12 Dec 2018
How Amazon And Big Companies Negotiate Better Deals
Amazon was able to cut a widely publicized deal with the cities of New York and Arlington for its second headquarters. The deal, announced November 13, 2018, by the Wall Street Journal, has brought to limelight big companies’ ability to cut favorable deals. Amazon is among an elite group of companies with the clout to make cities and states bend over backwards to court these top players.
Some other players such as Apple and Microsoft have made waves in the past with cities vying to host their headquarters. Amazon clearly understands the importance of pursuing both traditional and nontraditional ways of growing your retail business.
Just like Amazon, even small companies may be able to use their negotiating power to find favorable deals for themselves in locations where they plan to do business.
Amazon-level Tax Breaks
In its 2018 search for a second headquarters, Amazon managed to wrangle some attractive incentives from New York and Arlington, VA.
The incentives include the following notable parts of a $3 billion deal, for New York:
- Refundable tax credits of up to $1.2 billion
- Reimbursement of capital costs for office buildout of up to $505 million
- Other assistance in line with the city’s economic development objectives
How New York And Virginia Plan to Benefit
The deal has come under scrutiny by politicians and members of the public, including protests in New York City. The truth, however, is that the deal is not just a corporate giveaway by the cities to a corporate giant. Behind the deal lies a detailed and insightful calculation on the part of the cities on how hosting Amazon’s second headquarters will help them.
These benefits, for New York, include the creation of over 25,000 high paying jobs as well as the investment of around $3.7 billion by the company in the city.
Amazon is expected to create a further 25,000 jobs in Virginia, but the actual figures in both locations could be higher.
In effect, the benefits flow both ways, with Amazon helping to revive a region that has faced a challenging business outlook.
How Your Small Company Can Negotiate Favorable Deals
For small businesses looking to get favorable deals such as those negotiated by Amazon, there are several places to look. For example, you may be able to negotiate deals on real estate leasing, as well as government subsidies or strategic incentives for your industry.
Getting Reduced Rent Deals
When negotiating rent, the length of time for which you intend to lease a property can make a big difference. For example, if you are planning a yearly lease on a property, you will have far less ability to negotiate rent concessions than if you were negotiating a 50-year lease.
Landlords are open to considering special lease terms, but only where your business offers a beneficial value proposition.
Before you negotiate, you must carefully weigh why your business deserves to get special terms. One way to do this is to set up a business in an attractive new industry and be the first such business in a city.
Your business may then be able to field interest from a number of premises which would like to house such a groundbreaking industry.
How To Win Tax Breaks
Like Amazon in the case above, your small business might be able to qualify for tax breaks. Unlike rental arrangements, tax incentives are the domain of local councils and state governments.
The Amazon example is typical, and tax incentives are likely to be awarded to your business on the basis of some combination of the following attributes:
- Job creation ability of your business
- Your business promotes economic activity in the city
- The business will build special infra-structure that helps others
- The company attracts migration from other cities, boosting the tax base
- The business will be liable for substantial tax revenue which will improve the quality of infrastructure
The more of these qualities your business possesses, the more likely you are to be awarded a tax break.
Even if your business is so small that the economic impact on the city or geographic area where you do business is limited, you can still qualify for tax breaks. This often happens in areas of industry considered as “strategic” by national or local governments.
For example, many small businesses in the renewable energy industry have benefitted from a strategic shift to renewable energy. Even though the businesses individually might be too small to award lucrative tax breaks, taken as an industry, their impact is multiplied.
If you operate in such newly important industries, you can qualify for, and take advantage of, special tax incentives or subsidies.
How Small Companies Can Land Attractive Financing Deals
An important but easy to overlook area in which small companies may be able to cut Amazon-like deals is in the area of financing.
Many small businesses complain of a lack of financing to expand their businesses, but the truth is that many government programs have been set up to address just this.
Governments recognize that small businesses are the backbone of a strong economy, and have stepped up support for small to medium sized enterprises. The methods of support range from low-interest loans to credit guarantees and development initiatives for small businesses.
Government Economic Loans
In the US, your small business can take advantage of the federal Small Business Administration (SBA) loan program. This program enables small businesses to access cheap federal funding for their business projects, at interest rates more favorable than they may be able to access on the market.
Since the SBA guarantees loans to participating financial institutions, more small businesses can access credit. There are similar programs for small businesses around the world.
How To Use Joint Venture Partnerships To Access Special Deals
Sometimes, to access special deals, you can arrange to partner with a much larger company that has access to special incentive programs. Your small business, as a joint venture partner of the larger business, will benefit from the same terms afforded the large company. Essentially, your small business takes advantage of the large company’s negotiating power.
As with other deals, your small business needs to bring something unique and worthwhile to the deal. Such unique value propositions could be specialized knowledge, or ownership of intellectual property that will be used as part of the work process.
Even Small Companies Can Cut Attractive Deals
While the Amazon deal has set many commentators talking, some for and some against, for the small business owner, it provides many lessons.
Not only big companies, but also many smaller ones, are able to cut Amazon-like deals. To get it right, you must identify the opportunities where deals may be available, ranging from real estate to financing and tax breaks.
If you operate in a strategic industry, you may be able to qualify for existing incentive programs. Even if you are not in a strategic industry, however, some creative problem solving will reveal opportunities to cut deals for your small company.
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