• Posted on April 3, 2023
• Deepanshu saini

 

 

 

Introduction

Amazon.com is known as the world’s largest one-stop-shop and also offers cloud services. The company is started by selling books online and has now become the largest online retailer across the world (McFadden, 2021). The success of the company is based on the idea given by CEO Jeff Bezos as Jeff believes that the best way to succeed in the online market is to grow fast and big. Amazon has their websites, customer service centres, software development centres, and fulfilment centres build around many different locations in the world. The company’s brand is built primarily on customer satisfaction. Amazon is known as the customer-friendly shopping stop on the entire planet. The company uses cost leadership as its generic strategy for gaining competitiveness in the market.

 

Figure 1: Amazon Logo.

(Source: McFadden, 2021)

Before 2017, the biggest challenge faced by the company in the year was its international expansion all around the world. Other than that, as the company operates in diverse global markets they must manage the external environment factors (Voigtet.al. 2017). Amazon is considered the leading retailer company in the entire world and provides excellent consumer satisfaction. The report will cover external and internal environment factors affecting its business. Finally, some recommendations will be given to enter a new market and to improve sustainability.

External environment analysis for the industry

PESTLE analysis

PESTLE analysis is the framework that helps in monitoring the external environmental factors that affect the growth of any organisation. It stands for political, economic, social, technological, legal, and environmental.

• Political: Different political factors are there that can affect the growth of e-business. Red Tape issues can be major issues for different e-commerce companies such as Amazon and E-bay that are currently operating in Asian countries (Choshin and Ghaffari, 2017). Other than that, the EU has also targeted Amazon for its e-book deals with EU publishers.
• Economic: Economic condition of any market is essential for global companies to enhance their profitability. The economic stability of developed countries like the EU and the US are considered as an opportunity for e-commerce companies (Pratap, 2018). Additionally, the political-economic recession of China has become a threat for Amazon. Economic growth in developed countries can become a growth opportunity for Amazon as customers have to buy products that meet their basic requirements.

 

Figure 2: PESTLE analysis of e-commerce industry.

(Source: PESTLE analysis, 2018)

• Social: Social trends in every country are different and e-retail companies need to follow the latest trends of customers and the market. Increased use of technology and smartphones enhance the sales and profit rate of e-business like E-bay and Amazon. The biggest threat is that they need to follow the cultural trends of different countries online companies are operating in. In context with that, the company can earn great benefits from the changing buying patterns of consumers as they are switching to online buying patterns.
• Technological: Increasing technological demand and adoption of this technology are essential for companies that are operating in e-commerce markets. It requires heavy investment in technologies to enhance the market competitiveness (Phan, 2021). Many new entrants are there that can give competition to e-commerce companies. Other than that, the online retail industry needs to implement cognitive and artificial intelligence in their business. Increasing technologies also lead to an increased risk of cybercrime that needs to be managed adequately.
• Legal: E-commerce companies must operate with legal compliance of every country. Different countries have different laws as per their rules and regulation. For instance, companies operating in Europe and the USA need to follow their labour laws that make it mandatory to pay a fixed wage to their workers. Any mistake made by companies can result in big fines and destroys brand reputation.
• Environmental: Sustainability and reducing carbon footprint have become significant for every e-retail company (Mon, 2020). They need to focus on diverse areas such as waste reduction, energy consumption, and packaging to enhance sustainability.E-retail companies have to increase their investments in areas that improve their sustainable actions.

Porter’s five force analysis

The rapid increases in the use of technologies and smartphones have enhanced the presence of the e-retail industry. With this, the competition and different external factors can act as both threats and opportunities for the e-commerce industry.

• Bargaining power of suppliers: It is generally low to moderate in the e-commerce industry. The rules are set by companies and suppliers have to follow them. Online retail industries also manage their supplier relationships and the e-commerce industry has an upper hand that keeps the power of supplier’s low (Pratap, 2017). In some cases, suppliers have some bargaining power as per their quality and size.
• Bargaining power of buyers: The power of buyers in the e-commerce industry is very high as they have many different options that can buy products. Enhanced technology has made customers aware of prices and products available on different brands that increase the level of competition high.

 

Figure 3: Porter’s five forces analysis.

(Source: Bhat, 2015)

• The threat of new entrants: The threat is low to moderate in the e-commerce industry (Onyusheva and Seenalasataporn, 2018). It is difficult for new companies to make such huge investments in technology, marketing, and human resources as done by already established e-commerce companies.
• The threat of substitution: It can be considered as moderate because customers have a wide range of options and they can switch from one brand to another. It is mandatory to enhance the customer experience so the e-commerce companies can hold them.
• Rivalry: The competitiveness in the e-commerce industry is very high as there are many options that customers can buy from (Sastry al. 2019). Different companies are there providing high-quality products and increasing their services so every e-commerce company needs to make strategies to remain competitive.

