Overview of Amazon Strategic Environmental Scanning

Fabbe-Costes et al. define environmental scanning as the process of continually exploring an organizations’ strategic planning process. As such, it refers to a systematic process of gathering, analyzing, and conceptualizing data that is relevant to an organization for planning, forecasting, and/or, implementing an organization’s success. Against this background, most multinational Companies base their marketing success on well researched, comprehensive, and articulate strategies.

Further, Wheelen et al. stipulate that even when these companies have developed solid marketing approaches, they must resultant approaches based on the external environment metrics. In such cases, multinational companies utilize environmental scanning which is an effective market evaluation tool that provides the required oversight on the external environment. Hence, an organizations’ environment comprises of circumstances, conditions, and influencing factors that have an impact on the organizations ability to realize its primary objectives. More so, the holistic process of environmental scanning prerequisites the companies’ employees and management to gather, analyze, and disseminate the obtained data with the objective of strategic purposes.

Wheelen et al. posit that the purpose of performing an environmental scanning of a company is to implore the management to assess the internal and external environments with the aim of identifying prominent trends, leveraging opportunities, minimizing threats, or lessons that can impact the company. This paper will provide a review of Amazon.com, Inc. strategic environmental scanning based on five key environments that evaluate the company’s threats and Amazon Environmental Scan opportunities. These increasingly important marketing environments are economic, technological, competitive, social, and regulatory environments.

Amazon.com, Inc. Overview and Background

Formerly known as Cadabra, Amazon.com, Inc. was founded by Jeff Bezos in 1994 as an online bookstore retailer Kristensen et al. 2017. In 1995 it expanded its online business as Amazon.com, Inc. and subsequently became the largest global online retailer. Based on the company’s key mission of ‘Get Big Fast’, by achieving its primary objectives that is; delivering any book to any reader located anywhere across the globe and, to simplify online transactions for its consumers Kristensen et al. 2017. Fast-forward in 1996, after its full year in operation, Amazon.com, Inc. acquired 180,000 customer accounts as well as, $15.7M in revenues. In the subsequent year of operation, the company’s customer accounts increased to 1 Million with a corresponding $148 M increase in revenues Kristensen et al. 2017. Further, in 1998 the company’s revenue increased to a staggering $600 M making it one of the most successful and fastest growing business in the world. Today, Amazon.com, Inc. is the leading manufacturer of electronic book readers, as well as a web service provider that has become an epitome of E-commerce. More so, the company has subsequently expanded its business portfolio by adopting strategic marketing approaches based on a range of emergent consumer demands, emerging markets, and increased competition from its competitors. As such, the company has an increasingly entrenched E-commerce portfolio that markets products such as consumer electronics, home improvement merchandise, video games, software, kindle e-readers, toys and games. With its ambitious mission of having the world’s largest selection of products and merchandise, Amazon.com, Inc. has become the world’s most consumer-centric organization with a turnover of more than $135B Kristensen et al. 2017.

Amazon Environmental Scan

Against this background, the choice for performing environmental scanning of Amazon.com, Inc. is based on the need to evaluate, monitor, and assess relevant information that can be utilized by the company in strategic planning. Further, an environmental scan of Amazon.com, Inc. will provide the management with a critical analysis of opportunities and threats faced by the company and as such, an assessment of the effectiveness of strategies that the company has adopted in achieving its competitive advantages.

This section will perform an environmental scan of Amazon.com, Inc. based on five significant marketing environments. These environments include economic, technological, competitive, social, and regulatory environments.

Economic Environment

Economic factors are key aspects that influence marketing and market conditions. Smith, Rupp & Offodile, observe that there is a wide range of economic factors that directly impact a company’s growth prospects and the volume of revenues. Such factors include inflation and taxation rates, holistic and industry-centered economic growth, cost of labor, variations in currency exchange rates, and employment levels. Furthermore, Smith, Rupp & Offodile, cite economic stability and increased disposable income of developed markets as key economic-based elements that provide growth opportunities for most multi-national companies. Accordingly, potential economic recessions of developed economies such as China pose the threat of growth prospects to these companies. Moreover, these factors are increasingly linked to trends and variations that directly affect the macro- environment of a specific market niche.

