Recommended Strategies Survival through Operational Efficiency The recent financial crisis and Amazon's financial performance in recent

years h as shown that we have to optimally utilize organisational resources hence to be in better position to handle crisis situation and hence we propose the following : Reduce Operational Costs Sales are high but the costs associated with the sales have ranged between 75% 80% of sales in recent years. In order to be more efficient in our operations, w e propose to cut the expenditure by 2 % in the following: 1. Reducing cost in inventory by usage of cross docking by which we project to save $20million i.e. 1.5 % of the fulfilment? cost by the next fiscal. 2. Research & Development cost projected to be cut by $50million which 5 % of the present budget. How? 3. Marketing budget projected to be slashed by $10 million. Impact? 4. Put a hold on diversification and acquisitions. A review of existing all iances, diversifications and acquisitions should be done to determine the non-pr ofitable business and decisions should be made about the appropriate strategy to be considered. The review has not been done before? Legal Dispute Settlement The sum of $500million has been set aside to settle the lawsuits pending the cou rt judgements. Analysis needed why we have so many law suites, is this now part of our culture and that we ignore risks in the belief we are smart etc? Improve Kindle Sales It is clear that the e-reader market is embryonic and has great potential. For t he Kindle to survive, Amazon has to adopt a similar strategy to that of Sony, wh ich is to develop alliances with content providers. Google's recent announcement ? We can consider cutting Kindle prices based on increase in sales in the future l eading to economies of scale which can help boost our profit margin. (What is th e model for this?) If this can not be achieved, in the long-term, should consider selling the Kindl e design and patents rights to a third party who has a greater expertise in hard ware development. F/A? Short Term (1-3 years) - Expansion to China Objectives To attain a market share of 20-30% of Chinese internet retailing sector. How? Target Company for acquisitions Sohu.com Inc Sohu is a China based internet media company providing a network of web-properti es and community based web 2.0 products which offer an array of choices regardin g information, entertainment and communication to the Sohu user community. Sohu' s products and services are advertising, aggregated content, e-commerce, communi cation and community tools, internet access and services, search engines, sponso red search, web-properties, wireless communication, on-line games. (Might this c ompany be in the process of dressing up their performance to attract a buyer?) Price of Acquisitions The ultimate purchase price will depend on a number of specific factors, includi ng the target's current market value, its intrinsic value, and the value to be g ained from any potential synergies between the target and buyer. Approximate cos ts of acquisitions can vary from $700million. To what? Potential Obstacles and Challenges 1. Small number of credit card users - 75 million credit cards in circulati on by 2007. 2. Payment systems are now safer - no longer a technical problem, but a pro blem of customer confidence. 3. E-commerce logistics: Size and vast distances in China - delivery for most companies limited to major metropolitan areas using couriers Cost as a % of sale price - compare with other locations?

