Assets and Resources in Toronto for Amazon Headquarters

1985 words (8 pages) Essay in Finance

23/09/19 Finance Reference this

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Company Background:

Amazon is an American electronic commerce and cloud computing company in Seattle, Washington founded by Jeff Bezos in 1994. It was originally a book seller but had expanded to the world’s largest online retailer of books, clothing, electronics, music and many more goods. From 2004 to 2017, Amazon’s net revenue rises from 6.92 billion US dollars to nearly 178 billion US dollars. More than 50 percent of Amazon’s revenue were generated in electronics and media. Because it is located in Seattle, Amazon offers more services in North America than worldwide. As a result, the majority of the company’s net revenue in 2016 was actually earned in the United States and Canada. Approximately 79.79 billion U.S. dollars was earned in North America compared to only roughly 43.98 billion U.S. dollars internationally (Bezos, 2017). Amazon invested 5.1 billion US dollars in its first headquarter in Seattle, and recently Amazon announced its future plans about building a second $5 billion headquarters in one of the 20 cities on the shortlist following its requirements.

Net revenue in billion US dollars

Requirements: 1. Metropolitan areas with a population of over 1 million. 2. Within 30 miles (48 km) of a population center. 3. Within 45 minutes of an international airport. 4. Up to 8 million square feet (740,000 m2) of office space for future expansion. 5. Close to major arterial roads to provide optimal access (less than 1-2 miles). 6. Direct access to rail, train, subway/metro, bus routes (Amazon, 2017).

Toronto is one of the twenty cities. We should try our best to offer amazon the best deal to attract Amazon to build its HQ2 in Toronto. Amazon made this choice due to the motivation of bringing more profit, having bigger office space, having more economics incentives, having business-friendly environment, attracting new talent who are not willing to move to Seattle, getting additional leverage and connection, and diversifying views and understand how people shop throughout the US (Weisbaum, 2017).

Assets and Resources in Toronto

Transportation and Infrastructure:

Toronto has over $75 Billion in existing infrastructure such as transit, roads, community centres, libraries, water and sewer facilities, parks and other things (City of Toronto, 2017).

  • Transportation infrastructure—$11 billion
  • Toronto transit commission—$15 billion

Toronto has around 35% of its total asset on transportation. In other words, the transportation in Toronto is really convenient. 2.25 million people are taking buses, trains, and subways throughout the Toronto region on a daily basis. In addition, Toronto has 365 miles of major provincial highway networks and five municipal highways. Toronto Pearson International airport is the second largest airport in North America. Travelers have the opportunity to go to 72 destinations in the US. By taking Union-Pearson Express Train, it only takes you 25 minutes to go to the airport from downtown Toronto. Union Station is the busiest and the most important transportation hub in the country with 250,000 passengers travelling through it every day (Moldovanyi, 2017). Toronto has high quality communication infrastructure supported by Rogers and Bell and they are among the top internet providers in the world. As a result, Amazon will have the greatest experience of the internet.

Well Educated Labour Force:

Great Greater Toronto Area has population of 6.418 million, exceeding Amazon’s requirement of 1 million people. Over the last five years, Toronto added 433,537 people, which is 100,000 more than Seattle over the same period.

Population Change, 2011-2016

Source: Statistics Canada 2016, US Census Bureau 2016

Toronto is North America’s third-largest tech hub. It added 22,500 tech jobs last year which is twice as many as New York City, according to CBRE’s latest survey. Toronto was recently named the world’s fastest-growing technology market. Along with the fast-growing tech jobs, Toronto provides huge number of talents through its superior university system. There are 18 post-secondary institutions in Toronto including universities and colleges, for instance, University of Toronto, York University, and centennial college. More than 400,000 students are enrolled in these institutions and the enrollment rate is still rising. Among those universities, 3 of them are on the list of top 200 university. More than 145,000 students enrolled at those universities which is 40% more than New York (Cohon, 2017).

Business Environment: Toronto is Canada’s economic centre, and it has strong and stable GDP growth. The Toronto region’s GDP accounts for 18 per cent of Canada’s GDP and it is still rising stably. The operating cost (labour, property, and utility) in Toronto is relatively low compare to other tech markets in North America. According to PayScale, the average construction laborer hourly pay in Toronto is $19.5 Canadian dollar, the average hourly salary in Seattle is $21, in Boston is $22, and in San Francisco is $25. As the result, Toronto has relatively lower labour cost.  For corporate income tax, Toronto has a rate of 26.5%, which is 12.4% lower than the US average and 4.3% lower than the G7 average.

Lifestyle: Toronto invested $3 billion dollars on building parks and other land including more than 1,600 parks and 20,000 acres of parks, more than 70 dog parks, more than 700 sports fields and so on. Thirteen percent of the city is occupied by parks and natural Spaces, hosting more than one million visitors a week. Also, Toronto is a place for diversity, people with different accents get together and enjoy different festivals together like film festival and music festivals. In addition, Toronto has different sports team like Toronto Blue Jays, Toronto Maple Leafs, Toronto Raptors, etc. on an international level (Moldovanyi, 2017).

