Introduction
The multinational performance report aims to reflect all the essential data that should be considered when planning any company operations in the future. Thus, compiling and detailing all the significant components of the organization is essential to improve the future vision. Learning from Amazon’s crisis and difficult times can be critical in charting its strategic path for future complex scenarios. Thus, the motivation for international business expansion can be justified and confirmed with the help of a detailed analysis of financial indicators.
Company Overview
Amazon is a well-known company in the field of e-commerce and the development of related technologies. It was initially founded by Jeff Bezos in 1994 as a firm that provided an alternative way of selling goods (White, 2023). The main direction of the firm is to provide an online platform for many sellers to post their products for more efficient sales.
According to the organization’s report for 2022, the company’s revenue amounted to $510 billion (Amazon Inc., 2022). The operating profit is $22 billion, demonstrating how the company can regulate its activities most profitably (Amazon Inc., 2022). This combines the total profit from all the mentioned business segments that Amazon is engaged in.
During the same year, the company’s net profit amounted to 15 billion US dollars, which allowed it to collect assets that are estimated at 470 billion dollars (Amazon Inc., 2022). The organization’s activities are managed qualifiedly to generate a large profit. This allows Amazon to look for ways to enter new markets and expand its influence from an international perspective.
Company Background
Amazon has a long and prolific history of development that began with Jeff Bezos founding an online book-selling platform. The success of this trading model allowed the organization to open up new opportunities in order to develop new areas that could be profitable (Urbonavičiūtė & Maknickienė, 2019). A diverse product portfolio keeps Amazon running smoothly in several ways. Presence in the technology industry primarily ensures that organizations develop their own devices that create a common Amazon ecosystem. Besides, the development of new devices allows the company to join the sphere of cloud services for business and private clients.
Bringing multiple business areas together is essential because it allows Amazon to create new areas to do business. The company’s corporate strategies are determined by the development of innovations and the strengthening of the international presence through the infusion of investments in research and development. An organization’s customer focus allows it to adjust and improve customer outreach to create a more advanced network (Urbonavičiūtė & Maknickienė, 2019). Product diversification has been a constant in this process, allowing Amazon to divide responsibilities and justify new value propositions for customers in different countries. Thus, the company’s corporate strategy provides for expansion by attracting new people.
Economic Environments and Market Conditions
Economic and market conditions during the organization’s operation varied significantly as the company survived the crisis in 2007-2008. In such an environment of financial uncertainty, Amazon has focused on analyzing the environment in which the company finds itself as best as possible (Amazon Inc., 2008). Due to difficult financial conditions, the company faced significant debt due to interest payments and retention of liabilities in these years. Thus, the company’s report predicted an increase in this indicator shortly due to the decrease in financial activity in international markets.
The company had a strong presence on the stock markets during the crisis and in the last financial year. NASDAQ is one of the largest stock exchanges with many companies present (Amazon Inc., 2008). Listing on this exchange allows Amazon to issue and sell shares, which attracts investors and positively affects the organization’s ability to develop the industry.
The bond and money markets are also important locations for the organization. Thus, due to operations in these markets, Amazon received great opportunities during the crisis time of 2008 to improve its performance. Amazon has raised capital through initial public offerings (IPOs) in various markets (Amazon Inc., 2008). The issue of shares was accompanied by their purchase by investors, which allowed the company to raise capital that it could use for specific needs.
Raising capital is an important and mandatory function of an organization undergoing significant changes during the financial crisis. The crisis led to a one-time contraction of financial and credit markets, which limited the ability of companies to attract financial resources. The volatility of the markets and the confidence of investors previously involved in the company’s activities played a significant role in this aspect (Amazon Inc., 2008). However, new investors did not pour into the organization’s activities, as their trust was not backed up. The credit crisis also manifested in the fact that credit opportunities were significantly limited due to the crisis, which led to a decrease in the number of organizations providing such services.
Financial markets and institutions can play an important role in risk management, as hedging exchange rate risks involves the creation of derivative instruments. These may include currency futures, forward contracts, and options. The presence of such tools allowed Amazon to eliminate the undesirable risks that arose as a result of the abolition of many financial institutions (Urbonavičiūtė & Maknickienė, 2019). Amazon used the presence of a large number of international transactions to fix exchange rates. Thus, the influence of markets in the global environment provides several tools aimed at supporting companies’ financial capabilities.
Exchange rate fluctuations can have a significant impact on a company’s performance. Socio-political and economic changes in the organization could lead to losses and increased debt. If the local currency depreciates in any market of Amazon operations, then imported goods become more expensive, which leads to inflationary pressure. Interest rates on loans may also change depending on changes in exchange rates. The profitability of such international trades in the Amazon Report 2022 is listed as low since the company’s products are not in great demand due to the difference in rates (Amazon Inc., 2022). In this regard, the company’s activities are significantly exposed to the impact of foreign exchange transactions.