Internal environment analysis of Amazon.com

VRIO analysis

VRIO Analysis of Amazon enables the company in explaining the way it manages its business to achieve growth and maintains its position in the e-retail industry (Razakand Vattikoti, 2018). VRIO stands for value, rare, inimitable, and organisation.

Amazon resources and capabilities	Valuable	Rare	Inimitable	Organisation
Brand name	Yes	Yes	Yes	Yes
Research and development	Yes	Yes	Yes	Yes
Customer experience	Yes	Yes	No	Yes
Supply chain and distribution network	Yes	Yes	Yes	Yes
Price of product	Yes	Yes	Yes	Yes
HRM	Yes	Yes	Yes	Yes
Customer base	Yes	Yes	Yes	Yes
Marketing	Yes	Yes	No	Yes
Innovation	Yes	Yes	Yes	Yes
Brand equity	Yes	Yes	Yes	Yes
Artificial Intelligence	Yes	Yes	Yes	Yes

 

The brand name of Amazon is diverse and trust built by the company on customers is rare. Its primary focus is to enhance customer service so to improve the brand reputation (White, 2019). Other than that, the company is a well-known brand worldwide and it is valuable and rare. Their R&D, AI, machine learning technologies and innovation is rare and valuable. Amazon highly invests in its innovation so to enhance the customer experience. No other e-commerce companies can make this high investment as compared to Amazon. It makes their innovation, R&D, and other technological advancements rare, valuable, and inimitable.

Furthermore, Amazon is constantly focused on enhancing its customer satisfaction and experience and giving tough competition to its rival companies (Rikap, 2020). The product range decided by Amazon is different from other e-commerce companies as they use a cost-leadership strategy to enhance the customer base. No other e-commerce brands have a huge assortment of products in comparison with Amazon and customers can buy every product from their website.

Moreover, the human resource management of the company plays a critical role in improving success. It helps them in driving the best performance and also focuses on strategies to enhance employee’s productivity (Pratap, 2020). Additionally, the marketing techniques used by the company are rare and valuable and helps them in enhancing customer engagement and loyalty. They constantly invest in channels such as marketing and promotion, advertising their brand and products.

Porter’s value chain analysis

The company has a very complex value chain and it helps them in gaining a competitive advantage against its competitors. The value chain of a company heavily depends on using analytics in every aspect of their business and decision-making as well (Flanaganet.al. 2018). The value chain of Amazon majorly consists of five elements that includeinbound logistics, operations, services, marketing/sales, and outbound logistics. Porter’s value chain analysis is divided based on two activities that include primary and secondary.

• Primary activities: The Company aims at managing its inbound logistics essentially as it plays a crucial role in improving the quality of finished products. For this purpose, they have vertically integrated suppliers and prime locations that fulfil all the requirements related to the quality of raw materials (Amazon Value Chain Analysis, 2018). Amazon has various operations that help in developing the products effectively such as proper operations for product packaging and marketing, AI-software development for enhancing customer satisfaction. Outbound logistics covers all the processes such as order fulfilment, invoicing, dispatching orders, and order handling.

 

Figure 4: Value chain analysis of Amazon.

(Source: Amazon Value Chain Analysis, 2018)

Their marketing/ sales function is well-managed and attracts consumers. They have Amazon prime providing a variety of entertainment to consumers, customers can return the product without any obstacles, order and customer tracking provides excellent customer service and promotes effectively. Finally, they provide a huge range of services to the consumer for enhancing their level of satisfaction. They offer warranty and support, adequate training to employees, and provide varieties of Amazon products and services like Alexa, AWS, etc.

• Secondary activities: Their HRM is constantly focused on hiring skilled people and implementing sustainable operations to reduce the risks. They constantly invest in their technology and innovation to enhance their performance such as Artificial intelligence, machine learning, etc. (Pearson al. 2019). They also have advanced delivery using drones. Customers can do voice shopping using echo devices and Alexa AI.

CSR and sustainability analysis

Amazon manages its corporate social responsibility (CSR) to enhance sustainability and reduce its carbon footprint. In context with CSR, the e-commerce industry faces pressure from diverse stakeholders to enhance their functions (Kiernanet.al. 2020). Amazon has designed their sustainable terms in response to meeting the general requirements.