Toronto is a cost-effective city. There will be low operating costs for high qualities. Amazon will be better able to generate revenue and profits in Toronto because of its convenient transportation, well-educated labour forces from top universities, stable and strong GDP, diverse business environment and high living quality.

In future discussion with Amazon, Toronto has to offer some incentives programs. Type of incentives and the amount should be outlined. Canada is mixed economy system, the government plays its role as a tax collector and a regulator. It is not appropriate that Toronto bride Amazon with taxpayer dollars or reduce Amazon’s taxation, therefore this is not appropriate to be part of the incentives. Instead, Toronto could offer direct financial support to employers for training employees and financial support for Amazon to hire co-op students from universities or colleges. In addition, Toronto should provide a list of places for building Amazon’s HQ2. Also, in order to meet Amazon’s requirements, Toronto may need to build more infrastructure like roads and highways.

Potential Benefits

  • Amazon’s second headquarters could bring big benefits to its chosen location.

Amazon estimates its investments in Seattle from 2010 through 2016 contributed $38 billion to the city’s economy—with every Amazon dollar invested generating $1.4 for the city’s overall economy. According to the new study by Baltimore-base Sage policy Group predicts that Amazon will bring $17 billion in economic benefit per year.

  • It will bring more job opportunities.

Amazon’s HQ 2 will create as many as 50,000 jobs over 10 years. Not only huge number of jobs will be created but also they will be paid well.

  • May create opportunities of cooperation.

Amazon’s HQ 2 will attract other companies that want to do business with Amazon because it can provide other distribution channels. For example, computer seller like Lenovo or Dell, may cooperate with Amazon to get higher products sold to make more profits.

  •  Boost in housing values

More people will move to live in Toronto region and the housing prices may increase which is good for homeowners because the value of their asset increases.

  • Gain a reputation on an international level.

By winning Amazon’s HQ 2, the winning city will be known globally, therefore continuing to attract the best talent from the whole nation and the world.

Potential Costs

  • Rising Rents.

Amazon’s HQ2 will bring 50,000 high-paying jobs to the winning city. Those 50,000 people need places to live and they are going to rent houses and condos, therefore the prices for houses and condos will increase. Researchers have predicted that Amazon’s HQ2 will add an average of 2% to rental costs on top of any projected non-Amazon-related increase.

  • Traffic could worsen

Due to huge number of employees Amazon will hire, that could result in 10,000 new residents in the region and this will lead to more cars on the road.

  • Small businesses could find it harder to hire employees.

Amazon offers average salary of more than $100,000 and this will attract employees to move in to work there and therefore other businesses could find it harder to hire employees.

  • Ongoing construction of buildings and infrastructure.

By building more buildings and infrastructure, roads may be blocked for a long time and citizens’ living quality will be affected a lot.

  • Natural resources will suffer.

The city’s air quality and the natural landscapes will be affected due to the construction.

Conclusion

By comparing the benefits and the risks Amazon’s second headquarter will bring in, city of Toronto should try its best to attract Amazon to build its HQ 2 in Toronto because of the enormous amount of revenue it will bring in and the huge number of job opportunities it will create. Once Toronto wins this bid, it will help a lot for its future development. Although there are some risks like environmental problems, traffic jam, rising rent prices, and ongoing constructions of more roads and infrastructure along with this decision and those money will come from Toronto’s taxpayers, it is really beneficial for the city’s development due the huge revenue it will bring in from Amazon. Those problems can be adjusted properly if the government regulates actively. Also, the government will not devote all the resources and support only to big enterprises, small businesses will still be government’s focus.

Bibliography

 

  1. Amazon. (2017, September 7). Amazon HQ2 RFP (Request for Proposal). Retrieved from https://images-na.ssl-images amazon.com/images/G/01/Anything/test/images/usa/RFP_3._V516043504_.pdf
  2. Bezos, J. (2017, December 31). 2017 Amazon Annual Report (Rep.). Retrieved from https://ir.aboutamazon.com/static-files/917130c5-e6bf-4790-a7bc-cc43ac7fb30a
  3. City of Toronto. (2017, October 06). City Assets Fact Sheet. Retrieved from https://www.toronto.ca/city-government/budget-finances/city-finance/long-term-financial-plan/city-assets-fact-sheet/
  4. Cohon, M. (2017, October 19). Toronto Region Response to Amazon HQ2 RFP(Proposal). Retrieved from https://s3.ca-central-1.amazonaws.com/torontoglobal/TorontoRegionResponsetoAmazonHQ2RFP_PD.pdf
  5. Moldovanyi, R. (2017, October 20). How the Toronto Region Hopes to Land Amazon’s HQ2. Retrieved from https://startupheretoronto.com/sectors/technology/toronto-region-hopes-land-amazons-hq2/
  6. Weisbaum, H. (2017, September 8). Why Does Amazon Want a Second Corporate Headquarters? Retrieved from https://komonews.com/news/newsradio/why-does-amazon-want-a-second-corporate-headquarters

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