RMIT BUSM1227: Amazon's International Business Strategy in China

This essay critically analyzes Amazon's international business operations, focusing on its struggles in the Chinese market. It begins with an overview of Amazon's global presence and the impact of globalization and international business on its operations. The essay then delves into a comparative analysis of the national cultures of China and the USA, utilizing Hofstede's model to highlight cultural differences and their impact on Amazon's business. It examines Amazon's market entry strategy in China, specifically its acquisition of Joyo.com, and evaluates its effectiveness using Porter's Diamond Model. The essay also discusses the company's failure to adapt to local market trends, particularly regarding delivery speed and customer expectations, and the resulting competitive disadvantages. Finally, it touches upon Amazon's social responsibility and potential action plans, referencing the United Nations' principles for managing the working environment, providing a comprehensive overview of Amazon's challenges and strategic considerations in the Chinese market.

International Business

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Executive Summary
This essay will carry out a critical analysis on Amazon; one of the leading multinational
organizations with its headquarter in the US. The host country is chosen in order to complete
this essay in China. A comparison of the national culture of China and the USA has been
discussed in this paper. Further, the market entry strategy and the alternative actions taken in
order to handle the international operation of the company have also been discussed. The
action plans in order to handle the relevant social issues have been analyzed in this essay.

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Contents
Introduction................................................................................................................................3
Part 1: Background of Amazon and Industry Analysis..............................................................3
Q1. Brief profile of the company...........................................................................................3
Q2. Effect of globalization and international business on Amazon.......................................4
Part 2: Analysis of the host country i.e. China and Amazon’s entry strategy in China.............5
Q3. Comparison of national culture between the host country and home country and its
impact on the operations........................................................................................................5
Q4. Concept of entry strategy, its benefits and the strategy applied by Amazon in entering
China......................................................................................................................................7
Q5. Actions are taken by me in order to handle the international operation of Amazon.......8
Part 3: Social Responsibility and Action Plans..........................................................................9
Q6. Analysis of Amazon as a socially responsible company.................................................9
Conclusion................................................................................................................................11
References................................................................................................................................12

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Introduction
The e-commerce organization Amazon is a global firm that has dominated the market
of various regions, but since, stepping its foot into the Chinese market, the organization has
been continuously struggling. Even after staying in the Chinese market for 15 years, the
organization has only acquired 1% market share. The market size of e-commerce in China is
identical to the market size of the United States of America, but Amazon has struggled to
replicate its success in China, as it failed to incorporate the local market trends followed in
China. It is due to this reason that the organization failed to manage the local competitors. In
addition to this, the organization failed to fulfill the basic needs and demands of the
customers. Moreover, the organization was unable to accomplish any prominent competitive
advantages that would have helped the organization in increasing its market share. In this
assignment, various different aspects have been analyzed to examine the impact of
globalization and international business on the organization Amazon in China. Along with
this, the importance of fulfilling corporate social responsibility is also examined, according to
the ten principles issued by the United Nation for managing the working environment of an
organization.
Part 1: Background of Amazon and Industry Analysis
Q1. Brief profile of the company
Amazon is one of the leading multinational organizations with it’s headquartered in
Seattle, Washington. The company focuses on digital streaming, cloud computing, e-
commerce and different types of artificial intelligence processes. Amazon basically deals
with electronic products, apparel, household items, groceries, and food items. However, it has
been found that a major portion of the company’s revenue is earned through the sale of
electronic products. Further, it is trying its best to compete with the top big four companies
such as Google, Facebook, and Apple. Amazon is known for its disruption among the well-
established industries for its technological innovation. This company is the world’s largest e-
commerce site and it is the second-largest private employer in the US (Amazon.com).
Amazon was formed by Jeff Bezos in 1994. The organization became public in 1997.
In 2002, the organization has started Amazon Web Services that provide data on the web,
handles the traffic on the internet and finds out statistics for the developers and the marketers.
In 2006, the company has started the AWS portfolio and this helps to manage and store the
data through the inventory process. Further, in 2012, the company has started the Amazon