Transactional risks during the crisis were driven by increased volatility and devaluation of currencies. Thus, Amazon’s foreign liabilities were subject to a substantial increase, resulting in significant losses. The cost of repaying liabilities increased significantly, resulting in large debts reflected in the 2007 report (Amazon Inc., 2008). Third-party sellers played a significant role in supporting the company, as Amazon maintained its financial position during the crisis through its sales. Economic and translation risks affected the company in 2008 the revenue dropped from 39% to 29% (Amazon Inc., 2008). Thus, one can say that the organization had specific problems in this period.
Using forward contracts, Amazon could hedge specific currency amounts and fix currency rates. The company did similar operations during the 2008 crisis, as evidenced by a summary of its financial transactions. However, these actions were unsuccessful, as Amazon lost $15 million (Amazon Inc., 2008). In the past 2022, due to financial fluctuations, similar costs due to the difference in the foreign exchange market were observed due to the use of options and futures (Amazon Inc., 2022). In this regard, Amazon resorted to using forwards as a hedging method, which brought the organization $10.4 billion in foreign markets (Amazon Inc., 2022).
The company’s financial management preventively managed the risks associated with exchange and interest rates through the stock trading system on international stock exchanges. This traces the company’s strategy, which was adopted to predict crisis situations, such as in 2008. Diversification in an organization’s expansion strategy has advantages and disadvantages, as it helps to avoid significant losses in a crisis. However, at the same time, this approach may affect the lack of clarity of the general audience.
Ethical and Legal Considerations
The company maximizes shareholder value through a strategy of buying out all entities that could pose a threat to them. This can be seen in how the iPhone eBook Reader will allow their e-reading product to evolve further. The crisis in this area has prompted Amazon to become more active in eliminating competitors that could threaten the Kindle. At the same time, this method is ethical and allows the organization to continue to act in the same direction.
Decisions made in the company have a direct impact on stakeholders and shareholders. For example, during the crisis, Amazon reduced leverage from 0.82 to 0.68 (Amazon Inc., 2008). Thus, the decisions positively impacted international expansion, as they interested new investors. However, these changes did not significantly affect the organization’s financial capabilities since the indicator was still higher than that of competitors.
The price-to-earnings ratio is the category that new investors are most sensitive to. This characteristic in 2007 was 122.61 points, and 101.32 points in 2008 (Amazon Inc., 2008). However, such a recession did not affect the attractiveness of Amazon to investors since the company’s shares at that time increased from $39.46 to $92.64 (Amazon Inc., 2008). Amazon has not paid much attention to external stakeholders, as cultural diversity is not well supported, and the organization’s attention does not extend to all groups. Thus, ethical decisions in the company’s management had a positive effect, allowing stakeholders to receive the necessary profit.
Future Risks and Challenges
A company can undertake strategic planning and risk control to prevent the consequences of a potential financial crisis. Future risks and threats are primarily related to competition in the market, which is significantly increasing. E-commerce and cloud computing began to attract more people, which led to the emergence of similar services in many large organizations. Better analytics groups should be introduced to alert new competitors to inform future value-adding approaches. Another legitimate risk is logistical disruptions in the supply chain. Further geopolitical tensions in any region may cause them.
Ethical and legal approaches to addressing future crises and threats are consistent with the company’s vision and can be supported through increased environmental responsibility. In this way, justifying a sustainability course can help prevent legal problems. It will also contribute to the ethical course as it aims to support existing environmental care programs. Legal and ethical responsibilities may also relate to employee relations, as Amazon has experienced significant ethical issues. This threat is the most obvious for the future work of the organization.
Conclusion
Over the years of its development, Amazon has become a holistic holding that offers many services related to e-commerce, cloud data, and other innovative products. The crisis of 2008 affected the company’s capabilities and increased debt, which became an obstacle to faster development. However, competent management prevented significant financial losses and promoted ethical development. The company’s further expansion strategy was characterized by buying out organizations that could compete.
References
Amazon Inc. (2008). Form 10-k 2008. U.S. Securities and Exchange Commission. Web.
Amazon Inc. (2022). Form 10-k 2022. U.S. Securities and Exchange Commission. Web.
Urbonavičiūtė, K., & Maknickienė, N. (2019). Investigation of digital retail companies financial performance using multiple criteria decision analysis. Mokslas–Lietuvos Ateitis/Science–Future of Lithuania, 11. Web.
White, R. (2023). Supply Chain Management Internship Thesis-Hilti & Amazon.com, Inc. (5) [Honors thesis, University of Arkansas Bachelor of Science]. Scholar Works. Web.
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