Factors affecting Amazon’s growth positively
In today’s competitive business environment, e-commerce industry is experiencing a significant growth. There are various leading players which have made a considerable contribution to this growth (Hollensen, 2015). These players are such as Amazon.com, Flipkart, eBay, Alibaba.com etc. Amazon is the industry leader with the increase in the revenues and growth. As per the article given in Financial Times, Amazon, an e-commerce giant has reported a strong time of growth during past few years. This growth is driven by its core online shopping business and Amazon Web Services as well. This report is focused on the external drivers which can impact the growth of Amazon.com. Furthermore, it includes how the company can add value to the strategic position of company.
External drivers are the factors or situations which occurred from the outside of an organization. After reading the article, it can be analyzed there are various external drivers which affect the Amazon.com. These factors are given below:
Economic and Legal Factors
There are some economic and legal factors which have positive impact on the growth of Amazon’s growth. In the country, the US government has introduced new tax laws which are profitable for the growth of company (The Guardian, 2018). The company records a significant profit from this new law as it is hiring more workers from US by taking the advantage of decrease in corporate tax rate. This drop in corporate tax rate is reducing the federal tax liabilities of the company and company is making investment in other profitable activities like hiring of skilled employees, acquisition of Whole Foods etc. It is one of the major external factors which can affect the growth of company positively.
Figure 1: Corporate tax rate of US and other countries
(Source: OECD)
Amazon can focus on increasing employment in United States by investing in human resources. It may assist the organization to enhance the services delivery to its potential customers. For example, it is found from the article that company is continuously growing its staff levels that hit 566,000 employees in the end quarter. It included 130,000 employees all over the world last year. It can encourage more people to get employment from Amazon by offering high-paying jobs (Hook, 2018). Additionally, the holiday season sales are also supported by the great economies of scale in US warehouses. Thus, drop in corporate tax rate is one of the major external drivers that can affect the Amazon.com in competitive e-commerce sector.
Factors affecting Amazon’s growth negatively
Through the reduction in the tax liabilities, the company can make a huge investment in advertising and logistics services. It can assist the organization to increase brand awareness among a large population. The company can generate significant revenues from advertising sales. The company is giving space for advertisement on its website so that other companies can place their ads (The Guardian, 2018). It can have positive impact on the revenues and growth of business. Moreover, the company can enhance its operations by focusing on logistics services.
Competition is another important external driver that forces the company to make changes in its processes and operations. In the e-commerce industry, there is an increase in the competition due to low cost entry barriers. The industry already has many popular e-commerce brands like Alibaba.com, eBay etc. which may pose competition to Amazon.com. In addition to this, new competitors can make more troubles to this company because they may introduce their business with innovative technology, ideas and customer centered products on more affordable prices. It can affect Amazon’s business adversely (Reimers and Waldfogel, 2017).
Figure 2: Market Share of Amazon and others
(Source: Amazon.com., 2018)s
The business of Amazon can get affected by the government regulations in United States. The government makes frequent changes in the policies related to internet and e-commerce business. Business expansion of this company is tough in various nations because online policies do not match with the political policies in countries. In international markets, there is instability in on internet products and sales (The Guardian, 2018). These factors can affect the company negatively but increased usage of internet among population can upsurge its business and revenues.
Considering the given situation in the article, it can be stated that current situation of Amazon.com is better than earlier. Due to above external factors, the company is able to generate the profits of $789 million and revenues of Amazon.com hit a record of $60.5 billion (Day, 2018). But still, there are some factors which can affect the growth and business of company negatively. The company should make efforts to add value to its strategic position as the value creation is the major objective of the each and every business organization (Amazon.com., 2018). Value creation for customers assists to offer products and services while developing value for its customers and other stakeholders. Through this, the company will be able to increase its stock price and future availability of the funds. In the low margin market, Amazon.com has shown the ability to capture and develop considerable value by making investment in and boosting a growing scale.
Maintaining a strong position among competitors
The company can create the value for its customers by providing customer satisfactory products and services by maintaining its retail operations with effective utilization of technology and innovation. One of the major strengths of Amazon.com is its operational efficiency that can assist its management to attain a sustainable competitive advantage and improve company’s performance. In the future, Amazon.com can create more value by including more products and services in its wider product range and by ensuring the timely delivery of products (Ceptureanu, 2016). Through this, it will be able to show the high level of commitment to its business and customers.
By looking at the history of Amazon.com, it is analyzed that Amazon.com was a business venture in a developing market of internet and it had confronted various unexpected and hidden issues to survive in the market. The company had made various efforts and strategies to improve its position and performance in e-commerce industry. Currently, the firm can modify its strategies and tactics with their emphasis on improving customer experience of online shopping and provide excellent services with more convenience to its customers (Fox, 2015). One of the major strategies to add the value to Amazon’s strategic position is to adopt a cost leadership strategy. It needs to compromise on its cost saving strategy and it should start to manage its own warehouses in different nations in order to ensure that accurate and timely delivery of products to its customers.
In addition to this, the company can add a significant value by extending its logistics services to the third-party sellers. It will enable the organization to create value to smaller sellers via its distribution scale. The value can be captured by enhancing the usage of Amazon’s assets, increasing the range of product offering to customers and by charging third party merchants a % of every transaction. This point can be understood by taking an example from chosen article. It states that Amazon.com has also experienced an increase in its logistics revenues to $10.5 billion that was 41% more than previous year (Murphy, 2017). This increase was due to increasing demand for logistic services like shipping and warehouse storage which Amazon.com offers to third party sellers. Thus, above processes and activities will assist Amazon to add value to its strategic position.
