Analysis of Amazon's Business Environment and Competitors in E-Commerce

In this document we will discuss about Analysis of Amazon's Business Environment and Competitors in E-Commerce and below are the summary points of this document:- Amazon is a global e-commerce giant selling a wide range of products to consumers worldwide. Major competitors of the company include Alibaba, Walmart, eBay, and Kroger. The report analyses Amazon's business environment through PESTLE analysis and industry competitiveness through the Porter 5 forces model to provide recommendations for the company's success.

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Introduction to management

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Executive Summary
This report outlines Amazon business environment and competitive factors that shape the
industry environment of e-commerce. Amazon is an e-commerce giant selling wide ranges of
products to consumers all over the world. Major competitors of the company includes
Alibaba, Wal-Mart, e-Bay, Flipkart, Kroger, etc.
The company is also increasing rapidly in emerging nations like India and their customer-
centric strategic help in building of positive image all over the world. In addition, company
growth can be seen by its huge numbers of both suppliers and consumers.
In this report, Amazon business environment is analysed with the help of strategic
management tool i.e. PESTLE and also its industry competitiveness through Porter 5 forces
model. This all will help the management to come up with necessary plans and actions.

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Table of Contents
Introduction................................................................................................................................3
PESTLE analysis of Amazon.....................................................................................................3
Porter five forces analysis of Amazon.......................................................................................5
Recommendations......................................................................................................................8
Conclusion..................................................................................................................................9
References................................................................................................................................10

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Introduction
The selected company for this report is Amazon, an e-commerce giant known for its
customer-centric strategies and greater choice of selections. Amazon is chosen due to its
increasing popularity and quick expansion in various countries all over the world. Jeff Bezos
founded the company in 1994 with an objective of online book retailer.
The internal competitive nature of Amazon has been well documented. Jeff Bezos
really excuses this culture because individuals are free to leave the corporation if they not
fitted well. On the outside, the company is very competitive as well. With programs like
Amazon Connect and Fulfilment by Amazon (FBA), the company can continue to profit from
smaller businesses while keeping them behind (Danziger, 2018).
Amazon have distinct retail websites for many nations like Ireland, United States,
United Kingdom, Canada and India. For instance, in India their website URL address is
Amazon.in.
This report further emphasis on Amazon external aspects, which is influenced by
various factors such as political, legal, economic, environmental and technological. In
addition, the company industry environment is also been analysed with the help of Porter
Five Forces model. Several recommendations are also stated for the success of the company.
The report will end with conclusive arguments.
PESTLE analysis of Amazon
Every business environment is surrounded by various external threats and
opportunities that place significant importance for the success of the company. PESTLE
analysis is a tool of strategic management that critically examines various factors that may
affect a business organisation (Bertels, Koen & Elsum, 2015).
As Amazon is operating in many nations, there are number of factors may impact the
decisions of the management, products, and policies. Below, these factors are elaborated –
 Political Factors – For Amazon, political stability can help to diversify the business
all over the globe. However, several political factors may affect Amazon to do their

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business effectively. These includes political red tape, tightening of data regulations,
targeted by EU for disposable income and so on. Considering contemporary
illustrations, Amazon had to sell off its China cloud assets over tightening regulations
over online data (Cadell, 2017). Similarly, EU also targets various American
technological firms for disputable reasons. Hence, Amazon needs to consider these
aspects by expanding into new and emerging markets.
 Economic Factors – More the economic stability, there will be likelihood for the
success of Amazon in extent with opportunities. In an economy, population have
more disposable income which creates various benefits for online retailer as people
will tend to spend more on luxurious items. E-retail grew by a whopping 21% in 2017
and much more growth is projected in this sector in future (Kenwell, 2017). However,
there is also a competition for Amazon as Walmart is putting potential focus on
enhancing their online systems where the people are allowed to buy their products
online. Hence, Amazon is required to focus on all sorts of economic aspects so that to
grab high market share in a respective industry.
 Social Factors – Behind the growth of e-retail, social and cultural aspects also plays a
vital role as they boost the online shopping trends in these recent years. Amazon is
also influenced by these factors. For instance, internet usage is rising rapidly,
however, buying and selling is not part of many cultures. Many individuals in
different nations overlook buying on internet due to many reasons such as uncertainty,
safety and habit (Faqih, 2016). For example, in India, people prefers to shop in
physical retail shops including many items like clothing. Grocery and electronics.
They believe that it helps them to compare, contrast brands and even colours within
seconds of an item catching one eye. Hence, Amazon must focuses on cultural factors
and individuals needs in order to strike a deeper connections with customers.
 Technological factors – In this 21st century, technological factors have grown
tremendously in every sector as for whether it is an online business or traditional
business (Spohrer & Maglio, 2008). Amazon is itself known as a technology
enterprise having numerous development and research centres. One of the major
technological scenarios can be seen with big data analytics transforming all retail
channels and companies. For instance, big data introduced a scientific element to
marketing campaigns. Retail data analytics have the ability to assist organisation stay
up-to-date of the various trends in shopping with application of customer analytics to
interpret, uncover and act on important data insights comprising in-store patterns and

