Question 1 External Analysis PESTEL
Amazon operations are affected by various external factors which could be political, economic, technological social or legal in nature. These factors may affect the company favourably or unfavourably (Business to you, 2018). They represent opportunities that Amazon could utilize to scale it to greater heights. they could also be threats that may adversely affect the operations and the profitability of the company. This section will focus on at least six factors in the PESTEL analysis and determine whether they are opportunities or threats for the global c ecommerce platform Amazon.
Technology
The first factor is a technological advancement that directly affects Amazon. Technological factors present both an opportunity and a threat at the same time. Rapid advancement in technology may render obsolete the current technology being used by Amazon hence requiring the company to make a significant investment in technology advancement which could be capital intensive (Greenspan, 2019). Also, advancement in technology leads to an increase in cyber-related crimes where a lot of money could be lost. On the other hand, technological advancement may easily grant Amazon a competitive edge that may be difficult to match with its rivals. Given its substantial resources, the company can make big moves in emerging technologies that other companies cannot (Greenspan, 2019). For instance., the recent acquisition of Zook will enable Amazon to offer self-driving services to its clientele creating a niche. Technological advancement also enhances efficiency and productivity leading to higher profitability for the company.
Environment
Despite Amazon being an online business, its operations ought to consider the natural environment and ecology. There is a rising interest in business sustainability and reduction in carbon emission all over the world. The rising global interest in environmental conservation is an opportunity for Amazon to enhance its environmental impact(Greenspan, 2019). Amazon could boost its brand and corporate image by participating in environmental programs and leading efforts to reduce carbon emission and global warming.
The opportunity to build brand image presented by the rising global interest in environment conservation could enhance Amazon’s market share and hence increase its revenue and profitability.
Economic trends
Amazon’s operations will always be directly be influenced by global economic trends. For instance, the emergence of the COVID -19 pandemic which reduces global aggregate demand and leads to a global recession threatened the profitability of many companies Amazon included. However, after the roll-out of the vaccination program, the global economy is on track to recovery. The European and the United State economies have stabilized and are expected to proceed with the same trend (Greenspan, 2019).
Furthermore, disposable income in the majority of the countries is increasing. The positive economic trends provide a perfect opportunity for Amazon to increase its sales revenue and market penetration, especially in the emerging economies.
Political Factors
The current political stability witnessed in the United States and in the eurozone provides a favourable environment for the company to expand and grow. Political stability is good for business since it encourages investment and provides certainty in business operations. Also, the majority of nations worldwide are acknowledging the role of online business and are formulating legislation that enhances and promotes e-commerce and online businesses such as promoting online payment. These legislations provide an opportunity for a company such as Amazon to penetrate new markets and also fully exploit existing ones (Greenspan, 2019).
However, the government’s stance on promoting e-commerce business poses a threat of competition. Many e-commerce platforms are likely to mushroom giving Amazon a run for their money.
Legal considerations
There has been an increasingly changing legal and regulatory framework with regard to online businesses. Governments all over the world have enhanced product regulation to minimize cases of counterfeits (Greenspan, 2019). This is an opportunity for Amazon to eliminate fake products from its online platform. furthermore, changes in import and export regulation have made it easier for companies to sell their products overseas which presents an opportunity for Amazon to not only increase its sales but also enhance its global presence (Greenspan, 2019). An increase in legal requirements especially in an environment in environment conservation and employee treatment presents an opportunity for Amazon to boost its brand image through compliance.
Socio-cultural factors
Social and cultural factors gave effect Amazon’s operations directly. Social-cultural factors are external factors that might be a threat or an opportunity for a company of global stature such as Amazon for instance the changing shopping patterns from physical buying to online purchasing presents a great opportunity for Amazon to reach a wider customer base and hence increase its revenues (Greenspan, 2019). Furthermore, an increase in consumerism especially in developing nations presents a perfect opportunity for Amazon to tap into and penetrate into these markets further expanding sales.
