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Location vs. Sense

The powers that be at Covisint are trying to decide where to locate the headquarters for the eagerly anticipated new online automotive industry purchasing entity.

The powers that be at Covisint are trying to decide where to locate the headquarters for the eagerly anticipated new online automotive industry purchasing entity. In a highly visible campaign, the State of Michigan has worked—both covertly and overtly—to convince the e-automotive world to say "Yes to Michigan" (as a state-sponsored slogan has it). Yet there is increasing belief that Covisint will be headed to the Promised Land of Silicon Valley.

This type of story has become all too familiar to companies in the Midwest. Is it really true that the Great Midwest ain't so great anymore? The old economic development theory of never bringing an outsider to the Midwest for a job interview in January may hold truer than ever. Yet there is hope for Michigan. While I, too, agree that Midwest winters stink, it is also obvious that logic must be the driving force behind good business decisions.

I believe the location decision will be critical in determining the true intent of the founders of the automotive dot-com. It is important to note that this is not merely a B2B enterprise, this is an A2A (Auto to Auto). To locate it anywhere but within the automotive community would be a less than optimal decision. Even in this age of electronic communication, there continues to be the need to be near the customer. The supplier community, a group that will need to be an integral part of this new venture, must have unfettered access to the Covisint leadership. To locate the leaders over 2,000 miles way from the supplier community would create a chasm in the industry and result in even more animosity.

Many make the mistake in thinking that the Internet is the product Covisint is selling. The technology—in this case the electronic exchange of information—should not be considered the product. Instead, the exchange should be considered the enabler. To best enable the freer flow of information, and thus better serve the customer, Covisint should be an integral part of the automotive community. Or, to put it more bluntly, it seems only logical that the servant be located close to the master.

Some argue that it is more important that Covisint be located away from the manufacturers to avoid any increased potential for anti-trust issues to arise. They suggest that the Federal Trade Commission would look more kindly upon a purchasing tie-up between the major manufacturers if it was located far from Detroit. This may be true. However, an equal or even greater case can be made that Covisint needs to be close to the supplier community so those suppliers can have equal access to the Covisint leadership. Manufacturers have the resources to maintain a presence in the Valley, while many suppliers may not. By locating the headquarters far from Detroit, it may in reality become more exclusionary, increasing the potential for even greater anti-trust concerns.

Those that support the idea of locating it close to the Valley further also suggest that no "techie" worth their salt would live outside of the Valley—to many, even living in Austin would be slumming. Yet Covisint offers something that any motivated individual would dream of: the opportunity to lead the world's largest Internet-based transaction business. Such an offer should be enticing enough in itself. Imagine the opportunity to be at the head of the company that validates the Internet economy. Seems like a true entrepreneur would be willing to go to Tibet, let alone Michigan, to get an opportunity such as that. While there has been some noise from people at Covisint that climate will have an impact on location, the idea to locate a major company based on desire of a few individuals to avoid snowstorms and dreary winter days is absurd.

If the decision is made to locate Covisint to the Valley, it can be deduced that the founders were looking for a way to maximize the short term—the IPO—and not necessarily the long-term future of the exchange. Locating there, they suggest, would most certainly stir up interest among the technology focused financial institutions and investors. This, too, may be a mistake. To the wise investor, a good business strategy would likely include choosing a location based on where their customer is, and not merely where it is fashionable.

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