Corporate Structure Of Amazon And Potato Prices In The UK

Functional Organizational Structure of Amazon.com

Amazon.com has got an organizational structure that enables it to have an extensive control on  global e- commerce operations. The structure establishes the  system of interaction and design among the members of the organization. For example, the structure of Amazon.com determines how senior members of the management team influence and direct operational activities in various business areas. The company maintains a business structure that supports the company’s expansion strategy being that the company is a leading online retailer. The company’s organizational structure enables managerial control(Goel, 2015).

The company has a functional organizational structure. The structures are important as they are used to determine how the components of the organization interact with one another. The characteristics of Amazon.com corporate structure are: The company has geographical divisions, global hierarchy and a global function based groups which is the most significant feature.

Amazon.com has made a lot of headways globally, it has reached a point that people are beginning to feel like the company is infiltrating everything from the traditional go to place for books, cookware and electronics to many other merchandise. There are plenty of questions about Amazon web services, its digital content creation and the growth of its computing offering. E-commerce has always been and still is Amazon’s driving force. Globally, Amazon has not been doing very well. For example in 2014, sales from revenues in the international market accounted for only 37% of the total revenues for the company. The company’s net sales jumped by 22% in North America while international sales only increased by 12.5%(Capital Budgeting Valuation, 2013).

Image 1: Amazon.com revenue growth

The company has been eyeing China and India as the next frontier for their business. The population of these two countries would propel the company to greater heights if they manage to effectively penetrate these markets(Horngren, 2014). The challenge for this is competition from other companies such as Alibaba in China. The company’s corporate structure has been instrumental in supporting growth on the international front in the e commerce market. The continuous success of the company when expanding globally is an indictment of how well the organizations corporate structure is suited to the company.

One of the strategies that Amazon.com has used consistently for growth purposes is acquisition or partnership with a range of companies in different sectors. Some of the companies that Amazon has partnered with a pharmaceutical company known as Drudstore.com, a furniture store known as Living.com, Wineshopper.com for wines, homegrocer.com for groceries. It is evident that during this period , the company’s share price has been on a steady rise(Kieso, Weygandt and Warfield, n.d.).

Amazon’s Expansion Strategy and Corporate Structure

Due to this expansion, Amazons share have soared in the fourth quarter of the 2016, analysts predicted that the shares would earn only 17 cents , however, the earnings have surpassed the predicted earnings to 45 cents per share. Long term  investors should not ignore this performance trend, as it comes in the backdrop of heavy investment to increase its global market share.

Potatoes price index increases due to various factors which includes demand and supply, inflation levels and the amount of potatoes that have been produced by the farmers. In March 2017, the potato prices were 27% higher than in march 2016. This is partly due to the demand and supply of potato by farmers in the UK. The government however can put policies in place to curb the high rates of inflation and to cap the prices of potatoes in UK though very unlikely due to the liberal market. Change in prices occurs when the legal limit of any commodity price is removed by the government. For example if the government puts in policies that are meant to reduce the high rates of inflation and to increase the availability of potatoes as a commodity of trade. A shortage in potato production occurs when the farmers do not harvest the projected bags of potatoes and this leads to an increase in demand and a shortage in supply. The elastic supply in price may change or may be affected by price and demand and supply.

The UK department for Environmental and Rural Affairs, states that growers confidence continue to limit the demand and supply of the potatoes. Inflation is caused when there is too much money circulating in the economy. It is worthy to note that in this report, the macroeconomic concepts of inflation are only determined by the policies that the UK government puts in place.

The growth confidence has limited the supply of potatoes in the market where the potato index only rose to a paltry 3.2% between February and March this year as compared to 9.6% increase on the same period last year. This can be attributed to various factors and not necessarily the economic factors in the economy.

The hypothetical examples in the UK economy is that as the supply drops and the demand increases or remains the same as it were, the prices increases which is part of the economic situation.The various factors that that influence the price elasticity of demand is generally the micro and macro-economic factors. The macroeconomic is the basic external environment of the economy where things such as government policies(Wild, Shaw and Chiappetta, n.d.). The 9.6 % increase in production cost in 2016 means that the economy is somehow saturated by potatoes therefore making the prices of potatoes reduce as many people will highly access the potatoes without a lot of hindrances.

Examples of Amazon’s Partnerships and Acquisitions

All this favored the existence of a simple concept of competence based exclusively on the final price of the product as a competitive advantage compared to the rest of the producers present in the same competitive environment, this situation originated as a logical consequence that strategic policy of costs was to be the ultimate goal of strategic planning, while facilitating the emergence of more rudimentary theories derived from such a cost strategy as the study of the experience curve as a mechanism for achieving cost reduction. Increase in inflation means that the supply of money in the economy is high and the price of potatoes will increase. Subsequently, the government of UK will help in taming the prices of potatoes by implementing fiscal and budgetary policies to enable the farmers produce more potatoes for the 2017 fiscal year(Kieso, Weygandt and Warfield, n.d.). The UK has found the best policies in terms of curbing inflation and increasing the supply of potatoes to the market at areduced price.The growth confidence has limited the supply of potatoes in the market where the potato index only rose to a paltry 3.2% between February and March this year as compared to 9.6% increase on the same period last year (Kortmann, 2012).

