Introduction
Strategic planning is the process that an organization utilizes to recognize its directions and goals and assign resources to trail that guidelines and goals. A corporate strategy is an approach that a company utilizes to define such guidelines and goals. Based on the aforementioned information, the report aims to conduct external analysis (PESTLE analysis) and industrial analysis (five forces) of the business atmosphere and recognize threats and opportunities, and assess Amazon Inc.’s attractiveness. Besides, Amazon’s online strategy will be examined to determine its weaknesses and strengths (competitive edge) using VRIO and Value chain. The online strategy of Amazon Inc. will be assessed by applying the three SAFe criteria.
Background Information on Amazon
Amazon is one of the leading world’s largest companies in the e-commerce industry operating as the online-retailing pioneer. Jeff Bezos with its headquarters placed in Bellevue, Washington (Orrange, 2020) founded the company on July 5, 1994. The company commenced as an online bookstore even though later diversified into a multisided e-commerce business to improve business transactions between buyers and sellers. The most traded goods on Amazon Inc. are video games, toys, furniture, apparel, electronics, jewelry, and food. Amazon brand has persisted to develop as the leading bookstore upon initiation to become the supplier of the internationally known book. However, the company has experienced many challenges such as improving the growth of e-commerce at the highest level, sustaining a balance between investment and profit, challenges in the global market along government balances and checks. Amazon’s leadership has been practicing several strategies to bear with the challenges (Rastogi, 2017). The strategies are executed to accomplish strategic advantage and achieve both long-term and short-term goals.
Besides, the e-commerce products serving as the source of revenue for Amazon Inc, the company has diversified into the cloud sector with swift growth in consumer-based seeking data management systems and cloud storage services (Aggarwal, 2019). The customer-centered approach and diversification have been at the center of Amazon’s growth strategies to generate value for its extensive consumer base (Orrange, 2020. The company has become a leader in the e-commerce business market while focusing on cost-efficient, differentiation, diversification, and effective leadership approach to achieve a competitive edge in the e-commerce industry).
External Analysis
PESTLE Analysis of E-commerce Industry
It is critical to recognize the external factors that organizations operate in regarding that this industry has managed to take up a leading position in the retail sector. The information is essential because it may be combined with internal aspects to develop a suitable business strategy for the e-commerce industry (Phan, 2020). PESTLE analysis presents the best practice to comprehend the external aspects as it centers on political, socio-cultural, economical, technological, legal, and environmental factors (Kumarasiri and Dissanayake, 2020). The E-commerce sector’s performances correlate with the issues indicated in the PESTLE analysis of the business and its macro-environment (Perera, 2017). PESTLE analysis is a model for recognizing the external aspects that shape the circumstances of the macro-environment of the e-commerce business.
Political Aspects such as political stability offers opportunities to Technology and Services Business of E-commerce Industry
The industry is under political pressure, as the political aspect centers on governmental activities and their influence on businesses and their macro-environment. In this case of online retail organizations, the following political elements are significant in the e-commerce sector development. They include, political stability in the industrialized nations, mainly the European countries and the US present an opportunity; governmental support for the industry of e-commerce presents both threats and opportunity, and the growing governmental efforts to boost cyber-security present an opportunity to the e-commerce industry (Perera, 2017). Political stability condition develops an opportunity for organizations to diversify or expand their business in industrialized nations; for example, the firm might expand its brick-and-mortar functions in the US to complement its e-commerce trade. Government supports also promotes a continuing expansion of the organization in relevant global markets (Achinas et al., 2019). On the contrary, the same aspect presents a threat to the firm due to increasing competition, like that engaging Chinese e-commerce companies extending their operations (Phan, 2021).
Economic Aspects such as developed market stability offer opportunity to E-commerce Sector
The performance of the e-commerce industry relies on the condition of the economies in which it conducts its e-commerce businesses and offline businesses (Pettinger, 2020). The influences of economic changes and trends on the macro-environment are regarded in the model (Vargas Leon and Kuehn, 2016). In the case e-commerce industry, the following are economic aspects significant for the company: developed markets’ stability, mainly in the European nations and the US presents an opportunity; the growing disposable incomes in the developing nations present an opportunity, and experience threats from the Chinese potential economic growth as shown in the graph below (Phan, 2021).
