Strategic Analysis of Amazon Australia: Internal & External Factors

This report provides a comprehensive strategic analysis of Amazon Australia, examining both its internal and external environments. The internal analysis assesses Amazon's resources, competencies, and strategic capabilities, highlighting its use of advanced technology, extensive product range, efficient distribution centers, skilled staff, and effective business systems. The external analysis explores the macro-environment, focusing on political and economic factors, and utilizes Porter's Five Forces to evaluate the competitive dynamics within the retail industry. The report identifies the low bargaining power of suppliers, medium bargaining power of buyers, a medium threat of substitutes, and a low threat of new entrants. The report concludes with recommendations for Amazon Australia's strategic direction, considering its strengths, weaknesses, and market position to ensure continued success and competitive advantage in the Australian online retail market.

The purpose of this report is to analyse both the internal and external environment of Amazon
Australia,and from these analyses, the report will then discuss the strategic direction of the
company.Amazon Australia is an Australian based online retailer that sells products from A to Z.
The report will first provide an internal analysis of Amazon Australia which will critically
evaluate the organisation’s competencies, resources and strategic capabilities. This will be
followed by an analysis of the external environment which will critically discuss the macro and
industry environment of the company, which will be incorporated with two macro-environmental
trends that may impact the company and an analysis of Porters five forces that apply to Amazon
Australia. Lastly the report will recommend the strategic direction of the company, followed by a
conclusion.
Internal Environment
Strategic capabilities as defined by Johnson et al. (2014, p.50) are “the capabilities of an
organisation that contribute to its long-term survival or competitive advantage”. The two
components that make up strategic capabilities are resources and competences. Resources are the
assets that organisations have or can call upon and competences are the ways assets are used or
deployed effectively (Johnson et al. 2014, p. 50). It is vital that businesses such as Amazon
Australia not only have appropriate resources that contribute to strategic capability but to also
use these resources in an effective manner. To ensure long-term success however, strategic
capabilities need to be dynamic capabilities, that is, an organisation’s needs to be able to change
and adapt their strategic capabilities to meet the needs of changing environments (Johnson et al.
2014, p. 51). There are four criteria by which capabilities can be assessed in terms of providing a
basis for competitive advantage: value, rarity, inimitability and organisation support – or VRIO.
Resources
A company must have specific resources they can call upon to gain a competitive advantage.
Amazon Australia ensure they have the latest and most advanced technology in the industry.

This allows them to innovate a lot of their own products and services, which helps reduce costs
and increase revenue, giving them an advantage over their competitors. This is because it can be
difficult and rare for other competitors to create their own products and services the way
Amazon Australia does.The company already has a distribution centre in Dandenong South, in
Melbourne and are also set to launch a new 43,000-square metre fulfilment centre in the
Goodman Centenary Distribution Centre in mid-2018 (Hatch 2018). The new centre combined
with the existing centre will lead to an increase in their product range and will allow them to
support more third-party sellers who use their fulfilment service. Their extensive product range
also gives them an advantage over competitors in retail such as JB Hi-Fi who only sell a limited
range of products, and this could prove difficult for JB Hi-Fi to imitate Amazon Australia’s
product range as it creates extensive holding costs. In order for retailers such as JB Hi-Fi to gain
market share and profit, they would have to adopt a penetration pricing strategy, which could
significantly impact profit margins in the short term. Their online presence-only system also
gives them advantage over retailers, as it reduces their utility expenses and therefore can afford
to lower their prices on their products, assisting in achieving economies of scale and adding
value for customers, therefore giving them a competitive advantage. Their highly skilled staff
allow them to move efficiently and effectively as it is their model to process and deliver orders
quickly, which reduces lead times, leading to higher customer satisfaction and retention rates.
Their leading technology, such as product scanners and packaging technology, also creates a
competitive advantage as it also assists in reducing lead times.
Competences
Amazon Australia’s business systems is one of the leading systems in the world which has
enabled them to attract 11.4 million visits in Australia in March 2018 (Mitchelson 2018). They
understand what activities they need undertake that are especially important in creating value and
which are not. These essential activities are what’s used to create the value chain (Johnson et al.
2014, p. 60). Their buying process is well-known for its speed, accuracy and reliability which is
a reason for their consistent customer retention. The buying process, which involves mostly
operations and logistics, requires customers to access their website, of which then changes each
time based on a customer’s previous searches and products purchased. This creates a unique

