Global Strategic Management In Amazon During COVID-19
Question
Task:
The individual essay on global strategic management consists of a review of a journal article that must be related to topics discussed in class. You may want to follow the indications below when developing the article review:
Section 1: must contain the name of the Author, the title of the selected article, and a url link to the original source of the article;
Section 2: provide some background information about the company being discussed in the article (approximately 300-400 words);
Section 3: must contain a summary of the business case discussed in the article (approximately 200-300 words);
Section 4: should be used to link the case to any of the topics discussed in class. You are expected here to make explicit and appropriate use of the theory, models, concepts covered in class (approximately 1000 words);
Section 5: should be used to provide a summary of the major findings arising out of your discussion. You can include in this section your own views and ideas about how the company is, or will be performing in the future; or your opinion about any problems the company may face in order to sustain its competitive advantage over rivals; or any other conclusions in relation to the selected article (approximately 200-300 words).
Answer
Abstract
Section 1: Article
Amazon reaps rewards of pandemic shift online
Dave Lee (30th April 2021)
URL: https://www.ft.com/content/a2b05040-3164-46f3-8bd5-399e6214ea74
Section 2: Company Background
The chosen article revolves around global strategic management in Amazon which is one of the biggest e-commerce and tech giants in the world. This US-based organisation was established in 1994. Jeff Bezos created this company as an online bookstore. In 1997, this organisation went public and started selling various other products such as videos, music etc. Currently, Amazon is associated with diverse (both related and unrelated) business categories, such as e-commerce, e-book, artificial intelligence, digital streaming and cloud computing (Davis, 2020). This company has also stepped into the physical store category; they launched their Whole Foods Market in 2017.
The current (March 2021) revenue of Amazon is $108.518 billion and it increased by 43.8% compared to the previous year. Not only their e-commerce business, but also businesses such as Amazon Web Services ($13.503 billion), advertisement ($6.905 billion), and subscription ($7.589 billion) have experienced significant improvements. Amazon’s net operating income increased by 219.8% (from 2.535 billion to $8.107 billion). their online sales increased massively since the last year and their spending on fulfilment services increased by 43.4%. (Digital Commerce 360, 2021).
According to Statista (2021), Amazon is one of the big five companies in the world in terms of market capitalisation. It holds the fourth position and placed after companies like Apple, Microsoft and Saudi Arabian Oil Company (Statista., 2021). Since amazon operated in various industries, it competes with a number of big organisations. Its retail business faces a significant amount of competition from companies like Walmart, Costco, Best Buy etc. Its online subscription business competes with big tech giants such as Apple, Google and Netflix. The web services division of Amazon faces challenges from Microsoft, IBM and Oracle. The size and resources of Amazon make it difficult for New or small and medium-size companies to affect their business.
Amazon has huge growth opportunities in future. The e-commerce industry will keep growing as the millennials are becoming active customers now and the volume of internet connectivity throughout the world is increasing.Trends such as urbanisation, online transaction, use of smartphones etc. are appearing as permanent changes in society (Prnewswire.com., 2021). At the same time Covid-19 has created the new trend of staying home, thereby, people are increasingly becoming dependent on online services and shopping activities which is extremely beneficial for companies like Amazon (Bhatti et al., 2020). The article will talk about the factors that helped Amazon to create competitive advantages over its competitors during the global pandemic period.
Section 3: Summary of the Business Case
The selected article discusses how the pandemic affected Amazon positively and made it more profitable than ever. According to Lee (2021), the pandemic has massively changed people’s behaviour and Amazon is utilising this factor to create new competitive advantages for itself. Due to the pandemic and the culture of working from home, people are increasingly leaning towards video streaming, cloud computing and online shopping. Its net income increased three times and market share rose by 3%. All of its business divisions such as cloud computing, devices, advertising eCommerce etc. are growing massively. Nearly 50% of its operating income was generated by the AWS and cloud division as people that are working from home require these services. Amazon has become the starting point from where people search for millions of products. This position has helped Amazon to improve its advertisement business. Even though people are coming back to their former lifestyles in many countries, the popularity of Amazon would not decrease; events such as Prime Day sales will maintain the relevance of this brand. The popularity of Amazon Prime services and membership is also increasing evidently. In order to improve the services, Amazon has decided to invest heavily to improve its logistics services. however, Amazon has experienced the negative impact of the pandemic concerning their physical stores only. The revenue of their whole food market decreased by 16% (Lee, 2021).