In this line of argument, Izogo & Ozo, 2015 posit that Amazon’s overall performance is dependent on the stability of the economies and market environment in which the company has established operations of its online retail business. In 2017, consolidated revenues from Amazon.com, Inc. accounted for approximately 30.52% of net sales from global business. Thus, the company’s prospects in terms of global growth and volume of revenues is subjected to variations in currency rates and currency exchange risks. Smith, Rupp & Offodile, stipulate that variations of foreign exchange rates in 2015, 2016, and 2017 negatively impacted the net global sales by $5.2 B, $550 M, and $210 M respectively. Correspondingly, Amazon’s e-commerce and cloud computing business’ segments are increasingly reliant on labor. As such, its economic environment is directly impacted by the cost of labor. Izogo & Ozo, posit that increased cost of labor present a challenge to a company’s profit margin and as such, has direct implications on the prospects of long- term growth.

Nonetheless, Smith, Rupp & Offodile, observe that the company has adopted efficient strategies of minimizing the cost of human resources hence allowing it to operate with a constricted profit margin of less than 4 percent. In 2017, the expenses of the company in terms of wages paid to their employees was reported to be approximately $28,446.

Technological Environment

Wheelen et al. cite technological factors as key elements for assessing and listing issues that could have a potential direct effect on the long-term future of an organization. Moreover, in the contemporary global marketplace multi-national companies are required to adopt increased levels of technology in their operations because of the increased demands of highly competitive, globalized, and complex supply chains. In the past decade, Amazon’s macro-environment has been directly impacted by the rapid pace of technological advancements given that the company’s logistics and operations are increasingly dependent on the effectiveness of its online business Wheelen et al.. The predominant factors that have been observed to provide growth opportunities for the company include increased information technology IT efficiency and rapid technological advancement. Similarly, increased cybercrime has been articulated as a primary aspect that presents a threat to the growth of the company.

Accordingly, David, posit that the rapid technological advancement provides Amazon with a growth opportunity for optimizing its e-commerce and cloud computing business operations. For instance, in the past decade, Amazon has continually made substantial investment in IT with the objective of creating a competitive niche in E-commerce industry. Moreover, based on the factor of rapid growth of IT efficiency, the company has outlined key strategies that can be entrenched in its e-commerce business segment for improved performance. These strategies include the adoption of new technologies that seek to increase online retail productivity as well as, minimize the cost of operations.

Smith, Rupp & Offodile, observe that in 2017 Amazon developed a new technology hub that allowed the company to make deliveries to their customers even when the customers were away from their home. Nonetheless, Cho & Lee, observe that the rapid technological advancement poses a threat to Amazon’s growth. Cho & Lee, explain that this technological factor institutes pressure on the firm to consistently continue advancing its technological assets. Additionally, the company is faced with the overbearing threat of increasing global cybercrime. Increased levels of cybercrime especially in the e-commerce industry continues to impend consumer experience and the integrity of the industry. similarly, competitive environment Ritala, Golnam & Wegmann,.

Competitive Environment

Fabbe-Costes et al. stipulate that in performing an environmental scan based on the competitive external factors, multi-national companies are required to evaluate factors such as the threat of new entrants and substitutes, competitive rivalry, and bargaining power of both the consumers and suppliers. Being a global e-commerce business, Amazon is correspondingly exposed to a diverse set of these competitive factors and as such, the company is required to adopt resilient competitive strategies to counter the dynamics of a The e-commerce industry is simple because of low costs in comparison with other industries. As such, the industry often presents the challenge of new entrants to established industries such as Amazon and Walmart. In response to the threat of new entrants, Amazon is reliant on its competitive position of being a strategic leader in the e-commerce market. Moreover, the company has a competitive advantage in terms of an established brand, a developed learning curve, and a larger economy of scales. The threat of substitutes in the industry is based on three external factors. These include low cost of switching, high availability of substitutes, and low cost of substitutes.

Against this background Ritala, Golnam & Wegmann, observe that, the threat of substitution ranks among Amazon’s priorities with the view of securing the company’s long-term objectives. Amazon.com, Inc. actively competes with similarly strong e-commerce online retailers such as eBay and Walmart based on competitive rivalry factors that include low switching costs, increasingly aggressive competitors, and high presence of substitutes. The competing companies have highly developed e-commerce websites and Walmart’s brick-and- mortar stores. Moreover, the low consumer costs involved in switching from one company to the other present a threat to the company’s growth objectives.

