Report on Whether Toronto’s Bid for Amazon HQ2

Report on Whether Toronto’s Bid for Amazon HQ2

Overview and Rationale for HQ2

Amazon is one of the world’s biggest multinational online businesses. Amazon was founded in 1994 and had headquarters in Seattle, Washington, USA. The company has shown constant growth since its inception in 1996. The revenue of the company is in hundreds of billions. For instance, in 2017, the average quarterly growth rate was approximately 38%.  In the last quarter of 2018 alone, the company reported a sales revenue of $72.4 billion, which pushed its revenue to roughly $240 billion annually. The revenue continues soaring even though its sales growth rate slowed down a little by about 18% in 2017, and the sales growth rate hit 38% contrary to 2018s 20%. However, the growth rate continues to improve regardless of the small fluctuations. For instance, the company forecasts its growth rate in the first quarter of 2019 to increase by another 20% compared to the same period last year. Amazon reported a profit of $3 billion in the previous quarter of 2018 with a total profit of $10 billion in the same year. This made Amazon to be declared the third largest service company in the US after Facebook and Google.

Amazon has an incredible international market, which has prompted it to venture into new businesses such as the Alexa ecosystems. The new ongoing and planned investments have seen the company acquire more engineering talent and invest heavily in international operations in countries such as India. Other ventures that the company is investing in include a same-day delivery system and providing video content to its customers. Another major plan the giant company plans to roll out to its customers is cashier free convenience stores, which the company states will be fully operational by 2021. Currently, two pilot shops are located strategically in Seattle. The stores will work in such a way that they have automation software and sensors to allow customers to shop with physical interaction with the employees. Besides the company plans to venture into logistics of supply chain and home delivery. This involves delivering products by drone using GPS and a technology known as “third-party logistics” or 3PL. The company also plans to go more tech by investing in Artificial Intelligence known as zero-click, where clients will have the pleasure of ordering for products by verbal command. Moreover, the company plans to enter in healthcare sector through pharmaceutical services. These are just some of its product line and service expansion plans with a geographical expansion plan into Asian markets particularly the Middle East.

The proposed second headquarter (HQ2), is aimed at releasing the pressure on the Seattle headquarter due to the ongoing and planned expansion of operations. The second headquarter whose bidding is continuous is likely to be constructed at the cost of 5billion dollars and accommodate approximately 50,000 staff. The primary motive behind Amazon’s HQ2 prospects is its continued growth and expansion, with the latest being Whole Food acquisition in 2017. The company needs to improve its research and development primarily in artificial intelligence by hiring fresh talent specifically in software engineering to be part of the occupants of the 50,000 staff capacity offices. Besides, Seattle is expensive in terms of real estate and possible risks from catastrophes such as Earthquake; thus the company needs to spread risk.

In its proposal, Amazon chose to relocate either in New York or Arlington. There are several reasons why Amazon made this choice. First, it is essential to note Amazon, being the giant it has specific unique qualities it seeks to fulfill when choosing its second headquarter location. One of such attributes is talent. New York is the US most populous city with a population of 8.5 million people in 2017. This large population allows the company to access a diverse pool of talent easily. Secondly, employee attraction and retention in the cities of Arlington and New York would be possible because Arlington is close to Washington DC, about two and a half miles away. Washington DC is the seat of political power in America. Similarly, New York is among the premier cities in the world, and anyone would want to live there. However, it is worth noting that the company intends to attract employees all over the world, but these two locations are most likely the hotbed of tech talent, which Amazon seeks to explore. Additionally, the two cities have the best infrastructure among the 238 bidding cities. The company needs a location with good infrastructure to host its planned 50,000 occupants its new headquarters. Moreover, New York and Arlington are close to political power. Consequently, establishing headquarter in these places and creating jobs to residents may influence any to stop the fast growth rate of the company. The type and size of the incentives offered by the two cities may also have played a part in the decision.