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Kiva System in order to automate the system of inventory management, carry out the
purchase of the whole food items in a systematic way. On the other hand, it has been found
that in 2000, the US toy retailer known as R tied up an agreement with Amazon for a period
of 10 years and thus the sales process has grown by $50 million (Hiltunen 2017). There are
third-party sellers involved with the company and thus it has been found that the company is
successful in handling and carrying out the entire process in a systematic way. In 2018,
Amazon has tied an agreement with Apple Inc. in order to sell the product through this
particular service. The company has also joined Apple as Authorized Reseller in 2019. The
services provided by Amazon include Amazon Fresh, Amazon Prime, Amazon Web
Services, Amazon Drive, Echo, Kindle, Music Unlimited, Amazon Wireless, Fire TV, Videos
and many more. Amazon is operational in five continents of the world. However, there are
some countries in these five continents that have chosen Amazon to deliver the services and
products (Watson IV et al. 2018). The countries include China, India, Japan, Turkey,
Singapore, France, Germany, UK, Us, Australia, Netherland, Brazil, Spain, Mexico, Canada
and many more.
Q2. Effect of globalization and international business on Amazon
The organization Amazon has developed a strong place for itself in the American
market with its fast and efficient services. It is due to its success in America that the
organization has entered various geographical regions. But, the organization has suffered a
humongous defeat in China due to globalization and international business approaches.
According to the Uppsala internationalization model, when an organization enters a new
market or internationalizes then, they need to focus on four main aspects, which include
knowledge about the new market, making effective decisions, creating foreign sales
subsidiary, and the organization current activities that should adapt new changes according to
the new geographical region (Vahlne and Johanson, 2017).
According to this internationalization model, the Uppsala theory highlights the fact
that for internationalization it is important for organizations to have adequate knowledge and
the commitment to the market should be exhibited in their decisions. For globalization, this is

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paramount. The commitment to the market can be elaborated as the utilization of correct
resources according to the preference of the customers. The organization Amazon failed to
fulfill this major aspect of internationalization theory while functioning in China. The
organization Amazon failed to match the local competitors' delivery speed. Chinese
customers want extremely quick order delivery like overnight delivery. In addition to it,
Chinese customers also expect free delivery from organizations (Tullman, 2019). The
organization Amazon failed to fulfill both these aspects, as they did not change its operation
process according to the working environment of its competitors. The organization's
ignorance of one of the most crucial aspects of the Uppsala internationalization model has led
to a humongous loss in China, increasing the risks of shutdown in China. This has led to a
huge competitive disadvantage for the organization and Amazon’s expensive in-market
structure and high labor cost worsens the position of the organization in the Chinese market.
According to the Uppsala internationalization theory, an organization needs to have
massive information about the foreign market for effectively entering a global market. In
addition to it, for internationalization, the organization needs to operate in a step-by-step way,
which also needs to incorporate the various changes according to the local trends and the
needs and preferences of the targeted customers. The organization Amazon is impacted by
globalization as it cannot match with the local competitor’s services and failed to fulfill the
needs and preferences of the Chinese customers.
Part 2: Analysis of the host country i.e. China and Amazon’s entry strategy in China
Q3. Comparison of national culture between the host country and home country and its
impact on the operations
The comparison of the host country, China and Amazon’s home country the USA is
discussed below with the help of Hofstede’s model

