MNE Analysis of Amazon

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12th Jun 2020 Report Reference this

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Summary

Amazon.com, Inc is a company currently based in Seattle Washington. Amazon is an American multinational technology company which focuses on artificial intelligence (AI), e-commerce, cloud computing and digital streaming. Along side Google, Facebook and Apple; Amazon is considered as one of the Big Four technology company. The company Amazon is very well known for causing disruption of well known and established companies by mass scaling production and bringing innovative technologies. Amazon is the largest internet company in terms of revenue as well as second largest technology company. It is one of the world’s most valuable company and the second largest private employer in US (wikipedia). 5th of July 1994 is the founding date of Amazon in Bellevue Washington by Jeff Bezos which initially started by selling books through online. It then gradually moved into selling other house products and equipment such as: video games, food, furniture, toys etc. By market capitalization Amazon crossed Walmart getting the title of being the most valuable retailer in US in 2015; in 2017 for $13.7 billion Amazon captured the Whole food industry therefore increasing the company’s presence in the brick and mortar sector. Following this Amazon Prime crossed 100 million subscribers in 2018 as well as Jeff Bezos announced two-day delivery service from Amazon. Amazon has been able to provide the consumer services such as: video, music streaming and audiobooks successfully through Amazon Prime and Amazon Music. Amazon Web services, Cloud computing, Amazon studios for film and television are some of the subsidiaries. Amazon also manufactures consumer electronic goods such as: Fire tablets, Fire TV, Echo device and Kindle e-readers are some of them. The company has been criticized for tax avoidance and anti- competitive practices due to its technological surveillance outreach and a hyper- competitive work culture (wikipedia).

1. Introduction

1.1 Background

25 years ago, on 5th of July 1994 a company named Amazon which shares the same name as the world’s largest river started the company by selling books online to customers which made its website through dial-up modem. The innovative founder of Amazon is none other than Jeffrey P. Bezos; he started this company at 30 years old from his garage. Now Amazon generates over $61 Billion in revenue and is currently holding the title of the largest online retailer (Fundable). The founder of Amazon was working in Wall Street; when he saw how the revolution of internet took place when the statistic showed that web usage grew by 2300 percent in a year; that’s when Bezos decided to quit his job and start an internet company. Initially Bezos made a list of top 20 products which he could sell on the internet but then later planned on selling books due to its high universal demand and low cost (Fundable).

2. Analysis

Amazon was the first bookstore on internet; Book.com was launched in 1992. Well the structure of the company was different as it acted like a local store and knew all the customers by name as each time a customer placed an order a notification would go to the company’s headquarter in Seattle (Fundable). The initial start-up capital came from Bezos’s parents who believed in their son regardless of what business he was getting himself into. The start-up investment was few hundred thousand dollars which was Bezos’s parent’s savings. When he started the company, he also told his parents that there might be 70 % chance that the company might fail, and they would lose their investment, but they did the investment anyway. After starting Amazon.com within 2 months the sales were up $20,000/week. The revenue earned went back into the company for growth. With the profit margin which remained near $0 or below but the revenue was on the rise. Jeff Bezos set his dream of making the company as everything store and hence the company set his foot forward onto become not just everything store but an everything company (Fundable). Figure 1: Long term growth of Amazon (Fundable) Today, 25 years later, Amazon was able to reshape the retailing industry permanently and it is one of the top 3 most valuable company in the world with US$1 trillion market capitalization and amazing this value is greater than then GDP of 200 countries combined (Shankar, V.).

3. Foreign market entry strategy adopted by Amazon

Foreign Entry Strategy

Figure 2: Foreign Entry Strategy of Amazon into the worldwide market (InterVentures)

Prime (Hub of Amazon)

According to Jeff Bezos Amazon Prime has over 100 million Subscribers, this is one of the most successful loyalty programs of all time. Amazon leverages the prime as one of the strategies for entry into foreign market (InterVentures).

Ventures for small businesses in foreign countries

Amazon provides opportunities to small foreign businesses through novel offering and a platform which any of the start-ups can use. Amazon dominates services like warehouse, logistics, infrastructure and cashless checkout. This would allow the sellers to expose their products to new markets and increase sales (InterVentures).

Logistics for supply chain and home delivery services

Amazon came up with strategy of delivering products through drone. It is patented creation of an “airborne fulfilment centre”. Amazon is under continuous work on with the supply chain in terms of setting the expectation of getting the products delivered within 48 hours. Hence the ecommerce providers are building networks so that coast to coast demand can be satisfied (InterVentures).