Carroll’s pyramid

Carroll’s pyramid of corporate responsibility helps in managing different aspects to enhance their sustainability. The pyramid is divided into four parts that address issues related to economic, legal, ethical, and philanthropic. Amazon needs to meet the requirements of every level of Carroll’s pyramid of CSR.

• Economic responsibilities: It is the most basic level of the pyramid that needs to be fulfilled as without achieving success here there is nothing to do with CSR in any business. In this, Amazon has adopted waste reduction and recycling functions (Yoo and Lee, 2018). They removed extra packaging from products in many countries that reduce the cost of packaging and Amazon also celebrated the 10th anniversary of frustration-free packaging in 2017. For reducing the carbon emission, they order numerous electric vehicles for delivering the orders. It will reduce their cost of petroleum and a great action towards eco-friendly delivery. They are also using 80% of renewable energy by investing in solar and wind farms. AWS is using more than 50% of renewable sources of energy.

 

Figure 5: Carroll’s pyramid.

(Source: Carroll, 2016)

• Legal responsibilities: It includes all the rules and regulations made by different countries that must be met by companies operating in that country. For instance, meeting basic human rights to keep the air and water clean is the basic requirement. For this purpose, they reduced the plastic packaging and starts using renewable energy (Pratap, 2019). They also collect and recycle water using recharge wells or rainwater collection tanks.
• Ethical responsibilities:It means meeting all the societal expectations as it impacts the consumers, employees, and business. Amazon focuses on addressing homelessness, poverty, and many more. They have an Amazon career choice program that pays about 95% of employee’s tuition fees such as nursing, airplane mechanic, and others based on their demands (D’Agostino, 2018). They also have different donation programs that donate gift cards and electronic devices in nearby schools throughout the US. Other than that, they also host a program ‘Girls who code’ to enhance the interests of girls in coding.
• Philanthropic Responsibilities: The Company continuously works to reduce the poverty and homelessness. They partnered with several groups by donating resources or cash amount to address these causes (Ceil, 2018). Amazon has also partnered with different communities so that no kid suffers from hunger. The company has some issues related to worker safety and health.

Evaluation of analysis

It is essential to identify the opportunities and threats that Amazon has after completing the external analysis on the e-commerce industry. For monitoring the opportunity and threat the SWOT analysis framework is used.

• Opportunities: Political stable environment of developed countries leads to the economic stability of companies significantly in the USA and EU countries. It is an opportunity for the company to enhance its services so customer satisfaction can be improved. On the other hand, disposable incomes are increasing in developing countries that enhance various opportunities for the company to expand its operations. Increased use of technology and online buying habits of people is beneficial for Amazon to transform their consumers into customers (Greenspan, 2018). The rising efforts in sustainability and reducing carbon footprint are the great occasion for the company to meet the various environmental factors.
• Threats: The frequent change in consumption patterns of customers and trends in the marketplace can become a threat to the company. They need to change their products and services as per the demand constantly (Majed al. 2018). As technology increases, the rate of cybercrime is also increasing and it is s significant challenge for Amazon. It is because they have millions of private data of customers so it is mandatory to improve their cybersecurity.

Recommendation for the global development

It is recommended that the company must enhance its business in developed countries as the political stability and economic stability of these countries will help in improving their profit and sales ratio (Greenspan, 2018). The company must start shipping its products in countries like Iran, North Korea, and many more. Iran is a developed country to some extent and it will be beneficial for Amazon to start an e-commerce market in that country. Other than that, using a cost leadership strategy they can also expand the market in North Korea as it is the least developed country. Form this country; they can earn benefits by selling the products that meet their basic requirements. It will help the company in enhancing their sales.

Furthermore, the low-cost strategy of the company allows Amazon to spend more on technology and as operating in the e-commerce market they must be aware of every new technology so they can meet the latest demands of the consumer. Implementing the newest technology in the products and services will help them in attracting more consumers and also enhance their customer base (Bentoet.al. 2020). The company must monitor the different online buying patterns of customers and make changes accordingly. Amazon can expand in the field of personalization as it will attract numerous consumers. Every customer likes to get suggestions as per their requirement so improving the personalization will help Amazon in increasing profitability.

Along with that, Amazon can also suggest their consumer based on the location of the customer. The cultural and social trends followed by every country are different and highlighting products as per the countries trends will create a centre of attention to their brands and products (Warrieret.al. 2021). As technology is increasing rapidly it becomes a serious topic of awareness for every company operating in the e-commerce industry. Amazon needs frequent improvement in technology as the demand fluctuates rapidly. It will also help them in leading their position in the market and stay competitive in the market as compared to other countries. They must enhance their services in most of the developing countries as the wealth and disposable incomes are rising there.

