Strategic Analysis of Amazon: Macro Environment, Internal Capabilities

This report provides a detailed analysis of Amazon's business strategy. It begins with an introduction to business strategy and its importance, followed by an examination of the macro environment using PESTEL analysis, including political, economic, social, technological, environmental, and legal factors. The report then analyzes Amazon's internal environment and capabilities through a SWOT analysis, identifying its strengths, weaknesses, opportunities, and threats. Furthermore, the report evaluates the competitive forces within the market sector using Porter's Five Forces model, assessing industry rivalry and the bargaining power of buyers. The report concludes with a summary of the key findings and their implications for Amazon's strategic planning, emphasizing the importance of adapting to both internal and external factors to maintain a competitive advantage in the e-commerce and cloud computing industries. This report is contributed by a student to be published on Desklib, a platform providing AI based study tools for students.

BUSINESS
STRATEGY

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Analyse the impact and influence of macro environment on organisation............................1
P2 Analyse the internal environment and its capabilities of the organisation............................3
TASK 2............................................................................................................................................4
P3 Evaluate the competitive forces of the given market sector..................................................4
P4 Apply range of theories and concepts to interpret and devise strategic planning for the
organisation.................................................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Business strategy is the combination of various actions and plans which help the
managers in achieving the desired goals and objectives. It can be defined as the key plan which
most of the organisations uses to achieve the position of competitive position and satisfy its
customers. These strategies can be made for achieving the long term as well as short term goals
and objectives. Formulation of business strategy is very much important as its will help in
maintaining effectiveness in the organisation, threats and opportunities can be known, optimum
utilization of resources can be done and plans for the future can be made. Organisation taken in
this report is Amazon. It is among the largest e- commerce and cloud computing platform in the
world and its head office is located in Washington(Buckley and Ghauri , 2015). Topics covered
in this report will be influence of micro and macro environment on the working of Amazon and
analysing the competitive forces with the help of Porters five force.
TASK 1
P1 Analyse the impact and influence of macro environment on organisation
Macro environment of any business environment has a adverse impact on the working
and growth of the organisation. With the help of this organisations are able to make proper plans
and strategies for its effective working. As these factors guides the management of the
organisation for taking logical decisions. Macro environmental factors are the factors which are
present outside the business organisation but can also affect the internal working of Amazon.
This type of environment for Amazon can be studied with the help of PESTEL analysis.
PESTEL analysis is the tool for analysing and identifying the various external factors
which can affect the plans and strategies of Amazon. PESTEL analysis of the organisation is
discussed below-
Political Factors- These factors plays a very important role in defining the work and
profitability of Amazon. This factor includes the various rules and activities of government
which directly affects the working of the organisation. Political factor had both positive and
negative impact on the working of Amazon(Casadesus-Masanell and Ricart, 2010). For
Example the government is supporting and giving various opportunities to grow in the e-
commerce business sector which is a positive point for Amazon. While on the other hand this is
1

directly resulting in increase in competition in the market. This means the chances of shift in
customer preferences increases.
Economic Factor- This factor consist of the interest , inflation and foreign exchange rate
which enables the organisation from achieving the state of competitive advantage. The economic
stability of developed country will have a different impact and influence on Amazon as
compared to the economic stability of developing country. If there is economic stability in the
country than Amazon will be able to do its business in the effective manner. And if the country is
suffering from high economic recession than its business will definitely get affected. To
overcome this organisation will require to change the plans and strategies for the future.
Social Factor- This factor includes the culture, belief, values and attitude of the society
and its impacts on the working of business(Chokheli, 2014). The social factors can either have a
positive impact or negative impact on the business structure and profitability of Amazon. One of
the major positive social factor which is helping Amazon in increasing its business is customers
are shifting from traditional way of buying to modern or online buying system. This is because
according to the customers it is most convenient to buy from online sources. The negative
influence of social factor on the business of Amazon as there is a huge difference between the
level of the customers. Due to this customers are not able to buy from these sources and
organisation is unable to cover whole market.
Technological Factor- Technology is one of the major factor which is influencing the
business and plans of Amazon. Rapid change in technology leaves a positive impact on
Amazon's business. As by using latest technology company has a good opportunity for
optimizing its business. This is because use of latest technology will directly lead to facing the
competition in the market in best possible manner. But this will also lead to increase in the risk
of cyber crime for the company which will negatively influence organisation's
business(Gandellini, Pezzi and Venanzi, 2012).
Environmental Factor- This factor includes the various rules and norms of the
environment which are to be taken into consideration by the business organisations. Since
Amazon is a online retailer so the company has increasing opportunity in attracting more and
customers by taking various environmental initiatives and it is also seen that interest of
customers towards environmental programs are also increasing day by day. So company can also
plan its strategies keeping in mind the environment and its natural resources.
2

