Essay Sample on Porter's Five Forces: Amazon

Amazon is an American company started by Jeff Bezos in 1994. Amazon being a multinational company trades in almost all parts of the world with its headquarters in Seattle, Washington. The company started as an online bookstore selling physical books. Currently, Amazon trades in artificial intelligence, digital streaming, cloud computing, and e-commerce (Rossman, 2016). As an established company in technology industry, Amazon belongs to the group of the world's largest technology companies, sharing the podium with Facebook, Google, and Apple. By the end of 2018, Amazon Company had more than 600000 employees, 162.648 billion US dollars worth of assets, an operating income of 12.421 billion US dollars, and net income valued at 10.073 billion US dollars. According to cite, te key people in Amazon Company include Jeff Bezos as the chairman, president, and chief executive officer and Werner Vogels as the chief technology officer.

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Amazon Company trades globally in both services and goods touching on various industries. Some of the known products from the company are Amazon Kindle, Amazon Fire OS, Amazon Fire, Amazon Fire TV, and Amazon Echo. In its services department, Amazon Company trades in Amazon Appstore, Amazon Prime Video, Amazon.com, and Amazon Music. By the end of 2018, Amazon Company had assets worth over 160 billion US dollars. According to David (2013), some of the assets and subsidiaries of Amazon Company include Audible, Twitch Interactive, Zappos, Beijing Century Joyo Courier Service, Whole Foods Market, and Souq.

SWOT Analysis

Core Competence

Customer satisfaction is one of the main goals at Amazon, hence operates under the mission of being the 'most customer-centric company on Earth'; the company has a unique way of integrating its core competencies. This integration of resources and opportunities help in achieving customer satisfaction, accessing a broader market, and gaining an upper hand in terms of competition over other market players (Agha, Alrubaiee, & Jamhour, 2012).

Strengths

Strong Brand Name

According to Kantor and Streitfeld (2015), being a multinational company operating in almost all parts of the world, Amazon is a trusted name given its substantial presence in local markets. Customers feel the presence of Amazon in almost all parts of the world; this feeling improves trust among the customers on the brand name.

Cost Leadership

Being an online shopping platform, Amazon incurs a lesser operational cost as compared to other companies that operate physical branches and stores (Kantor & Streitfeld, 2015). Amazon, therefore, passes the low operation cost to customers in terms of lower prices. The lowered prices attract and maintain new customers.

Synergies between Marketplace, Amazon Web, and Prime

Amazon Company trades in three businesses that support each other, namely Amazon Prime, Amazon Web Services, and Amazon Marketplace. The ability of the company to integrate the three platforms to complement each other gives the Amazon an added advantage over other competitors. For instance, Amazon Marketplace uses Amazon Web Services as a platform to market its products which increases the speed and capacity of the company.

Acquisition of Local Firms

By acquiring and merging with many firms in its local markets, Amazon Company enjoys superior logistics and distribution systems. This strategy improves and enlarges the local market base, increases revenue collection, and improves customer loyalty.

Large Merchandise Selection

Amazon is a company that trades in various industries; it offers a large variety of products for customers to choose from. Customers prefer shopping from Amazon to other companies given the loyalty and surety that they would get the product they want or at least a substitute.

Weaknesses

• Imitable Business Model
• Amazon trades in online retail business which is easily imitable by other firms. The company experiences various challenges related to imitation of business ideas.
• Tax evasion Cases
• Amazon has tinted image in various countries like Japan and United Kingdom due to tax evasion and avoidance cases.
• Product Failures
• Some of the company's products like Fire Phones and Kindly fire have experienced flops in various markets.
• Opportunities
• More Acquisitions
• Acquiring more e-commerce firms would increase the company's market base in developing countries.
• Expanding Physical Stores
• Establishing and maintaining physical stores would increase the company's presence in its markets.
• Improve technological and Management Policies
• Amazon can reduce imitation of its products and management styles by improving technological and organizational policies.

Threats

Cybercrime

Increased online crime through hacking increases vulnerability to system breakdown, lose of data, and theft of shipments by delivering to wrong destinations.

Aggressive Competition

Online retail business experience influx of firms in the industry hence increasing unhealthy competition among the players.

Government Regulations

Some countries have regulatory policies that discourage online retail business hence discouraging the business. Such countries include Cuba, North Korea, and Sudan.

To realize the above-mentioned competitive advantages, the management of Amazon Company developed both business-level and corporate-level strategies.

