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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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  • Number of pages: 2

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Company Overview

    Amazon.com, Inc. was incorporated on July 5th, 1994 in Seattle, Washington by Jeffrey P. Bezos. Amazon is a juggernaut of the twenty-first century. The firm is the world's second most valuable public company due to its innovative technologies and practices, its commitment to world class customer service and their “in it to win it” mindset. The world-renowned organization operates a number of separate websites for the United States, the United Kingdom and Ireland, France, Canada, Germany, Italy, Spain, Netherlands and many more to suit each country differently. Other than Amazon being the world's largest online-based enterprise in terms of revenue and market capitalization, the firm is also a marketing platform, an auction house, a payment service, a book publisher, and a leading host of cloud server space. Furthermore, the organization offers Amazon Prime, a paid membership offering free two-day shipping in the United States and Canada, which is viewed as one of the key reasons for subscribing to the service. Moreover, Amazon offers its own line of personal electronics, such as the Kindle electronics range. As of 2014, Amazon has made its way into smart electronics with its smart speaker called Amazon Echo, which thus connects to the voice-controlled personal assistant service, Alexa.

Amazon may be an international corporation, however, the company's North American sales growth outpaces international markets. Therefore, the majority of Amazon's users reside in North America. In recent years, the e-commerce giant has reported stellar revenue growth. Amazon's net sales revenue was reported to be $135.9 billion USD as of their 2016 fiscal year. In 2017, the organization hit $177.87 billion USD as stated revenue. Over the past few years, Amazon reported strong revenue growth, which shows that the company's success is increasing.

Figure 1.1 - Net sales revenue of Amazon from 2004 to 2017 (in billion U.S. dollars)

The key factors that drive Amazon's continuous success are economies of scale, international expansion, Amazon Web Services as well as its commerce business. Amazon is full of innovation and it has the ability to expand in different markets to provide exceptional customer service and offer a diverse range of products and services. Aside from the recent projects and taken initiatives, Amazon has announced plans to establish a second headquarters along with a request for proposals. Amazon's objective is to select a city that is thrilled to work with them and where their employees, customers and the surrounding community can all benefit. The corporation projects to invest over $5 billion USD in construction and to provide as many as 50,000 high-paying jobs for their second headquarters. In addition to Amazon's hiring and investment, construction and operation of the second headquarters is expected to create tens of thousands of additional jobs and tens of billions of dollars in additional investment in the surrounding community. Also, the firm's' desires include a city which provides quality education, one that is close to an airport and has a high population. Toronto's educated workforce, powerhouse cluster of universities, booming Toronto-Waterloo tech corridor, presence and support of a diverse population, and internationally recognized quality of life makes the city suitable for Amazon HQ2.

 Toronto's Assets and Resources

    Amazon has proclaimed that the company wants their second headquarters to be situated in a metropolitan area with a population of more than one million, be able to attract top technical talent, be near an international airport, have direct access to transit and be able to expand the headquarters to more than 740,000 square metres in the next decade. Toronto has several factors which are seen as competitive advantages for the region. Toronto is the most vibrant and diverse city in all of North America, thriving with innovation. Talent is one of Amazon's most important criteria in deciding which city will become the home of the HQ2. In 2016, the population of the Greater Toronto Area was approximately 6.4 million; this significantly exceeds Amazon's requirement for a metropolitan region of one million. Additionally, Toronto is the third largest technology hub in North America and has the most highly educated population in the OECD (Organization for Economic Cooperation and Development), with 67% of the population having a postsecondary degree. Another one of Toronto's asset is its publicly funded university and college system. The University of Waterloo is recognized as one of North America's top technology schools, and the University of Toronto is a major center for research in artificial intelligence. Moreover, Toronto companies benefit from co-operative education programs at Ontario's colleges and universities. By alternating school terms with related work placements, these programs create a unique mixture of higher and practical learning that builds an important bridge between organizations and students. Toronto's transit and infrastructure is another asset which differentiates the city from all the rest. The City of Toronto has the third best transit score in comparison to other prominent cities in North America. In addition to a transit system that includes regional railways, subways, streetcars, and buses, the Greater Toronto Area also features provincial and municipal highways, and it is situated near two international airports: Lester B. Pearson Toronto International Airport and Billy Bishop City Centre Airport. Due to the city's prosperous technology sector and rich talent pool, Toronto makes a compelling site for the launch of Amazon's HQ2.