experience with a personalised layout for nearly every individual (Investopedia 2018). Once a
product is purchased, Amazon’s system begins to work. Orders from third-parties are received
by Amazon, and these third-parties take a percentage of those sales(Investopedia 2018).
However, most orders are processed through the warehouse. These warehouses, such as the
centre in Melbourne, are stocked based on algorithms that predict the types and number of
products being in ordered in the region (Investopedia 2018). And its these algorithms and
fulfillment centres that create an advantage over other online retailers, such as Myer and Kmart,
as it allows the company to deliver orders quickly and offer cheaper prices to customers on a
consistent basis (Investopedia 2018).It is these support activities through their technology that
improve the effectiveness of their primary activities (Johnson et al. 2014, p. 61). Their internal
complexity is what delivers customer value, and would prove difficult for other retailers to
imitate.After the product has been processed and packaged, it is then placed in a delivery truck,
depending on the shipping option. This process takes just minutes from the final order
confirmation before its placed in delivery assets (Investopedia 2018). This entire process creates
value for customers, their processing and delivery speed is rare of which little to no competitors
can match, their algorithms and fulfillment centres are difficult and costly for competitors to
imitate, and the company is organised effectively so that they can carry these processes quickly
and efficiently (Investopedia 2018). The combination of all these competences allows them to
achieve economies of scale, and maintain as well as gain market share over competitors, leading
to increased profits.
Section 3
Section 3.1: Analysis of the Macro-environment
The analysis of the macro-environmental trends that affect Amazon is performed by
choosing any two factors of the PESTEL framework. This includes the political and economic
factors:
Political Factors

Australia is known as a safe economy for investment since the regulatory and political
environment of the countryis progressive and stable, which provides more certainty and
confidence for investors (Chaffey and Ellis-Chadwick 2016). Australia’s strong history as a safe
investment destination has proven quite effective in the face of policy direction and the economic
challenges. Changes in government policy in response to thechanges in the economy represents
the effectiveness and transparency of the government. The transparency, openness, efficiency, a
strong legal system, makes the country an important asset for the Multinational Corporations
(MNCs) in the Asia Pacific region. The political scenarios in Australia thus, pose little to no
threat to e-retailers like Amazon Australia. Hence, the political stability of the country also leads
to the economic stability, and in turn, could positivelyimpact growth for Amazon Australia.
Economic Factors:
Australia’s services sector represents about 70% of total GDP in Australia (DFAT 2018).
The economic growth is primarily dependent on the agricultural and the mining sectors. The
country ranks tenth in the ease of doing business index for both normal retailers and the e-
retailers like Amazon (Sarbah and Otu-Nyarko2014). Australia has many key factors that attract
business that include:
 Presence of an index that eases the doing of business
 Stable and constant economic growth
 Low unemployment rate
 Constant and stable inflation
 Stable and strong financial system
There is a strong correlation between economic factors, ad revenue and profits produced by
businesses such as Amazon Australia as it is significantly dependent on the state of a national
economy (Anthony 2018). During recessions, economic activity decreases in conjunction with
revenue and profits of e- businesses and vice versa. Likewise, higher rates of economic activity
should lead to faster growth and higher amount of revenue for Amazon. Although consumers
may be less likely to spend during a downturn, they will likely turn to Amazon Australia due to
lower prices if consumers do decide to spend money.

