Amazon.com 2013 Annual Report Download - page 19

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• different employee/employer relationships and the existence of works councils and labor unions;
• laws and policies of the U.S. and other jurisdictions affecting trade, foreign investment, loans, and taxes; and
• geopolitical events, including war and terrorism.
As international e-commerce and other online and web services grow, competition will intensify. Local companies may
have a substantial competitive advantage because of their greater understanding of, and focus on, the local customer, as well as
their more established local brand names. We may not be able to hire, train, retain, and manage required personnel, which may
limit our international growth.
The People’s Republic of China (“PRC”) regulates Amazon’s and its affiliates’ businesses and operations in the PRC
through regulations and license requirements restricting (i) foreign investment in the Internet, IT infrastructure, retail, delivery,
and other sectors, (ii) Internet content, and (iii) the sale of media and other products and services. For example, in order to meet
local ownership and regulatory licensing requirements, www.amazon.cn is operated by PRC companies that are indirectly
owned, either wholly or partially, by PRC nationals. Although we believe these structures comply with existing PRC laws, they
involve unique risks. There are substantial uncertainties regarding the interpretation of PRC laws and regulations, and it is
possible that the PRC government will ultimately take a view contrary to ours. If our Chinese business interests were found to
be in violation of any existing or future PRC laws or regulations or if interpretations of those laws and regulations were to
change, the business could be subject to fines and other financial penalties, have licenses revoked, or be forced to shut down
entirely. In addition, the Chinese businesses and operations may be unable to continue to operate if we or our affiliates are
unable to access sufficient funding or enforce contractual relationships with respect to management and control of such
businesses.
If We Do Not Successfully Optimize and Operate Our Fulfillment Centers, Our Business Could Be Harmed
If we do not adequately predict customer demand or otherwise optimize and operate our fulfillment centers successfully,
it could result in excess or insufficient inventory or fulfillment capacity, result in increased costs, impairment charges, or both,
or harm our business in other ways. A failure to optimize inventory will increase our net shipping cost by requiring long-zone
or partial shipments. Orders from several of our websites are fulfilled primarily from a single location, and we have only a
limited ability to reroute orders to third parties for drop-shipping. We and our co-sourcers may be unable to adequately staff our
fulfillment and customer service centers. As we continue to add fulfillment and warehouse capability or add new businesses
with different fulfillment requirements, our fulfillment network becomes increasingly complex and operating it becomes more
challenging. If the other businesses on whose behalf we perform inventory fulfillment services deliver product to our
fulfillment centers in excess of forecasts, we may be unable to secure sufficient storage space and may be unable to optimize
our fulfillment centers. There can be no assurance that we will be able to operate our network effectively.
We rely on a limited number of shipping companies to deliver inventory to us and completed orders to our customers. If
we are not able to negotiate acceptable terms with these companies or they experience performance problems or other
difficulties, it could negatively impact our operating results and customer experience. In addition, our ability to receive inbound
inventory efficiently and ship completed orders to customers also may be negatively affected by inclement weather, fire, flood,
power loss, earthquakes, labor disputes, acts of war or terrorism, acts of God, and similar factors.
Third parties either drop-ship or otherwise fulfill an increasing portion of our customers’ orders, and we are increasingly
reliant on the reliability, quality, and future procurement of their services. Under some of our commercial agreements, we
maintain the inventory of other companies, thereby increasing the complexity of tracking inventory and operating our
fulfillment centers. Our failure to properly handle such inventory or the inability of these other companies to accurately forecast
product demand would result in unexpected costs and other harm to our business and reputation.
The Seasonality of Our Business Places Increased Strain on Our Operations
We expect a disproportionate amount of our net sales to occur during our fourth quarter. If we do not stock or restock
popular products in sufficient amounts such that we fail to meet customer demand, it could significantly affect our revenue and
our future growth. If we overstock products, we may be required to take significant inventory markdowns or write-offs, which
could reduce profitability. We may experience an increase in our net shipping cost due to complimentary upgrades, split-
shipments, and additional long-zone shipments necessary to ensure timely delivery for the holiday season. If too many
customers access our websites within a short period of time due to increased holiday demand, we may experience system
interruptions that make our websites unavailable or prevent us from efficiently fulfilling orders, which may reduce the volume
of goods we sell and the attractiveness of our products and services. In addition, we may be unable to adequately staff our
fulfillment and customer service centers during these peak periods and delivery and other fulfillment companies and customer