Big Tech

The hidden cost of Amazon’s Vancouver expansion

Illustration by Augustine Ng

In late April, as the world waited for word on Amazon Inc.’s highly anticipated—and still unannounced—HQ2, the company sprung the news that 3,000 high-skilled jobs would be created in Vancouver to boost the company’s e-commerce technology, cloud computing and machine learning capabilities.

A month earlier, foreign direct investment in Canada had hit an eight-year low, dragged down by a 12.2 per cent drop in oil and gas sector investments, the lowest the industry has seen in 17 years.

Perhaps that’s why the prime minister was there to deliver the announcement himself. “Our vibrant cities, which are home to some of the best talent in the world, are poised to attract premier investment that creates the jobs of tomorrow,” said Justin Trudeau, flanked by towers of Amazon Prime boxes in a crowded warehouse of observers.

Trudeau’s appeals to the U.S. business community aren’t without merit. Last year, he wrote a personal letter to Jeff Bezos, pitching him on why Amazon’s second headquarters—and potentially 50,000 new jobs—should come to Canada. Toronto has since been shortlisted as a finalist for the US$5-billion project. But those overtures come with a cost. In Vancouver, there’s growing skepticism that a massive Amazon presence is what the city—grappling with a talent shortage and a housing crunch—needs to broaden its influence as an intelligence hub. Beneath the celebratory surface, there’s a sense of frustration that Amazon may take more than it will give in Vancouver’s tech and startup scene, offering little for the next generation of companies.

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“When you’re setting up an outpost here, you’re not feeding that cycle,” said Dave Weisbeck, chief strategy officer of Visier, a Vancouver-based HR data analytics company. “We really shouldn’t be counting this as a victory. The city should be fostering some of our own tech community.”

Talking Point

Amazon is bringing 3,000 new high-tech jobs to Vancouver in what Prime Minister Justin Trudeau is touting as a much-needed boon to foreign investment in Canada. But amid an affordable housing crisis and talent shortage, there’s skepticism an Amazon branch plant is what the city—and its tech sector—needs.

The B.C. government estimates there will be 83,400 tech-related job openings in the province by 2027. Many of those won’t be filled. According to estimates from the B.C. Tech Association, there will be more than 30,000 job vacancies in the tech sector by 2021. Amazon plans to grow its Vancouver headcount five-fold to 5,000 in roughly the same timeframe; it already employs more people in Vancouver than Hootsuite, the city’s largest startup success story with 1,000 employees globally.

Companies past the early-growth stages like Visier, which plans to double its staff to 800 employees by the end of 2019, feel the talent void acutely. Visier will have to recruit from outside Vancouver, said Weisbeck, and, at the same time, it wants first pick of graduates from local universities.

That won’t be easy, said Glenn Chapman, director of Simon Fraser University’s School of Engineering Science. Big players like Amazon tend to magnetize talent, and individual schools have little control over enrollment capacity; that’s set by the province.

“You can’t just suddenly expand the classrooms. You need equipment, you need labs, you need infrastructure, you need buildings. We’re going to have to see either government or industry step up to support that level of growth,” said Chapman. “We can’t go out and say, ‘Oh, we want to take twice as many students.’”

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The B.C. Tech Association predicts another 2,000 graduates are needed annually in tech-related fields to complement hiring from other sources, like immigration and career changes. Earlier this year, the province said it would add nearly 3,000 tech-related spaces at post-secondary institutions, which translates to roughly 1,000 more graduates five years down the road.

Another conundrum alongside the supply-demand divergence is wage inflation. Most Vancouver startups aren’t in a position to match Amazon-level salaries.

“If I am fighting for talent that is wanting to maximize their wages, I will always lose,” said Jason Smith, co-founder and CEO of Vancouver software startup Klue, a 20-person operation.

Those who do welcome Amazon’s expansion to Vancouver take the position that, in the long run, the company’s vote of confidence in the city could help it catch up to other North American startup clusters in the San Francisco Bay Area, New York or Kitchener-Waterloo. They argue that Amazon’s two proposed towers in the downtown core will serve as a beacon for talent. They’re confident developers and engineers will flock to this side of the Pacific Northwest and stay, coaxed by other opportunities in a burgeoning startup scene.

“This is the playbook we’ve seen many, many times in the Valley, of people that got training at these big companies that help scale startups later on,” said Boris Wertz, general partner at Version One, a Vancouver-based early-stage venture capital firm.

If the Amazon effect does manage to alleviate tech labour demand, there’s concern it will aggravate another crisis: housing affordability, made worse when tech workers—lured by generous compensation packages—arrive in town, elbowing their way into real estate bidding wars.

The city tried to downplay its lack of affordable housing when it bid for Amazon’s second headquarters. However, there’s reason to doubt the company would have cared, had they known. Amazon (and other large employers) crushed a recent attempt in Seattle to impose a corporate head tax—US$275 per worker at high-revenue companies—that would have been levied to tackle the city’s homelessness. For its part, the City of Vancouver plans to add 72,000 new homes to the market over the next 10 years, half of which will target households that earn less than $80,000.

But a head tax isn’t in the cards for Vancouver. “The City has not advanced tax based approaches to engage the business community directly in providing affordable housing,” said Dan Garrison, Vancouver’s assistant director of housing policy, in an email to The Logic.

Seven of the 20 finalists for Amazon HQ2 are publicly offering significant tax incentives in the hopes of attracting the company. Atlanta, for example, is offering incentives and development worth over US$1 billion.

The Vancouver Economic Commission, however, said Amazon wasn’t offered any “exclusive incentives,” mortgage deals or otherwise, for their Vancouver branch plant. “Amazon chose to expand here based on the other benefits highlighted in our proposal, including the aggregation of developer talent, convenient time zone and overall competitive cost of doing business,” a spokesperson told The Logic.

Economist Walid Hejazi believes Amazon’s impact may be good for Canada. Specifically, it could keep foreign direct investment stable, as momentum shifts away from oil and gas and into an array of other industries, including tech.  

“If this transaction goes smoothly, I think it’s an important precursor to moving that needle,” said Hejazi, a professor at the Rotman School of Management.

That analysis is in striking contrast to Toronto’s HQ2 bid, which has sparked debate among tech and civic leaders who believe Amazon will either spur or soak up economic development in the region.

While the jury is still out on what, if any, influence Amazon’s West Coast expansion will have on Toronto’s chances of landing HQ2, there are also no clear-cut beneficiaries in Vancouver’s tech community, split between embracing the news and bracing for the worst.