Executive Summary
Based on sales, revenues, and global market share, Amazon has become one of the hallmarks of e-commerce in the United States. The advancements in information technology have contributed immensely to the growth and development of Amazon as a market leader in e-commerce, machine intelligence, and cloud computing industries. The analysis of the management reveals that Amazon employs a hierarchical organizational structure headed by the chief executive officer, Jeffrey Preston Bezos, with the help of directors in various departments, sections, and divisions. The current economic environment of the United States favors Amazon because the unemployment rate is about 4%, taxes are low, and the inflation rates are stable.
In essence, the central bank affects the performance of Amazon by influencing fiscal policies, interest rates, inflation rates, and exchange rates. The current government roots for the expansionary fiscal policy, which increases government expenditure, decrease taxes, and lowers interest rates.
Further analysis reveals that both local and global economic environments are favorable for Amazon. Macroeconomic factors, namely, taxation regime, unemployment rate, and fiscal policies, do not deter the growth and expansion of Amazon. In the global arena, free trade, globalization, and technology promote Amazon’s performance. However, trade barriers and regulations impose some restrictions, which compel Amazon to change its mode of operation.
The analysis of the effects of economic factors indicates that national income and international trade are important factors that influence economic decisions and development strategies based on the economic growth theory and the globalization theory, respectively. Therefore, the analysis recommends Amazon target countries with an increasing gross domestic product and low unemployment rates because they offer promising national income and those with limited trade restrictions to increase profits sustainably.
Introduction
Background Information
Since its inception in 1994 by a famous entrepreneur, Jeffrey Preston Bezos, Amazon has consistently grown and expanded to be one of the leading companies in the United States and across the world. Amazon commenced as a bookstore and ventured into music, videos, games, software, electronics, cloud computing, machine intelligence, and e-commerce after trading in stock markets. Operating in both local and global markets, Amazon has managed to remain a highly competitive retailer through the use of disruptive innovations.
Companies that operate in local and global markets such as Amazon are subject to the economic environment and macroeconomic factors. In this view, the analysis of the economic environment and macroeconomic factors allows the formulation of effective strategies aimed at improving the performance of Amazon in both local and global markets. The purpose of this company analysis is to assess the economic environment, the global presence, the effect of macroeconomic factors and recommend effective strategies for sustainable profitability.
Organizational Structure
The analysis of Amazon’s management reveals that it has a hierarchical organizational structure, which enables it to manage its extensive and varied global businesses. Hierarchical organizational structure allows the grouping of operations according to functions, products, and geographical divisions. The chief executive officer, Jeffrey Preston Bezos, makes strategic and operational decisions of Amazon and supervises their executions in various sections, departments, and divisions. Amazon classifies its operations across the world based on its functions.
Finance, Amazon web services (AWS), business development, international consumer business, and secretariat are some of the classifications of Amazon’s operations managed by directors and officers. In e-commerce, commands and directives exhibit hierarchy as they flow from the chief executive officer to directors of respective retail stores globally. As a global company, Amazon has geographic divisions that cover North America, South America, Europe, Africa, the Middle East, Asia, and the Pacific region. These divisions enable Amazon to customize its products and services to meet the unique needs of customers and promote seamless distribution networks.
The Current Economic Environment
Prevailing Macroeconomic Factors
Macroeconomic factors in various countries, such as tax rates, fiscal policies, and unemployment rates, affect the performance of Amazon. The current tax regime in the United States requires consumers to pay sales tax when they purchase products from online retail stores. An increment in tax rates reduces the sales and profits of companies because the purchasing powers of consumers decline (Da, Warachka, & Yun, 2018).
The introduction of sales tax has compelled Amazon to increase the prices of its products to collect taxes from its customers in various states across the United States. The current unemployment rate of about 4% in the United States, which is the lowest ever in decades, implies that Americans have a satisfactory purchasing power and increased level of disposable income (Weise, 2018). The lowest unemployment rate has made Amazon increase its hourly rate of wages to $15.
Amazon made this decision to attract and retain employees in the competitive labor market. The expansionary fiscal policies have enabled Amazon to reduce prices of products, increase wages of employees, expand stores, and increase the budget for corporate social responsibility due to increases in disposable income, sales, and profits.
Roles of the Central Bank
The central bank has a critical role in regulating the economic environment, implementing monetary policies, capping interest rates, reducing inflation, and maintaining exchange rates. To stabilize the economy during recession and expansion economic cycles, the central bank implements expansionary and contractionary fiscal policies, respectively. In capping interest rates, the central banks prevent financial institutions from exploiting borrowers and causing inflation.
Given that inflation is one of the economic drivers of recession, the central bank aids in reducing inflation by employing contractionary fiscal policies. By regulating the supply of money in circulation, the central bank maintains or increases the value of a local currency relative to foreign currencies. Therefore, Amazon has to make its decisions in response to changes in the economic environment owing to the interventions of the central bank.
