Friday 1 March 2024

Amazon still not a global but a regional business

One year since Jeff Bezos resigned as CEO, the company continues with its international expansion, though its regional character remains intact. Most of its revenues are generated from the Americas. However, in the last decade the tech firm invested in greenfield projects to develop its logistics business from which South Africa and other countries in the continent have benefited. Due to demand for e-commerce and cloud computing, the company has upped its digital infrastructure investment. Whether this will transform the business into a global business the jury is still out there.

By Radithebe Rammutle

"Invention is the root of our success. We’ve done crazy things together, and then made them normal." These are the words Jeff Bezos penned in February 2021 when bidding farewell to colleagues as he was about to assume his new role as Amazon’s board chair. Across the world many waited with bated breath for business moves that the United States (US) global e-commerce empire will take after the departure of its founder at the helm. 

The world’s second-richest man amongst other accolades, will be credited for revolutionising the brick-and-mortar business model particularly in retail industry. He founded the firm in 1995, and in less than 10 years the company became one of the largest 1,000 US companies according to Fortune. From the beginning Mr Bezos strategy was to grow as fast as possible through recruiting highly skilled staff to design the e-commerce end of the business as well as less skilled workers to handle the logistics side of the business. 

As part of its growth strategy Amazon focused on developing both the domestic and foreign markets. “…Amazon has increasingly announced greenfield projects in foreign markets, reaching a record 179 [projects] in 2020, against a backdrop of declining FDI globally due to the pandemic” according to investment tracker FDi Markets. 

Most of its foreign investment projects in the past decade have been into the logistics business. However, between 2019 and 2020 there has been a significant bump in digital infrastructure investments through its Amazon Web Services (AWS) business. AWS now accounts for most of the company’s operating income with sales growth of 30% between 2019 and 2020.

Amazon’s Investment in digital infrastructure is consistent with industry trends. FDI intelligence reported that about $3.88bn was poured into new projects in August 2021 to build data centre facilities that house equipment used for data processing, hosting and related services. Capital expenditure to build these facilities was higher than the $3.6bn investment announced by property developers. 

This trend continued into September 2021, with major players announcing projects worth more than $10.4bn globally. Half of these funds ($5.19bn) were announced by Amazon who intended to build a series of data centres in New Zealand to serve the domestic market, and it is estimated that these investments will create 1000 new jobs by 2036. The company upped the bar again in November announcing that it plans to invest over $17bn in Canada by 2037, including more than R3bn into a new cloud computing server hub in Calgary.  

Whilst most of the significant investment went to regions other than Africa, the continent still benefited from Amazon’s international expansion. Recently – 19 April 2021 – the city of Cape Town approved the R4bn ($276) River Club project, a multi-purpose commercial park in which Amazon will be the anchor tenant. 

“It [Amazon’s River Club investment] really opens the door for many more investments in the IT and tech space,” said James Vos, Cape Town Mayoral Committee Member for Economic Opportunities and Asset Management. 

The construction of River Club will take place over three to five years and only then we can know the intended purpose of the investment. Amazon did not announce whether this facility will be used for e-commerce, logistics or cloud computing. Of the three market segments, only cloud computing has grown sufficiently to justify investments. 

Despite the appetite for international expansion Amazon’s global investments do not necessarily mean “global” expansion. Rather the US tech company has increased its footprint mainly in North America. In 2009, Amazon generated 53.3% of its sales in North America and 47.7% internationally. In 2020 69% of its revenues came from North America while 30% from foreign markets. In contrast a company such as Unilever, generates 22% of its turnover in its home region, Europe, and the rest (46% in Asia, Africa, Middle East and 22% in Americas 22%) is generated internationally.  This means that the home region of the US tech company is still its locus for growth strategy. Perhaps the new CEO Andy Jassy who took the reins in July 2021 will look to new frontiers outside Americas for growth and will transform the business into a truly global business. 


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