Product demand, marketplaces and customer focus

Amazon operate 11 online marketplaces worldwide allowing the business to grow internationally and independently. Through these marketplaces amazon sellers can introduce their products to millions of customers. These marketplaces are one of the largest ecommerce business opportunity and allows customers immediate access to all the amazon products. Customers from 180 countries shop from amazon globally and through these marketplaces amazon have increased its customer base from 100 million in US to 250 million worldwide. Amazon have a strong customer focus with friendly atmosphere to keep and attract the right co-workers which are important for the business (cpcstrategy). Figure 3: Amazon Marketplaces (cpcstrategy)

4. Competitive dynamics and market conditions faced by Amazon

Competitive Dynamics

Figure 4: The Amazon Stack (InterVentures) When it comes to competitive dynamics Amazon have a different tactics of capturing the market unlike the traditional businesses. Amazon takes care of the operational services sharing similar purpose as the normal business models. Amazon has taken business offering s to a whole new level by transforming cost centers into profit centers making them capable of competing with the market. Amazon also ensures of being a complete liaison between the consumer and whatever they purchase. Due to these small changes in the business model it has allowed Amazon to maintain both the profits and production using the market as a benchmark (InterVentures).

Ecommerce and retail industry

Amazon have grown exponentially that its marketplace resembles a stock exchange and the manufacturers are tieing knots with Amazon and its marketplace to reach consumers. Amazon is well known for disrupting existing markets with their ideas and now it has begun its journey of assaulting the brick and mortar industry with the use of Amazon GO, Amazon Fresh and Amazon Books. Whereas the Amazon Prime ties all these bundles together and gives a combination of both discounts and free shipping of good purchased from Amazon. Through these means Amazon have successfully drawn customers to their store and have taken the advantage of the economies of scale (InterVentures).

Ecommerce and retail industry

Amazon have grown exponentially that its marketplace resembles a stock exchange and the manufacturers are tieing knots with Amazon and its marketplace to reach consumers. Amazon is well known for disrupting existing markets with their ideas and now it has begun its journey of assaulting the brick and mortar industry with the use of Amazon GO, Amazon Fresh and Amazon Books. Whereas the Amazon Prime ties all these bundles together and gives a combination of both discounts and free shipping of good purchased from Amazon. Through these means Amazon have successfully drawn customers to their store and have taken the advantage of the economies of scale (InterVentures).

Amazon (Web Services)

Earned a revenue of soaring US $ 12.2 Billion in 2016 with more than $3 Billion US in profit. After this Amazon went through overhauling its own internal capacity by introducing cloud services thus allowing Amazon to migrate from expensive server hardware and software of fixed cost to cloud services with variable cost depending upon usage (InterVentures).

Media and Publishing

Prime memberships is important for Amazon to gain the trustworthiness of its consumers hence Jeff Bezos included the Prime video along with the package this is to increase the value of memberships through renewal thus leading more memberships and ecommerce sales. Amazon was expecting to invest $4.5 Billion US on content creation and it as well purchased Twitch for $970 million US (video game broadcasting site). Amazon have also undertaken the means of selling ads and have generated a whooping revenue of $1 Billion US in amount through online ads (InterVentures).

Transportation, Logistics and Warehouse capacity

Amazon strived for cheap, reliable and fast shipping of products to its customers thus growing and meeting the increase in demand. Due to its growth in demand the warehouses grew rapidly and to maintain higher profit margins Amazon introduced warehouse robotics maker in 2012 and now it has over 45000 robots in its fleet which is growing at 15000 per year (InterVentures). Amazon have covered a big chunk of American population through its service that now 44% of Americans live within 30 KM radius of Amazon warehouse compared to only 7% back in 2012. Now to get further independence Amazon have started developing their own delivery infrastructure and leased 40 Prime Air cargo jets and developing a $1.5 Billion US air freight centre in Kentucky. Amazon is facing challenges in developing good logistics network in Southeast Asia’s geography due to its poor network at some places specially Philippines and Indonesia which has 7107 and 13466 islands respectively (InterVentures). Figure 5: Transportation Network in the Southeast Asia

Operating model

Competitor of Amazon is Alibaba’s ecommerce business, but it solely relies on 3rd party sales but amazon have their own first party sales as well. Surprisingly Amazon’s Revenue ratio is 2.3 while Alibaba’s is 28.1 which means Amazon earns $1 in revenue per $2.3 merchandise sales but for Alibaba to earn that dollar must make a sale of $28.1 in merchandise. This gives some space for Amazon to grow in the Southeast Asia region but furthermore Alibaba have firm investment commitment between China and Malaysia about Chinese produced good whereas Amazon remains flexible in the selection of goods (InterVentures).

