Amazon’s UK Expansion Plans to get Complicated by Brexit

With UK voting to leave EU, analysts warn that unrestricted free flow of goods, services, materials and labor will likely cease. While many companies would be affected by this referendum, one of the US tech behemoth with global ambitions that would face hurdles in terms of complicating the expansion plans is Amazon.

Opening two new UK fulfillment centers and adding 2,500 new permanent jobs, the Seattle-based company earlier this year announced plans to substantially increase its UK operations in 2016.

That expansion will increase the total number of UK facilities to twelve and bring the company’s total workforce to 14,500 by the end of the year. Since Amazon relies on low wage, often immigrant workers to staff its fulfillment centers — those jobs start at £7.20 ($9.86 USD) an hour, there’s a good chance that hiring could become more difficult. The company might suddenly find it harder to work in the UK even though it’s unclear specifically how this will impact its expansion plans.

From operations managers to associates handling orders at the new fulfillment centers, the company is actively hiring workers for a range of positions.

By offering extremely competitive benefits packages, including stock grants, private health insurance, income protection and subsidized meals, Amazon has been able to attract the best low wage workers. It is still early days post Brexit to draw any definitive conclusions about how Amazon’s hiring and margins in the UK could be impacted by a shortage in the supply of those workers.

Over £4.6 billion ($6.30 billion USD) in the UK economy to build and run its business there has been invested by Amazon over the past six years. In positions including in its head office, research and development centers, customer service centers, and new Amazon Web Services (AWS) UK data centers, currently under construction, the company announced in March its plans to hire throughout the UK.

Amazon had not commented on the issue then.

Analysts of course expect massive impact in Amazon’s business in Europe following Brexit.

To help sellers export to its millions of customers across the EU more efficiently, the company launched a new program, dubbed the Pan-European Fulfillment program on May. In 2015 Amazon’s UK sellers exported almost £1.4 billion ($1.91 billion USD) and the Pan-European trade is already a cornerstone of the company’s business. More than 50 percent of EU sellers sold on more than one Amazon Marketplace in the EU in the first quarter of 2016.

Even though it may not be an obvious one at first, there may also be an upside for the company.

Global Equities Research says that Brexit will to lead to an over-supply in certain skills and a shortage of others and higher labor costs. Global Equities Research analyst Trip Chowdhry said that the overall value of the businesses in Britain would be reduced as the above factor would reduce or altogether eliminate profit margins of many businesses.

And Amazon tends to compete in such conditions. Chowdhury said that Amazon might have the edge due to its strong Amazon Web Services, low cost products and its sticky subscription model. Hence customers will look for cheaper and more cost effective services as UK businesses shrink their budgets. And this could be an opportunity for Amazon.

(Adapted from Bloomberg)

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