Amazon HQ2 would 'fundamentally alter' potential Canadian city candidates

Amazon

It's like a technology-themed reality TV dating show.

Suitor Amazon is on the hunt for a North American city to house what it calls HQ2: a second headquarters. The ideal match will tick off most of a wide-ranging list of requirements that covers practical matters, like available buildings and green space, as well as a certain 'je ne sais quoi' that, for example, helps it attract tech talent.

Many Canadian cities consider Amazon a catch. After all, the tech titan is promising up to 50,000 high paying jobs and a US$5-billion investment. Vancouver, Montreal, Toronto, Halifax, Ottawa, Edmonton and Calgary have all promised to submit proposals by Thursday, the deadline for those looking to woo the firm into their regions.

But while the possibility of a Canadian city turning into the next Seattle – Amazon's existing home – is tempting, experts say it's a risky proposition that comes with some drawbacks, like making operations more challenging for local technology companies.

"An investment this large would fundamentally alter a town," said Dan Shaw, a lecturer at Dalhousie University's Rowe School of Business in Halifax.

Other businesses, including local startups, that employ highly-skilled technology workers may struggle to compete, he said.

A company may have relied on hiring new graduates from the local university for starting salaries of $60,000, Shaw explained, but Amazon has deep pockets and could push the bar for salaries higher by offering closer to $90,000 for entry-level jobs.

Canada is already facing a tech talent shortage, partially due to a brain drain as desirable candidates are lured to Silicon Valley. By 2020, there'll be a lack of qualified workers to fill about 218,000 positions, according to the Information and Communications Technology Council's projections.

Adding Amazon's demand for tens of thousands of full-time workers would put further pressure on the industry, said Kyle Murray, vice-dean of the Alberta School of Business at the University of Alberta in Edmonton.

While that's a concern for any local companies trying to attract workers from an insufficient talent pool, he said it's good for society to have increased competition.

Some Canadian tech leaders have grumbled about the incentives Amazon's asking for and city proposals are likely to include.

The proposals are private and many competitors haven't disclosed the incentives they'll offer, if any. The city of Toronto said the day before the deadline it wouldn't offer any new financial incentives, but it's clear they're a big factor in Amazon's choice.

The tech giant – which has a market value in the trillions – asks for incentives, including tax credits and/or exemptions, and various grants, in its request for proposals. Initial and ongoing business costs "are critical decision drivers," the company said.

"The concern, of course, is that it becomes a race to the bottom," said Sherena Hussain, an assistant professor at York University's Schulich School of Business in Toronto.

The successful city could also find itself in a situation in which the company makes up such a large portion of its economy that it must continue giving it preferential treatment so it doesn't leave town, said Shaw.

Though, he noted that "massively scalable organizations don't grow on trees," so Amazon does present an exciting opportunity.

Businesses aside, the advent of an Amazon headquarters could also create problems for local citizens.

Tens of thousands of new workers earning an average of more than US$100,000 would substantially raise housing prices and the overall cost of living, Shaw said. It could also create transportation problems as the employees increase the number of people commuting via public transit and roads.

These issues presented themselves in Seattle after Amazon built its headquarters there in 2010. Still, former mayor Greg Nickels has said he considers the growth Amazon brought worthwhile and a better alternative to being a Detroit or Cleveland.

The ‘Ontario advantage’

More than 100 cities in the U.S. and Canada, including Toronto, Halifax, Vancouver, Montreal and Edmonton, have since expressed their interest in pursuing the project, but it is unclear how many will submit a bid by Thursday, Amazon's deadline for proposals.

On Tuesday, Ottawa and Gatineau submitted a joint bid that emphasized the city's deep talent pool of technology workers and that it would have the support of both the Ontario and Quebec provincial governments.

Ed Clark, a business adviser to Premier Kathleen Wynne, said the province offers highly trained talent at a savings when compared to most U.S. jurisdictions – a software programmer in Ontario costs 34 to 38 per cent less than in Boston or New York – and corporate taxes in the province are lower than south of the border.

"What is Ontario's core advantage?" Clark said. "Great talent at a very competitive cost. That's an edge the government is determined not only to maintain but to sharpen."

Other reasons for the lower salaries include the employees' access to social programs like universal health care, and a strong U.S. dollar compared to the loonie.

Immigration is another key advantage, Clark said, adding that the province could supplement its homegrown talent with a supply of skilled workers from other countries.

"So, let's also be clear then what's not on the table," Clark said. "The Ontario government is not offering any new financial incentives for Amazon."

Clark said Ontario plans to ramp up training for students in technology and science disciplines that will help the province even if it doesn't land Amazon. The government plan, announced Wednesday morning, would increase the number of students graduating by 25 per cent over the next five years – boosting the number of graduates from 40,000 to 50,000 a year.

"The government's moves do not depend on what Amazon decides," Clark said. "These changes will take place whether the company comes to Ontario or not. We believe the best thing we can do for our future is bet big on education and talent."

Economic Development Minister Brad Duguid said bids from Ontario cities will focus on growing the pool of available talent, not financial incentives. But he acknowledged that Amazon would have the same access to the province's business supports as any other firm in Ontario if it qualified.

"We're not going to buy Amazon to come here," he said. "We don't need to buy Amazon to come here. We have the competitiveness and the best talent base anywhere in North America today. That's what's going to draw companies like Amazon here."