Legal Factors- These are the various laws and regulations which are to kept in mind by
the organisation for the effective functioning of the plans and operations. Amazon is currently
having a good opportunity for growing its business in various countries because of the liberal
policy for import and export of goods and services to various parts of the world. With the help
of this company is having a opportunity to expand its business globally.
P2 Analyse the internal environment and its capabilities of the organisation.
Internal environment of every organisation directly helps in planning and coordinating
various activities and strategies in the sequential manner. The internal environment of Amazon
is controllable which means major changes can be done by the management of the organisation
as per the needs and demands of the company. By managing the internal environment Amazon
can easily achieve its targeted goals and objective in the effective and efficient manner. Internal
environment of Amazon can be studied by doing SWOT analysis of the organisation. As this
analysis will help in knowing the strength, weakness , opportunities and threats of the
organisation(Grandori, 2012).
SWOT Analysis will help the company in knowing its competitive advantage in the best
possible manner. With the help of this the internal capabilities of the organisation can be
identified and better plans can be made for the same.
Strength- These are the advantages which makes the organisation different from its
competitors. One of the major strength of Amazon is its strong brand image in the e- commerce
sector. Due to this the business of Amazon is continuously growing from past few years. Another
major strength of Amazon is its wide range and variety of products available in the market.
Company offers various product options to its customers with different prices. Due to this the
potential customers of Amazon are satisfied. Company is also successful in earning high revenue
and profitability because Amazon is operating its business in Monopoly market. With these
strengths and high revenue Amazon can easily invest in new business opportunity because of its
incomparable market position. Company can also manage its capabilities in a systematic order
with its various strengths(Whitelock, 2012).
Weakness- These are the hurdles or obstacles which are affecting the growth and
business of the organisation. Business model of Amazon is easily imitable this means the
competitors of Amazon can easily copy its models relating to online retailing. Due to this
company's business is affected. It is seen that Amazon is earning major part of its revenue from
3

various developed countries. But it is quite difficult for Amazon to penetrate its prices in
developing countries. Due to this company is not able to compete with its competitors in a proper
and adequate manner. Company offers various options to its customers regarding the shipping of
the product due to this company is operating its business on low profit margins. This is one of
the major weakness of Amazon as because of this the internal management of the company is
also getting affected(Hsu and Liu, 2010).
Opportunities- These are the various positive options available to the company for
expanding its business. One of the biggest opportunities for Amazon is with the rapid change in
technology and increment in cyber crime customers are demanding privacy and security
regarding their personal and bank account data. So to overcome this company can introduce its
own payment methods which will be safe and secure. Another major opportunity for Amazon is
company can introduce its products with its own brand name instead of just storing and selling
the products manufactured by other companies. With the help of these opportunities the work of
the organisation can be managed properly and the capabilities can also be increased.
Threats- These are the negative aspects which affects the internal ad external working of
the organisation. Amazon is currently facing a threat of increase in cyber crime because of this
private data of its customers is getting exposed to other parties in a illegal and unethical manner.
Company is also facing severe competition from various online retailers because of this the
profitability of the organisation is decreasing. So to lessen the effects of these threats company
can make necessary changes in the internal working structure. So that better plans can be made
to give tough competition to its competitors.
So from the above Swot analysis it can be seen than it is very much necessary for
Amazon to know its weakness and threats. This is because if it is not known than company might
have to face some major consequences and the strategic decisions will not be taken in a
sequential order(Issa, Chang and Issa, 2010).
TASK 2
P3 Evaluate the competitive forces of the given market sector.
Amazon has its own business environment and structure in which is operates its
business . There are various challenges and risk faced by the organisations because of the
external competitive forces. As these forces disables the organisation from achieving the
4