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Fig: Comparison of China and USA using Hofstede’s model
Source: https://www.hofstede-insights.com/product/compare-countries/
In the above figure, it is evident that China’s ranking is 80 in power distance indicator
and this states that inequality exists among the different sections of people. The USA scores
40 in the power distance indicator and thus it can be said that Amazon can carry out its
business in a systematic way. The low power distance highlighted that Amazon can sell
different products and provide services to the citizens of a country at a standard rate. In the
case of individualism, it has been found that China’s ranking is 20 and the USA’s ranking is
91. The culture of China is highly collectivist and thus the hiring and the promotions of the
people are the most important concern. Moreover, employee commitment is low in China.
This cannot be considered as an advantageous position for Amazon to carry out its operation
in China (Hofstede.com 2019). Moreover, China is driven by a high score of masculinity i.e.
66 and this indicates that there is a higher level of competition in the market. Amazon must
try its best to sell its better products in China as there are many other competitors in China
selling the same products at a much cheaper cost. The masculinity aspects of the USA and
China are similar and thus it will be easier for Amazon to carry out its business activities
(Hofstede.com. 2019).

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The current national culture of China depicted that the Chinese people preferred to
carry out small talk at the beginning of the meeting. This will help in building a strong
relationship and thus it will be profitable for Amazon to carry out its business (Zeng and
Glaister 2016). Further, Chinese people also prefer to extend the negotiation process beyond
the current deadline. This will help them to gain advantage and thus Amazon can easily
establish its business in China (Cultural Atlas 2019). The people of the USA prefers to build
more connection and this is likely to strengthen their business base. This concept of the USA
and the Chinese people are similar and thus it will help Amazon to expand its business.
However, the people of the USA do not prefer socialism and this is the opposite in the case of
the Chinese people. This clearly depicts that Amazon can earn more profit by developing its
business (Today Translation 2019). Therefore, the major similarities and the differences
between the two countries have been clearly evident in this section.
Q4. Concept of entry strategy, its benefits and the strategy applied by Amazon in
entering China
The organization Amazon entered China market by purchasing an online bookstore,
Joyo.com. Later, the organization changed the name of Joyo.com to Amazon.cn. This market
entry strategy is known as an acquisition strategy. The organization utilized the market entry
strategy of shifting the customers of Joyo.com, for attaining their market share. According to
Porter’s Diamond Model of internationalization, national advantage can be transformed into
an international advantage. The porter model highlights the fact that an organization’s home
base can be utilized for attaining international advantages. The factor condition aspect of
Porter’s Diamond model exhibits the incompetency of Amazon in managing human resources
in China. The organization labor cost was high, which can be reduced hugely, as the
workforce in China, easily work on low wages. But the organization utilized the same
approaches, with which they have been functioning in US. This increased the risk of high
production cost, which impacted the profits immensely. In addition to this, the organization
also reduced the pace of return on investment. Along with this, Amazon entry strategy did not
integrate the needs and demands of the customers. The shopping experience offered by the

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organization to the Chinese customers was identified as very simple through the mobile
application. The Chinese customers have a complex mindset and thus, this simple approach
of the organization was not an effective approach for entering the China market or attracting
Chinese customers. Therefore, this highlights the aspect that according to Porter’s Diamond
model, the organization failed to fulfill the home demand conditions, thus, failing to
transform the national advantage into an international advantage.
The benefits of important market entry strategy taken by Amazon is:
Merger and acquisition: Economides of scale, a combination of complementary resources in
the domestic or foreign market, product or market extension, enrichment of the business
activities (Zhao et al. 2019).
Amazon has adopted acquisition as an important market entry strategy to enter
China’s market. This acquisition will have Amazon gain possession of the different
subsidiaries and thus it is the second-largest entry in the Asia-Pacific region (Amazon 2015).
Amazon is also trying its best to tackle the other distributors and the consumers on the
Chinese market on a large scale (Zhu and Liu 2018). On the other hand, it has been found that
the company is also carrying out a merger with the import units in China and thus it will be
easier for the company to carry out the entire operation process systematically. It has been
found that the acquisition of the Amazon process of Amazon as an important market entry
strategy in China will assist in changing the market dynamics and thus adapt to the in-house
solutions provided by the company in the USA. Further, it will be easier for Amazon to
anticipate the demands of the customers and thus supply the goods in China accordingly.
Therefore, the critical knowledge of the customers in China must be analyzed accordingly so
as to carry out successful acquisition in China.
Q5. Actions are taken by me in order to handle the international operation of Amazon
For managing, the international operation of Amazon, the organization needs to
conduct various different actions that help in addressing the management challenges
effectively. Due to this, the organization will be able to perform the managerial skills like
planning, organizing, controlling, and interacting appropriately (Liu and Hong 2016).
Firstly, Amazon needs to be familiar with foreign rules and regulations. The
organization should have a deep knowledge of trading laws to tax laws in depth. This