5. Amazon’s organizational structure, knowledge management and innovation

Organisational structure

The organisational structure of amazon is of hierarchical classification. The senior management team consists of two CEOs, 3 Senior VPs & 1 worldwide controller., each of these reps are responsible for various tasks and they all report to the CEO Jeff Bezos. All the heads of each segment such as: IT, HR, legal operations etc all report to Jeff Bezos. Due to its massive business size amazon had to develop the hierarchical structure. The largest online retailer has over 560000 employees worldwide and over 300 million customers globally. Jeff Bezos set a name of meetings and called it as “2 pizza rule”; this is to hold meeting in such a small team that everyone can be fed with 2 pizzas (Research Methodology). Figure 6: Illustrates Amazon organizational structure (Research Methodology) Amazon remains highly flexible and can adapt to frequent changes in the marketplace due to its hierarchical structure and meeting team members. Whichever sector amazon has stepped its foot into has caused disruption innovation first in the online e-commerce and now in the global logistics industry. This is solely because of Jeff’s visionary power and effective leadership. In 2017 the whole food was forecasted with an acquisition of US $ 13.7 Billion. Amazon is dynamic due to its aggressive business diversification strategy (Research Methodology).

Knowledge Management

As everyone knows that amazon is one of the most successful ecommerce company due to its ability to provide customers with the things they need and want. But to add more value and make the customers feel valued the knowledge management system helps the customers accomplish their goals in a personalized way. Some of them are:

One portal and one interface

Products and goods bought from Amazon and the businesses dealing with amazon is through the same portal. The portal and the user experience is the same which allows the customers their own comfort for using the site and as well causes less anxiety when the customers explores new areas (Learning Solutions)

Consistent presentation

The information displayed for every product are kept in the same way and manner possible. This is to create less confusion for the customers and is called content management; where all the information is received, composed and published to users in a consistent manner (Learning Solutions).

Magical presentation

The Amazon site knows the customer’s wants and needs which is what is amazing. Amazon helps in recommending products to customers based on their usage history. It also helps in connecting the customers with valuable information that they might be looking for. Even though if the customer is not registered it will still recommend the customers about the products, they might like but the registration will make it much easier (Learning Solutions).

Mobility and crowdsourcing

The website Amazon.com and the mobile app is available with no restriction to business hours and are available for customers to use anytime and anywhere. Amazon builds knowledge and awareness in users by allowing the customers to provide rating, reviews as well as similar products bought by other customers previously (Learning Solutions).

Subscriptions, alert, reminders and reduced servicing

Amazon has a subscription plan which will give regular updates of products or services available according to your choice. Amazon strive to make the site user friendly and as comprehensive as possible as it will reduce cost for the company and would result in higher appreciation due to the information on products amazon provides to its valuable customers. This helps in reducing calls to amazon call center and people use this platform as reference when buying products elsewhere (Learning Solutions).

Innovation

In the Amazon world it sometimes feels like we just live in it with the amount of shopping, watching, reading, listening we do are connected to Amazon. Amazon is on its way for another innovation and that is capturing the food/grocery market where the customer will use the app to enter the store, pick up the products they like and then checkout and all of these will be done through the app itself. Some of Amazon’s innovation:

Prime

Amazon not only promised to provide fast and free shipping on thousands of items, but they also proved it by delivering it. This was one way of marketing and not only just business because if customers now buy products online from some other online businesses it’s a disappointment if they do not receive the products within 2 days (thinkmonsters). Figure 7: Amazon products delivery

Prime Air

The Prime Air service will be the game changer which is still under development. The drones would allow the customers to receive their products within 30 minutes of purchase at their doorstep. After the order is placed the flying robots will deliver the packages immediately (thinkmonsters). Figure 8: Air delivery development using drones

Prime Now

Amazon has been on a spree of making the products available to its customers within hours of ordering them. Currently the Prime Now delivers products to only certain areas for free in 2 hours and for $7.99 in an hour. This is only available to limited number of amazon items but are gradually expanding (thinkmonsters).

