Amazon.com Inc.’s Business Management

Executive Summary

The analysis of Amazon shows that it has a flexible and adaptable business model that has facilitated its growth in both product line and global expansion. Fundamentally, its prowess in technological infrastructure is the sole sustainability competitive strategy that has propelled Amazon. Overall analysis shows that Amazon enjoys a strong competitive position over its rivals. In the external environment, Amazon faces political, environmental, and legal challenges. However, economic stability and technological advancement in the global market positively influences the sustainability of its business. Conversely, the analysis using Porter’s five forces demonstrate that Amazon faces an intense rivalry and the threat from substitutes due to low barriers to entry. Additionally, the company faces a steep buyer bargaining power, little threat from new entrants, and moderate supplier effect. Amazon adapted to environmental challenges through the adoption of emergent strategic responses that comprise modification of business activities, competitive strategies, and organizational culture. Therefore, given the dynamic problems in the e-commerce industry and the various consumer behaviours, Amazon should adopt a focused differentiation strategy to maintain sustainable growth.

Key Changes in Strategic

PESTEL Analysis

Political factors include instability, government support for e-commerce, and increased efforts in cybersecurity. Political stability creates an opportunity for organizations to expand their global business (Armour 2017; Basedow 2017). Brexit negotiations, Asian red tape measures, and tax issues have significantly affected Amazon expansion. However, the increased political stability, government support for e-commerce, and cybersecurity measures provided an opportunity for growth in the global market.

Some of the economic factors that affect Amazon include financial stability and economic growth in developing countries. According to Liu et al. (2017), economic stability in the international market minimizes business risks. Thus, economic growth in developing countries increases disposable income and has facilitated Amazon’s financial performance (Zahonogo 2017). Additionally, the improvement of economic conditions modifies people lifestyles, which lead Amazon to expand its product line.

Lifestyle changes and wealth disparity are significant social factors that shape Amazon e-commerce. The needs of the techno-savvy generation have significantly shaped Amazon’s business growth. Kramler (2016) observes that companies benefit from increased online buying habits as more people around the world gain access to the Internet. On the other hand, Besarria et al. (2018) observe that wealth disparity promotes stagnation of disposable income levels leading to low economic growth and a reduction in industry profitability. The changing consumer demographics, including the millennial generation needs for convenience, supported the development of door delivery of service.

Rapid technological growth and increase in cybercrimes are technical factors that affect Amazon. Technological growth promotes Amazon expansion of product line such as Amazon GO technology that improves service efficiency leading to customer loyalty. Conversely, breach of data security compromises consumer privacy. According to Camillo (2017), poor cybersecurity significantly affects the confidentiality of information exchange between individuals and poses a threat to the success of the online retail business. The complexities of security threats in e-commerce have made Amazon use robots in shipping processes.

In the aspect of the environment, the rising concern on environmental programs presents an opportunity for growth, which has driven the company’s operational strategies. The implementation of environmental sustainability standards enhance the company reputation and build a strong market brand (Irfan, Hassan &Hassan 2018; Tang et al. 2017). Amazon adoption of digital shopping, use of cloud services, and shift to grocery business demonstrate its commitment to environmental conservation. Besides, the company has also invested in renewable energy and waste reduction in packaging.

Trade laws that affect Amazon include laws on product regulation, foreign trade, political sanctions, and security regulations. Haffajee and Mello (2017) describe non-compliance with regulations as costly mistakes that affect an organization’s reputation and social image. Product regulation has significantly reduced the presence of counterfeit products in the market and promoted Amazon’s online business. Moreover, foreign trade laws enable Amazon to expand its internationalization that increases its market share.

Porter’s Five Forces

The bargaining power of buyers is high due to the low switching cost and a high number of competitors in the industry. Online customers have the option to buy goods from Amazon competitors readily available on the Internet. Duch-Brown et al. (2017) assert that every customer enjoys sufficient availability of information for a variety of products that influence their choices. The supplier bargaining is moderate as Amazon maintains a large number of third-party merchants in the company’s online shop that ensures the availability of a large variety of products. Therefore, the organization enjoys the power to decide the kind of goods they sell on their website, which gives it influence over suppliers (Rodríguez-López, Diz-Comesaña & Mondragón 2017). The threat of substitute products for Amazon is high. Substitute brands such as Walmart provide alternative products in the global market. According to Aranda, Martín, and Santos (2018), deprived service experience causes customer dissatisfaction and loss of business. Moreover, there are substitutes available from many high street retailer locations.

The threat of new entrants is low in the industry due to the established market brand. Excessive marketing establishes a company brand, which raises the cost required for new entrants (Chang & Wu 2013; Karakaya & Parayitam 2013). Amazon has sufficiently differentiated its products to keep customers loyal. The competition in the industry is high. Amazon has a vast number of competitors, such as Walmart, eBay, Alibaba, Newegg, and Columbia House.

