Competition, Innovation, and Regulation - the Australian Retail Sector - Case Study Example

COMPETITION, INNOVATION, AND REGULATION Name Institution Professor Course Date Introduction In the contemporary world, technological advancements have revolutionised the business world. The establishment of electronic network such as the internet has contributed greatly to the evolution of online shopping. The radical technological innovation, particularly the internet has major impacts on business competition and the economy. Internet is now largely used in retailing with online retailers such as Amazon.com changing the retailing business. The competitive advantages instigated by the novel internet technology are so powerful that established competitors cannot afford to ignore it. Technological innovation has been instrumental in the growth and expansion of Amazon. The firm is set to land in Australia very soon. The retailer has a business model that priorities reduced prices and loyalty and a management that focuses on short-term profits with the main aim of maintaining long-term dominance in the retail market. Given its unfair advantages that are not enjoyed by other firms, the Australian retail sector is feeling threatened by the entry of Amazon in the country. The focus of this essay is on how the Australian retail sector will respond. Amazon Business Model Amazon.com is a cloud computing and an electronic commerce firm based in America. The firm was established is 1990s and has transformed into the biggest internet-based retailer in the globe. Amazon began as an online bookstore and it has now diversified its product lines. The company now sells jewelleries, toys, sporting goods, housewares, food, apparel, furniture, electronics, video games, software, books, music, USB cables, CDs, Blu-rays, DVDs,Audiobook streaming/downloads, shoes, magazines and computers. Amazon holds separate retail websites for different nations among them the UK, USA, Mexico, India, Canada and Japan to mention but a few. Amazon.com targets customers who want to find good deals and buy products conveniently over the internet. The company has established a good name in the retail market. Amazon enjoys good relationships with its customers an aspect that enhances its sales and market share. The company is rated as the most innovative company of 2017. Its technological complexity makes it possible for consumers to interact with its products. The company’s CEO, Jeff Bezos ensures that each platform serves its clients in the fastest and best way possible. The CEO ensures constant evolution that has allowed the firm to test adjacent areas and then develop them into franchises. The website that initially focused on books only, now allows anyone to establish a storefront and trade just anything. It has centred in making online shopping experience possible. The phenomenal development of Amazon is partially because of technological innovation. Evidently, innovation is a major part of the company’s DNA with refining technology enhancing and improving customer’s experience. Innovation gives Amazon a competitive advantage. Amazon is the biggest innovator in the world offering different products. The company hold a few unfair benefits that most firms in Australia and other nations do not enjoy. As such, the firm does not prioritise profit or profit margins, but it posts a surging growth in revenue. Despite its less focus on profit, the firm has little debt. While most other companies targets net income, Amazon focuses on maximising free cash flow (McDuling 2017). The sum generated by Amazon.com retail operations is used in developing the firm’s logistics and infrastructure. The developed logistics and infrastructure helps in getting the products to where consumers need them at cheaper prices. The timely delivery of products besides reduced prices inspires consumers to buy more. The firm has established an artificial intelligence powered doorkeeper referred to as Alexa, which facilitates ordering of products (McDuling 2017). Amazon receives revenue for holding stock with half of its revenue coming from third-party merchants. Due to its continuous innovation, Amazon has changed itself from an online bookseller into a completely an e-commerce titan. The firm enjoys an extensive market share. As a result, Australian retailers view its imminent landing in Australia as a threat. According to McDulling (2017), Amazon enjoys several advantages that are not enjoyed by other firms. Key among them is a tolerant shareholder base that supports the firm religiously besides increased customer loyalty due to reduced prices. Firms are bracing themselves for the imminent threat posed by Amazon. These firms need to understand what makes Amazon so rigid to beat. In Australia, Amazon has take out two-hundred and fifty trademarks that covers thirty classes of services and goods (McDulling 2017). The firm is set to be fully operational in Australia by mid 2018, selling its wide assortments of products. This has instigated worries in the Australian retail market with some Australian retailer executives such as Westfarmers CEO, saying that they are ready for the arrival of Amazon while others such as Harvey Groom describing Amazon as parasites who should be prevented from entering Australia. These retailers consider Amazon as a big monster and a frightening competitor that jeopardise their businesses. Given that Australian retail sector has never experienced the threat like the one prompted by the arrival of Amazon, the retail market sector calls for proper regulation. Response by Aussie Retailers: Innovation, Superior Service & Low Prices Australian retailers promise to fight multinational threat through innovation, superior service and low prices. However, knowing your enemy before going to war is paramount. The executives of Australian retailers such as Harvey Gerry confirm that Amazon will experience a tougher war in Australia (McDuling 2017). The retailers need to be prepared and understand what makes Amazon a major threat in the retail market. These retailers must learn to be innovative like Amazon. Evidently, innovation will continue to transform the Australian retail sector. Innovation is making competition challenging and unpredictable. Incumbent retail firms are confronted by swift novel entrants and, therefore must make tough choices. One of the best way to respond to multinational threat is to counter the new entrants with improved business models that promotes change and expansion. Technological innovation instigates waves of destruction in economies thereby allowing firms to constantly revolutionise and recreate themselves competitively. Evidently, economies grow via such innovation although at the expense of companies left behind by novel innovators. Trying to replicate Amazon approaches will not yield the required results. Instead, firms need to be innovative and unique in their own ways. The Australian retailers such as the Harvey Norman, has sworn to counter the threat of Amazon through reduced prices and superior service (McDuling 2017). Other