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online shoppers. Hence, Amazon needs to ensure that it equips itself with latest
technology to gain competitive edge in the industry.
 Legal factors – For any business organisation, legal compliance is also important and
for big brand like Amazon to remain compliant with law. On international level,
government are progressively mounting legal challenges against the technology firms
and sectors. For instance, Amazon has been examined by European Union regulators
over antitrust settlements over sales of books and its tax arrangements with
Luxembourg. In addition, Amazon cloud service i.e. AWS cloud are also impacted by
new General Data Protection Regulation (GDPR) approved with European
Commission in 2016 (Edwards, 2016). This will increase cost for Amazon as the
company is required to tweak its cloud service infrastructure which will be needed
several data protection specialists and security experts for the assistance of customers.
So, law can be a major pressure for any organisation that is operating globally.
 Environmental factors – This competitive era required business to follows various
sustainability standards relating to waste reduction, packaging, and energy
consumption. Amazon repels pressure to contribute in carbon footprint disclosure
plan and the organisation also had face several mounting criticisms for lack of
transparency. Any necessary information is not disclosed by Amazon relating to
managing and estimating the data associated to climate change management
(Gonzalez, 2016). The company attitude towards carbon disclosure noticeably stems
from its business model.
Porter five forces analysis of Amazon
Porter’s model when applied to an organisation helps in identifying five competitive
forces that shape every industry. It is also used to explore a structure of industry so as to
define corporate strategy (Porter, 2008).
Porter’s five forces analysis of Amazon explores how many forces are influencing
rivalry in the retail industry and what is Amazon’s position with respect to these forces.

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Source: (E. Dobbs, 2014)
 Competitive Rivalry – The competition in the online retailer is very high. The reason
is that of the increasing numbers of online players in recent years. Major competitors
of Amazon include Alibaba, Flipkart, Wal-Mart and others. In addition, many small
scale retailers and brands are also giving tough competition to Amazon. Moreover,
brick and mortar retailers contribute to intensifying the rivalry in the industry. These
all above mentioned are considered to be direct competitors. However, there are some
indirect competitors also such as Google i.e. world's future source for all video
content having significant impact on business of Amazon in terms of their services
like Amazon Prime Video. Moreover, Google cloud services will also challenge
significantly on Amazon AWS services (Zhang, Cheng & Boutaba, 2010). This makes
Amazon invest more in their development and research centres in order to be the
leader in specific industry.
 Threat of New Entrants – For any start-up or organisation, it is not tough to develop
an online retail store, however, to touch the level of Amazon, it would take much
time, money and efforts. Hence, it can be said that threat of new entrants is low as no
company can achieve a lot of success like Amazon in terms of brand recognition,

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financial management and long product and service differentiation. Amazon spent
closely $23 billion on R&D last year and to take on such a giant, it would require
many other factors too (Molla, 2018). Amazon is continuously able to invest in
research and development to offer online service to its customers in most convenient
and innovative ways.
 Bargaining Power for Suppliers – Amazon has a strong brand reputation in the
market and this helps them to control all their suppliers in the supply chain. The
suppliers are highly dependent on Amazon for a major proportion of their revenue and
list of suppliers is large and they all have to follow set rules and regulations laid down
by Amazon. There are over 2 million sellers globally in case of Amazon, which
depicts for over 40% of the total units sold on Amazon. This also signifies that
suppliers switching cost for Amazon is also negligible (Perez, 2015).
 Bargaining Power for Buyers – Amazon always focuses on customer satisfaction
and product quality however the buyer switching cost is low. In addition, there is an
increasing awareness among all buyers about the latest retail and shopping trends and
what are the number of options they can easily go to. Hence, customers can easily
switch to any other online retailer for the lower price. This makes Amazon bring
innovation in the form of new product portfolio, offline physical stores and also use
full potential of social media to attract a number of customers with help of offers and
deals. Therefore, there is a high bargaining power of buyers.
 Threat of Substitutes – In case of retail channels and Amazon, the threat of
substitute is high as customers can directly purchase the products from the
organisation that have established websites or stores. At the same time, many
individuals still prefer to shop from offline retailer rather shop online. Moreover, one
can borrow the books from library or it can be purchased from the physical
bookstores, electronic product such as Samsung Note and iPad can also be a substitute
for Amazon Kindle. This shows that threat of substitute is high in case of Amazon and
retail industry.

