Introduction to Amazon’s history, mission and strategic posture
Amazon is the largest digital retailer and e-commerce company globally, and provides e-commerce, cloud services, advertising and branded proprietary product lines. These include the Amazon e-commerce platform, Alexa, Kindle and Fire TV devices, and Amazon Web Services cloud and digital solutions. Currently, Amazon is the global market leader in these segments, although incumbents such as Walmart and Alibaba are providing the company with stiff competition. The company’s mission is to provide its stakeholders with the best service and experience possible, in areas such as e-commerce and digital services. With reference to Porter’s generic strategies, Amazon has adopted the cost leadership strategy of providing e-commerce and digital services at the lowest price, which remains consistent with its mission but less appropriate for its current competitive environment, where greater differentiation is necessary to stand apart from aggressive competitors such as Walmart and Alibaba.
Analysis of key issues
This section will analyze Amazon’s key issues using a SWOT (strengths, weaknesses, opportunities and threats) framework, incorporating the key environmental, socio-cultural, economic, political-legal and technological forces impact the firm.
In terms of strengths, Amazon has been highly successful in developing an integrated e-commerce system, advanced digital analytics capabilities and strong supply chain capabilities. These have allowed the company to emerge as the global leader in the e-commerce space, and benefit from the rising demand for e-commerce in emerging markets such as the American Mid-West and East Asia. Furthermore, Amazon has invested significantly in community engagement initiatives through its $2 billion Housing Equity Fund, cloud skills training, and partnerships with nonprofits such as Magic Breakfast. Amazon has also implemented specialised product offerings such as Amazon Fresh, Amazon Pharmacy and Amazon Prime to capture new market segments. Furthermore, Amazon has invested heavily in its cloud capabilities, which have allowed it to build infrastructure, platform and software as a solution capabilities across the technology stack. These have allowed Amazon to diversify into businesses such as computing, analytics and AI, beyond its core business in e-commerce. Furthermore, the company is performing excellently on a financial basis. For the 2020 financial year, the company had net sales of US$386 billion, a year on year increase of 37% compared with 2019, with an operating income of $22.9 billion and a net income of $21.3 billion, buoyed by excess demand from the COVID-19 pandemic (Hahn et al, 2018). Finally, Amazon has strived to continue diversification into new segments, such as music and video streaming and organic foods, through strategic mergers and acquisitions.
In terms of weaknesses, Amazon has faced labor strikes and boycotts due to its treatment and poor benefits for workers. Furthermore, it has faced criticism for its fast-paced and exploitative work culture, which has allowed the company to exceed competitor delivery rates for its Prime fast shipping product. Amazon has also been unable to localize its products sufficiently to keep up with competitors such as Alibaba in China and Lazada in Southeast Asia, which remain dominant in those regional catchments (Hahn et al, 2018).
In terms of opportunities, Amazon should continue to diversify its retail, web services, and cloud services business, and build platform ecosystems similar to Alibaba/WeChat in China. This would allow the company to reap larger profit margins from its ecosystem players. Furthermore, Amazon should continue to invest in sustainable supply chains and energy production, which would present a new, regulatory-compliant form of energy and business for the company.
In terms of threats, the company continues to face regulation over its labor policies and its monopolistic status as the leading e-commerce technology leader in the US. Amazon should therefore invest heavily in a stakeholder engagement strategy to understand the key concerns of its workers and regulators, and collaborate with them to alleviate their concerns. Furthermore, the company faces challenges from incumbents such as Walmart and relatively newer players such as Alibaba in China, which will continue to erode the company’s market share in e-commerce (Hahn et al, 2018).
The key social, political and economic trends facing Amazon are as follows. Foremost, from a social perspective, Amazon has been facing calls to improve its human resource management to provide its workers with a safe working environment and living wages. From an economic perspective, Amazon has been enjoying strong financial performance, but that has also fed a bubble in terms of its market capitalization, which has increased exponentially over the past year. From a political perspective, Amazon is facing significant antitrust investigational scrutiny from the US Federal Trade Commission and US congress over its potential role in suppressing competition in the tech sector (Arnett et al, 2018). Finally, from a technological perspective, Amazon has actively embraced the acceleration of digitalization among enterprises, and has experimented with the use of autonomous vehicles and robots to substitute for workers.
Using Porter’s Five Forces to analyze Amazon’s competitive environment, it is clear that the company faces an increasingly crowded and competitive e-commerce and digital service space. Foremost, the rivalry between Amazon and competitors such as Walmart, Alibaba and Sea Group (for e-commerce) and Google (for digital and cloud solutions) has accelerated, eroding Amazon’s market share. While barriers to entry still remain high for establishing end-to-end e-commerce and digital solutions platforms, the growing emergence of niche players in a fragmented e-commerce and cloud solutions space has demonstrated that barriers to entry may fall in the future. This may result in greater competition for Amazon. Furthermore, buyers have come to expect shorter delivery times and lower prices amid the rising competition, which has increased their buying power, while low-priced substitutes by the likes of Alibaba, eBay and Sea Group have continued to erode Amazon’s market share (Arnett et al, 2018).