retailers such as the Richard Goyder, Westfarmers chief executive, focuses on being more competitive an innovative. Goyder asserts that if Australian retailers do not respond by being more competitive and innovative, Amazon will sweep away their consumers. It is evident that the imminent arrival of Amazon is a game changer that would inculcate a major disruption on Australian retailers thereby requiring these retailers to respond wisely. Besides reducing their prices, the Australian retailers need to improve their distribution system. This is because Amazon dominance has been as a result of effective automated distribution system besides low prices. The entry of Amazon in Australia brings great prospect for digital transformation and innovation in the retail sector that has been ruined by excessive prices, lack customer focus and limited competition. Regulation Regulation is another feasible way of countering the threat of Amazon in the Australian retail sector. According to Davidson (2017, p.65), demand for regulation rose following the perception that large businesses could take over the interests of the smaller businesses. The signalled interest of moving into the Australian economy by Amazon requires the intervention of government. Evidently, government intervention is the only realistic way of dealing with big innovators like Amazon. Regulation by Australian government is designed to guarantee fair competition, integrity in the market and adequate protection of the parties involved (Davidson 2010, p.65). Although international accords affect the Australian business environment, Australian government determine regulatory requirements for businesses. The regulatory controls are focused on ensuring a safe, competitive and efficient market for a strong economy. Australia records a rise in regulatory agencies. There are several theories of economic regulation that ascertains the reasons of regulating competition. The economic theory of regulation is divided into three segments that include the public interest theory, the special interest theory and the capture theory. Regulation is the best viewed as a vehicle where a State’s power is leveraged to attain market outcomes that are not sustainable under competition. Regulation is necessary when there are concerns for market dominance of the biggest firms (Davidson 2010, p.65). Evidently, Australian retailer sector has be guided by market structure and geography. However, globalisation and technological advancements have opened ways for other businesses. In essence, Australian retailers find it hard to compete with Amazon. The threat posed by Amazon and the resistance from Australian retailers who are not prepared requires the Australia government to provide a dispute resolution mechanism. The government also needs to establish rules that should direct economic transactions and behaviour. With respect to the public interest theory, the government regulates to correct different market failures. The theory holds that regulation is applicable in response to public demand for the correction of inequitable and inefficient market practices. The public interest theory holds that regulation is done in the best interests of the public or the society at a large to (Davidson 2010, p.65). This theory does not fit in the regulation of competition informed by the imminent arrival of Amazon because the resistance of Amazon in Australia is by the Australian retailers and not by the public or the society at large. Citizens are relevant in the public interest theory as this theory protects them from market failures. The situation in the Australian retail sector requires a focus on the special interest theory or the capture theory of economic regulation. The special interest theory surfaces from the activities of groups or individuals inspired to maximise their self-interests. The capture and special interest theory of regulation put forward that industries seek out regulation to establish barriers to entry of novel rivals and to maintain productivity. Some of the Australian retailers led by Gerry Harvey want to block the entrance of Amazon in the Australian retail sector. These retailers fear intense competition from Amazon that may negatively affect their profitability. Barring Amazon through seek regulation is a feasible way to respond to the threat of the biggest innovator in the world. Although excessive regulation hinders economic growth besides undermining corporate vitality, those threatened by the arrival of Amazon in Australia believe that regulation is the only feasible way that will keep Australian retailers operational. Particularly, the Australian retailers would like pricing of Amazon harmonised with that of local retailers. However, establishing credible regulation system imposes costs on both the businesses being regulated and the government undertaking the regulation. Certain regulations may also hinder innovation and establish barriers to entry that lowers efficiency. More so, regulation imposes increased costs in corporations and consumers. For instance, the Australian consumers cannot enjoy the low prices offered by Amazon if the government regulate the country’s retail sector. Evidently, regulatory action imposed following the imminent entry of Amazon in Australia could lead into increased product prices for consumers. It is worth noting that regulation instigates both indirect and direct costs. According to Davidson (2010, p.65), the direct costs includes administrative and compliance costs while indirect costs include decline in innovation, delayed development of product and lowered productivity. Regulation that would mean barring of Amazon entry in the Australian retail sector would mean hindering innovation and reduced economic expansion. Apparently, the costs linked to regulation are borne by consumers. Conclusion The digital technology has created a whole novel world of prospects and ability to engage clients. Amazon has greatly dominated the retail market. Its planned entry in Australia poses a great threat to Australian retailers. The firm is expected to destroy the Australian retail industry through its focus on low prices and improved distribution systems. Some of the Aussie retailers are unprepared for the entry of Amazon while some are planning to respond through superior products and services and low prices. The retailers are becoming bright and intuitive enough to sidestep some of the issues presented by Amazon. These retailers are focusing on being more innovative and competitive besides seeking for regulation that is aimed at ensuring fair competition. For Australian retailers to remain relevant, they must adjust their pricing strategy, evolve their business models, become innovative and develop enhance distribution systems. References Davidson, P. S 2010, ‘Productivity enhancing regulatory reform’, Australia Adjusting, 64-69. McDuling, J 2017, ‘How Amazon works-and why Aussie retailers are at risk of getting crushed’, AFRWEEKEND. Accessed from http://www.afr.com/business/retail/amazon-for-bumper-20170320-gv21pn#ixzz4eUHmRDk3 Read More