 jobs to Northern Virginia.

In 2018, Nestlé's sister company, Gerber, relocated its headquarters from New Jersey to Arlington. A pattern had developed—Northern Virginia was a hot market for corporate headquarters. Northern Virginia was fishing in deeper and deeper water—a journey that ultimately led to the biggest catch of all.

"I've spoken about the Amazon pursuit quite a bit, and I never tire of talking about it!" Hoskins said.

The War for Talent is Real: Filling Thousands of Tech Jobs in a Full Employment Economy

Traditional economic development thinking is that attracting employers leads to local residents getting much-needed jobs. But in the Innovation Economy, the right talent is a valued—and limited—resource. With unemployment rates at historic lows (less than 2.5 percent in Northern Virginia, according to the US Bureau of Labor Statistics), the economic development pyramid has been turned on its head: to secure a decision like Amazon's, cities and regions need to demonstrate that they can deliver the necessary talent to fill the company's needs.

Job openings in the Innovation Economy are plentiful in Northern Virginia. A quick search on LinkedIn or Indeed reveals hundreds of open tech sector positions in the market. These careers have a higher average education level than any other sector, so while they offer great pay and benefits, the skill level needed for admission is high. The dilemma for Northern Virginia—and every other community competing in the Innovation Economy—is delivering the highly skilled and educated workforce needed to meet this staffing need.

"Ten years ago, economic developers didn't talk about the talent pipeline," Hoskins said. "But now, given the low unemployment rates across the country, you have to be able to produce talent."

Area universities are stepping up to meet the need, creating innovation campuses that represent some of Virginia's largest higher-education investments in decades.

"When this was all coming together, the state pulled all the higher ed institutions together and said 'We are really going to try and make a cohesive run at winning Amazon HQ2 and we keep seeing throughout the RFP: Access to Talent,'" said David Baker. As Assistant Director for Government and Community Affairs at Virginia Tech University, Baker was part of those conversations with area lawmakers and business leaders.

With "Access to Talent" as the focus, the state set aside more than $1 billion in matching funds for universities willing to make major investments in expanding tech and innovation programs. Virginia's investment in higher education was double what the state offered Amazon in traditional economic development incentives (other markets offered greater tax breaks).

Virginia Tech was the first university to raise its hand, as the university already had plans for an Innovation Campus. Only one problem: Virginia Tech's Innovation Campus plan had a 25-year timetable. Amazon wanted that moved up by a couple of decades. But the decision to move forward with a bold investment in higher education proved to be a difference-maker for Northern Virginia.

"None of the other finalists were investing in talent the same way—and Amazon took notice," Hoskins said.

Virginia Tech's Innovation Campus plan is as ambitious as it is necessary. The first building will open in five years, but the initial cohort of students will start in Fall 2020 in temporary space.

Once the Innovation Campus is at scale, Baker said the university will triple the number of graduate degrees in computer science and computer engineering, producing 750 master's degree and 125 Ph.D. graduates annually. This expansion will position the school among the top five universities in America in terms of producing tech talent.

And Virginia Tech isn't alone. George Mason University has announced a $250+ million expansion of its Arlington Campus aimed at serving the innovation economy. The expansion calls for George Mason to enroll 15,000 students in computer science, computer engineering, information technology and other related fields by 2024—more than double the university's current enrollment in technology programs. The George Mason Arlington Campus is adjacent to the site of Amazon HQ2.

"We're fortunate to have so many great colleges and universities in the region, and we're going to see them scale up at a pace we've never seen before," Baker said. "Not just Virginia Tech—other major area universities. They see Northern Virginia as a place to be, and we see that as a good thing."

Creating an Ecosystem for Innovation: Once a "Government Community," NOVA Now a Hotbed for Entrepreneurs

The outsider's perception of Northern Virginia is one of well-groomed suburbia, where residents shuttle to and from jobs at the alphabet soup of federal government agencies in the nation's capital. But Northern Virginia has been a technology hotbed for more than 20 years, and the region's reliance on innovation-driven businesses has never been stronger.

Today, the private sector accounts for more than 75 percent of the region's employment, and regional leaders are working to ensure that Northern Virginia grows as a laboratory where new ideas can thrive.

This commitment toward new ideas, technology and entrepreneurship comes at a time when the competition for talent is fiercer than ever. The linkages of the innovation ecosystem have become increasingly nimble and decentralized since the economic downturn of 2008-09. In a reconfigured marketplace, mid-sized boomtowns such as Austin, Texas and Raleigh-Durham, NC have emerged as viable alternatives and big cities no longer have the market cornered on tech success.

"We've fared pretty well, but over the last 20 years, we've seen a transformation. We're less dependent on the government and our economy is much more diversified," said Womble Bond Dickinson Partner Todd Harris, who works with Northern Virginia Innovation Economy companies on commercializing intellectual property.

