Amazon.com Inc Macro-environment - Essay Example

Amazon.com Introduction Amazon.com Inc is an online retailer operating retail websites including Amazon.com and amazon.ca (Annual Reports.com 2011). The company whose head office is located in Seattle, Washington started operations in 1994 and became a public company in 1997 (Funding Universe n.d.). Amazon focuses on convenience price and selection and so one of the services the company offers is that of facilitating the sale of used books, music and a wide array of products on its web sites (Annual Reports .com 2011). The company has used technology to transform the book and music retailing industry significantly. Analysis of the Macro-environment An analysis of the macro-environment using PESTEL indicates that there are major threats and opportunities in the environment. However, it is the company’s ability to utilise these opportunities and by using its strengths to minimise the effects of these threats that will be of importance. In the political environment the company’s sales are subject to both economic and political considerations (AnnualReport.com 2011). There may be restrictions and foreign ownership. In order to meet local ownership and regulatory licensing requirements the company’s Joyo Amazon business is operated by Chinese companies. The economic environment in which the company operates is affected by fluctuations in exchange rates and changes in interest rates. Approximately 45% of the company’s revenues are associated with its international business (AnnualReport.com 2011). If there is a major interruption in telecommunications the company could losing a significant amount of business. The company faces inventory risk if it over stocks as it may be left with goods that are not returnable. On the other hand if it runs out of stock it will lose business. The company only deals with a few shippers any unforeseen circumstances which affect the shipment of Amazon’s products and will have negative implications for the company’s business. The company’s business is seasonal with between 35% and 39% of its annual sales taking place in the last quarter in 2008, 2009 and 2010 (AnnualReport.com 2011). The company faces competition for qualified employees including computer scientist and software engineers. This means that it has to compete on price with companies like Apple in the digital media device arena. In terms of the company’s social environment the employees are motivated by being compensated with shares. This means that they are not just employees but also owners of the company (AnnualReport.com 2011). It is therefore likely that they will work hard to increase the value of the business. In terms of the technological environment the company has expanded its online business with the use of technology. It has utilized this strategy by introducing the Kindle e-reader and in so doing has opened up competition with Apple and others in the digital media device industry. One of its major competitors Barnes and Noble is also competing in that industry as well and has also introduced the Nook e-Reader. However, Amazon.com has managed to increase its sales of Kindle e-readers above expectations since it introduced Four (4) new Kindle e-readers this year (Amazon.com 2011). The relation to the ecological environment, the gadgets that Amazon.com manufactures will have a negative impact on the environment both during manufacturing and at the end of their useful life if things are not put in place vary early to recycle them. However, there is also a positive side in that they will help to reduce the number of trees that are cut down to produce paper. There are a number of threats in the legal environment as Amazon.com operates internationally and may be impacted negatively by changes in government regulations, legal systems which are less internet friendly, and restriction on sales due to enforcement of intellectual property rights (AnnualReport.com). According Los Angeles Times (2011) the company has listed a number of books that it will be carrying in its ‘Kindle Owners’ Lending Library’; however, this has caused a stir among publishers and agents who have not consented to being a part of the program. This may have implications for the continued success of Amazon.com. Analysis of the Industries in which Amazon.com operates According to Fahey (1999) without reference to both customers and competitors, strategy in any business context does not have any meaning. Despite the threats in the macro-environment Amazon.com has faired well in a fiercely competitive environment. Porter’s Five Forces model can be used to analyse this environment. The threat of substitutes is a serious factor that Amazon.com has to contend with. However, Amazon.com has not allowed its business to be daunted by it. The company has managed to stay above its competitors by offering them the ability to look inside some of the books they may want to purchase. Additionally, no shipping is charged on orders above a certain value once the sale is within a certain geographic area. Although it also has an e-reader, it has a disadvantage in that Barnes and Nobel is able to provide in-store support for its E-reader – the Nook. Barriers to entry in the industries in which Amazon.com operate are high because the infrastructure required is very costly. In addition to having a lot of capital, most of the company’s competitors have been around for a long time and have made their names. Amazon.com has helped to increase the barriers to new entrants through a number of mergers and acquisitions. Furthermore, the company’s continued listing on the stock exchange is suggestive of its accountability to stakeholders. Rivalry is intense in all the industries in which the company operates (AnnualReport.com 2011). However, Amazon.com has managed to stay above