Strategic Analysis of Amazon: Environment and Capabilities

This report provides a comprehensive strategic analysis of Amazon, examining its external and internal environments. The analysis begins with an overview of Amazon's mission and vision, followed by an exploration of the external macro-environment using the PESTEL framework, assessing political, ...Read More

Running head: AMAZON ANALYSIS
AMAZON ANALYSIS
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Author Note

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Executive Summary
Strategic management can be a relevant part of any organization. When a firm intends to
attain success in the long run then in such a scenario, it would be necessarily required to
undertake significant steps which would assist it in performing well in the long term. Hence,
this report aims to analyse the external environmental factors and internal environmental
components of the chosen organization, Amazon. The report follows a rather structured
format whereby the external environment is supported by the analysis of the industrial
environment of the organization. This is then followed by the study of the internal operations
of Amazon.

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Table of Contents
Introduction................................................................................................................................3
Environmental macro analysis...................................................................................................4
Political..................................................................................................................................5
Economical.............................................................................................................................6
Social......................................................................................................................................7
Technology.............................................................................................................................8
Environmental........................................................................................................................9
Legal.....................................................................................................................................10
Industry analysis.......................................................................................................................10
Competitive rivalry- STRONG............................................................................................10
Bargaining Power of customers-STRONG..........................................................................11
Bargaining Power of Suppliers –MODERATE...................................................................11
The threat of Substitutes –STRONG....................................................................................11
The risk of New Entrants –WEAK......................................................................................12
Internal analysis.......................................................................................................................12
Value chain...........................................................................................................................13
Conclusion................................................................................................................................15
References................................................................................................................................16

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Introduction
The external environment of the firm is very competitive. It comprises of various
factors which can have a strong influence on the functioning of the enterprise. Therefore, this
report is focused on providing an analysis of the internal as well as the external environment
of a chosen organization. The insights will further assist in understanding how the firm can
undertake some initiatives to ensure that it is successfully being able to compete in the
international and national markets and is being able to secure a competitive positioning for it
in the long run. The analysis of the external environment of the firm is focused on enabling
the managers to undertake sound decisions for the firm.
About the firm
The organization which has been chosen for the analysis is the Amazon. The Amazon
is one of the most significant e-commerce business models present around the globe and
tends to offer many products ranging from books, electronics, toys to clothing, utensil and
other pantry items (Amazon.com 2019). The Convenience that Amazon has been able to
provide to the different customers has affected the sales and operations of the bricks and
mortar businesses (Aboutamazon.com 2019). With the facilities like Prime and same-day
delivery with significant discounts, Amazon has reached out millions of homes as of 2019.
Amazon’s mission statement is “We strive to offer our customers the lowest possible
prices, the best available selection, and the utmost convenience. (Amazon.com 2019).”
Amazon’s corporate vision is “to be Earth’s most customer-centric company, where
customers can find and discover anything they might want to buy online.”
Figure 1: The Financial performance of Amazon
(Source: Feedbackexpress.com 2019).
The primary aim of the report is to highlight the way the firm has been performing.
The report will use various strategic management tools to understand how the firm is being

4AMAZON ANALYSIS
affected by the environmental forces and then carry out an examination of the internal forces
as well. The report will follow a systematic structure whereby the External environmental
analysis will be carried out with the help of the Macro environmental factors like the
PESTEL framework. This will then be followed by the Industry environmental analysis using
Porters five forces. The internal environment analysis will also be conducted by making use
of the Value chain analysis. Once the different governing factors have been identified,
specific recommendations to improve the scenario will be provided.
Figure 2: The past trend
(Source: Statista.com 2019).
Environmental macro analysis
The external macro analysis is the analysis which is carried out governing the external
environment in which the firm operates (Aguinis, Edwards and Bradley 2017). Although
these external environmental factors lie outside the firm’s borders and are beyond the control
of the leaders of the organization but have the power to impact the operations of the firm.
Therefore, this section of the paper will make use of the PESTLE Framework which

