Strategic Analysis of Amazon: Value Chain and Five Forces

This report provides a strategic management analysis of Amazon, examining its operations through the lens of value chain analysis and Porter's Five Forces model. The report explores Amazon's primary and supporting activities, including inbound and outbound logistics, operations, marketing and sales, and customer service, identifying key areas of value creation and potential challenges. It critiques the application of these theories, highlighting the company's strengths and weaknesses in areas such as international expansion, competition, and government scrutiny. The analysis includes an examination of the effectiveness of Amazon's strategies, potential failure areas, and concludes with recommendations for improvement. The report also discusses recent challenges faced by Amazon, such as balancing profits with investments and dealing with government regulations. The report is a comprehensive review of Amazon's strategic position in the market.

Strategic management
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Contents
Executive summary:........................................................................................................................4
Introduction......................................................................................................................................5
MAIN BODY..................................................................................................................................5
Explanation of the Comparison of theory and practise:..............................................................5
Critique of the theory...................................................................................................................6
Application of the theory.............................................................................................................7
Effectiveness for the organisation.............................................................................................10
Failure areas of Amazon by use of specific theory....................................................................10
Recommendation...........................................................................................................................13
CONCLUSION..............................................................................................................................14
REFERNCE...................................................................................................................................15
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Executive summary:
Strategic management is a tool that can help in achievement of certain laid down objectives.
There are certain frameworks such as value chain analysis and porters five force analysis are the
two major strategies that can help a organisation in understanding various external forces and
their positive and negative impact on the functioning of a organisation. Strategic management is
a great tool for various strategies that can help organisation in dealing with different challenges
that are present for them in the market scenario. There is a need for proper strategic development
plan in order to achieve some laid down specific objective definite time period.
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Introduction
Strategic management is related to the different strategic approaches that are applied by
an organisation to deal with certain prevailing issues and challenges. It can be defined as use of
different theories that are in relation to diverse range of objectives, analysing the different
internal factors, analysing the external competitive environment and ensuring the role of
administrative rolls for formation of all the strategies within company. Amazon is an American
multinational technology company that is based in Seattle and has approximately 750000
employees that are working with this organisation. Present report is based on the value chain
analysis of different aspects of primary and supporting activities for Amazon and how can
porters five Force model be applied for strategically dealing with such issues and challenges.
MAIN BODY
Amazon is a globally recognised and a world famous brand that started facing some issues
related to the clanging market inception in the year 2002, there were many challenges related to
high customisation and use of update technology were the most prevailing issues that were being
faced by Amazon in the year 2003. There were some recent changes that had to be made in the
recent model and overall value chain process used by this organsuiation. So, Amazon started
focussing on its core strength and then using it in their overact process of managing of their
practises.
Explanation of the Comparison of theory and practise:
Case study approach:
Amazon started focusing on that is” instant order update” that actually wants their customers
that are about to buy a same item twice. Further it can be said that there are some of the five
biggest challenges that have been identified for Amazon in 2019 these challenges include:
1) Keeping a pace with international performance: In the year 2019 in October there has
been week that is recorded for Amazon. CFO Bryan recently pointed out that there has
been a week growth in various countries such as India nations that is leading to all
operating segment suffering because of decrease in the revenue and there has been a
substantial slow down in the revenue growth (Bammann, 2019)
2) Dealing with Rivals: There are many drivers for Amazon that is WalMart that are
leading to decrease in the overall revenue and market share for Amazon. In the year 2019
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the December report pointed out that Amazon has pulled back their overall promotional
and pricing strategies resulted into increase in competition that are faced because of
increased efforts by these rivals.
3) Balancing profits versus investment: Amazon efforts in different sectors such as
Healthcare, logistics etc so that they are able to get back overall earnings to their
business. There are many new initiatives in different sectors such as Logistic payment
health care that have to be taken to create on the investors how to maximize their Returns
(Mudambi, and Puck, 2016). There is requirement of detailed research for making some
investment in these new sectors, to be fulfilled by Amazon so again there is burden on the
research and development department of this organization that is the big challenge to deal
with over all existing challenges.