Based on this discussion it can be said that the very structure or design of Amazon has made it appropriate for the pandemic situation. At the same time, their business diversification strategy and their improvement-oriented business culture are enabling them to offer the most appropriate products services to their buyers.
Section 4: Discussion
Competitive Advantage
Competitive advantage can be described as factors that enable a business firm to produce services and goods that are of better quality and cheaper than their competitors. Creating a competitive advantage is crucial for business firms as it allows them to generate more revenue and sales compared to their market rivals (Kochand Windsperger, 2017). Amazon company has strong strategies to create value for their customers which keep them ahead in the competition.
Before analysing the company’s strategy, the industry it operates in needs to analysed properly using the Five Forces Model. In terms, of the retail business, Amazon competes against both giants like Walmart and small-scale retailers that sell almost all of those products that Amazon sells (market rivalry). Therefore, the competition is high and only unique services can help them maintain their position (Böttcher et al., 2021). Their AWS business also faces fierce competition from companies like Microsoft, Google and Apple. Due to the presence of multiple competitors and the low switching cost, buyers’ bargaining power is very high which amazon handles by adopting the customer-centric business approach. The online services they offer (home delivery, cloud computing etc.) however, are hard to replace in this modern world where people are leaning towards internet-based services. Amazon does not rely on any single supplier; thus, suppliers’ bargaining power is very low. The threat of new entry is also not very high as it would require new firms to invest a huge amount and time to imitate Amazon (Desai, 2020).
The Value Chain of amazon should be discussed here. Amazon has a division called Fulfilment By Amazon that deals with the company-owned retail business, For external retailers, Amazon does not maintain any long-term contracts; thus they are not very dependent on other entities (inbound logistics). Amazon’s operations take place in a wide area (global) and their profits do not come from any specific country. At the same time their business is diverse (retail, AWS etc.). Amazon also has a fully developed and multichannel outbound logistics system (digital delivery, fulfilment centres, physical stores etc.) which keeps them ahead of their competitors. Amazon invests a huge amount of capital ($22billion in 2020) to market its products properly and this amount kept increasing over the years from 2010 to 2020 (Statista, 2021).Providing exceptional customer services is one of the major qualities of this company; their services include timely delivery of products, fast delivery for prime members, online return policy, quality customer services etc. Their cloud computing division was recognised as the best company in terms of customer services in the UK (2018). The support activities in Amazon's value chain are also very effective. They have a huge number of vertically integrated suppliers (procurement). They maintain a vast customer database that allows them to recommend appropriate products to their customers (technology). They hire highly talented people with values and attitudes similar to the company culture(HR) (researchgate.net., 2021).
As per the Hypercompetition theory proposed by D’Aveni’s, it is difficult for companies to enjoy their competitive advantages for a longer period of time these days as the advent of information technology has made information easily available. D’Aveni suggests that instead of looking for sustainable competitive advantages, companies should look for creating, eroding, destroying and recreating competitive advantages (Hammoud, and Abdallah, 2019). Amazon company is known for its continuous disruption and recreation of new competitive advantages. The primary reason behind their success is their customer centric-approach, they always focus on providing what customers need and want (cnbc.com., 2018). This approach also has helped Amazon to get accustomed to the changes cost by the pandemic and started focusing on ways to serve customers better (e.g. investment in the logistic division).
The profit Formula (VPC) suggests that organisations should maintain a cost structure that allows them to make profits and the price they charge for their services and products should properly complement the value they offer through their products. The chances of making profits are higher forOrganisations that keep their costs low. Amazon always makes sure that their products are as cheap as possible (price) and at the same time customers get a wide range of options. Their huge partner network allows them to negotiate with the suppliers properly and maintain low costs (cost). At the same time, their services properly meet the current needs of customers (value: convenient online shopping, AWS, home delivery, return and so on) (Flamand et al., 2020).