Harris also noted that 70 percent of the world's Internet traffic flows through Northern Virginia every day. As Moretti's research indicates, tech companies are attracted to markets with a critical mass of educated talent—and Northern Virginia has cultivated that pool of tech industry professionals.

Tien Wong has been one of the market's biggest proponents for economic diversification. Wong is Chairman and CEO of Opus8, Inc., a private investment and strategic advisory firm focusing on the tech sector. He also is Founder and Host of the Big Idea CONNECTpreneur Forum, a community of over 8,000 founders, CEOs, angels, VCs, CXOs and other business leaders in the Mid-Atlantic region.

"I moved here in 1985, and it was a government town, a real estate town, non-profits and law firms. There wasn't a lot of technology. But over the last 35 years, and particularly the last 10-15 years, it's been an amazing transition to be a part of – and I think it's just beginning," Wong said.

In addition to the jobs and investment Amazon is bringing directly, Wong said there will be other tech industry companies drawn to the area by the opportunity to work with Amazon. He also said the Amazon HQ2 presence will attract more investment capital to the region.

"Hand in hand, entrepreneurship and tech go together. The abundance of talent, brainpower, capital and ideas—these are all the ingredients for a burgeoning innovation economy and we have that," Wong said.

Area leaders are on board with plans to diversify Northern Virginia's economy and promote entrepreneurs. This approach is built into Virginia Tech's concept for the Innovation Campus, for example.

"Education for entrepreneurs is a core component of the Virginia Tech Innovation Campus. Corporate partners are coming on board to help determine our program," Baker said. "We don't want this to be a traditional ivory tower higher-ed campus. Students will come out of school ready to hit the ground running in their fields."

Rebranding the Region and Focusing on Future Growth

Baker and other area leaders say the perception of the region is one of their biggest challenges. The facts say Northern Virginia is far less reliant on the federal government for its employment base than a couple of decades ago, but old perceptions sometimes linger. As a result, many engineering and computer science graduates from Virginia colleges and universities leave for other tech markets. Changing that image—and getting young people to recognize the opportunities close to home—are a priority.

The region's diverse workforce works in Northern Virginia's favor. In Fairfax County, for example, 41 percent of businesses are minority- or women-owned, and 37 percent of the county's population is foreign-born. Women are twice as likely and African Americans are five times more likely to work in tech in Northern Virginia than in Silicon Valley, according to the Virginia Economic Development Partnership.

That diversity is particularly appealing to young people, Wong said—and one of many reasons Baker, Hoskins and Wong are bullish on Northern Virginia's future in the Innovation Economy.

The three agree that the Amazon HQ2 project provides a blueprint upon which the region can build in the future. In order for Northern Virginia to remain a top magnet for large-scale economic development, they say the region needs to continue investing in talent development and higher education. The War for Talent will not reach a cease-fire in the Innovation Economy any time soon, and companies need a constant supply of educated, highly skilled employees.

Regional cooperation also remains essential if Northern Virginia is to stay at the top of the pack. Hoskins compares the region's counties and municipalities to star basketball players who set aside their personal agendas to win a championship. But now that Northern Virginia has essentially won the economic development equivalent of an NBA title, can the region stay united? Hoskins believes it can, pointing to the ongoing expansion of the Metro Silver Line. This multi-billion-dollar mass transit project extends through multiple counties and cities, and already is bringing major investment and development with it.

Wong sees regional cooperation expanding in the future, with Northern Virginia, Maryland and DC becoming a super-region that works collectively to solve major problems and attract A-list economic development projects.

Such cross-state cooperation and sustained focus on talent development demands leadership in the business, educational and government arenas—as well as legal counsel that understands the market and the dynamics at play. But Baker, Hoskins and Wong are confident area leaders will continue to rise to the challenge.

"If we can extrapolate what I've seen in the last 30 years, in 10 years, I think we are going to see another couple of major tech companies open satellite campuses here, and I think you are going to see more international tech companies come here," Wong said. "Amazon is just the beginning. You have one of the most valuable companies in the world and they have said this area is the place to be."

Committed to Community

Womble Bond Dickinson opened its Northern Virginia office in 2001 and in April, the firm relocated to the Boro Tower, a mixed-use development that combines office, residential, retail and entertainment space in a walkable community.

Womble Bond Dickinson Chair and CEO Betty Temple and Northern Virginia Office Managing Partner Gary Nunes provided welcoming remarks to the guests at the "Building a Robust Innovation Economy" event.

"Womble Bond Dickinson opened this office in 2001 largely to serve the region's technology companies, and in the nearly two decades since, we have been fortunate enough to work with a number of the fast-growing companies that have helped make Northern Virginia a global center for innovation and technology," Nunes said.

"Even when other firms closed up shop, or consolidated their Northern Virginia and DC operations, we stood firm because we believe that Northern Virginia was on its way toward becoming a major innovation and technology hub. I think we can agree that what is going on in Northern Virginia is exciting and the future of this region is bright."

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