SWOT Analysis

The analysis of the internal environment shows that Amazon strengths consist of innovative competency, robust infrastructure, financial capability, and customer-centric culture. Amazon weaknesses are shrinking profit margins, tax evasion, and lack of diversity. The company low-cost market leadership approach negatively affect the organization’s profitability. Tax evasion has led to negative publicity, which damages the company’s reputation in the market. Despite the global expansion, Amazon failed to utilize different language versions on its website to fit the needs of the diverse market cultures.

The analysis of the external environment indicates that Amazon has many opportunities to tap into the market. The opportunities include global expansion, adoption of physical business models, and utilization of collaborative ventures. Most of the Asian and African countries are developing markets with low competition in e-commerce (Dobbs, Remes & Woetzel 2015). The adoption of brick and mortar in international markets is essential in expanding Amazon’s grocery, fulfilment, and door delivery services. Additionally, acquisitions and alliances with complementary organizations are critical to promoting global expansion. However, the company faces industry threats that include low entry barriers, government regulations, and intense competition. Low entry barriers in e-commerce create a chance for more companies to enter the market, leading to intense competition that affects profitability (Dadush 2018). Government regulations on foreign business affect the establishment of businesses and limits profitability

Amazon’s Response to External and Internal Challenges

Business Response

Amazon adopted a flexible business model that facilitated an efficient response to the challenges. In the socio-economic environment, the company addressed the consumer behaviour change that embraced efficient service delivery. Stefan, Vintilă, and Cristian (2017) argue economic growth in the global market significantly modifies customers’ lifestyles and their spending behaviours. In addressing the emerging trends in consumer behaviours, Amazon utilized disruptive innovations to create web-based storage services, digital shopping, and door delivery of service.

Competitive Strategies Response

In addressing foreign trade challenges that result from political and economic factors, organizations utilize the blue ocean strategy by patenting an invention that significantly reduces competition (Heger & Zaby 2017). Amazon invented online rental space and entered collaborative ventures with third-party merchants and logistic firms to facilitate global expansion and delivery of orders to the growing market share. Moreover, the company expanded its product line by adopting radical and innovative techniques such as the development of its cloud services to serve the needs of the global market and the introduction of the Amazon Go service that automatically deducts product cost as the customer leaves the store.

Cultural and Structural Response

The environmental, economic, and legal challenges that influenced culture and structural modification include healthy lifestyle initiatives, working conditions, and high market competition (Kim & Kim 2015). Amazon responded to these challenges by adapting to a culture of efficient service delivery, high business secrecy, the introduction of online grocery, and brick and mortar units. This cultural adjustment improved the employees working conditions by increasing the human capital and introducing robot machines in its physical units for both online orders and packaging.

Amazon’s Organizational Strategy

Amazon employs an emergent strategy, which entails the adoption of an experimental process that results in various outcomes. By analyzing Amazon’s response strategies on environmental challenges, it is apparent that the company adopted the emergent business strategy, which facilitated its flexibility in creating a sustainable competitive advantage. Neugebauer, Figge, and Hahn (2015) hold that the emergent approach allows organizations to conduct market experiments and identify workable solutions to every problem of the time. The challenges in Amazon’s business environment shaped the organization’s strategic response in establishing both short and long-term goals. The company identified customer satisfaction as a key success factor in the online market.

The emergent strategy has been a success to the organization in the market. Amazon enjoys a significant market share and is among the top-performing e-commerce in the world. Furthermore, the strategy is a critical tool that promoted Amazon’s market research and informed its innovation. Some of the Amazon successful products that resulted from the adoption of the strategy include Amazon web services, Prime, and fulfilment centres.

Conversely, the strategy has dramatically led to low profitability in some parts of the market, such as in India. Amazon utilizes experimentation processes to influence consumer taste and does not guarantee product success in the market. Additionally, Amazon emergent strategy approach has led the company to failed product development such as the Fire Phone.

The Basis and Sustainability of Competitive Advantage

Resource-Based View

The analysis of Amazon using the theory of resource-based view depicts its competitive advantage. Deployment of resources that an organization owns determines the sustainability of competitive advantage (Mweru & Muya 2016). The analysis of resources indicates that Amazon has robust physical and virtual resources that support efficient flow, storage, and distribution of products. Physical resources comprise capital, warehouses, transporters, distribution stores, and products, whereas virtual resources constitute brand, reputation, intellectual property, culture, and software. These resources are appropriate for they enable Amazon to retail in diverse products in the e-commerce industry and remain competitive. As one of the leading online retailers across the world, Amazon has adequate capital, extensive warehouses, sufficient transporters, and accessible distribution stores. Having been in existence for more than 20 years, Amazon has established a global brand and reputation that have made it dominate online markets. Moreover, Amazon has created numerous innovations in information technology and secured them as intellectual property. In human resources, Amazon has skilled and innovative employees who have thrived in the enriching and inspiring culture.