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information is vital for the planning phase of the organization, as it will help the organization
in developing an effective cost structure. Also, it will also direct the organization to utilize
the trends of the local market like hiring low wages labor in China.
Secondly, the organization should also have adequate knowledge about the local
supply chain management. In China, supply change management approaches are completely
different from the US. From the allocation of resources to the final delivery stage, the
organization should utilize the local supply chain approaches. This knowledge will be of
great help in the organizing and controlling phase. In addition to this, Amazon will also be
able to increase the pace of its return on investment (Andreae et al. 2015).
Finally, the most crucial action that the organization needs to conduct for improving
its managerial approaches, along with a relationship with the customers is its communication
approaches. The organization needs to understand that communication approaches should be
in sync with the customer’s communication style. This is just not limited to language. This
action will help in improving the interacting managerial skills of the organization (Kshetri
2016).
Part 3: Social Responsibility and Action Plans
Q6. Analysis of Amazon as a socially responsible company
Amazon is a socially responsible organization as it performs sustainable operations,
from the packing approaches to implementing various different human rights for managing its
human resources. According to the United Nations Global Impact, the organization needs to
utilize ten principles that are built around four aspects that are human rights, anti-corruption,
environment, and labor (United Nations, 2019). Amazon is a socially responsible
organization as it fulfills all these responsibilities by ensuring that in the packaging process
waste is reduced and the organization reduces the carbon emission by utilizing a science-
based approach. Along with this, the organization utilizes all the laws and human rights for
managing human resources.
Recommended action plan to handle social issues.
The recommended actions plans in order to handle the social issues of Amazon are:

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The first step of the action plan for Amazon is to ensure that the organization should
respect and support international human rights rules and regulations in conducting different
organization processes and activities. The organization needs to ensure that it does not exhibit
complicit attitude towards human rights abuse in the organization.
The organization Amazon has struggled to incorporate the labor trends followed in
China. It is also due to this reason that the organization has failed to utilize the local labor of
China. This has also emerged as a big social issue. The organization needs to ensure that they
eliminate all forms of compulsory and forced labor.
The organization also needs to ensure that it does not promote any kind of
discrimination in the organization associated with employment. The organization should not
promote unethical and immoral practices like nepotism. The organization should also ensure
that it takes important measures for the abolition of child labor.
The organization also needs to address the social issues associated with environment.
Though, Amazon ensures that all the organization’s processes are conducted in an
environment-friendly manner. The organization should utilize the latest technology that helps
in developing and spreading environment-friendly practices.
The organization should also participate in different events that promote practices,
which helps in encouraging the employees and customers, to become more responsible
towards the environment.
Finally, the organization should ensure that they take strict actions against corruption.
For this, the organization should take strict actions against practices like bribery and
extortion. Also, the organization should inform the employees about the different
repercussions an individual will face due to practicing corruption.
All these different recommendations will help the organization in addressing various
social issues that will help in building an image of a socially responsible organization in the
market, which will definitely influence and attract the customers to the organization.

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Conclusion
With this, it can be concluded that the organization Amazon needs to adapt to the
local managerial approaches that are according to the trends in the Chinese market. In
addition to it, the organization needs to ensure that they attain competitive advantages, along
with utilizing strategies that help in removing the competitive disadvantages from the
organization’s operations. Finally, the organization also needs to ensure that they address its
different social responsibilities, so as to expand sustainably in the market of China.

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