Amazon's Operations During Economic Recession: A Report on Macroeconomic Elements Impacting Amazon.com

Economic Concepts and Models BMP4003

Business Environment

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Introduction

Amazon is an e-commerce company founded in 1994 by Jeff Bezos (Kumar, 2023). The company's main operations are e-commerce services, entertainment services, cloud computing, an online book library, and many more. Amazon is considered a multifunctional company operating in more than 20 nations. Initially, the company was an online bookstore, but after a few years, it expanded into a company that provided various products. The nickname was also given to the Amazon "Everything Store" (McGurl, 2021). The company is given this name because of the huge range of products available on Amazon.

Furthermore, various sub-brands of Amazon are also available, which provide services in different domains Amazon.com provides e-commerce services, Amazon Fresh provides groceries on the same day, and Prime Video provides entertainment and new movies and web series. These are some major services that Amazon offers. However, the economy of the UK faces a major issue due to the recession Amazon requires some floating cash to operate the company daily. The report mainly focuses on making a report that helps Jeff Bezos which can present in front of the major stakeholders how they face this tough situation. The report focuses on the amazon.com operation which is the major website or domain of the firm. This report mainly consists of the macroeconomic elements that are impacting the business activity of Amazon.com during the economic recession.

Demand And Supply

Demand

Demand is the economic phenomenon that shows how much quantity of the product is required by the consumer, and the producer is ready to sell at a particular price at a specific period (CFI, 2024). Demand is illustrated as a demand for the product that the consumer generates at a particular price point. Further, demand is influenced by many factors like price, purchasing power, utility, availability of products, and many more. The customers and the seller or industries are regularly encountered with the demand because both parties are regularly involved in the buying and selling process. The major changes come in the demand when the price of the product changes. If the product price goes upward, the demand for the product declines, and if the price goes down, the quantity demand for the product automatically rises. Both price and demand have the opposite or inverse relation.

Law of Demand

The law of demand, also known as the theory of demand, states that when other factors remain constant, the quantity demand of the product only changes due to the price change (CFI, 2023). It simply means that the change in the price of the product, whether it goes up or down, impacts the demand for the product in many ways. In simple terms law of demand shows the concept of demand easily. It states that when the price of the product goes up, or increases, the demand for the product will decrease, and oppositely when the price of the product decreases, the demand for the price the demand for the product rises. This shows that the demand and price have the opposite relation. However, in some cases, the law of demand fails, like when there is a luxury good, Giffen goods, inferior goods, or necessary goods.

Figure 1: Law of demand

Source: (Shaikh, 2015)

Supply

Supply is the quantity of the product available to the customer by the suppliers (Capital.com, 2019). The concept is that supply is heavily dependent on demand because when the consumer makes the demand for the product, the supply starts. In simple terms, supply is defined as the amount of the available good, and the supplier is ready to sell that product at a specific price. In supply goods and services are created by the supplier to sell in the market and get the profit out of that. With the help of the supply, suppliers fulfil the demand created in the market and earn a profit. Various factors, such as government policies, fashion, trends, price, technology, etc, impact the supply.

Law of Supply

The law of supply is the economic concept that mainly shows the relation between the commodity's price and the product's supply (CFI, 2023). The law of supply is always seen from the perspective of the supplier because they are the ones who produce the products and services in the market. In the law of demand, when the price of a commodity goes down, its demand goes up, and when the price of the product rises, its demand goes down. However, the law of supply is reciprocal to this concept because, in the law of supply, the commodity's price and supply have a positive or direct relation. It means when the commodity's price goes up, the supply of the product increases, and when the price goes down, the quantity of the commodity also declines. This is the basic concept of the law of supply. The law of supply works like that because the law of supply works according to the needs and wants of the supplier. If a supplier sees that their product is doing well in the market, they raise the product and the price; however, when the product is not doing well in the market, the price and supply decrease. This depicts that the supply of the product and the price of the product have a positive relation with each other.

Figure 2: Law of Supply (Movement along the curve)

Source: (Economicshelp.org, 2019)

Elasticity

Elasticity shows how one economic factor changes in response to the other factors when everything remains the same (Carpenter, 2023). In simple terms, elasticity is defined as how one factor of the economy behaves or changes in the response of the other. For instance, how a change in the price of the product impacted the demand or supply of the product.

• Price Elasticity of Demand – The price elasticity of demand states that when a change in the price occurs and the demand for the product is influenced due to the price, all the remaining factors stay constant. It is defined as the price elasticity of demand. In simple terms, when all the factors remain or stay constant and the change only occurs in the product's price and the demand and supply impacted due to that is known as price elasticity of demand.