Business Diversification
The topic of business diversification is extremely important when it comes to Amazon. Business diversification can be described as a corporate or growth strategy that companies adopt to increase their market share. Business diversification has several benefits, for example, it increases the overall sales of the company and works as an economic buffer. Companies with diverse business divisions do not depend on any particular client base, which minimises their financial risks. Diversification can be divided into three categories, related, unrelated and both. In the case of related business, companies rely on a cross-business value chain. Unrelated businesses on the other hand have dissimilar value chains. In the case of related diversification, organisations utilise the commonalities of their business to generate economies of scale (Krivokapi? et al., 2017).
Amazon mostly relies on the related diversification strategy and the commonality, in this case, is their online platform and database. All of their businesses operate under the same brand name and they utilise collected customer-related data on multiple platforms to provide convenient services (resource sharing). For example, the membership in Amazon prime video division allows customers to enjoy prime services in the retail division. The popularity of Amazon’s retail division is also helping Amazon to strengthen its advertisement division.Business diversification acts as a competitive advantage in the case of Amazon. Customers can purchase Kindle edition eBooks from their retail accounts (Desai, 2020). These commonalities also have helped Amazon to create economies of scale which is difficult for its competitors to imitate. Thereby it can be said that business diversification is one of the reasons behind Amazon’s success during the pandemic situation despite the presence of other companies that offer similar products and services.
Section 5: Summary
A report published by Fortune (2020) clearly states that "Amazon was built for the pandemic". The author considers Amazon as one of those companies that know how to capitalise on the global financial as well as social crises (Dumaine, 2020). Based on the above discussion it can be said that, the organisational design of Amazon is appropriate for the pandemic situation. Online services are the primary USP of this organisation and they have related diverse business profiles. Within its, industry Amazon faces problems such as fierce competition, and the high bargaining power of customers. However, Amazon's customer-oriented approach, innovativeness and economies of scale help it overshadow its competitors. Amazon has a strong inbound and outbound logistics system, vast operational area and huge resources to invest in marketing and business-related activities. this organisation is also known for inventing new solutions and disrupting the old ones which protect them against uncertain changes. Amazon also provides its customers with high product and servicevalue at low prices. Their business diversification strategy has helped them to develop economies of scale. All of these factors are the reasons behind amazon's huge success during the last year.
However, as mentioned earlier, no competitive advantage is sustainable in this modern world, Amazon needs to make sure that they keep improving the quality of their services as a huge number of large as well as small and medium-sized organisations are imitating the business model of this company. At the same time, the future of the physical stores of Amazon is uncertain as customers are become habituated with the convenient method of online shopping (Kumar, and Kaur, 2018). Therefore, Amazon should not invest a huge amount of capital in this division; rather they should offer more services that are related to multiple platforms operating under them.
References
Bhatti, A., Akram, H., Basit, H.M., Khan, A.U., Raza, S.M. and Naqvi, M.B., 2020. E-commerce trends during COVID-19 Pandemic. International Journal of Future Generation Communication and Networking, 13(2), pp.1449-1452. From https://www.researchgate.net/profile/Ahmed-Khan-67/publication/342736799_E-commerce_trends_during_COVID-19_Pandemic/links/5f04603c458515505091c291/E-commerce-trends-during-COVID-19-Pandemic.pdf
Böttcher, T.P., Rickling, L., Gmelch, K., Weking, J. and Krcmar, H., 2021. Towards the Digital Self-Renewal of Retail: The Generic Ecosystem of the Retail Industry. In 16. International Conference on Wirtschaftsinformatik. From https://www.researchgate.net/profile/Timo-Boettcher/publication/348575303_Towards_the_Digital_Self-Renewal_of_Retail_The_Generic_Ecosystem_of_the_Retail_Industry/links/6009750145851553a05c1564/Towards-the-Digital-Self-Renewal-of-Retail-The-Generic-Ecosystem-of-the-Retail-Industry.pdf
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