Free Paper Example: Amazon's Resilience in European Business

Introduction

The European Business environment has witnessed remarkable changes over the years. One significant change that took place was the announcement of Brexit. The exit of the United Kingdom from the European Union and the European Atomic Energy Community early in the year 2020 sought to change the way of doing business in the European Union. The advent of COVID-19, the coronavirus, brought many challenges to the member states of the European Union. The EU set up a supporting recovery fund to cushion its member states against the negative impact Covid-19 has had on their economies.

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The company chosen is Amazon.com Incorporation, based in North America with its headquarters in Seattle, Washington, in the United States of America. Amazon has corporate offices in Europe. This essay aims to define in detail foreign direct investment and differentiate it from portfolio investment. The essay will also assess how Germany’s change in fiscal policy will impact other European Nations and determine how Brexit may impact Amazon's long-term plans. Further, the report will also look at the risks of doing business in Europe and determine how Amazon.com Incorporation will increase or decrease foreign direct investment in the European Union.

Amazon Situational Analysis

Amazon.com Inc. is amongst the biggest companies in the United States of America. The company's focus started as an online marketplace for books in the year 1994. The company later expanded to sell food, jewelry, electronics, jewelry, and software. Amazon also deals in cloud computing, AI (Artificial Intelligence), and digital streaming. Over the years, the company has been growing and acquiring other companies to form the large conglomerate it is today. The company is vastly known for its customer-centric innovations, processes, and ways of doing business. The company has a unique way of operations and often strives to give products and solutions to improve its clients' lifestyles. Currently, it ranks as the second-largest private employer in the U.S.

Unlike many other businesses in the world, Amazon's sales in the wake of the Covid-19 spiked up. The company's sales volumes increased tremendously due to its e-commerce platform. When the Coronavirus hit, many economies shut down, and many businesses came to a standstill except e-commerce. Amazon witnessed an increase in online sales, especially for food and groceries, medical supplies, and personal care products. The restrictions on human rights to prevent the spread of the virus meant that most people resorted to online shopping and delivery. The demand for products and services was unusually high in the first few months of the pandemic. Though Amazon has yet to release the revenues, it is predicted that the company will have grown and that online sales will increase by more than 7% compared to the previous year.

Amazon has played a vital role in helping staff, stakeholders, and the community, in general, to deal with the negative impact of this virus. The company provides $2.5 billion for its staff for the year 2020. All front-line employees are scheduled to receive a share of the $500 million from the company. Further, the company established a $25 million relief fund shared by its partners and seasonal associates who were adversely affected by the pandemic. The company provided free masks to its clients and further committed $23 million to European families most affected the COVID-19. Though Amazon's e-commerce wing has flourished during the pandemic, the other sectors of the company took a significant hit.

Foreign Direct Investment

Foreign Direct Investment (FDI) refers to direct investment from an investor to a foreign-owned business or a business subsidiary in another country. On the other hand, a portfolio investment refers to an investment in the form of securities and equity owned by an investor (Moosa, 2002). Unlike direct investments where investors take an active role in the day-to-day management of the acquired asset, the portfolio investment takes a hands-off approach. According to…for an investment to be classified as foreign direct investment, the investor has to purchase more than a 10 percent stake in the firm. Investment lower than 10 percent of the firm would be considered as a stock portfolio. A stock portfolio essentially signifies that the investment is too little for the investor to have any management influence on the company.

Essentially there are three types of Foreign Direct Investment, namely, the Horizontal FDI, the Vertical FDI, and the Conglomerate FDI. Horizontal FDI occurs when a company or investor establishes a similar type of economic activity in a foreign country as operating back at home. An example of a Horizontal FDI is Amazon having offices and stores opened in European Union countries such as England and Germany. Also, a foreign investor may purchase another firm producing similar products in a foreign country. For example, if Nike, based in the United States of America, purchases Puma, a German firm. Both Nike and Puma are in the Sportswear industry; hence this would be a Horizontal Foreign Direct Investment by Nike.

According to Owusu-Antwi, Antwi, and Poku (2013), Vertical FDI occurs when an investor invests in a company that falls within its supply chain and not in the same industry. The two businesses are different, but their business activities are related. Vertical FDI also occurs when an organization in the manufacturing sector acquires a foreign company that supplies some of the raw materials the company uses in its production process. An example of a Vertical Foreign Direct Investment is if The Hershey Company, a chocolate manufacturer in the United States, acquired a cocoa company in Brazil.

Another example may be when McDonald’s, an American fast-food company, acquired a large-scale farm in England to produce meat for McDonald’s restaurants. Vertical FDI may be backward vertical integration or forward vertical integration. The example above shared by The Hershey Company represents a backward vertical integration. In contrast, a forward vertical integration may happen when The Hershey’s Company invests in Alibaba, where it sells its Chocolate.

A Conglomerate FDI offers big companies the chance to expand and also diversify into new market opportunities. A conglomerate FDI occurs when an investor makes a foreign investment in a company that is unrelated to the investor's existing business. A conglomerate FDI is ideal for firms looking to invest in new ventures to maximize growth and profitability (Moosa, 2002). A Conglomerate FDI often takes a joint venture given that the investor is entering into an industry with no experience. An example of a conglomerate FDI would be Amazon.com Incorporation from the United States or its subsidiaries in the United Kingdom acquiring Standard Chartered Bank.

Some advantages of Foreign Direct Investment include: boosting international trade. FDI promotes international trade as production takes place in the areas where it's the cheapest. It also reduces regional and global tensions given that the production process is interrelated, and thus, all parties have to ensure the stability of their trading partners (Owusu-Antwi, Antwi, and Poku, 2013). It also promotes the sharing of technology, knowledge, and culture. In the FDI, a firm with better technology, knowledge, and culture would have to share with the other firm to ensure efficient utilization of resources to produce high-quality goods and services. Foreign Direct Investment also reduces the risk for investors through diversification. When investors invest in other countries, they increase their exposure and reduce their risk as they no longer rely only on one market.

Some of the disadvantages associated with Foreign Direct Investment include foreign control. Foreign control may be easy as foreign countries with resources may gain effective control over land and labor at relatively cheap costs. FDI may lead to the loss of jobs at the source of investment. Companies may channel most of their funds towards foreign investment and reduce funding at home (Moosa, 2002). The political risk or economic change risk also arises as the foreign country may crumble and engage in war, making the environment unsuitable for doing business any longer.

Impact of Germany’s change in Fiscal Policy to other European Nations

Currently, every country including Germany is focusing on mitigating the impact of COVID-19 on its economy. Germany has come up with fiscal policies to revive the economy. From Germany’s fiscal policy perspective, the country especially its public sector has the potential to survive an economic crisis. Germany has sound fiscal policies that indicate the Government is in s suitable position to fund and implement measures to effectively deal with the Coronavirus. Some of the fiscal policies in Germany include having an assistance package, a supplementary budget, and trade surpluses.

References

Moosa, I. (2002). Foreign Direct Investment Theory, Evidence and Practice. https://www.researchgate.net/publication/265453721_Foreign_Direct_Investment_Theory_Evidence_and_Practice

Owusu-Antwi, G., & Antwi, J., & Poku, P. (2013). Foreign Direct Investment: A Journey to Economic Growth In Ghana - Empirical Evidence. International Business & Economics Research Journal (IBER). https://www.researchgate.net/publication/297721928_Foreign_Direct_Investment_A_Journey_To_Economic_Growth_In_Ghana_-_Empirical_Evidence