Socio-cultural aspects such as Wealth disparity poses a threat to the e-commerce sector
Socio-cultural aspects influence the industry performance. The aspect identifies the effect of socio-cultural trends or changes on the performance of the e-commerce industry as the largest online retail business (Perera, 2017). The E-commerce industry experiences the following significant socio-cultural aspects: the growing wealth disparity poses a threat to the company while the growing consumerism in the developing nations creates an opportunity for the e-commerce sector (Pettinger, 2020). Further, the increasing online shopping habits pose to create an opportunity for the industry. The growing wealth disparity is a socio-cultural trend that poses a threat to the e-commerce sector because of the stagnation of the levels of disposable income and the macro-environment of the sector stagnation. Higher levels of disposable income are favorable in enhancing the potential revenues of e-commerce firms (Vargas Leon and Kuehn, 2016).
Technological aspects such as technological obsolescence pose a threat in the business of the E-commerce industry
Technological improvement directly influences the e-commerce industry regarding the technological centrality in its e-commerce business (Achinas et al., 2019). The following are the e-commerce industry’s significant technological aspects: rapid technological obsolescence presents both threats and opportunities to the company, whereas growing IT resources’ efficiencies create an opportunity. Further, the rise in cybercrime rates poses a threat to the e-commerce industry (Nadon, 2017). The increasing technological obsolescence creates a threat and imposes pressure for the e-commerce sector to embrace continuous improvement and development in its technological assets to attain a competitive advantage; hence, a threat to its sustainability (Shokeen and Singh, 2019).
Environmental or ecological aspects of the e-commerce industry
E-commerce industry functions are subject to the natural environment influence. The companies in the e-commerce business regard the following environmental aspects in their strategic development: increasing interest in the ecological programs presents an opportunity, while the increasing stress on business sustainability also creates an opportunity for the company (Achinas et al., 2019). Further, the growing popularity of low-carbon emissions lifestyles creates an opportunity for the firm (Shokeen and Singh, 2019). The E-commerce industry stands chances to create opportunities to enhance its ecological effect in response to the increasing interest in environmental programs. This rising interest presents a direct effect of environmental challenges, for example, energy consumption, and waste management. An enhancement in the corporate social responsibility strategy of the ecommerce sector might improve the environmental impact of the organizations in the industry (Pettinger, 2020).
Legal aspects such as product regulations create opportunity in the e-commerce industry
The company should uphold e-commerce operations following the legal requirements. In the e-commerce industry, the following legal aspects are essential: increasing product regulation creates an opportunity for the firm (Shokeen and Singh, 2019); the changing export and import regulations also create an opportunity. Besides, the growing ecological protection regulations on companies create an opportunity (Achinas et al., 2019). Product regulation develops opportunities for the company to increase its efforts in minimizing counterfeit sales on its e-commerce business (Perera, 2017).
Industry Analysis
Organizations persist to emerging leaders in the e-commerce industry because of incorporating business challenges like the ones noted in Porter’s five forces analysis. The external aspects define the e-commerce industry conditions focusing on the online retailing market (Perera, 2020).
Competitive rivalry (strong force)
The companies compete against solid competitors in the E-commerce industry. The following aspects are accountable for the strong intensity of competitive rivalry in the e-commerce environment: high aggressiveness of the companies in the e-commerce sector, high substitute availability, and lower switching costs in the e-commerce industry present a strong force (Perera, 2020).
Bargaining power (strong force)
The organization’s mission and vision statement outline the organizations’ consumer-centered approach to e-commerce business (Baronina, 2020). The following aspects support the strong force of the bargaining power of consumers or buyers in a high-quality industry: low switching costs; high quality information, and high substitutes’ availability present a strong force to the company in the e-commerce business (Walder, 2017).