Question 2 Internal Analysis (Resources and competencies)
There are a number of resources that Amazon has which could be a strength or a weakness in its day-to-day operations. Amazon is rich in its intangible resources. It is the most valuable brand in the world at us$ 200 billion a position it has held in the third consecutive year now (Business Strategy hub, 2020). Having a strong and valuable brand is one of the main strengths of Amazon since it enhances the company’s recognition worldwide. A strong brand also creates customer trust and loyalty. Many customers purchase their products from Amazon as they consider their products to be polished and legitimate (Deluxe, 2020). Other favourable effects of a strong brand in Amazon include easy marketing, an increase in the financial value of the company, and motivated employees.
Another key intangible resource that Amazon has which most online retailers are struggling to build is the number of third-party suppliers who are willing to supply products through its platform. The high number of third-party suppliers in its platform ensures that Amazon is able to supply a wide range of merchandise which increases its customer base (Business Strategy hub, 2020). Due to its connections and industry linkages the company was able to sell 562.3 million products as of 2018, a number that cannot be matched by any of the closest rivals in the retail business
Amazon owns superior logistic and distribution systems which give its an upper hand against competitors. Amazon’s supply chain systems are one of the most efficient in the global retail scene.
Therefore, Amazon is able to deliver goods ordered by its customer in a more reliable, secure and faster manner as compared to other online retail businesses (Business Strategy hub, 2020).
The economies of scale in its logistics and distribution patterns also enable Amazon to charge lower prices on its products which improves its competitive edge. Therefore, the superior logistic network possessed by Amazon is a great strength that helps its fight competition and remains profitable in the retail market. Amazon has continuously reinvested its profits to establish very robust distribution networks which may be difficult for other companies to imitate.
Amazon has invested heavily in the development of its human resource. Amazon’s Human resource department recognizes the importance of having the right talent in ensuring the success of the company. Amazon has continuously enhanced the skills of its workforce through training and development programs. Amazon also offers some of the most competitive compensation benefits to its employees (Business Strategy hub, 2020). Recently it raised its minimum hourly pay to $15 while its rival Walmart pays $ 11 and Costco pays $ 14. Given the human resource management practices, Amazon attracts one of the best experienced and motivated talents which is a strength that leads to higher productivity and better customer service.
Perhaps one of Amazon’s key strengths is high innovation and substantial investment in emerging technology. The company has very high innovative products which provide synergies to one another. its four critical businesses include Amazon marketplace, Amazon web services (AWS), Amazon prime and subscription services. The benefits created by all four businesses enable the company to operate effectively and efficiently (Business Strategy hub, 2020). For instance, the Amazon web services offer speed and capacity for its sites that promote the other critical businesses. The synergies between Amazon’s innovative products may be hard to quantify in measurable terms but it is undeniable that they provide Amazon with a strong competitive advantage.
One weakness that could be identified in the way Amazon conducts its operations is the overreliance on third-party distributors. relying on external distributors exposes the company to many risks. Distributors may gain power leading to renegotiation of terms to Amazon’s disadvantage. Furthermore, its low margin model coupled with free shipping to customers leads to zero profits in some instances such as India it leads to losses (Business Strategy hub, 2020). Even though the company rides on high sales volume operation with extremely low margins may be unsustainable in the future due to increasing competition (Business Strategy hub, 2020). Another undoing in the manner in which the company conducts its operation is that it has focused too much on online sales and has limited physical stores which leave out a huge proportion of customers and products that cannot be transacted through the online platform.