Section 3.2: Analysis of the Industry Environment
Porter’s Five Forces assists in analysing Amazon Australia as it indicates how various
forces helps in shaping the competition of retail industry and the position of the company with
respect to the forces (Dobbs 2014). Thus, the model represents a framework for determining the
competition of the business. The model also derives forces based on the industrial organization
economics that helps in determining competitive intensity and the attractiveness of the industry
in terms of the profitability.
The Bargaining Power of the Amazon Suppliers:
The bargaining power of the suppliers of Amazon Australia ranges is low. This is due to
Amazon’s upper hand in the supply chain. The number of the suppliers in Amazon is big and
they have to do business as per the rules set by the company. Thus, the suppliers have to follow
code of conduct put forward by Amazon (Mitchell 2018). The core areas taken into account by
Amazon Australia in terms of the suppliers include:
 The right of legal benefits and wages
 Maintaining safety and health in the production areas and in any living quarters
 Maintenance of the appropriate working hours along with overtime pay
 Prevention of the forced labor or the child labor
 Ethical and fair treatment that also includes discrimination (Nguyen 2013)
Further, the suppliers need to pursue the standards of the supply chain put forward by
Amazon Australia. In addition, the company also makes forward integration difficult for the
suppliers (Mantin Krishnan and Dhar 2014). Nevertheless, Amazon can make an easy switch or
find newer suppliers. There are several options for any product of the company. Based on such
factors the bargaining power of the suppliers is low. The suppliers have lower bargaining power
due to the availability of the substantial number of the suppliers and the wider span of the
distribution network. Thus, the online retailers can easily make a switch towards a different
supplier for better quality and lower prices. Moreover, the bargaining power of the suppliers is

low for Amazon since it does not involve the need for the payment until thirty-five days of
confirmation of the sales.
The Bargaining Power of the Amazon Buyers:
Amazon Australia’s consumers have a medium bargaining power that ranges. The
company stresses more on the product quality and customer satisfaction. The customers of
Amazon have a lower switching cost along with the company having higher level of competitors
over the years (Rothaermel 2015). The company also faces the pressure of the physical retailers.
Moreover, each customer has sufficient online information about the products searched in their
language medium that allows them to make a choice in terms of the information available. The
website of Amazon is available in English, French, German and many more. This is why
retention of customers remains a major focus area for e retailers Amazon where the buyers have
a higher bargaining power.
Threat of the Substitute for Amazon:
With increasing number of brands entering the online retail, the threat of substitutes for
Amazon Australia is medium because the consumers prefers Amazon and is even willing to pay
more for the better service even when the prices are higher. The competitive advantage of the
company however lies in the outstanding customer service besides the brand name. Nevertheless,
the customers can make an easy switch between the brands.
The Threat of the New Entrants for Amazon:
Amazon Australia has a lower threat of newer entrants due to the propagation of the
digital technology that initiated various changes to retail industry. There has been an entry of a
larger number of e-retail that made easier building of the model for e retail with available
resources of the technology (Christensen 2013). Emergence of several national and international
brands like the Flipkart and e-bay has put up competition with the Amazon Australia. Amazon
also faces challenges in terms of the other expenses like the utility and the construction expenses
at the initial stages. The company also prepares the stage for price war by offering price cuts for
its products.

Hence, the growth of the digital technology helps in reducing the entry barriers. Building
a brand like Amazon seems difficult due to marketing and other expenses. In addition, various
strategic factors require certain amount of dedication for building a brand.
Rivalry Faced by Amazon in the Australian Industry:
The level of the rivalry faced by Amazon in quite higher since there has been a growth in
the number of players in e-retail along with an immense amount of competition put across by the
traditional retailer brands (Benghozi 2016). For instance, Wesfarmers and Coles are the key
competitors of Amazon, the e-retail giant, in Australia. Other factors intensify the rivalry
between the retailers. However, it is not just bigger brands but also the smaller ones that fight for
the market share thereby leading to the creation of the competitive pressure. Some bigger non-
Australian brand has entered the Australian market while others stand in the pipeline waiting for
their entry and fast expansion. Therefore, Amazon Australia will face an increasing
unimaginable competition with the passage of time that lead to decrease in the market share and
lowering of the profits.
Section 4: Recommended Strategic Direction
The business strategy adopted by Amazon Australia is described as cost leadership, taken
to the extreme (Bharadwaj et al. 2013). The business strategy of Amazon depends on four
principles that includes an obsession for customers instead of competitors, obsession for
innovation, commitment towards the operational excellence and the long term thought process of
the company. The strategies we recommend for Amazon Australia are as follows:
1. Diversification
Diversification involves enlarging or varying its range of products or field of operations.
Diversification reduces risk within markets as it allows for greater negotiating powers with
suppliers, and it also provides revenue in certain areas where other revenue areas may be low.
However, its primary objective is for growth (Raphan and Friedman 2014). It is recommended
for Amazon Australia to diversify through verticalintegration. They can do this by backwardly
integrating into business that supply the products they sell (Johnson et al. 2014, p.138). This will
create value as it reduces costs, increases revenue, builds barriers to entry and it can achieve
approved scheduling, which in effect lead to a competitive (Johnson et al. 2014, p. 138).