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examines the Political, Social, Economic, Technological and the Environmental forces along
with Legal factors which affect how Amazon performs its operations and determines how the
firm can deal with these factors.
Political
The political environment can be rightfully defined as government intervention,
which generally has a substantial impact on the operations of the different companies
(Aguinis, Edwards and Bradley 2017). The aggressive protectionist policies will impact the
development and activities of Amazon. For Amazon UK, the Brexit can have consequential
impact on the operations of the organization. The inflation caused by the movement continues
to escalate and hence, this acts as a cause of concern for e-commerce websites (Mintel 2016).
Hence, this could have a rather strong impact on e-businesses, which are based on the
foundation of the internet. Therefore, to combat this force, Amazon would be required to
abide by all legal compliances and formulate strategies to carry out the business in an
effective manner.
Economical
The economic crisis, which began in the year 2008, has led to a reduced consumption
rate concerning the world population and people have started to search for the best deal
possible. Hence, there has been a new trend whereby the customers prefer to avail the best
deals possible but not pay much for those deals. However, due to the impact of Brexit on
Amazon UK, the taxation has become a great concern for the firm and tends to increase the
taxes for the various customers as well which may then affect the purchasing streak. This
impacts the sales of the enterprise (Mazzini 2016).
Furthermore, adding to the competition, the prices by the e-sellers have been pulled
down, and this has been made possible with the help of the online businesses. The movement
continues whereby the democratization of the smartphones and the 4g systems has made it
possible for the consumers to purchase the best goods at the best prices. Therefore, through
this analysis, it can be hinted that the economy is quite favourable in terms of the demands of
the different customers and the business model being adopted by Amazon. Hence, this can be
considered useful by Amazon to expand the operations (Aboutamazon.com 2019). Amazon
can penetrate deeper into the market and meet the varying demands of the customers.

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Figure 4: The growth rate
(Source: Thestreet.com 2019).
The image reflects the way the growth rate of Amazon has been decreasing
substantially. The model reflects the way although the firm has been growing, the
acceleration has come to a slow movement.
Social
The internet has helped the different businesses to grow and expand, and it is due to
this reason that the subscriptions have become more affordable. Additionally, the use of
artificial intelligence (AI) and related advancements have become popular, and therefore,
even Amazon has adopted specific AI measures. (Frynas and Mellahi 2015). Moreover, the
society has been undergoing evolution, and this has brought about a considerable change in
the consumer behaviour which has now shifted the interest of the different consumers from
visiting the physical stores to using the e-commerce domain as a source. Therefore, to meet
this trend, the firm has been evolving its offerings to provide the customers with the best
experience. As the trend of using smartphones has also been increasing, this could bring
about a positive change for Amazon UK as the increased use means increases time on online
shopping websites (Mintel 2016).

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Figure 5: The Physical vs Online
(Source: Businessinsider.com 2019)
The chart provides the comparison between the Brick and mortar and Amazon sales
which reflect that the competition to Amazon is fierce and the retailers have been trying to
come up with initiatives to meet with the offerings of the online retailers
Technology
A shortage of time significantly characterizes modern society, and therefore, this can
be taken to be rather beneficial for the different firms who are conducting the online business.
Hence, innovation helps in saving time, and there has been an acceleration in the business
ideals.
Moreover, the technical progress has broadened the overall business horizons, and
this has led to making use of the internet domains which can be preferably accessed by the
comfort of their homes and from their offices as well. The innovations today have made it
rather easy for the different users to have access to devices like the computers, the tablets, the
mobile phones, watches and other such mediums (Hitt and Duane Ireland 2017). It is believed
that the technology also assists in acquiring temporal wealth as it has allowed acceleration of
the lifestyles. Hence, due to features like unlimited data storage for all, the development of
various sensors, connected clothes, connected reading glasses, digital identities and the
mobile phones, it can become more comfortable for the advances to support the growth of
Amazon (Hitt, Ireland and Hoskisson 2016). Therefore, Amazon needs to certify that it will

