Amazon has been focusing on expanding its business to a different region with an objective of increasing access to economies of scale. For instance, Amazon has been implementing strategies for expanding its headquarters such as the expansion to New York City and Arlington, and Virginia with an objective of reducing the operational economies of scale. Expansion of both internal and external economies of scale has become the opportunity for people to develop a chance for reducing costs of operation and increasing revenue for increasing profit margin. The expansion is accompanied by ensuring that the company reduces the operational expenses and increase revenue through increased profits (Welch, 2015). Amazon continues to experience an increase in sales revenue with an objective of increasing sales revenue in the company. As a result, Amazon continues to invest most of its operations to expand its growth by investing in other regions. Expanding its activities by creating many headquarters in different regions across the world increases the capability of Amazon to achieve competitive advantage in the market.
Amazon’s move to New York and Arlington is one of the expansions that Amazon has made with an objective of increasing its economies of scale. New York City is one of the regions with a population that embraces technology. In effect, it will be possible for the company to increase its sales volume in the market. Expanding its headquarters to such regions create an opportunity for the company to reach many target customers in the market. High technology cities promote both internal and external economies of scale by serving the interests of youths and people in the society capable of increasing access to resources needed in improving the lives of people in colleges and universities (Moore & Tambini, 2018). External economies of scale arise because the company creates exposure Amazon to a city blessed with skilled workers capable of bringing innovation to the business. Washington has access to technologically blessed society that can improve the designing of computers and websites through which people can create a chance for lowering operational costs of the business. The technology is not basically needed for creating new computers but they are needed to ensure that there is the development of software needed for financial trades.
Delegate your assignment to our experts and they will do the rest.
In addition to access to the skilled labor force, Amazon also has access to resources needed in lowering the fixed costs. This effect reflects through increased production and reduced fixed costs needed in improving the output from particular approaches applied in improving the level of production. Amazon experiences investments into software, data centers, and fulfillment centers hoping to experience an increase in its revenue by increasing access to resources (Miguel & Casado, 2016). However, these assets continue to experience depreciation over a long period of time thus reducing its sources of revenue. Economies of scale experienced by the business by opening new headquarters and targeting a large number of people in the market increase an opportunity for receiving maximum benefits from the fixed inputs in the company. In situations where Amazon increases its operational capabilities and expand its business, there will be a reduction in fixed costs incurred in running the business when the economies of scale materialize. The diagram below illustrates the economy of scale for Amazon Company. Economies of scale reduce the fixed costs because it shows that a higher production indicates fixed costs are distributed over a great number of total units produced in the company.
Economies of scale results in the increment in the level of output from Q1 and Q2 thus decreasing average cost from P1 to P2. The decline in Average cost indicates that economies of scale for Amazon increase the level of output per unit thus maximizing the level of output.
Economies of scale indicate that there is will be increased in profit margins thus resulting in financial benefits for Amazon Corporation. This benefit arises from the fact that there will be a reduction of operational costs; it is evident that the company will experience a high-profit margin in the business. For instance, technological innovations accompanied by high production capability per unit input indicate that there will be a possibility for increasing operational margin. Lower profit margin creates a chance for Amazon to offer products at lower prices thus experiencing a competitive advantage (Miguel & Casado, 2016). Low prices draw many customers into the business thus increasing sales revenue that can be reinvested in research and development to identify services and products that can be applied in improving business functioning. The research will assist Amazon to invest in the latest technology that can result in increasing sales revenue to the company.
Expanding Amazon’s operation’s boundary to Washington and other cities across the globe has created a chance for receiving financial economies of scale. For instance, large operational basis enables Amazon to buy in bulk creates a chance for getting significant discounts thus acquiring raw materials at a cheaper price (Welch, 2015). Discounts create an opportunity for reduces a chance for saving revenue that can be used in further expansion or marketing its services and products. Amazon is a powerful company and it plays essential services to investors such as marketing by providing websites that can be used in marketing their products. As a result, large scale operation for Amazon will draw many firms into the region thus increasing an opportunity for increasing its customer base. This effect results in a need for government and financial institutions to create favorable conditions for attracting the company to operate in particular regions. For instance, lower interest rates enable the business to create a chance for a improving business performance.
References
Miguel, J. C., & Casado, M. Á. (2016). GAFAnomy (Google, Amazon, Facebook and Apple): The big four and the b-ecosystem. In Dynamics of Big Internet Industry Groups and Future Trends (pp. 127-148). Springer, Cham.
Moore, M., & Tambini, D. (Eds.). (2018). Digital dominance: the power of Google, Amazon, Facebook, and Apple. Oxford University Press.
Welch, A. (2015). A cost-benefit analysis of Amazon Prime Air.
