Amazon Pestel Swot

Part 1: A Stakeholders Analysis using the Power-Interest Matrix The following have been identified to be stakeholders of Amazon.com              Merchants, content providers and partners Investors and Stockholders Government and legislature Employees Customers Suppliers Third Party sellers Visitors to the Amazon.com website Competitors Online Advertisers Distributors Online Content creators –IT support Content and rights owners

High

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Suppliers Online Content creators –IT support

       

Power

Customers Employees Investors and stockholders Competitors Advertisers Government and legislators Merchants, content providers and partners Content and rights owners

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Visitors to the Amazon.com website

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Distributors Third Party Sellers

Low Low Interest High

PESTEL ANALYSIS Political: Amazon.com operates across several countries, each having their own political environments. In the United States, it invests heavily in lobbying the United States Congress, the Federal Communications Commission, and the Federal Reserve to influence legislation of laws which may impact its business processes (Yeager & Leonnig, 2013) Increasing pressures on governments to raise tax revenues have resulted in a clamour to tax online retailers such as Amazon even in locations where they do not have a physical presence especially within the European Union and United states, while countries like China are imposing tighter regulations on online content including Amazon.com (Anon., 2013) In recent times the push by the United States government to shut down the WIkileaks website which was hosted by Amazon is another example of the amount of influence governments can exert. Economic: Due to its scope of operations, Amazon is affected by global and local economic changes, such as the global economic crises which resulted in lying off or staff by many organisations including Amazon which resulted in reduced spending especially on items perceived as non-essential. Rising international oil prices has only resulted in increased shipping costs between the suppliers and consumers. Amazon has adopted a strategy of reducing cost utilising distribution channels to deliver orders and only keeping a fraction of products in stocking will help insulate it to an extent from any economic downturn Social: Issues such as literacy rates, social habit, spending power, religious beliefs, tastes, population growth and distribution etc. contribute to the uptake of ecommerce and online services. In highly literate states, the growth of e-commerce services is faster and in some states the use of technology and the internet is discouraged for religious reasons which will adversely reduce the growth of Amazon.com in these areas Technology: E-commerce services are highly dependent on underlying technologies and are subject to rapid changes. Access by individuals to telecommunications services and the internet is also critical to drive usage of such services as increased access will increase the usage of services and provision of content via the various available platforms

Legal: Amazons e-commerce service is not limited by geographical borders, which raises a lot of legal complexity especially with regards to jurisdiction across several countries, especially where it doesn’t have a brick and mortar presence. Issues such as customer protection from issues such as poor service and cybercrime as well as taxation are still causes for concern across the various locations. Environmental: Issues such as ethical business practices by third party service providers, suppliers and distributors are of concern. Sales of Whales on the Amazon Japan website (Environmental Investigation Agency, 2013) other endangered animals and illegal products on its various platforms despite restrictions imposed by the organisation by dubious suppliers who rename such items Issues such as environmental pollution from vehicular emission from its various distributors and from its server and offices are also factors to consider

Porter 5 forces Threat of substitute products and services: The existence of locally available substitutes such as brick and mortar bookstores, pharmacies and other online retailers such as Barnes and Nobles, Argos and Half price books, as well as university libraries offer sources for the purchases of books, sources such as iTunes, Virgin megastores etc. offer music on online platforms Other items offered by Amazon are also easily available at specialist stores like Ikea, Toys r us etc and neighborhood supermarkets and malls which supply mainstay household products. Amazons main strengths are their patented technology such as click 1 ordering which are difficult to duplicate The threat of substitute products and services is high

Threat of the entry of new competitors: Due to the scale of operations of Amazon.com, providing a variety of products across various countries and its strong reputation, it would be difficult for any startup company to seriously challenge it in the market especially given its broad offerings and product differentiation and its well-developed supply chain structure. In the event of the entry of a new competitor it would need to invest substantially financially to be able to compete favorably with Amazon and to achieve this it would need to charge higher or at the least offer competitive pricing, while Amazon has sufficient economies of scale to drop its own prices