As an e-commerce giant, it is very important for Amazon.com to maintain an effective strategic position in the industry and among competitors. From the above analysis, it can be commented that Amaazon.com is able to maintain a sustainable strategic position and competitive advantage against its competing brands (Johnson, 2016). The strategic position of company shows that it is able to maintain this by adopting three major operational strategies i.e. customer differentiation, low-cost leadership and focus strategies.
Adding value to Amazon’s strategic position
Cost Leadership
The company has practiced low cost leadership by differentiating itself on the basis of pricing policy. The analysis shows that company believes that providing products on lower prices is fundamental for company’s future growth and success. It is seeking to mitigate the cost of lower prices over the time by attaining higher sales volume, creating good relationships with suppliers and attaining operational efficiencies (Baack, and Boggs, 2018). The company ensures that it provides similar quality products as its competitors on cheaper prices. To develop its strategic position, Amazon.com is analyzing its competitors and their strategies.
Differentiation
It can be analyzed that Amazon.com has maintained its strategic position by using differentiation strategy. With this strategic framework, the company offers its current and potential customers with product and service differentiation through quality, design and accessibility by choosing a strategy that is different from its competing brands (Das and Joshi, 2007).
Focus Strategy
In addition to above, Amazon.com makes efforts to maintain its strategic position by adopting focus strategy (de Noronha Vaz, Morgan and Nijkamp, 2016). The company emphasizes on the exceptional customer service as a niche market but not the entire market as each niche market has its own requirements and demands. These are the major strategies and frameworks which support Amazon.com to develop and maintain its strategic position in the industry.
In addition to above, the company is able to maintain a strong position among its competitors. Web Services of Amazon has experienced a significant growth in last few years and the revenues of the company are growing by 45% to approach $5.1 billion (Levy, 2017). Moreover, the company is making investment in Amazon Webs services, development of more services Amazon prime members and further development of Amazon Alexa voice assistant.
Figure 3: Revenue Growth of Amazon
(Source: Amazon.com., 2018)
To maintain and grow its strategic position in the future, Amazon.com should focus on its resources and capabilities. It will enable the organization to stay competitive in e-commerce industry. It can use its organizational resources to get better position and to handle the financial crisis in the future. In context of Amazon.com, it can be commented that company should focus on reducing its operational costs. It should propose to reduce the expenditure by 2%. Moreover, it should reduce the costs of inventory by using cross docking facility. It should make investment on the research and development activities so that can it can analyse the pricing and other strategies of rival brands (Ceptureanu, 2016). Moreover, Amazon.com can maintain its strategic position by investing the funds on marketing and logistics activities as they are the major components of company’s business operations.
In this way, the company has maintained its strategic position by implementing effective strategies and frameworks. It should adopt more methods and strategies in the future so that it can maintain its competitive and strategic position among industry competitors.
Conclusion
From the above analysis, it can be concluded that Amazon.com is the largest e-retailer in terms of market capitalization and revenue generation as well. The company is making various efforts to attain competitive edge against its competing brands. The article shows that there are various external factors which have positive impact on the growth of this company. Still, there are two factors i.e. industry rivalry and government regulations which may affect the business of Amazon.com. It is founded from the analysis that company has maintained a better strategic position in the industry and among its rivals.
References
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Baack, D.W. and Boggs, D.J., 2008. The difficulties in using a cost leadership strategy in emerging markets. International Journal of Emerging Markets, 3(2), pp.125-139.
Ceptureanu, E.G., 2016. Competitive Intensity and Its Implication on Strategic Position of Companies. Journal Of Applied Quantitative Methods, 11(1), pp.57-62.
Das, S.R. and Joshi, M.P., 2007. Process innovativeness in technology services organizations: Roles of differentiation strategy, operational autonomy and risk-taking propensity. Journal of Operations Management, 25(3), pp.643-660.
Day, M., 2018, Amazon’s record results, surprisingly big profit cheer investors, Available from https://www.seattletimes.com/business/amazon/amazon-reports-record-4q-profit-beating-forecasts/. [Accessed on 26 May 2018].
de Noronha Vaz, T., Morgan, E.J. and Nijkamp, P., 2016. Rural Europe and Small Firms: A Strategic Positioning and Synthesis. In The New European Rurality (pp. 19-28). Routledge.
Fox, R. 2015, Amazon Captures Value in a Low Margin Business, Available from https://www.hbs.edu/openforum/openforum.hbs.org/goto/challenge/understand-digital-transformation-of-business/amazon-captures-value-in-a-low-margin-business.html. [Accessed on 26 May 2018].
Hollensen, S., 2015. Marketing management: A relationship approach. Pearson Education.
Hook, L., 2018, Amazon hits record $1.9bn profit on tax boost, Available from https://www.ft.com/content/69a4de5a-079a-11e8-9650-9c0ad2d7c5b5. [Accessed on 26 May 2018].
Johnson, G., 2016. Exploring strategy: text and cases. UK: Pearson Education.
Levy, A., 2017. Amazon’s US Online Sales Growth Last Year Was More than Everyone Else’s Combined. The Motley Fool.
Murphy, J., 2017, Analysis: Can Amazon make it in Australia? Available from https://www.northernstar.com.au/news/analysis-cam-amazon-make-it-australia/3172262/. [Accessed on 26 May 2018].
Reimers, I. and Waldfogel, J., 2017. Throwing the books at them: Amazon’s puzzling long run pricing strategy. Southern Economic Journal, 83(4), pp.869-885.
The Guardian, 2018, Jeff Bezos adds billions to his fortune as Amazon reports profit surge, Available from https://www.theguardian.com/technology/2018/feb/01/amazon-earnings-exceed-expectations-while-apple-alphabet-google-falter. [Accessed on 26 May 2018].
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