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be able to take advantage of the advancement to see to it that they will be successfully able to
offer the customers an extra benefit. Additionally, for Amazon, in the UK abiding by the
British Retail Consortium data is integral for the enterprise as there has been an increase in
cybercrime and fraud against the retailers. Hence, Amazon needs to identify these threats
carefully (Mazzini 2016).
Environmental
The purchases have been boosted to a great extent with the help of various features
like technological innovation and targeted marketing, which tends to favour social
competition (Amazon.com 2019). Hence, the product lifelines have now become shorter, and
the products are also not environmentally viable and cannot be repaired quickly. As the
government and the different organizations have been able to recognize the various events
which have been taking place around the world, the companies like Amazon also have an
interest in conserving the environment and for this reason; they have come up with various
initiatives to save the environment (Lasserre 2017). Hence, the digital solution seems to be
the only appropriate domain concerning which the situation can be permanently conserved
and that instead of every individual taking their vehicle to purchase the products and increase
the footprint, the online field can be covered. In UK, Amazon has been the target of various
associations whereby, they have boycotted it after it suffered by the tax avoidance row.
Legal
The laws have been evolved to deal with the globalisation. The various international
groups have also been providing with provisions regarding the legal proceedings, and there
have been multiple arrangements with relation to which the tax rates of the company are
being revised without much progress (Meyer, Neck and Meeks 2017). Amazon has been
faced by tax avoidance issues and this is a violation against the legal compliances (Johnson
2016). Moreover, anti-competitive laws by the government have been focusing on
maintaining a balance in the market. For this reason, Amazon needs to ensure that it will be
able to abide by all the laws which have been designed.
Industry analysis
This section of the paper will be analysing the industrial environment of Amazon.
Amazon operates in the e-commerce industry and in order to understand the forces which

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operate in the industry, it is essential to consider that, Amazon will be required to address the
competition which exists and deal with the various consumers as well as the substitutes who
are present in the industry (Ansoff et al. 2018). Hence, it can be mentioned that the firm
would be required to address the competitive rivalry by emphasizing on the competitive
advantage and thereby strengthen its base relating to the competitive competition
(Amazon.com 2019). The company will be required to improve its brand image and deal with
the external forces in the right manner. Regarding this, it can be rightfully mentioned that the
company would be required to increase its potential so that it can deal with the online
business environment and retail industry. Hence, in this section, the five forces which impact
the operations of the firm shall be assessed critically.
Competitive rivalry- STRONG
The organization is known to compete very strongly against the different competitors
and hence, would be required to see to it that it can manage the firms well. The high
aggressiveness of the firms can be a strong force which needs to be managed well. In addition
to this, the availability of substitutes also affects this competition. As the switching costs are
considerably low, the game can be understood to be fierce. The different retail firms can be
recognized to be quite aggressive, and hence, concerning this, the firms would be necessarily
required to ensure that they can manage well (Ansoff et al. 2018). As the switching costs are
considerably low, it must be acknowledged that the priority of the firm needs to be focused
on increasing the future competence of the firm.
Bargaining Power of customers-STRONG
The company can be understood to be following a customer-centric approach;
however, the Bargaining power of the customers can be assumed to be very strong as this
assist in carrying out the business operations sufficiently. The quality of information can be
taken to be a strong force which influences the overall bargaining power of the different
customers (Ethiraj, Gambardella and Helfat 2016). Additionally, the switching costs of the
business can be taken to be considerably low, which is also acting as a potent force. Lastly,
there exists a large availability of the different substitutes, which can also be taken to be a
strong force (Michael, Storey and Thomas 2017). Therefore, it can be mentioned that it is due
to these factors that, the operations of Amazon are significantly affected. Relating to this,

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there are various physical stores also available for the customers and regarding this, the factor
is being considered as a critical one.
Bargaining Power of Suppliers –MODERATE
The Suppliers have the overall capability to control the supplies of the business, and it
requires many resources and supplies such as the hardware components for the information
systems, the product supplies and the other such resources (Morden 2016). The Amazon
tends to experience the moderate-intensity and bargaining power of the suppliers which is
primarily based on the moderate forward integration, the average size of the suppliers, the
small population of the suppliers and other such affecting factors.
The threat of Substitutes –STRONG
The amazon tends to compete with many substitutes which are present in the online
retail market of the organization. Regarding this, the external factors related to the firm
increase the threat of the substitution which can be considered to be the low switching costs
for the different customers who can easily change their retailers and purchase the various
products easily (Morschett, Schramm-Klein and Zentes 2015). Additionally, the high
availability of the substitutes also tends to serve as a potent force with the help of which the
different customers can easily switch over the different products. Lastly, there are various
substitutes which are available at meagre costs which tend to assist the different customers in
making the purchases, and this leads to a loss of business for the Amazon. The concept of the
substitution among the Amazon as a firm needs to be given the utmost importance, which
will help them in performing well (Moutinho and Vargas-Sanchez 2018).
The threat of New Entrants –WEAK
The entrance of the new firms will be bound to weaken the overall operations of the
organization. The switching costs can be taken to be a strong force which affects the global
operations of the organization (Noe et al. 2017). The fact that the new consumers can be
attracted to the new firms is a factor which Amazon would be required to be considered.
Secondly, another factor which is generally related to the new entrants is the high cost of
brand development. The new firms in the market would be required to engage in the high