Intensity of competitive rivalry Competitive rivalry is high but should not impact Amazon negatively due to its wide variety of offerings, excellent customer services and its experiences with offering these services. Its direct competition includes Barnes and Noble, eBay, Yahoo!Auctions, Google, Yahoo, Ask.com, iTunes, BestBuy etc., and also indirect competition from brick and mortar stores, and other formal and informal suppliers and service providers While most of these outlets offer specialized services and products, Amazons offers a variety and differentiated products at costs which can be driven down by efficient supply channels and economies of scale Bargaining power of customers/buyers The bargaining power of buyers is high. Amazon.com’s customers have the option of buying the various products and services they need on the many other retail web sites on the internet and also from various brick and mortar stores within or outside their localities. Where prices or quality of product is not competitive enough, the customer or buyer does have several possibilities of procuring such services Bargaining Power of Suppliers Amazon cannot operate without its suppliers and partners as it does not operate production plants or facilities. However due to its large product offerings it operates with a large number of suppliers at any given time making it possible to change or add suppliers based on its needs and the suppliers ability to provide the required quantities and quality The bargaining power of its suppliers is medium to high Analysis of Amazons core competencies A core competency is a specific factor that a business sees as central to the way the company or its employees work (Prahalad, 1990). It fulfills three key criteria: 1. It is not easy for competitors to imitate. 2. It can be reused widely for many products and markets. 3. It must contribute to the end consumer's experienced benefits and the value of the product or service to its customers Amazon is the world leader in e-commerce and online retail and has in its 19 years of operation developed competencies in various areas of commerce, technology, supply chain management, distribution and logistics as well as customer service. It’s one click and buy system further sets it apart from the rest of the field. Amazons core competencies are its unique mix of a broad supply and logistics chain linking products from various parts of the world from suppliers via various channels to its consumers and a welldeveloped technology infrastructure from the click and buy functionality on its web pages to its customer analysis databases which shows the customers buying trends and then emails product suggestions.

Its broad selection of suppliers, third party partners, content providers, content owners and creators and its ability to manage them to provide a broad and differentiated range of products at low prices for its various customers is also a competence that is difficult to replicate SWOT analysis Amazons Strengths, Weakness, Opportunities and Threats are as follows; Strengths:          Economies of scale Supply chain and Distribution network Low prices Efficiency and Speed of delivery Good customer service Good customer management Use of technology Globally recognized brand Diverse product portfolio

Weaknesses:     Intangible product offerings Low profit margins Low barrier to entry High cost of Technology development

Opportunities:    Expansion into new and emerging markets in regions such as Africa and South east Asia Expansion of product portfolio via acquisitions Development of its own products and private brands to improve its brand presence

Threats:        Government policies such as tax legislation, restriction of online activities etc. Attacks and disruption to mobile networks and internet facilities Possible alliances by competitors Brick and mortar shops Increases in international oil prices and other global economic issues which can affect spending power of customers Internet and online security Increased transport and distribution costs

Part 2 Limitations of Porters 5 model The model focuses largely on the impact/influence of competition on a firm’s business activities and how the firm should react to those influences, missing other elements like strategies which can help the organisation build capacities such as strategic alliances, virtual enterprise networks as well as the unique capabilities the firm itself brings to its industry etc. The model assumes a static and non-complex market structure with a firm already in completion with other organisations. It doesn’t necessarily take into consideration factors such as technological advancements, non-market force factors such as changes in government legislation and other factors that can change business models and reduce entry barriers for new start-ups while also affecting the competitive advantages of existent organisations (Wikianswers, n.d.)

Bibliography Anon., 2013. Senate Approves Bill Allowing States to Tax Internet Purchases. [Online] Available at: http://www.cnbc.com/id/100710129 [Accessed 6 May 2013]. Environmental Investigation Agency, 2013. Environmental Investigation Agency: Amazon.com Profits From Slaughter of Whales. [Online] Available at: http://www.prnewswire.com/news-releases/environmental-investigation-agencyamazoncom-profits-from-slaughter-of-whales-139871013.html [Accessed 8 Juy 2013]. Prahalad, C. a. H. G., 1990. Harvard Business Review. The core competence of the corporation, 68(3), pp. 79-91. Wikianswers, n.d. Disadvantages of five forces model by Michael porter?. [Online] Available at: http://wiki.answers.com/Q/Disadvantages_of_five_forces_model_by_Michael_porter [Accessed 9 September 2013]. Yeager, H. & Leonnig, C. D., 2013. As its business grows, so does Amazon’s D.C. lobbying presence. [Online] Available at: http://articles.washingtonpost.com/2013-08-06/politics/41133854_1_marketplacefairness-act-sales-taxes-michael-mazerov [Accessed 8th September 2013].