Amazon’s Competencies
Value chain and VRIO analysis (White, 2019)
Amazon’s competencies
Valuable
Rare
Inimitable
Organization
Growing brick-and mortar presence
Yes
No
No
No
Strategic warehouse and Distribution Hubs
Yes
Yes
no
no
Strong Brand equity
Yes
Yes
yes
Yes
Artificial Intelligence prowess
Yes
Yes
yes
Yes
Intensive market capitalization
Yes
Yes
Yes
Yes
Core competency Artificial Intelligence prowess
Amazon’s heavy investment in artificial intelligence has created immense value for the company. the substantial investment in the venture makes it inimitable by rival and hence it becomes rare (White, 2019). Furthermore, it is in Amazon’s organizational DNA to invest in high-end technology to automate the process and enhance speedy operations. When a competency checks all the boxes in the VRIO analysis, then it’s considered to be a core competency that offers the company an sunmatched competitive advantage.
Question 3 Strategy evaluation from the acquirer’s perspective
Suitability
Amazon’s recent strategy to acquire Zook Inc. was timely and informed by the fast pace at which technology is advancing. Zook Inc. was a startup that specialized in the production of self-driving vehicles. Amazon saw it as an opportunity and strategy to exploit the demand for ride-hailing services and further improve its network of delivery in an innovative manner. Furthermore, the changing consumer patterns with a high preference for high technology products is a reason why Amazon undertook the opportunity to acquire a company that provided self-driving technology. Considering the strengths, Amazon has the requisite technology and infrastructure that is needed to incorporate Zook into its business model. Also, the established logistics and distribution networks would come in handy in ensuring that Amazon obtains value for money by acquiring Zook inc. Furthermore, Amazon has the requisite product that would provide synergies and hence enhance the success of the newly acquired business.
Acceptability
The power interest matrix
High Interest
Low Interest
High Power
Low power
Shareholders
Shareholders of a company represent a category of stakeholders who have high power and high interest in the acquisition process (Richard & King, 2012). They have high interest may affect the company’s share price and hence having a direct impact on their investment. they have power since they can determine the composition of the management of the company through elections in the Annual general meetings. The strategy to acquire Zook Inc. seems to
impact on Amazon’s share price positively and therefore making the acquisition acceptable to this category of stakeholders.
Customers
The customer is King. Customers are highly powerful stakeholders since they determine the sales revenue of the company. Without customers, the business will be non-existent. They are also highly interested stakeholders and therefore they should be closely managed (Richard & King, 2012). Therefore, the management of the company should communicate to its customers about the acquisitions and the value it adds to the existing product s to reduce uncertainty and customer defection. Many companies overlook customers when undertaking an acquisition. The consequences of ignoring customers are dire and may lead to business failure.
Employees
Employees are another category of stakeholders that the management should not ignore during the acquisition process. They are highly powerful as they determine the success and effectiveness of the acquisition (Richard & King, 2012). The management should conduct effective communication and change management to ensure buy-in by employees who will implement the acquisition process. Employees are highly interested stakeholders since the acquisition may affect their day-to-day routine. Since the acquisition did not affect employee routines adversely, they accepted it.
Feasibility
Amazon required $ 1b to finance the acquisition of Zook Inc. Amazon’s market capitalization and net cash flow indicate that the company can comfortably finance the acquisition. Furthermore, the company has the relevant technology and infrastructure in place to effectively accommodate the new acquisition in its business model. The employees at amazon have the relevant skills and experience to comfortably operate emerging technology given their experience in Amazon which is a leading hub of technology and innovation
References
Business Strategy Hub. (2020, May 30). Amazon SWOT 2020 | SWOT analysis of Amazon.
Business to You. (2018, July 10). PESTEL analysis (PEST analysis) is explained with examples. B2U – Business-to-you.com.
Deluxe. (2020). 6 reasons why a strong brand is important for your small business.
Greenspan R. (2019, May 20). Amazon.com Inc. PESTEL/PESTLE analysis, recommendations. Panmore Institute.
Richard T., & King D. (2012). Beyond the Numbers: Seven Stakeholders to Consider in Improving Acquisition Outcomes. [email protected] | Marquette University Research.
White L. (2019, November 24). Amazon VRIO analysis – Competitive advantages, core competencies – Rancord society. Record Society.
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