Recommendation for sustainability

As discussed above, Amazon is constantly working for increasing its corporate social responsibilities but more requirements need to be met. It has been seen that in 2011, a worker was working at 100-degree temperature while ambulances were waiting outside if workers fell (Hwangboet.al. 2018). It is the most unethical behaviour of Amazon as they are compromising the life of their workers. They must improve the health and safety concerns for employees to enhance their CSR so employee satisfaction can enhance. Amazon can improve artificial intelligence and machine learning technologies so robots can work in high-temperature zones.

This behaviour of the company can reduce the trust of employees and it can affect their productivity. Employees can also switch to other companies. It can also become a major threat for the company while they expand in different global markets (Greenspan, 2019). Amazon must take serious action towards this. Other than that, the company still uses plastic packages in delivering products in many countries like India. It is recommended that Amazon can also use paper packaging to deliver many of its products so the use of plastic can be reduced. It will also help them in reducing their carbon footprint and enhance an eco-friendly environment. Other than that, many products can’t be packed in the paper so they can use plastic but they must have some recycling strategies so to reuse that plastic.

Amazon frequently makes high investments in technology so they must enhance robotics in their company to deliver products by monitoring them using tracking technologies (Tomkinset.al. 2018). It will help them in reducing the use of natural resources. The company can also implement some discount coupons and gifts if a customer buys a product in bulk. It is because shopping in bulk will help in reducing the transportation cost and enhance sustainability as well. The buying patterns of the customer can be increased if they start providing them with discount offers. Finally, they must start using renewable energy at every store so they can improve sustainability and reduce energy consumption. It will also enhance their global development in different global countries.

References

Books and Journals

Bento, D.F., Gomes, E.S., Guedes, V.M. and Coelho, E., 2020. SWOT Matrix (Strengths, Weaknesses, Opportunities and Threats) of a cooperative focused on logging and non-timber management in the Amazon. Revista Brasileira de Ciências da Amazônia/Brazilian Journal of Science of the Amazon, 9(2), pp.11-18.

Ceil, C., 2018. Sustainable Global Supply Chains at Amazon. Available at SSRN 3520424.

Choshin, M. and Ghaffari, A., 2017. An investigation of the impact of effective factors on the success of e-commerce in small-and medium-sized companies. Computers in Human Behavior, 66, pp.67-74.

D’Agostino, J.L., 2018. The Impact of E-commerce on Brands: An Analysis of Amazon and a Plan for the Future (Doctoral dissertation, University of Oregon).

Flanagan, D.J., Lepisto, D.A. and Ofstein, L.F., 2018. Coopetition among nascent craft breweries: a value chain analysis. Journal of Small Business and Enterprise Development.

Hwangbo, H., Kim, Y.S. and Cha, K.J., 2018. Recommendation system development for fashion retail e-commerce. Electronic Commerce Research and Applications, 28, pp.94-101.

Kiernan, C.R., Nix, G., Barron, L., Ballingrud, N., Smith, M.M., Files, G., McAllister, B., McMahon, G., Cadigan, P., Marshall, H. and Dowling, T., 2020. Fearful Symmetries. Open Road Media.

Majed, S.Z., Nuraddin, S.H. and Hama, S.V.S., 2018. Analyzing the amazon success strategies. Journal of process management. New Technologies, 6(4), pp.65-69.

Mon, C.S., 2020, February. Predicting VR adoption on e-commerce platforms using TAM and porter five forces. In Understanding Digital Industry: Proceedings of the Conference on Managing Digital Industry, Technology and Entrepreneurship (CoMDITE 2019), July 10-11, 2019, Bandung, Indonesia (p. 176). Routledge.

Onyusheva, I. and Seenalasataporn, T., 2018. Strategic Analysis of Global E-Commerce And Diversification Technology: The Case Of Amazon. Com INC. The EUrASEANs: journal on global socio-economic dynamics, (1 (8)), pp.48-63.

Pearson, Z., Ellingrod, S., Billo, E. and McSweeney, K., 2019. Corporate social responsibility and the reproduction of (neo) colonialism in the Ecuadorian Amazon. The Extractive Industries and Society, 6(3), pp.881-888.

Phan, S., 2021. The effect of PESTLE factors on development of e-commerce. International Journal of Data and Network Science, 5(1), pp.37-42.