For the UK government to be prosperous and have a vibrant economy, the following policies

should be put in place. The first is the competitive policy , where there should be healthy and

fair competition in all business. The business concepts in economics in a competitive policy is a derivative of the government that seeks to provide fair fiscal policies and supply side policies that enhance businesses in the country.  This should make sure that there is no monopolization of a particular industry. Unfair competitive practises in business leads to monopolization of an industry which will result to dominant player dictating the prices at the market and therefore leading to closure of businesses (Lee and Hales, 2003).

Fiscal policies are used by the governments to help revamp the economy. Examples include; cutting taxes by the government. When taxes are reduced, it means that there will be more money circulating in the economy and therefore the need to make prudent fiscal policies.This two policies increase the aggregate demanded while also making contributions to deficits and drawingdown of surpluses by government and influencing the supply side of the

Distinguishing between the various activities that formed the value chain of that industry or company, in order to define in a more precise and weighted way the real importance of each phase of production in the final result obtained and the costs generated by it, in order to see the concrete possibilities of action in the policy of cost reduction, achieving more efficient results in the reduction of the final cost and the increase of added value; it can be said that at this stage, the cost strategy establishes much more complex and precise mechanisms of study destined to obtain a much greater precision than previously existing, this period begins with the analysis of activities of the McKinsey business system and culminates with the great theoretical contribution of Porter’s value chain (Lee and Hales, 2003).

Potato Prices in the UK and Factors Affecting Elasticity of Demand

The new visionaries of strategic management intuit that differentiation is the only possible tool to create an effective competitive advantage, once the competitive advantages based on the reduction of costs have been exhausted, since the very concept of differentiation is related to those other phases of the production chain (technology, marketing, logistics, research) that still have some flexibility and scope for action in the economic structures of the more developed countries. Labor had become the great competitive burden of business in developed countries because it was the phase of the value chain more onerous for the whole of production, to the point of displacing the rest of the elements of production (technologies, marketing, logistics). Stiffness was one of the characteristic elements of this phase of the production chain and the labor force, due to events outside of business management (labor legislation, trade union power, high purchasing power of the Western countries), which meant that the phase of the production chain that most affected in the final cost of the product was at the same time the element with less margin of variation or possibilities of modification (Graubner, 2006). The savings that could be co to continue through the greater efficiency of the organization of the remaining phases of the production chain, as well as the introduction of new technologies, successful marketing campaigns or the definition of more economical logistic flows, all this was not enough to compensate for the influence negative that had the labor factor or human resources in the final output of a production to the market. So, we see as the appearance of an availability of a good supplier.

Unfair competitive practises in business leads to monopolization of an industry which will result to dominant player dictating the prices at the market and therefore leading to closure of businesses.

The process of deciding and analysing the best long-term investment that a company should undertake is known as capital budgeting decisions. On the other hand financial planning is the process in which the management estimates the required capital for a certain project and determining its competition. Financial planning is the process of enabling the company to frame the best financial policies in relation to procurement, administration of funds and investment of the said funds.  Financial planning and control enables the management to make decisions with regards to the requirements of capital in terms  of short term and long term requirements (Graubner, 2006).  

UK Government Policies to Control Inflation

Financial planning and control enables the company to make investment to get maximum returns.  The concept of financial planning is applied in the following ways by the management: expansion and growth programmes which are carried out in the long run are made on the basis of financial planning and control concept. Second, the management is able to reduce uncertainties by having enough funds in regard to changing market trend. This helps in ensuring that profitability and stability is achieved in the company (Kortmann, 2012).

For example, when making capital budgeting decisions, the management must consider time value for money. This concept is premised on the notion that a dollar received today is more than that amount in the future (Hansen, 2013). So for capital budgeting decisions is how to value future cash flows in today’s currency worth. Investment done for long term is done after knowing how much cash in today’s terms would be received as a result of the investment. For example if you invest $10,000 today and expect to receive $10200 after 10 years, one would probably think twice before investing.

