Written by CNN
In light of recent remarks from Federal Reserve Chairman Jerome Powell and projections from economists foreshadowing an American recession, Amazon, Inc.’s Board of Directors is looking abroad to protect profits.
While Amazon has become the de facto online marketplace in the United States, their reliance on US consumers leaves them vulnerable to domestic economic downturns. The recent inversion of the yield curve, which has historically indicated upcoming recession, has worried many on the Board.
Despite diversification into cloud computing and other services, online retail remains Amazon’s core business and is the most vulnerable to recession, as it relies on excess consumer income to buy products. When money tightens in a recession, there’s no doubt that rent payments will take priority over the convenience of Amazon Prime and non-essential goods.
That has led the Board to consider growth opportunities abroad. However, such expansion will not be easy. Last quarter, Amazon lost over $600 million abroad. Both competition and regulation are to blame for these losses, and neither appears to be decreasing anytime soon. Alibaba has cornered the Chinese ecommerce market, and India (Amazon’s main international expansion target) has recently made it even more difficult for foreign companies to sell in the country.
With these roadblocks on the two largest international markets in mind, it’s fair to wonder what the Board of Directors is thinking with regard to expansion. Does the Board really think that the sum of smaller European and Latin American markets can make up for potential US losses, especially when European and Latin American economies are so closely tied to the US that an American recession is bound to impact these markets as well?
It’s astounding that the Board continues to pursue these avenues instead of building out their cloud infrastructure, which is so vital to companies that it’s essentially recession proof. Every modern business needs cloud computing resources to operate both day to day activities and long term growth. Additionally, switching cloud providers and reallocating data to another provider is an IT nightmare, so a company already using Amazon’s services is unlikely to change. For these reasons, I’d like to see Amazon work toward providing more cloud services and advertising these new services to companies already in their network, as well as working to get more companies on their system. This is a much more robust response to potential recession than an international expansion that has already proven difficult.
Time will tell if Amazon realizes their mistake before it’s too late.