 High delivery cost due to the small scale of some logistics enterprises 4. Over 70% of all purchases in the B2C market are paid cash-on-delivery. 5. Over 70% of all purchases in the B2C market are paid cash-on-delivery Du plication of point 4? 6. Buying online is a dramatic change from conventional shopping practices: Consumers in China still prefer to look over the goods, determine their quality, and then, if satisfied, pay in cash. Probably a model which existed in west in earlier years when discretionary spending was limited? On-line commerce, in comparison, is an alien experience that only increases risk . 7. Kindle clone - $190. Define more clearly? Risk Factors 1. Intense competition. 2. Expansion into new products, services, technologies and geographic regio ns are subjects to additional business, legal, financial and competitive risks. 3. Unsuccessful in efforts to expand into international market segments. 4. Foreign exchange risk. Hedge? 5. Payments related risks. Credit cards? SWOT Analysis STRENGTHS 1. Largest e-retailer with lion's share of the e-commerce market. 2. Strong brand position and brand associations. 3. Customer Relationship Management (CRM) and Information Technology (IT) s upport Amazon's business strategy. 4. Amazon is a huge global brand. It is recognisable for two main reasons. It was one of the original dotcoms, and over the last decade it has developed a customer base of around 30 million people. 5. Highly effective advertising and marketing. 6. Effective use of technology and partnerships. 7. Recent positive cash flow. WEAKNESSES 1. Loss of focus on core products. 2. Weak economy which could lead to low sales. 3. High advertising and marketing costs due to no brick-and-mortar presence . OPPORTUNITIES 1. Selling of developed technologies. 2. Extension of brands into new areas. 3. International expansion specifically India and China and other emerging markets. 4. Opportunities with non-competitive businesses for mutual benefit. THREATS 1. Unexpected changes in regulatory requirements both in the U.S. and abroa d. 2. Legal Issues in patent infringement: 15 court cases. 3. International issues - export and import restrictions, tariffs and other trade barriers, fluctuations in currency rates, political instability, longer p ayment cycles, adverse tax consequences External Analysis - Porter's Five Forces Threat of new entrant High The cost involved in setting up an online bookstore is low and this poses a thre at. With the right resources and knowledge, a new entrant could set up a similar website to compete with Amazon. Low Amazon's technology platform and knowledge might make it difficult for entrants to come in and compete as the costs and experience involved might be high. Brand Recognition and customer loyalty may also make it difficult for a new entr ant to compete Bargaining power of supplier

High Bargaining power of supplier is relatively high in their electronic business sec tor. Amazon's Low Cost strategy has made it difficult for it to buy electronic p roduct directly from the main distributors such as Sony, Panasonic and Pioneer. Medium However, bargaining power of supplier in Amazon's online book sector is relative ly medium. Their power is medium as Amazon.com is dependent on Publishers for it s supply. Threat of product substitute High Threat of product substitute is very high in Amazon.com online business. Physica l bookstores have an established brand name in their brick-and-mortar business a nd customers might not be comfortable buying books online. A competitor that mig ht be able to offer better services and prices might be able to substitute Amazo n's products. However, Amazon's One-click shopping might be able to reduce the t hreat. Industry rivalry High As the result of huge and wide presence of competitors for the book business, Am azon.com faces high industry rivalry in their online book business. Established bookstores have the advantage of a larger and well established customer base, br and recognition, awareness and a wider selection of books. The entry of establis hed bookstore into the online arena has further increase industry rivalry in thi s sector. Amazon.com also faces intense rivalry from their online music sector. For exampl e, Amazon's entry into the online music market has caused CD-Now to take steps i n reduce Amazon's threat in the sector. CD-Now has more advantage because they a re well established and has more brand recognition in comparison to Amazon.com. E-Commerce In China Reason for expansion One of the fastest developing countries in the world. Leading and most reliable emerging market. World largest foreign direct investment (FDI) destination country since 2002. Market realization from potentiality due to recent well-ordered economy developm ent, personnel disposable income increasing, infrastructure and transportation i nvestment, rural economy development, speeding-up of foreign invested retailers in China. Market overview Transaction volumes of online retail in the country reached $18.8 billion in 200 8, up 129% from 2007 according to iResearch, a Chinese internet research company . The market is predicted to reach almost $35 billion by the end of 2009 and off ers huge potential. The number of online shoppers rose against the economic crisis by nearly 14 mill ion from 74 million to 87.88 million. One out of four Chinese Internet users shops online, while two out of three Inte rnet users in countries with high Internet Penetration like Europe, America and Korea are online shoppers. China's potential of online shopping is yet to be released. Additionally, the government has attached great importance to e-commerce's stimu lus to the economy, and has released a series of policies to regularize and guid e e-commerce development. Industry e-commerce also grew vigorously, with more e-commerce platforms emergin g and more and more farsighted traditional enterprises setting out for e-commerc e. Against the general background, e-commerce is expected to maintain fast growth i n the coming years. PESTEL Analysis for China Political Single party leadership with consistent policies. Unique socio - economic - political model centrally planned economy to a more ma