Financial intermediation  is the process in which a financial institution or any other party raises money from the public and places it or lends to third parties. This activity is normally carried out by banks  and cooperative institutions(Cottarelli, 2014) . This process involves two operations which are raising funds and delivery of the raised funds to the third party. It is important to note that not all lending  companies engage in financial intermediation activities. Financial intermediation is a system made up of mechanisms and institutions that allow channeling the resources of surplus agents to the deficit agents. The financial intermediation system can be:

1. a) Indirect Intermediation System and
2. b) Direct Intermediation System

Indirect financial intermediation occurs when there is an intermediary between the surplus and deficit agents. The financial intermediaries are mainly the banks that capture the resources of the surplus agents, under their entire responsibility and then place them among their clients at their risk.

The bank pays for the funds raised (deposits) the passive interest rate, and charges for the resources provided by the active interest rate; the active interest rate is higher than the passive interest rate, the difference between these rates is the bank’s margin or what it earns through intermediation, it is also known as the financial spread (Kortmann, 2012).

Types of Financial Instruments Instruments of fixed income  are debt securities that represent an obligation contracted by the issuer which generates the payment fixed periodic interest and repayment of capital  May be classified according to their maturity in short and long term instruments.  This Allows investors to choose a higher yield but subject to risk , Allows greater efficiency to the capital market. It is imperative to note that not all lending  companies engage in financial intermediation activities. Some are involved in other activities different from the financial intermediation which is also good for financial institutions.

Morrisons

Ratios	Formulae	2014	2015
Net profit margin	Net Income * Net Sales	189.875/16,317= 0.0116	196.733/16,122= 0.0122
Price earnings ratio	Net income/ Number of outstanding shares	319/430.23= 0.8633	328.813/489.96= 0.741
Current ratio	Current Assets Current Liabilities	1249.17/876.46= 1.42	1332.96/706.71= 1.89
Quick ratio	Cash + Accounts Receivable Current Liabilities	335.32+462.67/876.46= 0.91	387.18+504.77/706.71= 1.26
Debt ratio	Total debt/ total assets	1701.6/4302.2= 0.395	1792.3/4489.9= 0.399

Tesco

Ratios	Formulae	2014	2015
Net profit margin	Net Income * Net Sales	328/49,853= 0.059	272/48,352= 0.006
Price earnings ratio	Net income/ Number of outstanding shares	328/4302.23= 0.74	272/4489.96= 0.74
Current ratio	Current Assets Current Liabilities	1249.17/876.46= 1.42	1332.96/706.71= 1.89
Quick ratio	Cash + Accounts Receivable Current Liabilities	335.32+462.67/876.46= 0.91	387.18+504.77/706.71= 1.26
Debt ratio	Total debt/ total assets	1701.6/4302.2= 0.3949	1792.3/4489.9= 0.3991

b)Future value

Fanta deposits £400 at the end of the first year, £300 at the end of the second year, and £250 at the end of the third year.  If the account earns 5.5 percent interest each year, calculate the future value of this uneven cash flow stream

Future value=present value(1+r)ⁿ

1^st year= 400(1+0.055)³=

400*1.174=469.6

2^nd year=300(1+0.055)²=

300*1.113=333.1

3rdyear=250(1+0.055)¹=

250*1.055=263.75

Future value =$1066.45

Project B

YEAR	CASHINFLOWS	NPV(1+n)r	CF
1	25,000	1.1025	27,562.5
2	15,625	1.2155	18992.2
3	5,000	1.34	6700
4	12,000	1.477	17724
5	32,000	1.629	52128
		TOTAL NPV	123106.7
		LESS:CASHOUTLAY	(50,000)
			73,1036.7

Project A

YEAR	CASHINFLOWS	NPV(1+n)r	CF
1	0	1.1025	0
2	0	1.2155	0
3	0	1.34	0
4	0	1.477	0
5	99,500	1.629	162085.5
		TOTAL NPV	162085.5
		LESS:CASHOUTLAY	(50,000)
			112085.5

Project B is the best option because it has higher cash inflow.

References

Capital Budgeting Valuation. (2013). Hoboken, N.J.: Wiley.

Cottarelli, C. (2014). Post-crisis fiscal policy. Cambridge [u.a.]: MIT Press.

Goel, S. (2015). Capital Budgeting. Business Expert Press.

Graubner, M. (2006). Task, firm size, and organizational structure in management consulting. Wiesbaden: Deutscher UniversitSts-Verlag.

Hansen, A. (2013). Fiscal Policy & Business Cycles. Hoboken: Taylor and Francis.

Horngren, C. (2014). Accounting. Toronto: Pearson Canada.

Kieso, D., Weygandt, J. and Warfield, T. (n.d.). Intermediate accounting.

Kortmann, S. (2012). The relationship between organizational structure and organizational ambidexterity. Wiesbaden: Springer Gabler.

Lee, N. and Hales, E. (2003). Accounting. Toronto: Prentice Hall.

Wild, J., Shaw, K. and Chiappetta, B. (n.d.). Fundamental accounting principles.