11AMAZON ANALYSIS
price of brand development which cannot be processed by them due to limitations of the
latest firms to invest a high amount of money.
Additionally, the firms would also be required to invest in high economies of scale,
with the help of which it would be necessarily needed to see to it that it can invest more top
funds. Concerning this, it may not be able to match up to the operations of the organization.
Hence, this factor can be a relatively lower factor affecting the organizations' activities.
Internal analysis
The internal analysis of the organization can be very crucial. Hence, a review of the
internal environment would contribute towards understanding the way; the firm would be
required to maintain its capability. Therefore, regarding this, it is crucial to consider that the
Value chain analysis and the VRIO criteria so that the internal operations of the firm can be
understood relatively. The VRIO table in the given section focuses on the VRIO, which helps
in assessing the core and the non-core competencies.
Amazons Resources and Capabilities V R I O
Growth of the brick and mortar presence 
Improving the diversity of online services  
Improving the portfolio of private labelled products 
Extensive networking 
High brand equity 
Market capitalisation 
Artificial Intelligence capabilities 
Hence, from the given analysis, it can be rightfully assessed that the firm needs to
focus on growing its Amazon Basics brand as this would enable the organization to perform
considerably well and to see to it that it is successfully able to manage the additional
resources of the firm in order to diversify the portfolio of the firm (Trigeorgis and Reuer
2017). Hence, Amazon needs to focus on extending its rare resources and needs to assure that
it will be able to increase them so that the firm will be able to reach its overall competitive
edge in the market. Additionally, the table also hints that the Networking, brand equity and
the Diversity on the online platforms are some of the firm's rare possessions. Therefore,
Amazon needs to work on them and utilise them to its advantage so that the organization can

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achieve its aims and be able to fulfil the vision and mission. The brand name and networking
can be used for product expansion activities, and diversity can be used to create stronger
distribution channels.
Value chain
Figure 3: The Value chain of the firm
(Source: Trigeorgis and Reuer 2017).
The value chain analysis can also be described as an integral tool which can be
rightfully used to assess the way the firm has been utilising its overall resources. The value
chain analysis of the Amazon has been given in the figure. From the study, it can be
understood that the Support activities of the firm have been going on well whereby, the firm
has been able to manage its Human resource management, maintain a robust internet
infrastructure, engage in the latest technological development which has enabled the firm to
participate in various activities and engage in artificial intelligence as well. Additionally, the
firm has many integrated vertical suppliers who have then allowed the firm to maintain the
procurement activities well (Trigeorgis and Reuer 2017).

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Relating to the Primary activities, the inbound logistics and the outbound logistics of
the organization are being managed sufficiently through decentralised fulfilment centres and
order handling centres. In the same way, the Operates, sales and marketing services are also
being adequately served by the organization. In regard to this, it can be mentioned that in the
secondary activities of the firm, the HRM has a crucial role to play especially in the form of
the managers as the guidance and vision of the managers would be essential for Amazon to
look out for the capabilities and use them for the firms advantage (Ansoff et al. 2018).
Additionally, the primary activities need to be utilised in a manner such that the strategic
capabilities of the firm undergo a boost.
Conclusion
Therefore, from the given analysis, it can be rightfully mentioned that Amazon is one
of the most substantial e-retailers presents. The firm operates in a rather competitive industry
and with relation to this, it can be suggested that its focus should be to maintain its overall
capabilities which would assist the firm in performing well in the long run. The report
examined the internal, external as well as the industrial environment of the firm, which
helped in understanding the overall operations of the organization.

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References
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