Suppliers bargaining power of E-commerce industry (Moderate force)
Suppliers control the materials or supplies ‘availability. Organizations require for its e-commerce functions like hardware components for information systems (Mon, 2020). The E-commerce industry encounters the moderate force of the suppliers’ bargaining power based on the following aspects: moderate forward integration, while small suppliers’ population presents a strong force, and moderate suppliers’ size presents a reasonable force to the company’s e-commerce business (Önören et al., 2017).
The threat of substitutes (strong force)
The company competes with substitutes in the e-commerce market. The following are factors that support the strong force of the threat of substitutes to e-commerce business: the low switching costs present a strong intensity; the low cost of substitutes also presents a strong point. Lastly, the high substitutes’ availability creates a strong force (Perera, 2020).
New entrants’ threats (weak force)
New entrants of companies potentially decrease the market share of e-commerce business. The E-commerce industry encounters the weak force of the new entrants’ threat based on the following aspects: high economies of scale and high brand development cost creates a weak intensity of new entrance, while low switching costs present a strong force on new entrants in the e-commerce business industry (Walder, 2017).
Internal Analysis
Resources and competencies influence the firm internally and may either directly permit or bar the firm from accomplishing its objective. The popularity of Amazon is widespread across the world. The company has more than 100 million subscribers and 310 million active users globally. Being among the largest online retailer in the world, the company bags several accomplishments, successful launches, and astonishing profits.
Amazon’s Unique Resources and Distinctive Capabilities
Physical resources
Amazon has several physical resources, for example, film studios and warehouses that offer its strengths in the market.
Technological infrastructure
Amazon has a sophisticated technological infrastructure that presents its strength over its competitors. For instance, the company operates one of the biggest databases in the universe.
Human resource
Amazon has excellent human resource support to offer unique services and provide customer experience to their consumers.
Financial resources
The company has adequate financial resources that can be invested in research and development to come up with innovative and creative offers.
Channels
The largest channel of Amazon is its web Amazon.com. Besides, this maintains 14 different versions of its web for consumers from different countries across the world. The Amazon Smartphone app that operates as a growingly significant sales channel offers strengths to the company.
Amazon’s strengths
Strong brand name: Amazon as a giant global e-commerce firm has a successful and strong positing brand image in the e-commerce business industry.
Cost leadership: The Company does not incur costs to maintain its physical retail outlets by selling all its products and services online. Amazon efficiently and effectively manages its costs and reduces its inventory replenishment time through economies of scale. The firm has created many strategic alliances with several firms such as Thalmic Labs, Evi Technologies, and Shoefitr. It also has a robust value chain system that assists in sustaining the low-cost structure (Aggarwal, 2019).
Customer-oriented: The Company caters to a large number of consumers for daily needs at low-priced. It has established itself as a consumer-oriented brand.
Differentiation and innovation: The company continuously brings innovative additions and creative ideas to its service offerings and product line, such as Withings Aura Smart Sleep system and the drone delivery service that develops a differentiation from other firms (Denning, 2019).
Biggest merchandise section: The firm owns an expansive product mix that draws online consumers to make most of their purchases from it instead of other online retailers. For instance, in 2018, the company has sold 562.3 million products in its e-commerce marketplace.
A large number of acquisitions: Further, the successful Amazon’s acquisitions of Zappos.com, Whole Foods, IMBD.com, woot.com, and Junglee.com have enhanced profits and revenues for the company (Denning, 2019).
Superior distribution and logistics systems: The firm also utilizes highly efficient and effective distribution and logistics systems. Amazon has even fixed rates for various delivery times; hence, it implements secure, reliable, and fast delivery of products and services to its consumers (Denning, 2019).
Amazon’s Weaknesses
Product failures and flops: Amazon’s launch of Fire Phone in the United States was a big setback, whereas its Kindle fire gadget did not even grow in the market (Cummings and Read, 2016)).
Easily imitable business model: E-commerce businesses currently have become more common in the digital era. Hence, imitation of the business model of Amazon is easy for rival companies. A few enterprises are giving Amazon a run for their money. These comprise eBay, Barnes &Noble, Oyster, Hulu, and Netflix (Patel et al., 2018).
Tax avoidance issue: Tax avoidance in the United Kingdom, Japan, and United States sparked negative publicity for the company where former US President Donald Trump made public criticism of Amazon over its taxes on the social media platform (Paul, 2020).