Amazon Company Business Level Strategies

Cost Leadership

Cost leadership is the ability of a company to reduce its operating cost, bellow the industry average. The benefits of the low cost of operations are passed to consumers by lowering prices (Drnevich & Croson, 2013). Amazon being a company that trades online does not incur costs of operating and maintaining large stores and branches. Additionally, the company acquires and merges with firms in the local markets hence reduces logistics and taxes related to international trade. This move enables Amazon to be a cost leader in online retail trade ahead of its competitors. Cost leadership discourages new entrants in to the industry due to high initial capital thereby reducing Amazon's fear of new entrants in the industry.

Differentiation

Differentiation involves a company developing a unique way of achieving consumer satisfaction. It is possible to achieve this strategy by improving the quality of services offered or through the packaging and branding of products. The added value of the service and or product comes at an additional value. Loyal customers pay extra fees for the additional utility based on the loyalty and reliability of the company (Drnevich & Croson, 2013). Amazon Company achieves differentiation using various means such as the difference in the delivery time period. The company charges differently depending on delivery packages. Customers who value quality and time pay more for their preferred qualities. The ability of Amazon to improve customer loyalty reduces fear of competition. Unique products and services also help reduce the fear of substitution by other products and services.

Integrated Approaches

Integrated approaches strategy refers to the ability to engage in various activities that support each other and have a common goal. In such cases, one line of the company's business complements the other hence reducing costs of outsourcing some services and expertise like suppliers. Integrated approaches help reduce the bargaining powers of suppliers in the industry. Reduction of the number of suppliers in the industry reduces buyers' options hence lowering bargaining powers of the buyer.

Focus

Focus as a business strategy refers to the application of cost leadership and differentiation but differently in various portions of the market. This strategy requires an in-depth understanding of the consumers and the market in terms of preferences, cultural beliefs, economic status, political, and social practices. Proper understanding of the market enables the company to achieve consumer satisfaction by offering exactly what the consumer needs. Amazon charges different rates in developed and developing countries for the same amount of services based on the financial capabilities of the customers (Drnevich & Croson, 2013). Amazon studies cultural beliefs of its customers and provides them with what they need. For instance, Amazon trades in India through Junglee, which reflects on the Indian culture. Through such moves, Amazon satisfies the cultural needs of the Indians and makes them feel comfortable.

Amazon Company Corporate Level Strategies

Business Growth Strategy

This strategy aims at increasing the amount of revenue a company collects from the market. Business growth strategy is achieved either vertically or horizontally. Vertical strategy involves controlling most components of the trade. Amazon Company achieves vertical strategy by acquiring and merging various firms at the local markets. Through such acquisitions and mergers, Amazon Company has managed to control the chains of supply and other complementing businesses (Mazzei & Noble, 2017). A horizontal business growth strategy involves extending the reach of products and services geographically.

Companies which implement this strategy work to make their products reach different products. Amazon started in Seattle, Washington, USA, and later grew to reach almost all corners of the world. The company achieved this business growth strategy by acquiring other firms in local markets, making its products reach various parts of the world. A company may trade in one product but achieves this strategy by taking control over all operations in the business. By acquiring some of the online retail firms, Amazon reduces rivalry between companies in the industry given that some of the competitors merge.

Business Diversification Strategy

Business Diversification Strategy puts a company to venture into new markets and trade in new products it has never traded. Amazon Company has achieved this strategy by venturing in products and services it did not trade in before. The company initially traded in online shop for physical books. However, the company expanded to include other products in their online platforms. The company has used diversification to gain market control, increase revenue, and beat market challenges like a drop in demand for some products. The company has embraced diversification in various directions by being a market leader in specific products and by venturing in various products and markets. This strategy helps Amazon reduce the powers of buyers by availing various products within the same platform.

Business Stability Strategy

Stability Strategy involves mechanisms a company makes to remain stable in the market, retain customers, and beat tough economic times. Some of the steps taken by companies to achieve this strategy include cutting costs when possible, improving the efficiency of operations in the company, and negotiating better deals with other players in the industry such as government and suppliers. According to Mazzei and Noble (2017), Amazon Company has achieved this strategy by maintaining a relatively lower cost of operations as compared to other players in the industry. In its bid to get favorable trade terms, Amazon Company acquires or merges with local firms. This move enables the company to manage getting better trading terms from local governments and avoid complex trade logistics.

Additionally, Amazon Company implements integrated approaches to make different sectors of its business support each other. For instance, the company operates three different but related businesses, namely Amazon Prime, Amazon Web Services, and Amazon Marketplace. Through the website, Amazon operates online retail trade without outsourcing website hosts hence reduced costs of operation.