• Price Elasticity of Supply – The price elasticity of supply is the economic concept that shows when the changes only occur in the price of the commodity all the factors remain constant. The price change impacts the supply is known as price elasticity of supply. In simple words, the price equilibrium of supply shows the changes in the supply quantity, which is implemented only because of price, and all the remaining factors stay constant.

Macroeconomic factors that Amazon needs to Consider

Macroeconomics studies the economy on the big or the whole level. In simple terms, macroeconomics is the branch of the economy that concentrates on the big economic factors and how they impact the business. Many things are studied in macroeconomics like inflation, economic growth, tax policies, budget, unemployment, etc. The major aim of macroeconomics is to represent the whole country and how the economic factors impact the country at the whole level.

• Inflation is defined as a product or service price rise at a particular time (IMF, 2019). In simple terms, inflation is a regular loss of buying power of the commodities due to the increase in the price of the product and service. It occurs due to the constant increase or change in the price due to multiple factors like money supply, supply and demand shock, exchange rate, and many more.

The current rate of inflation in the UK is 3.1%, which has increased by 0.3% from the last month, which is not that high, but this rate is not that high from the perspective of the UK (Ons.gov.uk, 2021). If the inflation rate in the UK regularly rises or changes, the operation of Amazon is impacted in several ways, like reducing the company's profit, and the purchasing power of the people living in the UK also decreases due to Amazon. Amazon has recently raised its subscription price in the UK, showing the inflation impact on the e-commerce platform.

• Exchange Rate – The exchange rate is the price at which one country exchanges its currency to another (rba.gov.au, 2024). Mainly US Dollar ($) is the main currency through which all the other currencies are exchanged. If the rate of exchange changes in the UK is stable, they can easily sell the product out of the UK without considering the exchange rate and the import and export procedure can become easy and smooth. However, suppose the rate of exchange in the UK is not stable. In that case, several challenges might be faced by Amazon in the UK, like uncertainty in profit margin, inconsistent prices, problems in forecasting, and more. As the pound's exchange rate is high, 1 pound= 1.31 US $, Amazon.com will allow the services to allow further competition and assist the business to grow exponentially. This can even impact the profit margins and generate tactics associated with the e-commerce website.

• Interest Rate – The interest rate is the amount a lender charges from the borrower who took their money as a debt. In simple terms, the interest rate is considered the most crucial rate in the UK. In the year 2021, the rate of interest is 0.1% in December. However, in 2024, 5 % August is very high compared to 2021 (Bankofengland.co.uk, 2024). This impacts the operation of Amazon in various ways, like the demand for the product indirectly depending upon the interest rate. If the interest rate is high, the company has to charge more from the people on the products they sell.

• Technological Development – Technological development is the process in which new technology is created or huge development is done in the existing technology, which helps in the various processes. Technology development helps improve the production process, boost the worker's productivity, and increase revenue. Innovation is crucial in the organization's and nation's growth and development process. There are mainly 3 phases of innovation: innovation and diffusion. Innovation is defined as the most crucial part of the procedure. Amazon in the UK has introduced various features like automatic packaging technology, a one-day delivery option, and the Amazon “Just Walk Out” feature, an AI-driven grocery store, are all major examples of the innovation and technological advances that Amazon does in the UK. Moreover, this website also takes an educational initiative to promote the education and learning of the underrepresented communities in the UK in the field of computer science.

• Government Policies – Administration policies are the disciplines, rules, and regulations every business or organization must follow. The government creates policies to set some guidelines and ways that things should be done in a particular way. The government's policies are changes from country to country and government-made policies and regulations for every sector, whether it's entertainment, food, or schooling. The government of the UK has created several policies for the smooth flow of the e-commerce industry in the nation. However, there are policies created by the company to protect the people from the unfair trade practices of this e-commerce. For instance, the UK taxation policies and competitive reforms allow amazon.com to prioritize customer outcomes and outline the prices or convenience. Also, the higher taxes will likely increase the firm's costs and create logistics challenges (Tax Justice UK, 2024). Further, there are a bunch of rights discussed by the government of the UK to protect customers from unfair trade practices like the right to inform, the right to access, or the right to erasure (Great.gov.uk, 2024).

Impact of UK’s growth rate on Amazon.com

The growth rate simply shows how rapidly changes occur in the country's economy. In simple words, the growth rate shows the percentages in the economy of a particular nation in a certain period and shows at what pace the value is changing. Growth plays a crucial role for businesses and the country because it helps to discover new patterns and upcoming trends that businesses might encounter. There are multiple factors through which the country's growth rate can be measured like the GDP, investments, new customers, and more.

