Analysis of Amazon's business environment

External and Internal Environments for Amazon

External and Internal Environments

Two segments of the general environment

Everything being equal, it is the primary objective of any company or business to gain a bigger market share, grow, affect its bottom line, and be successful. In order for the business to accomplish its goals, the business should deal with all its stakeholders who include suppliers, employees, shareholders, customers, competitors, and society. A business will encounter stiff competition in all its market be it locally or internationally for it to achieve its objectives and goals. For a business to gain competitive advantages over its rivals within the industry, it must be able to understand the present and predict future trends. The business should also take into consideration the internal and external environments of the business industry, which will impact the business activities directly and indirectly. Jeff Bezos founded Amazon, which is the world's largest e-commerce merchant website, in 1994 in Seattle, Washington. The company was initially a bookstore before it went online in July 1995 (Ritala, Golnam, & Wegmann, 2014). The term Amazon means exotic and different. The company has not used the traditional value chain structure and boundary models. This has enabled Amazon to explore new business environments and electronic markets, which has set it apart from its rivals. With the success of the online bookstore in the first two months, the company went international.

The environment is a highly complex and is divided into three categories namely industrial, general and competitive. An industry's general environment includes global, economic, political, technological, demographics, and sociocultural dimensions. These factors influence the businesses operating within the industry. For a business to identify its threats and opportunities, it would have to associate itself with the general environment of the industry. Technological and global factors are the two segments that rank highest for Amazon in the general environment. The technological segment will include institutions and activities that create new knowledge and translate this knowledge into new products, outputs, materials, and processes (Hitt, Ireland, & Hoskisson, 2012). Technology has driven the growth of Amazon, which has allowed Amazon to provide its customers a wide variety of services and products at lower rates. The company invested heavily in technology, which allowed it to redefine book retailing. According to Chu, Guo, and Lai (2012), Amazon has a database containing 1.1 million books, in comparison to the largest superstore that has 175,000 books. Amazon also offers web hosting and fulfillment services to online and offline retailers using its Amazon Commerce Network. Currently, the Amazon retail websites have products ranging from toys, video games, MP3 downloads, electronics, household goods, and collectible items. The kindle reader was release in 2007, and this marked the entry of the company in the hardware industry. The learning center and wearable technology shop were introduced in April 2014. These offer the consumer a detailed buying guide. The guide will explain the technology behind a product better than the video produced by Amazon.

The internet is becoming a significant global medium for e-commerce. Amazon has embraced this and widened its international retail websites. The company has also created a worldwide network of customer service and fulfillment centers. Within two months of the company launching its services, it received orders from all over the world. This demonstrated the need to have a worldwide network that would enable the company to deliver products to its customers quickly and efficiently. In order for Amazon to broaden its global threshold, it had to employ numerous global technological strategies. The strategies have allowed different countries to have custom Amazon sites. The Amazon site allows people from all over the world to sell goods on the site. The company has admitted that most of its revenues are from outside the United States. Five years ago the company's sales were mostly from media sales, but currently sales of electronics and general merchandize abroad account for most of its sales. For the company to achieve its growth and success, it had to expand globally. This is the reason why the company tailored its services and products for the different countries and regions. The pricing strategy employed also differs in the regions.

Forces of competition

For any company to make better and informed decisions, it needs greatly to understand its competitive factors. The five forces of competition are threat of new entrants, bargaining power of customers, bargaining power of suppliers, competitive rivalry, and threat of product substitute. The two important competitive factors for Amazon are competitive rivalry and bargaining power of customers. The heart of any business is a customer. If a business does not have any customers, it would fail in its endeavors. It is for this factor that Amazon should pay close attention to the bargaining power of customers. Amazon managed to dominate the online business by gaining and increasing its customer trust. The company integrated customer experience to its strategic plan to build and gain loyalty. This strategy has worked well for Amazon, and it has allowed Amazon to increase its customer numbers. To reduce the bargaining power of customers, Amazon does not rely on few customers who can dictate its prices, but rather it has focused on the mass market. Amazon offers low prices and the company offers strategic innovations that increase customer satisfaction. The company has focused greatly on building long-term relationships, and encouraging repeat purchases and visits. Some of the incentives the company offers its customers are free shipping, ratings, easy to use browsers, and return policies.

