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Brexit will complicate Amazon's UK expansion plans

Amazon logistics center
Horacio Villalobos | Getty Images

Britain's exit from the European Union means the unrestricted free flow of goods, services, materials and labor will likely cease, warn financial analysts. This brave new world will at the very least complicate the expansion plans of one tech behemoth with global ambitions: Amazon.

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

While it's unclear specifically how this will impact those plans, there's a good chance that hiring could become more difficult, as Amazon relies on low wage, often immigrant workers to staff its fulfillment centers — those jobs start at £7.35 ($10.07 USD) an hour — who may suddenly find it harder to work in the UK.

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

Amazon has been able to attract the best low wage workers by offering extremely competitive benefits packages, including stock grants, private health insurance, income protection and subsidized meals. It is unclear how a shortage in the supply of those workers could impact Amazon's hiring and margins in the UK.

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

Of course, Brexit will also impact trade, massively affecting Amazon's business in Europe.

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

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

Brexit will to lead to higher labor costs, an over-supply in certain skills and a shortage of others, said Global Equities Research. This will reduce or altogether eliminate profit margins of many businesses — thereby reducing the overall value of the businesses in Britain, said Global Equities Research analyst Trip Chowdhry.

These are conditions in which Amazon competes well. Its sticky subscription model, strong Amazon Web Services and low cost products may give it an edge, said Chowdhry. In other words, as UK businesses shrink their budgets, customers will look for cheaper and more cost effective services, and Amazon is well-positioned to soak up that business.

Which other tech companies does Chowdhry think will weather a Brexit well? Apple, Salesforce and RedHat.

After this story was published a spokesperson for Amazon said that the starting pay rate has increased since the February announcement. The story has been updated to reflected today's price.