desirable position in the competitive market. Evaluation of the competitive forces of Amazon
can be done with the help of Porters five force model. Using this model company will be able to
effective and efficient planning for the future.
Porters five force model can help in maintaining overall competition in the industry.
With the help of this company will be able to lessen the effect of competitive strategies used by
the competitors of Amazon. The various points for this model is discussed below-
Industry Rivalry- These includes the competitors available in the market of a particular
company. If competitor of Amazon makes some changes in its plans and strategies than business
of Amazon gets affected. This means change in the strategies of one organisation affects the
strategies of other organisations present in the same industry. Due to high availability of
substitutes the customers of Amazon are shifting from one organisation to other. There is low
switching cost and less barriers available for the customers of Amazon. So because of high
industry rivalry the business of Amazon is affecting day by day as there are many competitors
available in the market(Machmud and Sidharta, 2014).
Bargaining Power of buyers- The bargaining power of the buyers of Amazon is very
high. This is because the buyers or consumers of Amazon has a option to access vital
information of the company and regarding the products it sells. And because of low switching
cost the customers of Amazon can easily shift from from brand to another. If Amazon wants to
increase its sale than company can focus on satisfying the needs and demands of its potential
customers. As if it is not done than Amazon might loss its customers and its profitability will be
decreased. Company is continuously focusing on making desirable changes as per the demands
of its buyers.
Bargaining power of suppliers- The bargaining power with respect to Amazon suppliers
are insignificant and inappropriate. Company deals with large number of suppliers due to this the
bargaining power is very vast. If there is any change in the price of raw materials and equipment
than it will directly affect the business of Amazon. Suppliers of amazon have moderate control
over the prices of the products which they sell directly to the organisation. The suppliers of
Amazon have very less option to bargain with the organisation regarding the prices. Company
can maintain this situation by making some major changes in the internal working structure of
the organisation(Menet, 2016).
5

Threat of substitutes- There is high degree of substitutes available in the market. There
are high chances of shift in customers from one organisation to another(White and Bruton,
2010). This is because the competitors of Amazon are continuously making efforts to grow their
business and to attract large number of customers. If the company wants to overcome this
problem than the management of the organisation can make plans to retain its customers in the
best possible manner. This can be done after analysing the strategies of the competitors and also
by knowing the preferences of the customers. By doing the company will be able to achieve the
state of competitive advantage.
Threat of new entrants- This type of threat is very low because if any organisation
wants to enter in online retail industry than it will require high investment and efforts. This is
because this type of industry involves high degree of risk and uncertainty. If the company wants
to sustain in the market for longer period of time than they have to make use of the latest
technologies or else their business will suffer loss. Amazon need to make regular updates in the
plans and polices of the organisation. As with the help of this organisation will be able to
increase its market share in the effective and efficient manner(Porter, 2011).
P4 Apply range of theories and concepts to interpret and devise strategic planning for the
organisation
Strategic planning for the organisation needs to be done in the systematic and coordinated
manner. As formulation of these strategies will directly help the business of the organisation to
grow and earn profitability. Porters generic strategy model can be used by the management of the
organisation to plan various things.
Cost leadership- This involves deciding the price of the product for gaining the
competitive advantage in the market. Amazon makes use of the latest networking and computing
technology which results in minimum use of the cost. As the e- commerce sector uses various
scheduling and operational activities so it becomes tough for the organisations to save the cost of
the organisation. But Amazon some how manages to minimise its cost by taking corrective
actions in its plans.
Market development- The market development strategy of Amazon is help the
organisation in growing properly. The major objective of this strategy is to maintain the growth
of the organisation. Amazon is making changes in its products and services to attract large
number of customers and also to make necessary developments in the market(Powell, Lovallo
6

