The Tech Industry In the Face of Supply Shocks

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Published by Zara Yusuf at June 5, 2023

Alphabet

It could be certainly argued that AI developments are not inherently signals of a supply shock; however, the recent exponential evolution of AI functions, partnered with its infectious coverage from news sources, suggests that AI’s practical role in tech companies is a supply-side shock from certain angles.

Alphabet, the holding company of Google, was, for once, in the audience rather than on the stage when Chat GPT-3 was unveiled to the public in November 2022. The AI chatbot, developed by OpenAI, shocked the world with its sharp responses to questions in comparison to generic search engines that could leave you puzzled with a list of URLs. The appearance of technology like this, garnering “100mn people as of January”, could certainly threaten Google’s supply-side management, as without having a conclusively superior search engine, Google may struggle to produce optimal services. Furthermore, as FT outlined, OpenAI’s direct responses to queries could open an avenue for customers to find what they want without seeing adverts which on Google’s platform would account for an immense proportion of its profits.

In anticipation of someone taking AI to the next step, Google founder Larry Page fuelled Google’s acquisition of DeepMind, an AI company, in 2014. The deal aimed to add software that could “equal or surpass human intelligence” to Google’s gauntlet of features.

DeepMind’s story heated up significantly last week, as Alphabet declared that DeepMind would merge with Google Brain, an “AI lab headquartered in California”. Google DeepMind would aim to address the threat OpenAI could pose to the platform structure of Google.

Over time we will see who will hold the ‘Artificial Intelligence Crown’, but one thing is for sure – Alphabet will not concede without putting up a fight.

Amazon

The employment force can often be in the driving seat amongst many tech companies’ supply-side factors, and this rings especially true for Amazon. Until we live in a society where delivery drones crowd the skies as they deliver our orders, employees are essentfor the functioning of the enterprise. Amazon has been consistently disputing with much of its workforce for months now, with strikes in the UK emerging first in Coventry in early January.

More recently, the distaste for Amazon’s working conditions reached dispatchers in California, causing them to join the Teamsters, a labour union in the US and Canada. With Teamsters stating they had negotiated a tentative employment contract to raise wages and improve safety for the Amazon workers, Amazon’s profits could plummet in the future due to higher production costs.

Whereas Alphabet’s threat came in the form of a competitor developing cutting-edge tech, Amazon’s employment dispute should arguably be resolved by Amazon compromising with the reasonable demands of its workforce. With various claims, such as the timed toilet breaks, being projected, Amazon would be wise to not feed into its unhumanitarian reputation.

Apple

Each supply chain of a company can be the difference between its prosperity or collapse. A supply chain can be defined as a network of companies and organisations involved in the production, distribution, and delivery of a product or service.

Although you would think a company such as Apple would be indifferent to most supply-side shocks, its supply chain had, in fact, weathered significant disruptions towards the end of 2022. These manufacturing obstructions were namely thanks to COVID-19 still being a threat in Apple’s Chinese factories. Even with China’s economy recovering, the FT remanded that a “tougher economic environment and currency headwinds” still led to Apple suffering a fall in its revenue during the holiday period.

Having supply chains stretched out globally can evidently be a risk to companies, especially when they rely on specific countries to guarantee them lower production costs. One way to tackle this risk issue would be to diversify production, or alternatively, as the FT covered, diversify consumer demand. When exchange rates are also not favourable, reaching customers in “Mexico, Indonesia, Turkey, and the Philippines” has evidently ensured that Apple can still reach “record” revenues when certain economic areas are no longer favourable.

With company shares climbing “about a third this year”, in spite of supply-side shocks, Apple’s strategy to reach all geographical markets has benefitted them hugely and should continue to.

Microsoft

“Little growth” was expected of big US tech companies in early 2023, with a spending slowdown being one key reason. Microsoft managed to overcome this prediction thanks to its cloud division. Microsoft selling in a range of diverse markets, including digital services for “corporate clients”, has clearly been the silver lining of the COVID-19 pandemic’s cloud for the firm. With a 16% increase in revenue in the cloud division from January to March 2023, it could be further estimated that Microsoft may enjoy further growth with its digital services, even after Microsoft’s supply of goods and services began to warm up again after COVID-19 imposed a static climate.