4) Dealing with intense government scrutiny: In case, of different countries such as,
France have started some regulations and different taxation efforts in major tech
companies such as Amazon (Bhargava, Bafna, and Shabarisha, 2018). In UK Amazon's
HQ2 Expansion has led to large breaks in tax. It was a flash point of Criticism in last year
because of the influence and size of policy maker with the changing card of privacy and
different antitrust concerns were major key issues and failure areas of Amazon.
Discuss some of the major failure and issues that have been faced by Amazon in the last
year and there is need of some strategic formulation in order to cope up some strategies to
deal with so that they do not have any negative impact on the revenue and profitability of
this organization (Hishe, Asfaw, and Giday, 2016).
Critique of the theory
Value chain analysis approach:
Value chain analysis basically refers to an analytical framework that helps in
identification of different business activities that can actually lead to creation of value and
increasing competitive advantage for a business. The present study it has been identified that
there are various issues that are being faced by Amazon in their overall supply chain and
logistics management so there is a need to do a value what is a commonly used strategic analysis
tool. It is a visual method that is analysed on different activities of a company to review how
various activities can help them in adding value at each step and taking care of the cost so that
there is no increase in cost at each step and overall effect on the organisation.
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Figure 1VALUE CHAIN ANALYSIS
(SOURCE: Amazon Value Chain Analysis. 2020)
Application of the theory
Amazon inbounds logistics:
Amazon is organisation that is using logistics to search the Marketplace and they have started
recently the services that are offered to other organisations. For example in Beijing Century Jyo a
courier service that is subsidiary of Amazon registered with government of UK and is shipping
provider of this organisation. Amazon also has a efficient system of Logistic infrastructure that
provides them a competitive advantage, below discussed is the value chain analysis of primary
activities case of Amazon (Amazon Value Chain Analysis. 2020,).
Operations:
Operations of Amazon are basically divided into three segments:
First is North America: It is a segment that is operating in North America and has focused
website such as www.amazon.com www.amazon.ca. Overall sales in this segment have been
increased by 33% in the year 2018 and 2017 as compared to previous year.
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International: It is a segment that is having internationally focused website such
as www.amazon.com.br and www.amazon.com.au. News from such International operations can
change with the change taking place in exchange rate of currency specially in case of foreign
currency exchange rates US dollar 489 million and US dollar 138 million in the year 2016 and
2017 respectively.
Third is: Amazon Web Services: It is a segment that is dealing with the Global sales of storage
database computing and other offering of services for Enterprises start-ups academic Institutions
and government agencies. Overall sales in a AWS has rise by 43 percent and 47 percent in 2017
& 2018, compared to previous years.
It can be said that an innovative and creative approach is required for solving various problems
that is related to major source of creation of value for operations in Amazon. The Tech initially
developed some Cloud Computing resources and cloud storage as a part of their business need to
create value in their overall business operations. Amazon also commercialized their services of
cloud and overall benefits became more evident.
Amazon outbound Logistics:
There are some aspects of outbound logistics in Amazon Integrated in their following segment:
Fulfilment centres: These are the tour operators that are operating in 109 fulfilment centres
across the globe and Amazon is using a robotic technology in extensive manner for the purpose
of managing the stowing, picking, receipt and shipment of their products.
Outsource arrangements and digital delivery: Factors related to the products and services that can
be easily downloaded from website of Amazon.
Physical stores: Amazon has recently acquired the whole food chain in the year 2017. This
organisation has generated 4.3 billion revenues from their physical stores alone in the year 2018.
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It can be concluded from the above discussed that there is a strong situation of outbound logistics
that are present for Amazon and they have a increasing number of ships planes trains truck that
can help them in increasing the effectiveness of their logistics system. Further the online retail
also has announced the Amazon Prime air that is a system of drone delivery and also Amazon
flex that is related to metro delivery services being additional in their outbound logistics system.