The Global Presence
The Global Climate
The analysis of the global economic climate shows that Amazon operates in countries with different economic conditions and stabilities. The variation in economic statuses and stabilities predisposes Amazon to numerous economic challenges. Since the economic recession of 2008, the world has experienced a marked duration of economic stability, which has encouraged the growth of investments, the establishment of job opportunities, the decline in unemployment rates, and the ultimate increase in the amount of disposable income in the populations. The financial analysis reveals that the annual revenue of Amazon has increased exponentially in the past decade from $19.7 billion in 2008 to $232.89 billion in 2018 (Statistica, 2019).
The exponential increase in revenue reflects a favorable global economic environment characterized by increased spending among consumers. Political stability in developing countries has increased economic growth and development and consequently created new markets for Amazon to penetrate and expand its global markets. Zahonogo (2017) holds that economic stability in developing countries has augmented disposable income among consumers and opened new markets for global companies. For example, the expansion of the Internet and the use of computers and smartphones have significantly promoted Amazon’s e-commerce.
Free Trade
The performance of Amazon is subject to international regulations and policies, which control markets, products, and currencies. Given that Amazon is a leading global retailer, free trade stimulates its expansion and growth in new markets in Europe, Asia, the Middle East, and Africa due to its competitiveness. Globalization in the modern world promotes free trade because it permits local companies to grow and expand their markets into global markets and become multinational companies.
The assessment of Amazon shows that it is a multinational company, which relies heavily on free trade created by globalization drivers, such as information technology, international trade, and global investments. According to Czaika and Hass (2018), regulations that promote free trade allow multinational companies to penetrate untapped markets and expand their market share. Therefore, the existence of free trade opportunities in Europe, the Middle East, and Asia have permitted Amazon to expand its stores in new markets.
Trade Barriers
Trade barriers hurt the growth and expansion of Amazon because they limit their operations to specific jurisdictions. For fear of market dominance, monopoly, and competition, some countries impose trade barriers on their jurisdictions. Countries such as China, the United Arab Emirates, Britain, and Russia impose tariffs, quotas, and non-tariff forms of trade barriers to restrict and control their markets against overexploitation by multinationals. When Amazon encounters countries that employ tariffs, it decreases the prices of its products to cushion customers from bearing the full burden of taxes.
Moreover, Amazon considers dealing with high-end products with premium prices to customers. In countries that offer quotas as their trade barrier, Amazon utilizes a diversification strategy to optimize set quotas in numerous commodities. In overcoming non-tariff trade barriers, such as the importation of quality, ethical, and eco-friendly products, Amazon adapts its products to meet the distinctive needs of countries and customers. Hence, trade barriers dictate the nature and the volume of products that Amazon supply to various jurisdictions across the world.
Impact of NAFTA
The North American Free Trade Agreement (NAFTA) has a positive impact on Amazon because it eliminates trading barriers, which hinder the United States, Mexico, and Canada from importing and exporting their products to various markets of interest.
Through NAFTA, Amazon has managed to explore and penetrate Canadian and Mexican markets. Since its ratification in 1994, NAFTA has provided immense support to the growth and expansion of Amazon in North America. Barajas, Sisto, Gaytán, Cantú, and López (2014) report that trade volumes between the three countries that form NAFTA because they freely export and import products and satisfy the diverse needs of their citizens. The enormous market benefits that Amazon has accrued from NAFTA have made it explore new markets in the international arena. Due to the competitive free market of NAFTA, Amazon decided to diversify its products and gain a competitive advantage in the common market.
Economic Implications
Operating in different markets and industries has considerable economic implications for multinational companies such as Amazon. Consumers in different markets and industries have unique needs and preferences, making Amazon experience difficulties in satisfying them. The economic implication is that Amazon requires extra capital to purchase various products for e-commerce and provide customized services to their customers of cloud computing and artificial intelligence. Amazon also incurs extra costs while establishing and operating stores in various countries and cities for the effective distribution of products in its supply chain.
Owing to differences in tax tariffs across the world, Amazon has to incur some costs in standardizing prices of products to attract a substantial number of customers. Typically, taxes increase retail prices of products and discourage customers from purchasing them; hence, reducing sales and profits (Da et al., 2018). Additionally, increased competition in diverse markets and various industry structures requires Amazon to undertake extensive advertising, which is very costly and unsustainable in some products that attract low sales volumes.
Ethics and Regulations
In the global markets, ethics and regulations play a central role in influencing the way Amazon undertakes its operations. In operating in global markets, Amazon experiences ethical issues regarding the privacy of clients, intellectual property rights, fair treatment of employees, and cultural practices (Murninghan, 2018). Since clients provide personal details, Amazon has to ensure that they use them for intended purposes without exposing them to third parties who might use them in criminal and fraudulent activities.