and Fox, 2011). With the help of this Amazon is able to make use of the latest technologies for
conducting is day to day operations.
Market penetration- The major objective of this strategy of Amazon is to increase the
revenue and generate high profit from the market. Amazon is making use of this strategy by
taking care of the needs and demands of its potential customers. The prices of the product is
decided according to the preferences and paying capacity of the customers of Amazon. By doing
this company is also able to survive in the market for longer period of time.
Product development- The management of the company is making strategies for the
development of its product so that it is able to attract large group of customers. The
manufacturing cost of the product of Amazon is generally low and company is operating is
business on adequate profit margins.
With the help of this theory management of Amazon can make better plans for the future
course of action and also for competing with its competitors in the best possible manner.
Strategic Management Plan- It is the plans, priorities and operations made by the top
authority of the organisation to achieve the targeted goals and objectives in a sequential and
planned manner. This plans help in using the resources of Amazon in optimum and efficient
manner(Rothaermel, 2015).
Aim- The major aim of Amazon is to expand its business in various parts of the world
and to cater a large market share as compared to its competitors.
Vision- The vision of Amazon is to enhance its business and grow in the best possible
manner. Another vision of Amazon is to face the challenges in the best possible manner.
Mission Statement- Mission of Amazon is to increase the satisfaction level of its
employees by providing them good quality of products and services at lowest possible price.
Values- The topmost value of Amazon is to conduct its business in the ethical and
desirable manner. Company also focuses on doing CSR activities to have a good image in the
mind of its customers and to compete with the competitors.
Problems- The major problems faced by the organisation is high degree of uncertainty
and risk in the online retail industry sector.
Goals- Major goal of the organisation is to satisfy its customers and to maintain a healthy
relationship with customers and its employees. Company also focuses on using latest technology
so that it can attract large number of customers(Teece, 2010).
7

Strategies and Tactics- Strategies and tactics of Amazon is to work in a desirable
manner and to enhance its business so that profitability and market share of the organisation is
increased(Verbeke, 2013).
CONCLUSION
From the above report it has been concluded that every business organisation must plan
its business strategies in the proper manner. If it is not done than the business will suffer loss and
the customers of the organisation will shift to another organisation. Planning of the strategies
can be done by evaluating and analysing the internal and external environment of the
organisation. The internal analysis can be done with the help of SWOT analysis while external
analysis can be done with the help of PESTEL analysis. Porters five force model and generic
model can also be used by the organisation to achieve the targeted goals and objectives in the
efficient manner and to increase the profitability of the organisation.
8

REFERENCES
Books and Journals
Buckley, P.J. and Ghauri, P. eds., 2015. International business strategy: theory and practice.
Routledge.
Casadesus-Masanell, R. and Ricart, J.E., 2010. From strategy to business models and onto
tactics. Long range planning. 43(2-3). pp.195-215.
Chokheli, E., 2014. About modern methods and instruments of Strategy analysis.
Gandellini, G., Pezzi, A. and Venanzi, D., 2012. External and Internal Analysis of the
Environment. In Strategy for Action–I(pp. 45-84). Springer, Milano.
Grandori, A. ed., 2012. Interfirm networks: organization and industrial competitiveness.
Routledge.
Hsu, Y.L. and Liu, C.C., 2010. Environmental performance evaluation and strategy management
using balanced scorecard. Environmental monitoring and assessment. 170(1-4). pp.599-
607.
Issa, T., Chang, V. and Issa, T., 2010. Sustainable business strategies and PESTEL framework.
GSTF International Journal on Computing. 1(1). pp.73-80.
Machmud, S. and Sidharta, I., 2014. Business models for SMEs in Bandung: Swot analysis.
Jurnal Ekonomi, Bisnis & Entrepreneurship. 8(1). pp.51-61.
Menet, G., 2016. The importance of strategic management in international business: Expansion
of the PESTEL method. International Business and Global Economy. 35(2). pp.261-
270.
Porter, M.E., 2011. Competitive advantage of nations: creating and sustaining superior
performance. Simon and Schuster.
Powell, T.C., Lovallo, D. and Fox, C.R., 2011. Behavioral strategy. Strategic Management
Journal. 32(13). pp.1369-1386.
Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.
Teece, D.J., 2010. Business models, business strategy and innovation. Long range
planning.43(2-3), pp.172-194.
Verbeke, A., 2013. International business strategy. Cambridge University Press.
White, M.A. and Bruton, G.D., 2010. The management of technology and innovation: A
strategic approach. Cengage Learning.
Whitelock, V.G., 2012. Alignment between green supply chain management strategy and
business strategy. International Journal of Procurement Management 4. 5(4). pp.430-
451.
Online
What is PEST Analysis?. 2018. [Online]. Available through:<https://www.visual-
paradigm.com/guide/strategic-analysis/what-is-pest-analysis/>.
9