Ritala, Golnam & Wegmann, explain that enhanced intensity of customers’ bargaining power that affects Amazon business objectives is linked to several factors that include low switching costs, presence of many substitutes and the availability of quality information that is relevant to the consumers. In the e-commerce retail industry, consumers readily access high quality information regarding the products and services provided by the e- commerce retailers. Hence, consumers have readily available alternatives to the company’s online services in form of established companies such as eBay and Walmart.

According to Ritala, Golnam & Wegmann, suppliers play an increasingly important role in the dynamics of online retail business. Thus, Amazon endures a direct impact of the external factors of the bargaining power of the suppliers in terms of the moderate size of suppliers, small population of suppliers, as well as, the moderate forward integration.

Sociocultural Environment

Kristensen et al. posit that this aspect entails the sociocultural dynamics that affect the growth of an organizations. As such, as a leading online retail business the market performance of Amazon is subject to prevailing dynamics of sociocultural environment. These dynamics include the apparent shift in the e-commerce and retail industry, as well as, the changes in consumers’ health consciousness and food consumption habits. Also, the company growth prospects are subject to a combination of sociocultural factors that include increased changes in online buying trends, wealth disparity, as well as, consumerism in developing economies.

Further, Sarbah & Otu-Nyarko, explain that in the contemporary marketplace businesses continue to experience a behavioral departure in the way consumers are purchasing products. The current consumer generation is technologically advanced, and a larger proportion is choosing to buy products online Turban et al.. This trend is poised to offer Amazon an added benefit and an opportunity for its growth. However, Turban et al. cite the widened wealth gap as a challenge that threaten the company’s growth. A widened wealth disparity means potential constraint on the available disposable income. Turban et al. note that for an e-commerce industry to achieve increased revenues, respective economies in which the industry operates are required to have high levels of disposable income. Nevertheless, increased consumerism in developing economies offers the company opportunities for achieving the desired growth as the company assesses its expansion objectives for its online retail business.

Regulatory Environment

Sarbah & Otu-Nyarko, explain that legal and regulatory factors directly impact a firm’s macro-environment. Established regulations prerequisites multi-national companies that operate in the e-commerce industry to observe certain laws when undertaking business operations. The predominant factors that affect the e-commerce industry include increased product regulations, relaxed regulations on imports and exports, and the tightened environmental protection laws. According to Cho & Lee, the increased product regulation derived from societal demands on Amazon’s operations provides an opportunity to the company of curbing the sale of counterfeit products on its online retail business.

Further, Sarbah & Otu-Nyarko, explain that the company has been afforded growth opportunities based on the initiative of relaxed regulations on imports and exports. For instance, Turban et al. note that Amazon can exploit the relaxed legislations by expanding its global operations. In addition, the company can enhance its brand image by adopting effective CSR corporate social responsibility policies that adhere to environmental protection laws.

Further, Sarbah & Otu-Nyarko, observe that in recent years the technology sector has faced mounting challenges from governments across the globe who have instituted stringent regulatory measures. These regulations include security, taxation, data storage and privacy, antitrust, and labor legislations. A good example of Amazon experience with regulatory factors is a global case in which regulators have investigated the company regarding its adherence to antitrust settlement of book sales. Additionally, Turban et al. cite another regulatory factor to comprise the general data protection regulation standards such as the one instituted under the Federal Trade Commission FTC. The FTC act directly impacts on Amazon’s cloud computing services since it requires the company to employ additional data security and compliance experts, as well as, specialists in data protection. This initiative is poised to increase the company’s operation costs.

Recommendations

Based on the above environmental scan, this review makes several strategic recommendations for Amazon.com, Inc. First, this review prerequisites the company’s management to effectively address the competitive factors that have been identified. The company will achieve this objective by putting emphasis on its strong brand as a key strategy of enhancing its competitive advantage. Second, this review recommends that by using elaborate strategies, the company should explore new markets by expanding its operations in developing economies. Third, the company should employ effective measures in establishing new strategies to address the identified issues of IT and cyber security.