Case Analysis Of Amazon Expansionary Growth

Background

Amazon. com simply referred to as Amazon, is an American electronic commerce and cloud computing company based in Seattle, Washington by founder and CEO Jeffrey Bezos. Since the 1990’s, Amazon has been widely regarded as one of the largest Internet-based retailers worldwide, based off it’s growing market capitalization and it’s healthy sales to operating losses ratio indicated a very strong and financially competent company. Furthermore, their aggressive campaigning efforts on establishing new business ventures to invest in, were prioritized over simply procuring profits in a singular niche target market. This strategic business decision at the onset contributed to their growing capitalization of the Internet retail industry. However, Amazon’s managerial and economic prowess was not reciprocated by many of Amazon’s business competitors.

Following the dot. com crash of the early 2000’s, Amazon’s fervent expansion of the online retailer community forced other similar and traditional online retailers in the United States out of business and as a result, were forced to amalgamate with other smaller start-ups to stay afloat. Whereas, major competitors such as Walmart and Best Buy were pressurized into investing more of their time and resources into aggressive online retailing efforts, to prevent their firm grip on the accumulation of the Internet retailing industry from diminishing in market share. Recently, Congress and most notably, the Trump administration were openly admonishing Amazon for undervaluing the U. S. Postal Service by abusing their bargaining power and offering astonishingly low rates on their parcel delivery payment initiatives.

Evidently, Amazon’s continued attempts at penetrating many different target markets were seen as direct threats not only from a business standpoint but from a governmental perspective as well. Their expansionary growth posed problems for many Internet retailers and from a case analysis viewpoint, it is clear that Amazon’s success had certainly not come without a plethora of risks and sacrifices to be had.

Issues

1. Unethical exploitation of Amazon’s bargaining power: The Trump Administration was openly critical of Amazon’s unethical exploitation of the U. S postal service by offering increasingly deflated prices in regards to their parcel delivery rates. Many financial analysts had further pointed out that Amazon paid 50% of the going rate of parcel delivery, compared to what they would have paid out towards using other parcel delivery and supply chain management companies such as UPS. As a result, Amazon was paying less for essentially delivering the same type of parcel.
2. Amazon’s bureaucratic leadership approaches: Amazon stressed the importance of favouring individual performance and productivity over collective team efforts. Bezos himself stressed the importance of a highly centralized form of organizational structure, thereby indoctrinating a strict bureaucratic approach on how the company was managed. In summation, Amazon did not know how to apply and integrate effective “Emotional intelligence” practices within their work culture and as a result, employee turnover rates were high.

On that note, Amazon’s scientific approach to management deterred many of their company employees and created a volatile work environment that valued individual productivity over collectively working towards common business goals.

3. Industry competition: Within the online retail industry, newer and more innovative start-ups have been growing in scope in fairly larger increments since the dot-com crash of the 2000’s. In addition, companies such as Walmart and Best-Buy, have forced more innovative online retailing efforts in order to maintain their influence over the E-tailer market. In response, Amazon have taken the initiative to diversify their product offerings across many different business venues. Thus, giving them a steady competitive advantage across many different playing fields.
4. Category Expansion: Amazon had initially decided to penetrate the clothing industry, by buying out leading U. K. online fashion retailer ASOS. However, leading clothing brands were reluctant to sell on Amazon, until 2017 when leading brand Nike, decided to partner with Amazon to sell sporting apparel. Analysis|1st FrameworkApplying Porter’s 5 forces model. It is integral to apply Porter’s 5 forces model to Amazon’s overarching business structure. Amazon, over the course of its inception, has had to deal with various forms of hyper-competition from external vendors in the electronic commerce and cloud computing industry. Additionally, applying Porter’s 5 forces is a good tool to gauge Amazon’s current methods of Business strategy and identify its current bargaining power to determine the best course of action to take with its corporate strategy.

SWOT Analysis

A SWOT Analysis will be used to evaluate the internal and external environments of a company by identifying and understanding its core strengths, underlying weaknesses, external opportunities and threats. Moreover, the chart below will provide an insight into Amazon’s strategic planning process and clearly identify their strengths alongside their weakest assets. This will provide Amazon to continue to flourish in economic growth and also provide them with a succinct strategic roadmap to overcome their weaknesses and identify their threats.

Recommendations (in order of issues)

1. Exploitation of Amazon’s Bargaining Power (Mid-Long-term): Amazon will have to leverage better tax-paying initiatives towards their primary courier companies. Offering premium benefits and incentives towards partnering courier companies will further encourage brand loyalty and will provide Amazon with discounted shipping prices, without having to exercise unwarranted exploitation of their bargaining power.
2. Amazon’s bureaucratic leadership approaches (Long-term): Suggest providing better employee incentives for hard-working employees, encourage a more relaxed and innovative learning environment and reward progress on collective team effort, as opposed to an individual basis.
3. Industry competition (Long-term): Amazon should continue to diversify their product offerings, become more proactive in servicing community interests and study their competitors online retail marketing strategies. This will ensure Amazon maintains its continued competitive edge over industry rivals.
4. Category Expansion (Long-term): Amazon had decided to venture into new markets and advertise themselves as a leading apparel brand. However, clothing apparel giants such as Nike were initially not welcoming of partnering with Amazon. Amazon could have partnered with smaller named clothing brands to get a feel for the market, before trying to penetrate larger markets to establish themselves. Conclusively, Amazon had already invested their time and resources into several other target markets, (Jewellery, Groceries) so they still do have healthy alternative markets to consider.