Additionally, Amazon Australia can further diversify their product range and offer products that
other retailers don’t. This will not only create more value for customers and gain a competitive
advantage but it will reduce bargaining power of consumers and increase bargaining power over
the suppliers that provide these new products. Horizontal integration can be another strategy
used. Acquiring a similar business at the same level of the supply chain, can lead to an increase
in market share over competitors. Furthermore, it also reduces bargaining power of suppliers as
Amazon Australia would have more leverage to negotiate prices. This in turn, allows Amazon
Australia to lower their prices further to gain more market share and gain a competitive
advantage, which creates more value for customers.
2. Outsourcing
For areas that may be too time consuming and costly for Amazon Australia, it is recommended
to outsource these activities.Since Amazon Australia is highly focused on customer relations, it
could be difficult to manage their large inventory at the same time. Amazon’s inventory
management has been proven to provide invaluable trust from its customers (Charania 2014).
The same can be applied for Amazon Australia as the operations and logistics are extremely
similar.
3. Leadership strategies: Amazon gains competitive advantageby gainingthe
contribution of the human resources. The company has fourteen principles including
the one involving customer obsession and increased insistence on the maintenance of
highest value that plays a vital role in increasing the inputs from the human resources.
The business level strategic direction adopted by Amazon Australia in positioning itself
above its direct competitors is good due to the following reasons:
Market Development: It is recommended that Amazon Australia makes use of the
market developmentas a key intensive strategy for growth. The company can offer existing
products to new markets such as new users or geographies (Cassar, Grosjeanand Whitt 2013).
Amazon Australia can now distribute to geographies that extend beyond the capability of
Amazon America. The company considers each new market since it helps in the creation of the
growth opportunities for the firm. The porter’s generic strategy helps Amazon in building

competitive advantage that allows it in implementing the intensive strategy for market
development. The strategic objective for the intensive growth strategy of Amazon would be the
establishment of the newer retail online websites that corresponds to the market allowing it to
gain competitive advantage.
Strategy of Market Penetration: This strategy is recommended because it helps in
generating more revenue from markets where it operates currently (Bennett 2018). Increasing
consumerism drives the growth of the company. For example, the increasing interest of the
consumers in the online retail benefits the company with increased revenue of sales thereby
enhancing the popularity of Amazon. Market penetration is responsible for the rapid initial
growth of Amazon in Australian market. The generic strategy of Amazon leads to the creation of
competitive advantage required for penetrating the market revolving around low prices and cost.
Thus, the strategic objective based on this particular strategy reflects on the implementation of an
aggressive campaign for attracting more consumers to the e-commerce website of Amazon
thereby giving it an edge over the competitors.
Strategy for Product Development: It is recommended that Amazon Australia continue to
innovate their own branded products and services. Risks associated with this include creating
new strategic capabilities and project management risk.Amazon Australia currently innovates
more of their own products than any other competitor (Crawley, Cameron and Selva 2015). The
overarching goal of this growth intensive strategy is to increase revenue, but it also reduces costs
and creates a competitive advantage.For instance, the company can offernew web services and
basics products under its brand name. The generic strategy of the company provides support to
this strategy by aiding the company with lower cost business processes for introducing newer
products. The strategic objective for this growth strategy lies in increasing the investment in
research and development for the rapid development of productsto release in the online market.
This, in effect, provides an edge over the competitors.
Conclusion
Amazon Australia has already proven to be a huge success, showing more website visits than
competitors since December (Mitchelson 2018). This is due to their effective resources and us of

these resources, as well as how well they manage their operations and logistics. To continue to
succeed within the current political and economic environment in Australia, it is important for
them to continue to diversify their product range, innovate their products, outsource areas that
require specialisation and to try new markets with existing products as well as to create new
products for existing markets. Doing this will enable to create more value for customers and an
advantage over competitors.