Alexa

Amazon Echo, Tap and Dot people are getting accustomed to using this technology. Alexa is Amazon’s voice – responding virtual assistant which isn’t entirely there in the market yet but are trying to grad their share of the market. Some of the key competitors are Google and Apple. Alexa in pretty impressive as it responds to voice commands from across a noisy room and does assist in amazing things like placing orders and finding music etc (thinkmonsters).

Kindle

E-books weren’t making much gains until the kindle was introduced. Another innovative breakthrough of bringing the readers close to the content they wanted to read. Amazon made it possible, affordable and quick by building the bridge and introduced it to people at a very low price tag, thus taking control of the e-book industry using an old age business tactic: Stop digging for gold and start selling shovels (TECH INSIDER). Figure 9: Amazon Kindle

One Click Purchase

Amazon has streamlined the online ordering process to make it quick simple and easy unlike other retail websites where multiple information have to be filled in order to make a purchase or place an order. This innovation is called the on click buying (TECH INSIDER).

Dash Button

These buttons are a physical manifestation of Amazon’s one click ordering. These dash buttons can be bought for $5 for major brands and when a customer wants to reorder something all they must do Is click the button and order will be placed. The dash button is one of the smart and practical innovation Amazon has created in simplifying customers life (thinkmonsters).

6. Conclusion

Amazon has been roaring on success from the beginning of time when it was found by Jeff Bezos. Every industry Amazon stepped into has disrupted the whole industry in one way or the other from selling books online to tech advancements, healthcare sectors, transport and logistics, Voice assistance, Artificial intelligence etc you name it. Amazon have now stepped their foot into the Fresh food industry with Amazon go where customers do not have to wait in queue anymore for checkout and there will be no cashier. It is called “Just Walk Out” store where there are machines fitted with sensors and cameras and use deep learning algorithms to scan the products that the customer bought and also the technologies are designed in such a way that it monitors what the customer buys then it charges payment according to the purchases from the Amazon Prime account. There are lot more future innovative technology awaits and it is about time that they are going to go public. Till then its time to wait and watch what innovative idea does Jeff Bezos come up with.

References

  1. cpcstrategy. 2019. Successful Amazon International Expansion Tactics. [ONLINE] Available at: https://cpcstrategy.com/blog/2016/08/amazon-international-expansion/. [Accessed 21 September 2019].
  2. Fundable. 2019. Amazon Startup Story. [ONLINE] Available at: https://www.fundable.com/learn/startup-stories/amazon. [Accessed 21 September 2019].
  3. Shankar, V., 2019. Amazon is turning 25 – here’s a look back at how it changed the world. The Conversation, [Online]. 1, 1. Available at: http://theconversation.com/amazon-is-turning-25-heres-a-look-back-at-how-it-changed-the-world-118307 [Accessed 21 September 2019].
  4. Research Methodology. 2019. Amazon Organizational Structure. [ONLINE] Available at: https://research-methodology.net/amazon-organizational-structure-2/. [Accessed 21 September 2019].
  5. Learning Solutions. 2019. The Knowledge Management Genius of Amazon.com. [ONLINE] Available at: https://learningsolutionsmag.com/articles/1480/the-knowledge-management-genius-of-amazoncom. [Accessed 21 September 2019].
  6. InterVentures. 2019. AMAZON STRATEGY AND SOUTHEAST ASIA MARKET ENTRY. [ONLINE] Available at: http://interventures.asia/wp-content/uploads/2018/01/Amazon-Strategy-SEA-Market-Entry-2017.pdf. [Accessed 21 September 2019].
  7. TECH INSIDER. 2019. The Innovations That Took Amazon From Online Bookseller To Dominant Global Marketplace. [ONLINE] Available at: https://www.businessinsider.com.au/the-innovations-that-took-amazon-from-online-bookseller-to-dominant-global-marketplace-2013-10?r=US&IR=T. [Accessed 21 September 2019].
  8. thinkmonsters. 2019. 8 Ways Amazon Changed The World. [ONLINE] Available at: https://thinkmonsters.com/speakinghuman/media/amazon-game-changing-innovations/. [Accessed 21 September 2019].
  9. wikipedia. 2019. Amazon (Company). [ONLINE] Available at: https://en.wikipedia.org/wiki/Amazon_(company). [Accessed 21 September 2019].

Appendices

Work Contribution by each team member:
Farhan Venkat Joseph
Executive Summary Introduction Knowledge Management
Foreign Entry Strategy Analysis Innovation
Organisational Structure Competitive Dynamics Conclusion

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