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Recommendations
1. The level of competition will also be increased with the growth of Amazon. Hence,
the company is required to invest in high-technology and focuses on delivering top
quality products and services to the consumers. To achieve this, the company need to
ensure that they met the managerial concept of TQM (Total Quality Management).
TQM is an extensive and structured organisation management approach that intends
towards continuous quality improvement with the help of feedback mechanism. By
employing TQM in their business model, the company can acquire the advantages
connected with TQM. These benefits will be related to increased customer
satisfaction, cost reduction, flaw deduction, and increased morale.
2. Amazon can also expand its footage in the emerging markets which have high
potential to develop economically. In many emerging countries, E-commerce is
underutilised and thus Amazon can grab this opportunity for the growth of their
business. They can also come up with strategic policies that helps address its
technological loopholes so as to advance its system integrity and IT security.
3. The company also needs to address the threats from the various retail and internal
firms like Wal-Mart and Alibaba. To address cybercrime and counterfeiting with help
of intensified IT measures for business and customer security and protection. The
organisation may acquire small local firms who have strong presence in a nation or
district as it will give competitive advantage against these rivals.
4. Amazon should also increase and enlarge their private label business in 2009, with
commodities like batteries and cables. However, they slowly introduce more private-
label business for providing customers a large selection as well as good prices.
Currently, their private label products include Amazon Prime, Amazon Echo device,
Kindle and so on.

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Conclusion
Amazon is an online retailer that has been continuously doing innovation in the field
of technology and e-commerce. The company is also revolutionizing the market with its long-
lasting product portfolio. They fulfils their mission statement every day by being a customer-
centric organisation offering 562 million products at lowest prices.
As the first-mover in the e-commerce industry, Amazon established a perfect online
head-start not only including user convenience but also as reliable and secure platform.
Amazon biggest competitors list in the e-commerce industry includes Alibaba, Wal-Mart, e-
Bay, Kroger and Flipkart. Amazon also has introduced various loyalty programmes which
offers various sorts of benefits to the users when they shop on their website. For any new
organisation who want to come up on online platform, it will be hard for them to compete
against Amazon due to its positive brand image all over the world and high investment in
development and research centre. Overall, Amazon has positioned itself as one of the most
important and successful organisations in the globe.

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References
Bertels, H. M., Koen, P. A., & Elsum, I. (2015). Business models outside the core: Lessons
learned from success and failure. Research-Technology Management, 58(2), 20-29.
Cadell, C. (2017). Amazon sells off China cloud assets as tough new rules bite. Retrieved
from https://www.reuters.com/article/us-china-amazon-cloud/amazon-sells-off-china-
cloud-assets-as-tough-new-rules-bite-idUSKBN1DE0CL
Danziger, P. (2018). Thinking Of Selling On Amazon Marketplace? Here Are The Pros And
Cons. Retrieved from https://www.forbes.com/sites/pamdanziger/2018/04/27/pros-
and-cons-of-amazon-marketplace-for-small-and-mid-sized-businesses/
#7913e8426867
E. Dobbs, M. (2014). Guidelines for applying Porter's five forces framework: a set of
industry analysis templates. Competitiveness Review, 24(1), 32-45.
Edwards, L. (2016). Privacy, security and data protection in smart cities: A critical EU law
perspective. Eur. Data Prot. L. Rev., 2(1), 28.
Faqih, K. M. (2016). An empirical analysis of factors predicting the behavioral intention to
adopt Internet shopping technology among non-shoppers in a developing country
context: Does gender matter?. Journal of Retailing and Consumer Services, 30(1),
140-164.
Gonzalez , A. (2016). Amazon gets an ‘F’ from the Carbon Disclosure Project. Retrieved
from https://www.seattletimes.com/business/amazon/amazon-reluctant-to-share-
carbon-emissions-data/
Kenwell, B. (2017). 8 Retail Stocks That Can Win Despite Amazon. Retrieved from
https://investorplace.com/2017/04/best-retail-stocks-to-buy-ulta-cost/
Molla, R. (2018). Amazon spent nearly $23 billion on R&D last year — more than any other
U.S. company. Retrieved from https://www.recode.net/2018/4/9/17204004/amazon-
research-development-rd

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Perez, S. (2015). Amazon’s Third-Party Sellers Ship Record-Breaking 2 Billion Items In
2014, But Merchant Numbers Stay Flat. Retrieved from
https://techcrunch.com/2015/01/05/amazon-third-party-sellers-2014/
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business
review, 86(1), 78-93.
Spohrer, J., & Maglio, P. P. (2008). The emergence of service science: Toward systematic
service innovations to accelerate co‐creation of value. Production and operations
management, 17(3), 238-246.
Zhang, Q., Cheng, L., & Boutaba, R. (2010). Cloud computing: state-of-the-art and research
challenges. Journal of internet services and applications, 1(1), 7-18.