Cost and Benefits

    There are numerous costs and benefits that must be examined with making the decision of bidding for Amazon to expand in Toronto. Amazon has stated that their expansion will account for 50,000 high-paying jobs. If the company chooses Toronto as their expansion site, this increase in employment could subsequently create a larger GDP for Canada, as the number of employees in the workforce will increase and it will increase the amount of production. Furthermore, a rise in GDP shows that there is more value added in the economy or there is a higher income which implies that there is a rise in the standard of living of the citizens and due to rise in income there will be a higher spending on various goods and services. A greater GDP is a vital indicator of an economy's progress and therefore, Canada will be influenced in a positive way with the establishment of Amazon's second headquarters. The second headquarters will also influence many people to move into the city. This will likely increase the number of people staying in hotels, dining and will contribute to additional flights, resulting in an overall busier city. This move can positively impact neighbouring businesses by increasing their profits. Since Canada is a mixed market economy where businesses provide most goods and services while governments provide some others, individuals do not need to worry about the government making every decision. Amazon is a powerful company that will help create economic benefit within Toronto. The organization has the ability to help the city thrive and focus on factors which can enhance our economy. Since Amazon is seen as an oligopoly, a market in which products are available from only a small number of large suppliers, it will be a larger business in the city which will dominate many of the other tech industries, such as Apple, Microsoft or Google.  In the last year alone, Toronto has outpaced New York and San Francisco combined when it comes to development in the technology sector. By establishing Amazon in its city, Toronto can be seen as a major “Tech Hub”, providing the city with larger opportunities.

    In spite of the countless benefits which reap from the e-commerce giant expanding in Toronto, there are also disadvantages which must also be considered. Developing Amazon would be extremely costly due to the fact it requires an immense amount of planning, flexibility and is most certainly costly. Amazon's second headquarters is projected to take approximately 10 years to complete.  During that time Toronto can focus on improving other components, such as healthcare, tax reduction, transit and infrastructure, and the city's overall quality of life. In addition, Toronto must accommodate the individuals who will potentially reside within the city working for Amazon. Due to Toronto's public transit system and their highly competitive real estate market, the city will find it challenging to withstand the influx of new residents. As of now, the transit in Toronto already tends to become overpopulated, with the development of HQ2 and as the city's population increases the city would find it very challenging to sustain the additional individuals. In comparison to Washington, Toronto has higher property taxes and marginal income taxes for its workforce. With the addition of Amazon's second headquarters, it would make the cost of living in Toronto even higher, putting pressure on an already fragile rental market. It is predicted that the arrival of Amazon would result in rent expense increasing by another 0.5% to 0.9%, resulting in annual rent increases of 2.8% to 3.1%. Toronto already faces high rental expenses, hence HQ2 may only exacerbate them. Not to mention, if Amazon selects Toronto as its HQ2, it will soak up all the remaining talent, moving jobs away from Canadian-born companies. Moreover, this would add pressure to the labour market and it will make it next to impossible for domestic firms to compete. The expansion of Amazon will result in the city being much more labour and resource extensive, which is highly costly.

Conclusion

    All in all, by analyzing the costs and benefits of Amazon's expansion plan, I believe Toronto is a suitable site for Amazon to establish their second headquarters. Toronto is a diverse and rapidly growing city, which offers many opportunities. The city does not need to work too hard to win the bid because Toronto embodies all the factors Amazon is in search for. If Amazon selects Toronto as their city for expansion, Toronto will be a central “tech hub”, which will let the city further enhance their technology sector. Nonetheless, there are a few disadvantages which must be accounted for when establishing a powerhouse, such as Amazon in Toronto. The cost of living may rise, domestic companies will be harshly impacted and there will be challenges accommodating individuals once the company is set up. However, it is worth noting that the benefits of establishing Amazon's second headquarters in Toronto outweigh the disadvantages. The increase in the labour force, the ability for Amazon to thrive, and the company's recognition are all factors which will contribute to positively impacting the city of Toronto. This expansion will attract a lot of technical talents from many of Toronto's prestigious post-secondary institutions as well as from around the globe, which will potentially strike new ideas to the city. If Toronto is selected, it will become well recognized, improve its economy, and allow Amazon to further expand. Selecting Toronto will not only be a win for the city.

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