the competition by way of mergers and acquisitions. From inception the company has established long-term partnerships with various companies including Yahoo!; Excite; and Alta Vista (AnnualReport.com 2011). The company faces competition in the music business from HMV and in the books from Barnes and Noble, Waterstones and a number of other companies. The power of Amazon’s suppliers is fairly moderate. The company’s suppliers include producers of music, publishers of books and wholesalers. Copyright provides some level of control over the distribution of both books and music. Supplies may also be withdrawn because of infringement of intellectual property rights. The power of Amazon’s customers is strong. However, Amazon high does what it does best in order to satisfy their needs in terms of price, selection of items offered, convenience and fast and reliable fulfilment of customers needs. SWOT Analysis Strengths, weaknesses, opportunities and threats (SWOT) analysis is essentially an audit of the resources of a company. It looks at the human, financial and other resources that the company has. A SWOT analysis of the company is shown in the Appendix 1. See also books statistics in Appendix 2. Conclusion and Recommendations According to Walton (1999, p.38) “the more one can manipulate the forces in a direction favourable to oneself the more strategically effective one is.” Amazon.com has been effective in its strategies because it has manipulated the five forces in such a way that it impacted the company favourably. The company has been playing its cards right by making investments based on long-term leadership instead of short term profitability (AnnualReport.com 2011). However, preparation for sudden and dramatic changes in the nature of rivalry among its competitors is critical (Fahey 1999, p. 4). Customers want value and they are willing to pay for it. References Amazon.com (2011 Oct) Amazon.com Announces Third Quarter Sales up 44% to $10.88 Billion; Introduced Four New Kindle Devices for the Holidays. Available Online. Retrieved: http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-newsArticle&ID=1621408&highlight=. [Accessed 4 November 2011] Annual Reports.com (n.d.). Amazon.com Inc. [online]. [Accessed 3 November 2011] Available at: http://www.annualreports.com/Company/1755. Barrons. (2011). GOOG, AMZN Favourites In Bernstein’s Internet Initiation. [online]. [Accessed 4 November 2011]. Available at: http://blogs.barrons.com/techtraderdaily/2011/11/04/goog-amzn-favorites-in-internet-initiation/. Fahey, L. (1999). Outwitting, Outmaneuvering, Outperforming Competitors. USA: John Wiley and Sons Foner Books. (2011). Amazon, Barnes & Noble and Borders Sales Numbers Annual Update. [online]. [Accessed 4 November 2011]. Available at: http://www.fonerbooks.com/booksale.htm. Funding Universe. (n.d.). Amazon.com, Inc. [online]. [Accessed 3 November 2011]. Available at: http://www.fundinguniverse.com/company-histories/Amazoncom-Inc-Company-History.html. Los Angeles Times (2011). Amazons new Kindle lending program causes publishing stir. Los Angeles Times: 4th November 2011. [blogentry]. [Accessed 4 November 2011]. Available at: http://latimesblogs.latimes.com/jacketcopy/2011/11/amazons-new-kindle-lending-program-causes-publishing-stir.html. Walton, J. (1999). Strategic Human Resource Development, UK: Pearson Prentice Hall Whatever Success (2011) Top 100 E-Retailers: Foresee Results Quantifies Relationship between Customer Satisfaction and Purchase Intent. [online]. [Accessed 4 November 2011]. Available at: http://whateverebay.com/top-100-e-retailers-foresee-results-quantifies-relationship-between-customer-satisfaction-and-purchase-intent Appendix 1 SWOT Analysis of Amazon.com Strengths Increasing sales over the years with 46%, 25% and 26% year on year increases for the financial years ended 2010, 2009, and 2008 The company has been profitable since 2001 The company has opened up offices in France Whatever Success (2011) indicates that the company is in the top 5 out of 100 companies that uses online satisfaction to drive purchase intent The company has been given outperformance rating and has been described as a sustainable company with competitive advantages (Ray 2011) The company has consistently increased its market since its 838% increase in sales in 1997. Kindle books are now available at over 11,000 libraries Weaknesses The company does not have any stores to facilitate in-store support The company has never paid a dividend and so does not facilitate investors who depend on dividend to supplement their regular income, like pension schemes. Opportunities There are still opportunities in Asia that the company can capitalize on. So far the company has taken hold of some. Threats Law suits based on copyright infringements against the company Another competitor gaining a better advantage by making the first move in creating more value through the use of technology. A shortage of qualified professionals could drastically affect its business Interruptions in telecommunication could negative impact the business Appendix 2 Book Sales Statistics for 2010 and 2011 Company North American Sales (Books, Media plus coffee, etc:-) Barnes&Noble / B. Dalton $4.36 billion (Not including $1.78 billion from the first full year of the college book store division) Borders / Waldenbooks - (to Q1 2011) $2.25 billion (Down 16% from 2010) Amazon Media (excludes electronics, services - books, includes books, music, DVDs) - 2010 full calendar year $6.88 billion (Amazon International stores sold $8.01 billion in 2010, and growing much more rapidly than North America for the second year in a row). BN.com - 2010 $858 million (Up from $573 million in 2009) Total - 2010 $14.348 billion (Up from $13.483 billion in 2009 despite Borders collapse) Taken from: Foner Books (2011) Read More