rket-oriented version with a rapidly growing private sector. Good relations with the US, Free Trade agreement with ASEAN (by 2010). Has been able to maintain a stable growth rate of 7-8% in the last few years. In flation is between 4-5 %. Government focus on equitable growth thru liberalization policies by building go od relationship with other countries which lead to a growth in its trade. Have good road, railway, air and shipping links to support the business activiti es. Economic Maintained strong economic growth over the years, 2003-2008, average GDP growth of 10.3% due to capital inflows, low real-interest rates and free market economy . Unemployment rate is high due to rural-urban shift. Transition shift from agricu ltural to industrialized country of which the service sector provides secure wag es. The reformed IT and telecom policies and focused initiatives for the development of core technologies showcase Chinese plans to build its domestic prowess. By 2 020, China will invest around 2.5% of its GDP in R&D. China also wants to raise the contribution of technology to economic growth and limit its dependence on imported technologies. The country has also emerged as o ne of the main hubs for investments in R&D, IT and ICT services. Socio Cultural Rising population with increase life expectancy and education level. Reduced poverty level by increasing per capital income. In 2008, China's per cap ita income was $2,770, which is one of the highest in Asia. Social richness prefers to inspect products before purchasing and haggle price f or special deals. Online payment is less prevalent due to lack financial service. Banks provide de bit card usage on specific stores and geographic areas. Technological Telecoms links are still of questionable quality outside major cities and do not have an expert courier system like DHL of FedEx. At the moment shipment to outs ide cities will take 3 weeks. Has been focusing on the areas of information and communication technologies (IC T), energy, health and life sciences, bio-technology and agriculture. Network security is non-negligible, and potential safety hazards may restrict th e development of transaction applications like e-commerce and online payment. Environmental Major environmental problems: air pollution, diminishing biodiversity, land degr adation, soil erosion, water pollution and shortage, shortage of resources, Chin a will soon exceed the US in terms of greenhouse emissions. Implemented a 'green strategy', waste management policy (e.g. biogas production) , China has accepted and ratified Kyoto protocol, and developed first national p lan for climate change. Planning to reduce energy usage by fifth before 2010 and increase the amount of renewable energy Planning to increase in the use of wind, nuclear and hydro power and increasing the efficiency of coal plants Legal Weak implementation of intellectual property rights (IPR) laws continues to be p roblematic and, not surprisingly, receives frequent international attention, cau sing concern about the situation among international companies. Clear and fast legal procedures have been a major facilitator of foreign direct investment (FDI) in the country. The judicial system in China is plagued by a shortage of judges, particularly in rural areas. Risk Factors The risks envisaged are as follow: Intense competition There are many new competitors entering the business with greater resources, lon

g histories, more customers and greater brand recognition. They may be able to n egotiate better deals and at cheaper costs with the suppliers. Expansion into new products, services, technologies and geographic regions are s ubjects to additional business, legal, financial and competitive risks With limited or no experience in new market segments, there is a possibility of customers not adapting to the new product or service offered. Therefore, it woul d have an effect to the gross profits and could also damage the company's reputa tion, growth and operating results. Unsuccessful in efforts to expand into international market segments Little experience in operating in future market segments may not benefit from an y first-to-market advantages or otherwise succeed. It is costly to establish, de velop and maintain international operations and websites and promote the company 's brand internationally. International sales and operations are subject to a number of risks such as loca l economic and political conditions, government regulation of e-commerce or othe r online services and restrictive governmental actions Foreign exchange risk The results of operations and certain inter-company balances associated with int ernational websites are exposed to foreign exchange rate fluctuations. Upon tran slation, operating results may differ materially from expectations, and will rec ord significant gains or losses on the re-measurement of inter-company balances. Payments related risks Payment options to customers are subject to additional regulations and complianc e requirements. Failure to comply with the said rules or requirements will have an adversely affect to the operating results as the company is subject to fines and higher transaction fees. There is also the risk of fraud cases.