The analysis of Amazon also shows that innovations provide a competitive advantage. The robust infrastructure allows organizations to expand customer value propositions that serve as their chief competitive advantage (Belal, Shirahada & Kosaka 2014). The creation and use of innovations have made Amazon grow from an online bookstore to an e-commerce giant. Innovative infrastructural strength has facilitated the company to penetrate global markets and adapt to the diverse needs of customers. Through its infrastructural competence, Amazon has reinvented the model of retailing its products in the market by using drones and robot services to enhance consumer privacy. Furthermore, Amazon infrastructural innovations continue to guide in product improvements such as the expansion of online retail business, development of web services, Amazon Go, Echo product, fulfilment, and prime offers. According to Mweru and Muya (2016), resources ought to be valuable, rare, inimitable, and non-substitutable for them to provide a competitive advantage. Since the imitability and substitutability of these innovations are expensive, they enhance the competitiveness of Amazon in the e-commerce industry.

The resources-based view indicates that Amazon’s infrastructure is durable because it is not only elaborate but also innovative. As a global online retailer, Amazon has established an elaborate supply chain and logistics services that allow seamless distribution of products from suppliers to customers. The company has a large capacity online outlet that offers other retailers front space for the sale of their products. Besides, Amazon web services is an expanded infrastructural service, which stores consumers and third merchants’ data while linking the company’s product line to the various technological innovations such as the Amazon Go and Echo. This robust network has facilitated the creation of distribution capabilities, diversification of business, and disruption of an existing process. Similarly, the existence of an elaborate and innovative infrastructure confers a competitive advantage to Amazon in the e-commerce industry.

Sustainability of the Competitive Advantage

The competitive advantage for Amazon is sustainable if the company continues to maintain leadership in investing in the advancement of technological infrastructure through recruitment of a knowledgeable workforce, adoption of innovation, and consistent improvement through research and development.

Strategic Options for Amazon

TOWS Matrix Analysis

The analysis shows that Amazon’s threats include low entry barrier, governments regulations, and intense competition, while opportunities comprise global expansion, adoption of physical business models, and utilization of collaborative ventures. Strategy exploration is an important tool in modelling an organization’s existing resources for the achievement of its long-term goals (Burgelman et al. 2018 and Reynolds, Sheehan and Hilliard, 2018). The company’s weaknesses include shrinking profit margins, tax evasion, and lack of diversity. Strengths are innovative competency, robust infrastructure, financial capability, and customer-centric culture. Based on the above analysis, the strategic alternatives that Amazon can utilize to ensure long-term success include cost leadership, focused cost, product differentiation, and focused differentiation options.

Cost Leadership

This strategy encompasses minimizing the organization’s internal weaknesses and avoiding threats from the external environment. Price focus is a market niche strategy where a company competes on the cost to enhance the organization’s competitive advantage in saturated markets (Uluskan, Godfrey & Joines 2016). Amazon can avoid threats by adopting a low pricing strategy on the selected market to discourage rival firms and new entrants from investing in these segments. Additionally, the company must minimize its weaknesses, which involves lack of diversity and non-compliance to trade regulations, by utilizing a skilled workforce to guide in observation of regulatory guidelines and adoption of more languages on its website. By employing cost leadership, Amazon will enhance its market share and improve its profitability for sustainable future growth.

Differentiation Strategy

Differentiation strategy involves the utilization of an organizations strength in minimizing threats from the environment. Since competition in e-commerce continues to grow with economic development, Amazon can utilize its innovative competence and financial strength in developing new features to differentiate its products from those of rival firms. This value innovation process positively influences consumers’ interest and preference, which lead to a strong competitive position (Omsa 2017). Adoption of this strategy will create a strong competitive position for the organization, promote customer loyalty, and improve the organization market brand.

Focused Differentiation

This strategic alternative consists of the utilization of strengths by an organization in maximizing opportunities by developing unique products for existing or new markets. Given the intense rivalry due to lower product differentiation in the e-commerce industry, Amazon can utilize its innovative competence, infrastructural capacity, and technological capability to develop unique products for new consumer segments in the global market. The company must exploit the growth opportunities through product differentiation in targeted markets, such as the establishment of physical stores to meet the structural demands of the local markets. The benefits of focused differentiation include enhancing competitive advantage, improved utilization of resources, increased sales, and minimization of risk associated with market upheavals that affect a particular product.

Focused Cost Strategy

A focused cost strategy involves minimizing weaknesses by taking advantage of the available opportunities in the market. Amazon can focus on lowering its product cost in selected market segments that its products are not performing well. The company must focus on existing consumer preference to seek growth opportunities (Uluskan, Godfrey & Joines 2016). However, to ensure success in this strategic move, Amazon must introduce new products or develop new distribution channels. This strategy is essential in enhancing an organization’s market share, penetrating new markets, and establishing a competitive advantage.

The Most Appropriate Strategic Option for Amazon

A focused differentiation strategy is the best strategic option for Amazon. After considering the current e-commerce environment made of unfriendly market forces ranging from intense rivalry, the threat of substitutes, buyer bargaining power, and a moderate supplier effect, it is apparent that the company must adopt focused differentiation to maintain a sustainable competitive position and market share. Implementation issues of the focused strategy include excessive utilization of the company strengths in enhancing the exploitation of opportunities in the market.

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