References
amazon.com.au (2018) viewed at 3 May 2018 <https://www.amazon.com.au>
Anthony, C. 2018. The Top 4 Amazon Shareholders. [online] Available at:
https://www.investopedia.com/articles/insights/052816/top-4-amazon-shareholders-amzn.asp
[Accessed 10 May 2018]
Benghozi, P.J. and Salvador, E., 2016. How and where the R&D takes place in creative
industries? Digital investment strategies of the book publishing sector. Technology Analysis &
Strategic Management, 28(5), pp.568-582.
Bennett, L. (2018). Amazon reveals first Australian ad campaign Lindsay Bennett. Viwed at 5
may 2018http://www.adnews.com.au/news/amazon-reveals-first-australian-ad-campaign.
Bharadwaj, A., El Sawy, O., Pavlou, P. and Venkatraman, N., 2013. Digital business strategy:
toward a next generation of insights.
Bianchi, P., 2017. The economic importance of intangible assets. Routledge.
Cassar, A., Grosjean, P. and Whitt, S., 2013. Legacies of violence: trust and market
development. Journal of Economic Growth, 18(3), pp.285-318.
Chaffey, D. and Ellis-Chadwick, F., 2016. Digital marketing. Prentice Hall.
Charania, N 2014, Why Amazon outsourced its Inventory Management?,Appath, Inc,
Christensen, C., 2013. The innovator's dilemma: when new technologies cause great firms to fail.
Harvard Business Review Press.

Crawley, E., Cameron, B. and Selva, D., 2015. System architecture: strategy and product
development for complex systems. Prentice Hall Press.
Department of Foreign Affairs and Trade 2018, The importance of Trade services in Australia,
DFAT, viewed 8 May 2018, <http://dfat.gov.au/trade/services-and-digital-trade/Pages/the-
importance-of-services-trade-to-australia.aspx>.
E. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry
analysis templates. Competitiveness Review, 24(1), pp.32-45.
Hatch, P 2018, Amazon steps up Australian Rollout with Sydney Fulfilment centre, Sydney
Morning Herald, viewed 5 May 2018, <https://www.smh.com.au/business/companies/amazon-
steps-up-australian-rollout-with-sydney-fulfilment-centre-20180503-p4zd29.html>.
Investopedia 2018, How Buying on Amazon.com works, Investopedia, viewed 6 May 2018,
<https://www.investopedia.com/articles/personal-finance/070215/how-buying-amazoncom-
works.asp>.
Mantin, B., Krishnan, H. and Dhar, T., 2014. The Strategic Role of Third‐Party Marketplaces in
Retailing. Production and Operations Management, 23(11), pp.1937-1949.
Mitchell, S. (2018). Amazon shows off tech, culture at first Australian innovation day. Viewed at
5 may 2018<http://www.afr.com/business/retail/amazon-shows-off-tech-culture-at-first-
australian-innovation-day-20180409-h0yith>
Mitchelson, A 2018, Amazon Australia has left Myer, Kmart, Coles for Dead, The New Daily,
viewed 6 May 2018, <https://thenewdaily.com.au/money/finance-news/2018/04/27/amazon-
australia-results-profit/>.

Nguyen, B., 2013. Retail fairness: Exploring consumer perceptions of fairness towards retailers’
marketing tactics. Journal of Retailing and Consumer Services, 20(3), pp.311-324.
Raphan, M. and Friedman, H., 2014. Tools for organizational survival in the Internet age:
Adaptivity, creativity, and diversification.
Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.
Sarbah, A. and Otu-Nyarko, D., 2014. An Overview of the Design School of Strategic
Management (Strategy Formulation as a Process of Conception). Open Journal of Business and
Management, 2(03), p.231.
Viewed 9 May 2018,<https://appath.com/blog/why-amazon-outsourced-its-inventory-
managem<https://appath.com/blog/why-amazon-outsourced-its-inventory-management/>