In terms of the organization, Amazon’s management has been led successfully by Jeff Bezos, and the company’s executives continue to retain a plurality of the corporate stock. However, the management has been criticized for being slow to move on antitrust issues and fair labor practices (Bloodstein, 2018). The organizational structure is fairly hierarchical, but remains sufficiently cross-functional as to continue to encourage autonomy and innovation at the local level. Marketing, operations and financial management have been professionalized in recent years, with significant responsibility given to local state or country teams to run their own marketing and operational processes. Culturally, the company also benefits significantly from a customer-driven and customer-focused mindset, which continues to encourage Amazon teams to constantly take customer perspectives and value to the customer into account (Arnett et al, 2018).
Reviewing the above analysis, it is clear that Amazon’s critical success factors lie in its technological and supply chain capabilities, alongside its relentless focus on customer needs and customer service excellence, while its weaknesses lie in its compliance to existing regulation. It is clear that Amazon is a highly efficient, diversified and agile company, and continues to be a market leader in the e-commerce and cloud solutions sectors despite its longstanding dominance. However, Amazon needs to reform its regulatory compliance to continue to retain its license to operate.
Formulation of case for reform using Strategic Management
Amazon’s management can improve in ensuring the long-term survival of the company by ensuring stronger compliance to antitrust regulations and fair labor practices. Currently, it is clear that Amazon is performing very well from a financial and operational standpoint, and that its customer needs are well met. However, frequent labor strikes and labor organizing, alongside continued antitrust investigations, demonstrate how the company is increasingly seen as an exploitative employer and monopolistic tech giant whose actions have been harmful to the interests of its workers and the general public (Bloodstein, 2018). For example, Amazon has been accused of surveilling worker activism and involvement in labor unions, violating COVID-19 safe distancing principles in their warehouses, and providing sub-optimal pay, paid break privileges and health benefits. Hence, Amazon needs to invest more heavily in engaging workers and regulators to rehabilitate its reputation as a responsible player.
Implementation: Evaluation of recommendations for Amazon
Amazon should focus on engaging stakeholders beyond its customers and shareholders, to embrace and meet the needs of its regulators, partners and workers. This would ensure that it continues to have a strong license to operate and remains a competitive employer in retaining and attracting top talent. Amazon should thus invest in a holistic stakeholder management strategy to engage workers, labor unions and regulators on how to best meet their needs.
This strategy would include the following key steps. Foremost, Amazon should recognize the potential for accepting unionization as part of its labor policies and raising minimum wages for its workers, alongside working with regulators on the antitrust investigation led by the U.S. Federal Trade Commission. Amazon should aim to be transparent, particularly on thorny issues such as data usage from third-party sellers on its platforms. Amazon should also divest from loss-making segments, such as those of its globally-focused online stores, in favor of more profitable divisions such as Amazon Web Services. Finally, Amazon should continue to move forward with its diversity and inclusion efforts, and ensure greater gender and ethnicity-based diversity on its board of directors and workforce (Arnett et al, 2018).
Conclusion
Amazon will remain dominant in its e-commerce and cloud service positions, and its prospects for growth and profitability will continue to be strong. However, the company needs to consider how to more effectively engage its workers and regulators to avoid potentially costly lawsuits, boycotts and regulatory censure and provide a safe, responsible workplace for its employees, in order to continue preserving its reputation and license to operate. Even as CEO Jeff Bezos hands the mantle over to incoming CEO Andy Jassy in the third quarter of 2021, it remains to be seen how Amazon will continue transforming itself.
References
Arnett, J., Goldfinch, B., & Chinta, R. (2018). Multi-dimensional nature of innovation at Amazon. International Journal of Business Innovation and Research, 15(1), 1–13. https://doi.org/10.1504/IJBIR.2018.088461
Bloodstein, B. (2019). Amazon and Platform Antitrust. Fordham Law Review., 88, 187. Retrieved from https://heinonline.org/HOL/LandingPage?handle=hein.journals/flr88&div=9&id=&page=
Galloway, S. (2017). The four: the hidden DNA of Amazon, Apple, Facebook and Google. Random House.
Garner, B. A. (2018). Amazon in the global market. Journal of Marketing and Management, 9(2), 63–73. Retrieved from https://gsmi-ijgb.com/wp-content/uploads/JMM-V9-N2-P06-Blake-Garner-Global-Market.pdf
Hahn, Y., Kim, D., & Youn, M. K. (2018). A Brief Analysis of Amazon and Distribution Strategy. The Journal of Distribution Science, 16(4), 17–20. https://doi.org/10.15722/jds.16.4.201804.17