Competitive rivalry is significant to Amazon because there are companies offering similar services it offers. In order for the company to fight off rivals and maintain its leadership position, it needs to continuously innovate and improve upon its customer experience. Looking for ways to increase its customer numbers and sales is vital if the company is to succeed in the industry. The various products introduced by the company have been meant for diversification and strengthening the company's market. The rivals for Amazon are eBay, Alibaba, Google, and Walmart. These companies have the potential to limit Amazon's profit potential. There is fierce rivalry amongst the competitors, which means that Amazon has to continuously offer low prices, and develop other means for attracting and maintaining customers. Increasing innovation is the best way to keep ahead of the industry rivals, and Amazon has managed to achieve this by launching the wearable technology and learning center. The innovation was forced by the company's need to fight off competition.

Addressing these forces in the near future

The capabilities and number of rivals in the e-commerce industry has increased tremendously. Amazon has managed continuously to introduce new products and technologies in the market, which has improved its attractiveness to customers and sellers. The first company to introduce an online bookstore was Amazon. This fact enabled the company to gain advantages over its competitors within the industry. Being the first company to introduce an online bookstore enabled the company to differentiate its product and gain brand reputation. In line with customer preferences, culture, location and previous purchases, the company developed websites to suit each category (Xu, 2013). Having location-based websites and offering prices in the local currency ensured that customers do not have to worry about conversion rates. Removing this problem offered the customers an easier way to budget and plan their purchases. This way the company managed to attract and retain customers. Amazon has the first-mover advantage, and this has assisted the company in defining its business model. The company has managed to develop a business model supporting participation in the online community. In comparison to its competitors, Amazon has more registered users. Amazon is at the highest point in the industry, and the company is doing a lot to maintain this position. All communication strategies that include website design, advertising, and positioning are in the superlative, which make it difficult for the competitors to keep pace. Amazon is not afraid of competition because e-commerce is the company's passion and drive.

With growth in the e-commerce, market competition intensifies. Amazon should deploy and develop adequate competitive strategies that combine cost leadership and differentiation strategies for the company to cope with challenges coming up from e-commerce dynamics. The bargaining power of the customers should be increased through increase of customer switching cost. The company should endeavor to sustain its position within the industry. Amazon needs to expand its operations by promoting complimentary or new products, enhance its sales formats, and increase the products, and services offered. The distribution network could also be expanded to cover new emerging markets like Africa. Improving on its financial systems is critical for addressing the two forces. These moves might be strenuous on the company's resources, but in the end, they will produce significant fruits. Research and Development is the key for any business trading online. Amazon should also invest and increase its investments in R&D. This will ensure that the company constantly tests and introduces innovative solutions to its customers. Amazon could also employ strategic alliances, acquisitions, joint ventures, and business combinations. These would be aimed at countering threats of new entrants and reducing the intensity of rivals. Using any of these moves would allow the company to expand its operations and market presence. The possibility of entering into new industries or creating competition barrier is increased with such ventures.

Threats and opportunities

New entrants, competitors, lawsuits, tax legislation, and online security are some of the threats faced by Amazon. Opportunities for Amazon are retail sales increase, physical presence, online payment systems, growing tablet and eBook sales. Amazon is facing pressure by state governors and traditional store to collect internet sales tax on its products and services. If the company complied with these requirement, the price of its products and services would increase adversely. This would affect its revenues because few customers would use the online store for purchases. Competitors are working hard to increase their presence and match Amazon prices. For example, Google has managed to build an extension to its search called shopping, which is aimed at pushing more customers to its stores. Sellers and merchants are using Google's product to place adverts, which increases competition in the industry. Groupon and Fingerhut are new entrants to the industry who are solidifying their efforts in the e-commerce industry. However, because of Amazon's reputation, branding, low pricing, and customer base the new entrants are finding it hard to compete with the giant. Foreign exchange fluctuation has been a constant threat to the company. Almost 45% of Amazon's revenue is from its international websites. The pricing used for its products has to cater for any fluctuations to ensure that the company maintains its revenues and does not incur losses. There is also threat of hacking, which would result in a PR nightmare. There are legal suits that can be launched by customers, competitors and employees. The nature of the lawsuit is dependent on the instigator. Customers will mostly sue the company if they receive faulty products or failure to deliver products.

In the cloud infrastructure industry, Amazon's EC2 and AWS are the leaders. Leveraging on these products, the company could increase its market share by offering a highly secretive and sensitive data solution. Amazon fresh has brought consumables to its consumers at affordable rates. The company can deliver groceries and staples to selected locations. Consumer item selection is increased by using Amazon prime, which brings to the customers video and items from third parties. Using these additional products, the company has managed to increase its revenues and diversify its product portfolio. Advertisement placement is done by tracking customer data. This ensures that the company is able to deliver appropriate and effective adverts to its customers. Sellers will use this feature to target their ads to specific groups or individuals. The company could gain other opportunities by engaging with customers in BRIC countries. Online advertising is a viable market for the company considering that it managed to raise over $500 million in advertising.