According to the data acquired from Ons.gov.uk (2024), at the current time, the UK is experiencing slow growth in its economy, and the growth rate for the first and second quarters combined is 0.65%, which is considered very low. Various factors behind this slow growth rate Brexit, inflation, government policies, political challenges, and high interest rates exist.

There is a major influence of the growth rate of the UK on the business activity of Amazon.com, and it is mainly impacted due to disposable income, economic policies, regulations, and globalization.

• Disposable Income – Disposable income is the extra amount left with the households after they pay all the required taxes and fulfil the required needs and wants. Once all the required needs are fulfilled, disposable income is used to pay for the extra expense, which is not considered necessary. If the country's growth rate is slow or not constantly rising it will lower the people's purchasing capacity. Due to this, Amazon.com faces problems like people lowering their purchases and only focusing on purchasing basic goods. Moreover, problems like inflation can also impact the purchasing power of the customers, so they have to look for other options; then, e-commerce platforms like Amazon.com can attract them with their additional offers and a huge variety of products.

• Economic Policies – Economic policy is also known as fiscal policy. The particular nation's government creates this policy to manage all the expenses and income. Economic policy combines multiple policies like taxation policy, monetary, budget, and more. These policies impact the purchasing capacity of the people living in the UK. For instance, the government of the UK decided that they have to control unsustainable finances and make major budget cuts so that they will impose major changes in their economic policies. This will impact the spending power of the people, and businesses of Amazon.com may be affected (Milliken and Maclellan, 2024). However, if the government introduces an incentive package, this will boost the spending power, and people of the UK spend more money on purchasing products online. This will boost the revenue of Amazon.com and they get more advantaged s in the future.

• Globalization – the integration of one economy with another or when the two countries do business in import and export- is considered globalization. Globalization plays a significant role in boosting the quality of the product and introducing people to unique products that are created all across the globe (O'Neil, 2022). In simple terms, globalization helps nations to integrate, and they can do business together and sell products with the help of import and export practices (Imf.org, 2024). However, due to the Brexit issue, the industry in the UK is facing a major issue in the supply chain. This will also impact Amazon's operations, and they face challenges like higher operational costs and huge competition. However, the technological advancement and modifications in the digital structure are still the same. This relieves Amazon, and they notice that after some time, the country's market will get back to normal and will able to sell the product like before. Moreover, they have many opportunities in the current period, like focusing more on the international market.

How Government Current Intervention Methods Affect Amazon.com

Multiple government interventions impact the business activities of the Amazon in the UK. These interventions are public investment, trade policies, tax breaks, and subsidies.

• Public Investment – Public investment is the amount the country's government spends to build an asset that the public can use for a long period. It includes building better infrastructure like roads or public transport for the public. Amazon plays a significant role in the growth of the UK economy. For instance, Amazon recently announced that they will invest £8 Billion in their web services, AWS (Amazon Web Services), and it is estimated that this investment will significantly contribute to the nation's economy (HM Treasury, 2024).

• Trade Policies – The policy which is created regarding the import and export of goods and services. In simple terms, a policy created for trade between two nations is considered a trade policy. According to Rory (2022), many businesses, including Amazon, have to create a new plan to carry out their business in the UK after Brexit. Moreover, Amazon introduced a new trade policy, including major changes. These changes are done so that Amazon can carry out their business operation smoothly in the UK as well the Europe. Now, WTO tariffs could apply to exports and imports, increasing Amazon's cost of goods sold and possibly influencing its ability to provide affordable goods to UK consumers via Amazon.com.

• Tax Breaks – A tax break is considered a government benefit, which reduces the person or company's total tax liability (Andrews and Wiedenbeck, 2024). This will help the people of the UK boost their disposable income, resulting in people spending more money on e-commerce platforms like Amazon.com (website) or its competitors to fulfil their desires and wants, through which these companies boost their revenue and popularity among the people.

• Subsidies are the support provided to the company and business in difficult times (Slattery and Zidar, 2020). The government of the country provides these subsidies for the smooth flow of business without any issues. For instance, Butler (2023) stated that Amazon receives a tax credit of €937 million. Moreover, the government of the UK also started the "super deduction" scheme in the year 2021 because if that scheme, Amazon.com would not pay any tax to the government.

Conclusion

To sum up, Amazon is the world's largest e-commerce platform that provides various products and services. However, Amazon.com is facing challenges in its business operations because of the current recession in the UK. The report mainly provides how Amazon.com can build a strong business and improve its daily operations in the UK. The report mainly discussed the major concepts the demand and supply. Further, macroeconomic factors like inflation or government policies are also discussed. Moreover, some government intervention methods that impacted the business of Amazon.com in the UK are also mentioned in the report.

References

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