Assets and Resources that Toronto may Offer Amazon

The city of Toronto is rich in various aspects that it may offer Amazon regarding its quest to establish a second headquarter. First, Toronto is the largest City in Canada with a population of 2.8 million. The Greater Toronto Area has a total population of 6.5 million going by the statistics of 2016. This population is likely to provide a talented workforce for Amazon, which is ever expanding its technological staff base. Besides, the city has some of the best infrastructures in the world offering a high standard of life at a relatively lower cost compared to the US cities. This will attract company employees including those in HQ1 in Seattle to relocate hence catering for the welfare of Amazon workers. Besides, Toronto boasts of some of the World’s leading Universities and colleges such as the University of Toronto and Seneca College, which provide a proper foundation for research and development, which is critical for the growth and development of Amazon. Secondly, Canada and specifically Toronto are home diverse individuals around the world. This will simplify Amazons efforts to have an international or global view, which a good public relations strategy to promote diversity and get approval in most parts of the world thus expanding even further and increasing its revenue.

Another valuable asset is Toronto’s economy. The city of Toronto produces 11% of the country’s GDP and exports goods and services globally to a tune of $70 billion annually. Amazon is likely to tap into this potential to improve its annual sales and increase its profit base. Besides, Toronto is home to Canada’s largest banks such as Royal Bank of Canada, Scotia Bank, TD Canada Trust, and Toronto Dominion Bank. The high financial returns received by Amazon require a place with a stable banking system such as the one provided by Toronto. It is important to note that Toronto is strategically located such that about 150 million potential customers to Amazon products and services are within a twenty-four-hour drive from the city. Additionally, Pearson International Airport located in Toronto’s CBD provides flight services to over 54 countries with over 300 destinations using its 64 carriers. Another Airport is the Billy Bishop Airport that is located in Toronto’s downtown nine minutes away from the CBD. Billy Bishop Airport serves Canadian, and US cities with over 2 million passengers served annually. Still, on transportation, Toronto has a state of the earth modern railway and highway facilities. Besides, it boasts of the port of Great Lakes. All these provide a secure connection between locations especially for Amazon workers who may want to visit other places or stay out of town. For instance, the public transit in Toronto is the third largest system in the northern part of America simplifying transportation of over 500 million individuals annually. Lastly, Amazon can get incentives of more than $200 million in the grant. Toronto offered $220 million to Cisco in 2013 in the provincial grant. Why not provide Amazon even a better deal?

Cost-Benefit Analysis

There are various benefits that the City of Toronto is likely to gain from allowing Amazon to establish HQ2. First, the main advantage is economic. For instance, among the 50,000 jobs that are likely to be created by Amazon’s HQ2, a more significant percentage is expected to be occupied by Toronto residents. This will reduce the rate of unemployment in the City and increase disposable income because Amazon is one of the world’s best paying organizations. Secondly, most of the employees are likely to live in the city thus boosting its GDP due to the improved purchasing power. Moreover, the revenue of the town is expected to increase given that it will be pegged on Amazon’s revenue.  It is also important to note that Amazon is a technology-based operations company. Toronto is likely to benefit from technology transfer where resident employees can learn the technological ways of Amazon and share it with the rest of the residents, creating a positive new way of doing things. Moreover, the prestige and reputation of Canada are likely to increase due to its association and hosting of one of the world’s largest multinationals.

However, there are certain disadvantages associated with hosting such a big company in Toronto. First, it is important to note that Canada and Toronto’s economy, in particular, depends on and supports small local companies. The establishment of Toronto HQ2 is likely to attract and lure all the talents from such companies using good compensation packages thus leaving them with none to help in their growth. Besides, Amazon is likely to provide completion for customers with the local firms, which may lead to closure and collapsing of some of the companies. Moreover, Amazon may repatriate its income to its first headquarter HQI in Seattle leaving Toronto with little or no profit to enjoy in terms of other investments.

Conclusion and Recommendation

Generally, Amazon has its specification that dictates consideration for HQ2 host location. However, going by the main aspects which include the availability of talented workforce in terms of education and population, good infrastructure and transport systems, diversity, and connection to the rest of the world, Toronto stands a chance to be selected by Amazon among the 20 shortlisted cities. If selected, the city is likely to benefit from the employment of its residents, increased tax revenue, improved reputation in the world. Toronto should, therefore, place its bid with optimism even though winning the bid may lead to disadvantages such as talent drain from its small local companies, which is insignificant considering the amount of talent the city of Toronto channels from its tertiary institutions annually and its rich diversity.