Adherence to the ethical requirement of protecting intellectual property is a noble duty of Amazon to promote ethical business activities centered on healthy competition in global markets. In fighting corruption and promoting good governance, Amazon should not victimize or discriminate against workers who report fraudulent activities in various jurisdictions (Murninghan, 2018). Moreover, employees ought to get their stipulated dues in time without unwarranted delays or mistreatments. Differences in cultural practices across the world demand Amazon to customize its products and services to meet the diverse cultural needs of customers.
In the aspect of regulations, the United States Environmental Protection Agency (EPA) requires Amazon to comply with regulations and policies of green merchandise that advocate for the use of renewable forms of energy and eco-friendly products (Dillon et al., 2018). EPA prohibits companies from distributing illegal products that are not only harmful to humans but also to the environment.
In its e-commerce platform, Amazon violated EPA’s regulations by distributing and selling harmful pesticides and incurred a penalty of $1.2 million (Dillon et al., 2018). Furthermore, as an incorporated company, Amazon has the mandate to ensure that it observes regulations that promote good governance. Owing to financial improprieties in companies, the Dodd-Frank Act protects investors from excessive losses of their investments.
Besides, the Sarbanes-Oxley Act demands that organizations need to be transparent and accurate in financial reporting of their performance to prevent corporate fraud. In this view, Amazon ought to adhere to the stipulations of these acts and protect its shareholders from corrupt practices. In the labor sector, the Fair Labor Standards Act (FLSA) also requires Amazon to provide favorable working conditions, pay workers standard wages, and protect employees’ rights.
Effect of Macroeconomic Factors on Decisions and Strategy Development
The National Income
The analysis of Amazon shows that macroeconomic factors have created an immense value to the economic decisions and the development of strategies. National income and international trade are two macroeconomic principles that have created value and affected strategy development in Amazon. The national income of the target market, as reflected by the gross domestic product and the unemployment rates, is a critical factor that influences the decisions and strategies of Amazon. An increase in the gross domestic product and a decrease in the unemployment rate increase disposable income among potential consumers of Amazon.
Endogenous growth theory holds that human capital and technological advancements are drivers of the gross domestic product because they comprise internal activities that determine national income. In this view, policies that create employment, increase wages, encourage investments to boost the growth of economies, and augment disposable income.
The International Trade
Globalization has a marked influence on international trade because it creates business networks and transforms the lifestyles and purchasing habits of people across the world. From this perspective, the globalization theory supports the abolition of trade barriers to allow the free movement of people and commodities for economic growth and development (Barrow & Keck, 2017). Globalization and the quest for free trade have opened up new markets and made it easy for Amazon to undertake international trade. Therefore, policies that promote free trade encourage Amazon to venture into new markets and expand its global markets.
Overall, the SWOT analysis, Porter’s Five Forces, and PESTEL analysis are tools that allow Amazon to evaluate its capabilities and suitability of target markets, and eventually, aid in making valuable economic decisions and creating development strategies.
Recommended Strategies
- Since sales and profits are dependent on the purchasing power of consumers, Amazon needs to target and invest heavily in countries, particularly developing countries, which have promising economic growth as reflected by decreasing unemployment rates and increasing gross domestic product.
- Given that trade barriers restrict the expansion and profitability of international markets, Amazon should target those countries with limited restrictions because they support globalization, which is a noteworthy driver of consumer growth and sustainable profits.
Conclusion
The analysis of Amazon provides essential information about its long-term outlook in the local and global markets. Favorable local and global economic environments would make Amazon register remarkable performance in the decade. Free trade, technology, and globalization are some of the factors that promote economic growth, while trade barriers and regulations limit the operations of Amazon. Based on the economic growth theory and the globalization theory, national income and international trade are two macroeconomic principles that would affect the economic decisions and development strategies of Amazon, respectively. Hence, the analysis recommends Amazon target countries with promising national income and limited trade restrictions to increase its profits sustainably.
References
Barajas, A. I., Sisto, N. P., Gaytán, E. A., Cantú, J. C., & López, B. H. (2014). Trade Flows Between the United States and Mexico: NAFTA and the Border Region. Articulo-Journal of Urban Research, 10, 1-18. Web.
Barrow, C.W., & Keck, M. (2017). Globalization theory and state theory: The false antinomy. Studies in Political Economy, 98(2), 177-196. Web.
Czaika, M., & Hass, H. (2018). The globalization of migration: Has the world become more migratory? International Migration Review, 48(2), 283-323. Web.
Da, Z., Warachka, M., & Yun, H. (2018). Fiscal policy, consumption risk, and stock returns: Evidence from U.S. States. Journal of Financial & Quantitative Analysis, 53(1), 109-136. Web.
Murninghan, M. (2018). Equity culture and decent work: The case of Amazon. New England Journal of Public Policy, 30(1), 1-15.
Statistica. (2019). Net sales revenue of Amazon from 2004 to 2018. Web.
Weise, K. (2018). Amazon to Raise Minimum Wage to $15 for All U.S. Workers. New York Times. Web.
Zahonogo, P. (2017). Globalization and economic growth in developing countries: Evidence from Sub-Saharan Africa. The International Trade Journal, 32(2), 189-208.