There is a great opportunity for Amazon to create maximum value from there logistics Network
and many industry analysts say that they can compete with Global Delivery business such as ups
and also with one of the most popular Global Delivery giant that is fed EX.
Amazon marketing and sales:
Annual Global marketing expenses have been a major issue that is a concern for Amazon
as it is increasing in the past 7 years and has exceeded to 8 billion in the year 2018. It consists of
promotional cost and other advertisement expenses that are amounting to US dollar 5.0 billion
and 2.2 billion 2016 and 2018 respectively. And made a comparison with other competitors such
as Best Buy, Kroger ant target it has been identified that there the marketing and sales activities
can be a major source of creation of value in the chain of operations for Amazon but search value
is only generated because of high marketing investment that have to be made by Amazon that
again create a very high financial burden apart from their other operational and compulsory
expenses. Marketing message of Amazon also conveys the Promises of selection of different
products and services at great ease. Furthermore, the Attractive prices that are being offered to
people superior provided to their customers. Apart from these different aspects of marketing mix
such as communication strategies of media and print advertising events and experiences public
relations are also offering an effective medium and channel to communicate the marketing
messages to the target customer segment for Amazon.
Amazon services:
There is an exceptional Customer services that has lead to creation of value for Amazon because
of the cloud computing company and presence of e-commerce. Annual report of Amazon has
recently pointed out that they are Earth's most customer centric organisation. Reason behind is
there are offering exceptional services to their customer and customers are also satisfied with
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their quality and timely response that they get from the service Department of this organisation.
The return process and exchange process of Amazon is entirely online that take place with the
help of a customer service department and is continuously in touch with customers whenever
they require any assistance that issues of customer that are solved efficiently and in least amount
of time (Flanagan, Lepisto and Ofstein, 2018). So not only just customers but the sellers who are
part of overall Amazon as a brand also has a higher satisfaction level that is associated with the
brand for a longer duration of time and help them in getting a competitive advantage as
compared to other E-Commerce websites, who do not offer Such high quality facilities and
service options to both the segment of their seller and buyers.
Effectiveness for the organisation
The prime and Amazon Marketplace has basically to segment of customers. These two segments
consist of buyers both are present on these Amazon platforms. Coaching program that is offered
by Amazon for their sellers related to alerting their sellers of different opportunities that they can
avoid going out of stock and for the selecting and using only that products which can provide
them high lead and more competitive among thousands of brand that are being sold on Amazon
leads to satisfaction that is high for the seller segment of Amazon (Hailu,., 2016).
From the above Discussion of the value chain analysis that is a analytical framework and health
in identification of different business activities that are part of the overall value chain of Amazon
and can help in creation of value at each and every step which can help them in dealing with all
the issues that is being faced by this organisation in the present high competitive environment.
Failure areas of Amazon by use of specific theory
There is use of five force analysis to understand what are some major failure areas and threats
and further in order to form certain strategies for the purpose of dealing with all the issues that
are related to Amazon overall process of value chain as discussed below:
It is very important for Amazon to build up a competitive advantage and for this there is a very
necessary need to analyse all the major five factors that are present in the external environment
and the way they are affecting Amazon and its overall strategies (Huang, 2019).
Threat of new entrants:
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Amazon is one of the largest E-Commerce retailers and the growth of internet has led to increase
in the overall revenue across different parts of word for this brand. It is an E-Commerce giant
that is operating across 109 fulfilment centres and they are experiencing Economics of scale.