Inadequate brick-and-mortar presence: The Company also has limited physical outlets that at times prevent Amazon from attracting consumers to purchase things that are not sellable on online outlets (Amazon.com, 2018).
Decreasing consumer safety: As Amazon’s product offerings increase, the company finds it challenging to vet each product and assure its consumers’ the highest safety level. The EPA (The U.S Environmental Protection Agency) recently demanded the company to remove several unsafe products and pesticides on its platform.
Amazon’s Value chain
A value chain is a concept that illustrates all the activities that a company may invest in to add value to its end product at each stage of the production process. The value chain involves secondary and primary activities that influence the company’s management to minimize production costs and enhance its products’ differentiation (Paul, 2020).
The Table 1: Amazon’s Value Chain(Paul. 2020, p. 380).
Amazon Inc.’s VRIO analysis
The VRIO analysis may concentrate on each internal resource to discover whether it offers the firms a sustainable competitive edge. Besides, the analysis may indicate whether the resources may be enhanced at each phase to provide a more critical competitive edge. The resources examined are summarized to evaluate if they offer a sustained competitive edge, temporary competitive edge, new competitive edge, and competitive advantage (Fisher et al., 2020).
Table 2: VRIO Analysis(Vargas-Hernández and Contreras Garcia, 2018, p.222).
Strategy Evaluation
Assessment of strategies utilizing SAFE criteria tests
Table3: SWOT Analysis of Amazon(Pauly, 2020, p. 385).
Table 4: Amazon’s Power/Interest grid.
Level of Interest
The three simple criteria are suitability, acceptability, and feasibility that may be utilized to assess Amazon’s strategies linking with the SWOT analysis and power/interest grid or matrix. It evaluates the significance, priority, and possible success of a given strategy a firm aims to accomplish its objectives and goals. The report considers the e-commerce adopted at Amazon with the purpose of diversification, differentiation, customer-centered approach, and continuous market development.
Suitability
Combining online and brick–and–mortar strategy is mostly recommended in the e-commerce sector because it widens the consumer base, hence growing the company’s sales. The strategy generates two concepts that comprise continuous market development and diversification. If the consumer base increases, Amazon should expand the business to comprise complementary goods (Pidun, 2019). Continuous market development is a concept that will permit Amazon to penetrate new markets in developing countries; therefore, improving its sustainability and growth. The e-commerce sector is continuously experiencing financial and political aspects, and this strategy will assist Amazon to shun the negative effects of these aspects from affecting its centralized model (Rastogi, 2017).
Acceptability
Blending brick-and-mortar and online retail strategy implementation have outcomes. Amazon’s stakeholders have had anticipations continuously from this strategy that the company has executed. Acceptability concepts concerns with such outcomes and expectations. Combining online and brick-and-mortar strategy if followed well, could result in the firm achieving new competitive capabilities and strengths (Orrange, 2020). Exploiting the brick-and-mortar presence and online advertising facilitates the firm in entering new geographic locations and territories that might permit it to exploit new markets that are not saturated to offer their surplus production. Besides, the company has enough organizational and financial resources to promote its expansion into brick-and-mortar along with an online strategy. The company’s financial ratios such as the current ratio in 2019 were 1.097 and the gearing ratio was 0.37 or 37% that shows stability in its liquidity and solvency (Ross et al., 2019).
Feasibility
Organizational capacity to execute the noted strategy is the major issue of feasibility. Amazon’s success in the e-commerce sector has improved its financial and organizational resources. Hence, combining brick-and-mortar presence and online retail strategy is the priority approach for this firm to increase its market for excess production. The excess financial resources may be utilized to pursue market development to improve the firm’s growth and sustainability. Currently, Amazon is focusing on its initiative to extend its distribution channel because it has the potential to widen its customer base. The distribution channel may be scaled up; hence, it may exploit the opportunities granted by its robust organizational and financial resources. In the implementation of brick-and-mortar along with online retail services, the company will have to use financial resources in opening new physical stores and required human resources to run the outlets (Olmez and Kraynak, 2020).
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