Razak, A. and Vattikoti, K., 2018. Critical Evaluation of Value Chain Analysis for Assessing Competitive Advantage-A Study on Select Companies of E-Tailing Industry. Academy of Strategic Management Journal, 17(6), pp.1-14.

Rikap, C., 2020. Amazon: A story of accumulation through intellectual rentiership and predation. Competition & Change, p.1024529420932418.

Sastry, V.V.L.N., Katvi, S. and Tourani, P., 2019. AMAZON’S STRATEGIC ANALYSIS AND IT’S ENTERPRISE STRATEGY FOR THE CLOUD. Advance and Innovative Research, p.186.

Tomkins, S., Isley, S., London, B. and Getoor, L., 2018, September. Sustainability at scale: towards bridging the intention-behavior gap with sustainable recommendations. In Proceedings of the 12th ACM conference on recommender systems (pp. 214-218).

Voigt, K.I., Buliga, O. and Michl, K., 2017. Creating the global shopping mall: The case of Amazon. In Business Model Pioneers (pp. 67-77). Springer, Cham.

Warrier, U., Singh, P., Jien, C.W., Kee, D.M.H., Yi, G.Z., Jiann, T.W., Liang, T.Y., Gopika, S.B., Nair, S., Nair, R.K. and Lokhande, S.D., 2021. Factors that Lead Amazon. com to A Successful Online Shopping Platform. International journal of Tourism and hospitality in Asia Pasific (IJTHAP), 4(1), pp.7-17.

Yoo, D. and Lee, J., 2018. The effects of corporate social responsibility (CSR) fit and CSR consistency on company evaluation: The role of CSR support. Sustainability, 10(8), p.2956.

Online

Amazon Value Chain Analysis. 2018.[Online]. Accessed through: <https://online.visual-paradigm.com/fr/diagrams/templates/value-chain-analysis/amazon-value-chain-analysis/> [Accessed on: 25 February, 2021].

Bhat. S. 2015. Porter’s five forces. [Online]. Accessed through: <https://www.slideshare.net/shreedharbhat9/michael-porters-model-in-retail-sector> [Accessed on: 25 February, 2021].

Carroll. A. 2016. Carroll’s pyramid. [Online]. Accessed through: <https://www.researchgate.net/figure/Carrolls-pyramid-of-CSR_fig1_304662992> [Accessed on: 25 February, 2021].

Greenspan. R. 2018. Amazon.com Inc. PESTEL/PESTLE Analysis, Recommendations.[Online]. Accessed through: <http://panmore.com/amazon-com-inc-pestel-pestle-analysis-recommendations> [Accessed on: 25 February, 2021].

Greenspan. R. 2019. Amazon.com Inc. SWOT Analysis & Recommendation.[Online]. Accessed through: <http://panmore.com/amazon-com-inc-swot-analysis-recommendations> [Accessed on: 25 February, 2021].

McFadden. C. 2021. A Very Brief History of Amazon: The Everything Store. [Online]. Accessed through: <https://interestingengineering.com/a-very-brief-history-of-amazon-the-everything-store> [Accessed on: 25 February, 2021].

PESTLE analysis. 2018. [Online]. Accessed through: <https://fourweekmba.com/amazon-pestel-analysis/> [Accessed on: 25 February, 2021].

Pratap. A. 2017. Five Forces Analysis of the Ecommerce Industry. [Online]. Accessed through: <https://notesmatic.com/2017/11/five-forces-analysis-ecommerce-industry/> [Accessed on: 25 February, 2021].

Pratap. A. 2018. PESTEL Analysis of the E-Commerce Industry. [Online]. Accessed through: <https://notesmatic.com/2017/11/pestel-analysis-e-commerce-industry/> [Accessed on: 25 February, 2021].

Pratap. A. 2019. Amazon CSR and Sustainability.[Online]. Accessed through: <https://notesmatic.com/2019/05/amazon-csr-and-sustainability/> [Accessed on: 25 February, 2021].

Pratap. A. 2020. VRIO Analysis of Amazon. [Online]. Accessed through: <https://notesmatic.com/2020/06/vrio-analysis-of-amazon/> [Accessed on: 25 February, 2021].

White. L. 2019. Amazon VRIO Analysis. [Online]. Accessed through: <https://www.rancord.org/amazon-vrio-analysis-competitive-advantages-core-competencies#:~:text=Amazon%20VRIO%20Analysis%20%E2%80%93%20Competitive%20Advantages%2C%20Core%20Competencies&text=A%20VRIO%20analysis%20of%20Amazon%20helps%20explain%20how%20the%20business,the%20competitive%20advantages%20of%20firms.> [Accessed on: 25 February, 2021].