There is a purchase made by 1.8 billion people using Amazon as a E-commerce website in the
year 2018 and the overall Global retail sales have been 2.8 trillion 2018 (Juliana and Nyoman,
2019). The time of entry is a very important factor that has lead to Amazon attainment of a
competitive advantage and reduction in the threat of new entrants In The E-Commerce world
apart from this another strategy that has been adopted by Amazon is the differentiation of
products that has helped them in reaching a present position as there is a opportunity 1994 that
was Amazon and used for establishing themselves as a leading E-Commerce brand in
comparison with other major competitors clutches eBay, Alibaba etc. So from the above you
three Strategies for Amazon it can be said that there is a very low threat of new entrants for
Amazon as the scale at which Amazon is presently operating is very difficult to be matched by
any new start-up or other existing competitors also are a very low threat of new entrants for
Amazon.
Power of buyers: The bargaining power of customer if for Amazon is very high as different
factors like the overall differentiation in products and services is relatively not much high for
customers. Further there are many other competitors that are present in the market and are
leading to High competition and making it very easy for customers to switch to such other brands
without having any switching cost. There has been a trend of increasing the base of price
sensitive customer that is leading to new offers and is that have to be offered by Amazon from
time to time which has led to reduction in their overall profit percentage as if they are not willing
to offer such reduction in prices and customers are not willing to make friends from physical
outlets to such online availability of products (Rahman, 2019). So it can be said that overall
bargaining power of customers is very high for Amazon and it is an increasing threat with the
coming period of time.
Power of suppliers: Amazon has always made efforts to plan long term association with their all
the suppliers so that it can offer them competitive advantage. The prices of products and profits
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which are offered by Amazon as a brand to their suppliers are not easy for any other competitive
brand to offer the same suppliers (Kanakulya and Jinzhao, 2017). All the efforts have been made
to prevent suppliers from switching to other competitors. It has created a situation of low
bargaining power of suppliers as they are working on high ethical principles and it is leading to
from Amazon and created a lot of benefits in terms of high percentage reduction in switching
cost of suppliers that are experienced by other competitive brands Amazon.
Threat of substitution: There is a very high threat of substitute for Amazon because various
other E-Commerce brands like Wal-Mart are easily available in the market that can offer their
present base of customers to switch easily. These brands are already offering large number of
attractive offers so that customers of Amazon can switch to their sites for their online shopping
needs. Also customers causes zero switching cost that is for the motivating them to switch easily
for the products that are not offered at a competitive prices on Amazon (Zhang, 2017). All these
aspect have led to for Amazon as many times they have to offer search cut in prices by suffering
of losses always a higher amount of thread of substitution that is present for Amazon.
High Competition: The rivalry In The E-Commerce segment is very high because of the
technologies and people willing do online shopping instead of visiting physical stores has led to
more opportunities in this industry (Zhang, Leng, and Zhou, 2020). It has lead two different
start-ups who are willing to invest online sites apart from the physical stores they have, the entire
situation has resulted into impacting the sales for Amazon to some extent and the other big
competitors such as Alibaba, flip kart are also high competitive rivalry for Amazon. Mainly they
are specifically for a particular segment of products such as apparels, an auto parts that has lead
to intense competition for Amazon being a part of e-commerce industry (Lumbanraja,
Dalimunthen and Hasibuan, ., 2019).
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Recommendation
From the above discussed points of porters five Force model it can be recommended that there is
a very high threat of some of the factors such as competitive rivalry threat of power of
substitution these are three major factors that can increasing the amount of order present
challenges for Amazon.
But apart from that the other three external forces such as bargaining power of suppliers and
threat of new entrants are very low and can be used as a base for further strategy formulation
with the higher amount of challenge and are leading to low profitability for Amazon.
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CONCLUSION
It can be concluded from the above report that Strategic management is a great tool that can
help in dealing with over all issues that are being faced by organisation and all the challenges
that are coming across in dealing with various area areas of a organisation. Value chain analysis
and porters five Force model these are two major strategy formulation Framework that can help
in analysing the overall issues and problems of organisation and how to strategically deal with
the challenges.
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REFERNCE
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Online
Amazon Value Chain Analysis., 2020, [online] Available through:<https://research-
methodology.net/amazon-value-chain-analysis/>
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